CORPORATE HEADQUARTERS
1750 Tysons Boulevard, Suite 1400
McLean, Virginia 22102
(703) 287-7400
www.iridium.com
BUSINESS OPERATIONS
8440 South River Parkway
Tempe, AZ 85284
(480) 752-1100
2016 ANNUAL REPORT
Iridium Communications Inc.
LAUNCHING
A NEW ERA
IN SPACE
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Only one communications company connects the entire globe
Iridium is the world’s only truly global mobile communications company, with coverage of the
entire earth, including oceans, airways and polar regions. Iridium voice and data products provide
communications solutions that allow global companies, government agencies and individuals to
stay connected, everywhere. The unique Iridium constellation, with its architecture of 66 low Earth
world, creating highly efficient and reliable connections.
www.iridium.com
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© Copyright 2017 Iridium Communications Inc. All rights reserved. Iridium is a registered mark of Iridium Satellite LLC. All other
trademarks and service marks are the property of their respective holders. Information is subject to change without notice.
orbiting (LEO) cross-linked satellites routes communications traffic through space and around the
R E L I A B L E • C R I T I C A L • L I F E L I N E S ®
R E L I A B L E • C R I T I C A L • L I F E L I N E S ®
Company Profile
The world’s only truly global mobile satellite communications company
Iridium Communications Inc. owns the only mobile voice and data satellite communications network that spans the
entire globe. A technology innovator and market leader, Iridium enables connections between people, organizations
and assets to and from anywhere, in real time.
Iridium's architecture of 66 low Earth orbiting (LEO) satellites operates as a fully meshed, cross-linked network
and is the world's largest commercial constellation. The company has a major development program underway for its
next-generation network – Iridium NEXT.
Reaching over oceans, through airways and across the polar regions, Iridium® solutions are ideally suited for
industries such as maritime, aviation, emergency services, mining, forestry, oil and gas, heavy equipment, transportation
and utilities. Iridium also provides service to subscribers from the U.S. Department of Defense, as well as other civil
and government agencies around the world.
Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable
solutions for markets that require truly global communications.
Who is Iridium?
2016 Operating Highlights
• We compete in attractive and growing markets
with high barriers to entry and favorable
• Generated 2016 Net Income of $111 million and delivered
Operational EBITDA (OEBITDA)* of $254 million, resulting
competitive dynamics.
in a five-year compound annual growth rate of 6%.
• We operate the world’s furthest reaching
telecommunications network with 100% global
• Surpassed 850,000 worldwide subscribers, a five-year
compound annual growth rate of 10%.
coverage. Our unique network architecture
provides a sustainable competitive advantage.
We have a comprehensive business plan for our
• Achieved a 17% increase in government service revenue
with government subscribers growing to a record
next-generation satellite constellation, Iridium
84,000 total users.
NEXT, which began deploying in January 2017.
• We benefit from a large, low-cost and extensive
ecosystem of partners and a robust product
portfolio.
• We benefit from a large, highly profitable
recurring service revenue base, which along with
the significant operating leverage created by
a largely fixed-cost infrastructure, has us poised
to transform our cash flow profile in 2019.
• M2M data subscribers have grown at a 20% compound
annual growth rate since 2011 and now represent 53%
of our total customer base.
• Aireon LLC has executed ten customer data service contracts
since the beginning of 2013 and has $270 million in committed
investment from four air traffic control agencies.
• Reached total investment of approximately $2.
the ongoing development of Iridium NEXT.
billion in
4
The Annual Meeting of Stockholders will be held on May 11, 2017 at 8:30 a.m. local time at The Ritz-Carlton, Tysons Corner:
Corporate Information
2017 ANNUAL MEETING
1700 Tysons Boulevard, McLean, VA 22102
BOARD OF DIRECTORS
Robert H. Niehaus
Chairman of the Board
Chairman, GCP Capital Partners LLC
ETO Group, LLC
Thomas C. Canfield
Senior Vice President and General Counsel,
EXECUTIVE OFFICERS
Matthew J. Desch
Chief Executive Officer
Thomas J. Fitzpatrick
Chief Financial Officer and
Chief Administrative Officer
Bryan J. Hartin
Executive Vice President,
Sales and Marketing
Thomas D. Hickey
Chief Legal Officer
Richard P. Nyren
Chief Accounting Officer
Scott T. Scheimreif
Executive Vice President,
Government Programs
S. Scott Smith
Chief Operating Officer
Donald L. Thoma
President and Chief Executive Officer,
Aireon LLC
Investor Inquiries
Kenneth B. Levy
Vice President, Investor Relations
(703) 287-7570
investor.relations@iridium.com
www.iridium.com
Admiral Eric T. Olson (Ret.)
President and Managing Member,
Former Commander,
U.S. Special Operations Command
Steven B. Pfeiffer
Partner, Norton Rose Fulbright US LLP
Parker W. Rush
Chief Executive Officer,
ClearView Risk Holdings, LLC
Henrik O. Schliemann
Managing Partner,
PMB Capital LTD
S. Scott Smith
Chief Operating Officer
Barry J. West
Former Chief Executive Officer,
Collision Communications Inc.
Stock Exchange
NASDAQ Global Select Market
Common Stock (IRDM)
Information Requests
Copies of the Company’s Annual Report
on Form 10-K and other investor
information are available to stockholders
Iridium Communications Inc.
Attention: Investor Relations
1750 Tysons Boulevard, Suite 1400
McLean, VA 22102
Spirit Airlines, Inc.
Matthew J. Desch
Chief Executive Officer
Thomas J. Fitzpatrick
Chief Financial Officer and
Chief Administrative Officer
Jane L. Harman
Director, President and
Chief Executive Officer,
Woodrow Wilson International
Center for Scholars
Alvin B. Krongard
Former Chairman and
Chief Executive Officer,
Alex. Brown Incorporated
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
www.amstock.com
Accounting Firm
Ernst & Young LLP
8484 Westpark Drive
McLean, VA 22102
(703) 747-1000
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GENERAL INFORMATION
INVESTOR INFORMATION
Transfer Agent and Registrar
American Stock Transfer and
Independent Registered Public
upon written request to:
Financial Highlights
(in millions, except for subscriber data) 2012 2013 2014 2015 2016
Iridium Communications Inc.
Revenue $383.5 $382.6 $408.6 $0,411.4 $0,433.6
Total Service $273.5 $292.1 $309.4 $0,317.0 $0,334.8
Subscriber Equipment $093.9 $073.3 $078.2 $0,073.6 $0,074.2
Engineering and Support Service $016.2 $017.3 $021.0 $0,020.7 $0,024.6
Net Income $064.6 $062.5 $075.0 $000,7.1 $0,111.0
Adjusted Net Income* $064.6 $062.5 $075.0 $0,094.2 $0,111.0
Operational EBITDA (OEBITDA)* $205.8 $201.1 $216.5 $0,234.0 $0,254.2
OEBITDA Margin* 53.6% 52.6% 53.0% 56.9% 58.6%
Subscribers 611,000 664,000 739,000 782,000 850,000
Capital Expenditures $441.7 $403.5 $441.1 $0,494.8 $0,405.7
Net Debt $443.1 $695.2 $733.0 $1,041.8 $1,254.3
Commercial
Service Revenue $211.7 $232.9 $243.9 $0,241.9 $0,246.8
Voice and Data $171.0 $184.0 $185.4 $0,180.7 $0,180.5
M2M Data $040.8 $048.9 $058.4 $0,061.3 $0,066.3
Subscribers 560,000 613,000 679,000 710,000 766,000
Voice and Data 332,000 340,000 354,000 351,000 353,000
M2M Data 228,000 273,000 325,000 359,000 413,000
Government
Service Revenue $061.8 $059.2 $065.5 $0,075.1 $0,088.0
Voice and Data $058.9 0NMF 0NMF NMF NMF
M2M Data $002.9 0NMF 0NMF NMF NMF
Subscribers 51,000 51,000 60,000 72,000 84,000
Voice and Data 36,000 31,000 35,000 40,000 44,000
M2M Data 15,000 20,000 25,000 32,000 40,000
* See inside back cover and Investor Relations webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.
Robust Subscriber Growth
(subscribers in thousands)
Quality Service Revenue
(dollars in millions)
Significant Operating Leverage
(dollars in millions)
900
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500
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R : 1
G
A
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5 - Y
2012 2013 2014 2015 2016
350
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100
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C A G R : 5 %
5 - Y e a r
2012 2013 2014 2015 2016
250
225
200
175
150
125
100
75
50
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5 - Y e a r C A G R :
6 %
2012 2013 2014 2015 2016
60%
50%
40%
30%
20%
10%
0%
n Commercial Voice and Data n Commercial M2M Data
n Government Voice and Data n Government M2M Data
n Total Service Revenue
n OEBITDA* OEBITDA Margin*
Dear Fellow Shareholders:
Launching a new era in space
The Iridium NEXT era has begun! Our first batch
of Iridium NEXT satellites are now in service after
their launch from Vandenberg Air Force Base on
January 14, 2017. The launch was picture perfect –
an ideal way to kick off our busy launch campaign
as we work to repeat this experience seven more
times through 2018. While getting to this stage
took a bit longer than anticipated, it’s extremely
satisfying to finally be deploying our next-
generation satellites. Each launch of replacement
satellites allows Iridium to harness new
technological capabilities and enhances
our competitive position.
January’s launch was the culmination of almost
ten years of planning and preparation. While our
current network was launched in the late 1990s
and is nearing 20 years of service, it still remains
a marvel as one of the most unique and capable
satellite systems in aerospace history.
Today, there is tremendous activity transforming
the space industry with dozens of new entrants, some
proposing satellite constellations in low Earth orbits.
In many ways the flurry of excitement and capital
flowing into this era dubbed “NewSpace” reminds
me of the energy and enthusiasm that surrounded
Iridium’s creation in the late 1990s. As a student of
history, however, I know that executing on business
plans and achieving success in NewSpace is fraught
with challenge. The space industry has high barriers to
entry, especially in terms of engineering and capital.
Reflecting on our company’s storied past, I expect
that many upstart companies will face financial and
technical hurdles and will encounter obstacles not
foreseen during their planning stages. While we
welcome the heightened interest in low Earth orbit
(LEO), our experience commands a more realistic
view of the time and resources required to bring
these new enterprises to fruition.
The Iridium NEXT satellites – now being launched –
will put our capabilities beyond that of existing
enterprises and complement the broadband
satellite networks currently operating in Ku- and
Ka-bands. Iridium already has 100% global coverage,
offers high-quality, real-time services through
small form factored terminals and deploys safety
certified equipment to subscribers, like first
responders and pilots, who require reliable service.
“Each launch of replacement satellites
allows Iridium to harness new
technological capabilities and
enhances our competitive position.”
Matthew J. Desch
Chief Executive Officer
2 Iridium Communications Inc.
Ten Iridium NEXT satellites will be on each of Iridium’s launches with SpaceX in 2017.
The satellites are mounted on two stackable dispenser rings, each containing five
Iridium NEXT satellites. Once the SpaceX rocket reaches a polar orbit, the satellites
will be dispensed, one at a time, into their respective orbital planes.
2016 A nnua l Re p or t 3
Maritime fleets across the globe depend
on Iridium’s suite of communications and
data services for navigation, asset tracking
and crew welfare.
Iridium’s worldwide coverage has become
a cornerstone of emergency preparedness
in organizing first responders and tracking
resources to respond to natural disasters.
Unique network architecture has positioned
Iridium as a leader in the burgeoning market
for real-time IoT solutions, especially in
industries using heavy equipment.
We expect that our communications network will offer enhanced connectivity
as each new satellite is put into service. The next generation of satellites will
retain Iridium’s unique cross-link architecture and access to prized L-band
spectrum, which will continue to differentiate Iridium’s network from
competitors. What’s more, Iridium NEXT will offer powerful new services,
including Iridium CertusSM broadband technology. With our global constellation
serving more than 850,000 subscribers and our network replacement program
underway, Iridium is building upon a successful business and technology
platform and two decades of operational experience to deliver next-generation
capabilities that are in high demand.
Operationalizing Iridium NEXT
In the early months of 2017, our first Iridium NEXT satellites began an extensive
series of on-orbit testing and are now being placed into operation, replacing
first-generation satellites one-by-one. This process touches off one of the
largest tech refreshes in history, and is being handled with precision and speed
by our flight engineers. Our customers in the maritime, aviation, land mobile
and satellite IoT industries have been largely unaware of the satellite swap
occurring 500 miles overhead, though will soon notice improvements to
processing speeds and voice quality through our new satellites.
The coming year will be an exciting one for our team, as each Falcon 9 launch
delivers ten more Iridium NEXT satellites into orbit to be positioned by our
engineers and integrated into the Iridium® network. In preparation for this work,
we enhanced our engineering capabilities at the start of 2017 by insourcing
almost 150 new employees through a transaction with Boeing. Many of these
new employees cut their teeth on our legacy constellation and have a lifetime
of experience flying Iridium’s LEO satellites. Bringing these talented engineers
in-house allows us to manage costs more directly by eliminating an external
operations and maintenance contract and attaining much more flexibility as
we enter the Iridium NEXT era.
In 2017, we will also deliver significant new resources to our service partners
and value-added developers, as we test and prepare to introduce the best
L-band broadband service available, branded Iridium Certus. Traditionally, our
network has only been able to provide data
speeds to 128 kilobits per second, while
peak transmission rates in our market have
approached over 400 kilobits per second.
Broadband technology powered by Iridium
NEXT will eventually triple the top L-band
transmission rates in the industry, and do
so with smaller, less expensive terminals,
“The coming year will be an exciting
one for our team, as each Falcon 9
launch delivers ten more Iridium
NEXT satellites into orbit.”
4 Iridium Communications Inc.
Prior to being mounted on the
Falcon 9 rocket, the payload
of ten Iridium NEXT satellites is
encapsulated in a custom-made
fairing to protect the satellites
during their launch through
the atmosphere and into low
Earth orbit. The fairing stands
approximately 13 meters tall
and is large enough to fit a bus.
2016 A nnual Rep or t 5
lower airtime rates and true global coverage. Beyond Iridium Certus, we
continue to make steady progress toward maritime safety certification and have
already achieved similar safety status in the aviation industry with our products.
That’s a big deal and opens up an entirely new market of users to Iridium and
our next generation of services. Finally, Iridium NEXT ushers in a new era in
real-time aircraft and maritime surveillance, enabling applications that provide
global tracking data to vessel owners and the civil navigation systems that
ensure safe passage in air and at sea.
New strategic partners deliver growth
2016 was another year of growth and solid financial performance. We posted
6% growth in total service revenue and 9% growth in Operational EBITDA.
We also grew our total subscriber base by 9% for the full-year to 850,000
users, driven by a 15% increase in commercial machine-to-machine (M2M)
subscribers, which bodes well for the future.
Our commercial business recovered in 2016 from the macro headwinds
in areas like oil and gas that we experienced in 2015, though a strong
U.S. dollar continues to restrain the purchasing power of foreign equipment
buyers for satellite phones. In maritime and aviation, we continue to enjoy
solid subscriber growth and net new activations, particularly in maritime
broadband where our Iridium OpenPort® service enjoyed 15% year-over-year
growth and delivered great value in advance of our new Iridium Certus services.
Governments and militaries entrust mission-
critical communications to Iridium’ s small,
light-weight gear, due to the enhanced
security and global reach of its constellation
across all terrains and climates.
Iridium’s technology allows for cost-efficient
monitoring and control of remote assets
through its proprietary two-way
communications network.
6 Iridium Communications I nc.
We believe that new functionality and faster data speeds associated with
Iridium Certus will allow us to extend into new addressable markets and build
market share in the L-band broadband segment where we’ve only played
at the low-end to date. It will also make us a complementary partner for
Ku- and Ka-band VSAT players, both those operating in GEO and some day
in LEO, as distributors pair their technologies with Iridium Certus for added
safety and reliability.
Finally, our leadership in satellite M2M (or IoT as many are calling the
space now) is important. We added a number of high-profile contracts in
2016, including one with heavy equipment manufacturer Komatsu, and
another with global mobility solutions provider Honeywell. We expect
these new partners will ramp up equipment purchases and activations in
the coming year, adding to our broad base of users led by Garmin personal
location devices and heavy-equipment telemetry from Caterpillar and others.
“2016 was another year of growth and
solid financial performance. We posted
6% growth in total service revenue and
9% growth in Operational EBITDA.”
New services powered by Iridium, like Satellite
Time & Location, enhance computer security
by authenticating and verifying user
location and timestamps as a reliable
alternative to GPS and GNSS solutions.
Iridium’s rotorcraft solutions leverage low-
cost avionics and antennas to deliver flight
diagnostics and voice communications
that perform reliably under rotary blades.
The first stage of SpaceX’s
Falcon 9 rocket made a
1,500-mile trip from the
rocket-manufacturing facility
in McGregor, TX to Vandenberg
Air Force Base, CA during a
week of heavy storms on the
west coast. While in transit,
the rocket was photographed
with a striking, arcing rainbow
– a favorable omen ahead
of Iridium’s first launch on
January 14th.
2016 A nnual Rep or t 7
In satellite IoT, our leading position is a function of our superior cross-linked
network architecture and low latency which is very difficult to replicate
and allows us to add new partners for continued growth each year. New
technology coming with the Iridium NEXT satellites will only further our
growth in this area.
Our relationship with the U.S. Government has never been stronger.
We feel very good about our strategic partnership and the new services
we are bringing with Iridium NEXT as we look forward to a new contract
expected in 2018 or early-2019. Subscribers grew 17% in 2016 – to a record
84,000 total users – and steady demand for all our services is fueling our
collaboration with this important customer.
Aireon, our exciting joint venture to create efficiency and safety for global
air travel, continues to develop its revolutionary service. Now that Iridium
NEXT satellites are in orbit, Aireon’s business development activities should
accelerate as they can demonstrate their global reach with actual second-
by-second aircraft tracks to air traffic control agencies around the world.
Aireon is actively engaged with air navigation agencies covering more than
half of the world’s airspace, and two-thirds of the world’s oceanic airspace.
Iridium’s revenues from Aireon will increase in 2017 and 2018 as each new
Iridium NEXT satellite comes online. Aireon also expects to raise financing
against their growing list of customer contracts over that time to remit
contractual hosting fees associated with their payload.
Setting the gold standard for satellite technology
2017 is off to a great start. I’m excited to keep momentum going on launch
and deployment as we drive toward network completion. Iridium NEXT
is already generating new revenue streams for Iridium. Completing this
$3 billion capital program during 2018 will enable a fundamental financial
transformation and secure the company’s position in satellite communications
for years to come. As we enter a new era in space, Iridium is poised to maintain
the gold standard we have already established for satellite communications,
which should unlock greater value for our global network of customers
and shareholders.
Space-based ADS-B services from Aireon
will revolutionize aircraft tracking and
surveillance, as air traffic controllers and
commercial airlines adopt this technology
to enhance safety and efficiency.
Iridium’s terrestrial broadband solutions
allow for global connectivity in remote
areas where cellular and terrestrial networks
do not exist.
As activity in polar regions grows, Iridium is
uniquely positioned as the only MSS provider
to offer critical, reliable connectivity.
“As we enter a new era in space,
Iridium is poised to maintain the gold
standard we have already established
for satellite communications.”
Matthew J. Desch
Chief Executive Officer
April 2017
8 Iridium Communications I nc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
For the transition period from
to
Commission File Number 001-33963
Iridium Communications Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
26-1344998
(I.R.S. Employer
Identification No.)
1750 Tysons Boulevard, Suite 1400, McLean, Virginia 22102
(Address of principal executive offices, including zip code)
703-287-7400
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 par value
6.75% Series B Cumulative Perpetual Convertible Preferred Stock,
$0.0001 par value
Name of Each Exchange on Which Registered
NASDAQ Global Select Market
NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
‘
Accelerated filer
Smaller Reporting Company ‘
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold as of June 30, 2016 was approximately $730.8 million.
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 17, 2017 was 95,901,504.
Portions of the registrant’s definitive proxy statement for its 2017 annual meeting of stockholders to be filed pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2016, are incorporated by
reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
IRIDIUM COMMUNICATIONS INC.
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2016
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Party Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
SIGNATURES
1
21
37
37
38
38
38
40
40
56
58
88
88
91
91
91
91
91
91
91
92
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.
Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future
developments or otherwise are not statements of historical fact. Without limiting the foregoing, the words “believes,” “anticipates,”
“plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. These forward-looking
statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties,
known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such
statements. The important factors discussed under the caption “Risk Factors” in this Form 10-K could cause actual results to differ
materially from those indicated by forward-looking statements made herein. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1. Business
Corporate Background
PART I
We were formed as GHL Acquisition Corp., a special purpose acquisition company, in November 2007, for the purpose of effecting a
merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination. On
February 21, 2008, we consummated our initial public offering. On September 29, 2009, we acquired, directly and indirectly, all the
outstanding equity of Iridium Holdings LLC, or Iridium Holdings, and changed our name from GHL Acquisition Corp. to Iridium
Communications Inc.
Iridium Holdings was formed under the laws of Delaware in 2000, and on December 11, 2000, Iridium Holdings, through its wholly
owned subsidiary Iridium Satellite LLC, or Iridium Satellite, acquired certain satellite assets from Iridium LLC, a non-affiliated
debtor in possession, pursuant to an asset purchase agreement.
Business Overview
We are the second largest provider by revenue of mobile voice and data communications services via satellite, and the only
commercial provider of communications services offering true global coverage. Our satellite network provides communications
services to regions of the world where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas,
open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political
conflicts or natural disasters.
We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental
organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit spares and
related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across our satellite constellation using radio
frequency crosslinks between satellites. This unique architecture minimizes the need for local ground facilities to support the
constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have
no physical presence.
We have begun launching our new satellite constellation, Iridium NEXT, which we expect to complete in 2018, and which will
replace our first-generation satellite network with the same interlinked mesh architecture of our first-generation constellation, with 66
operational satellites, as well as in-orbit and ground spares. We have contracted with Thales Alenia Space France, or Thales, to
construct the Iridium NEXT satellites, which are designed to be compatible with our first-generation constellation and current
end-user equipment, so that as we launch Iridium NEXT satellites, we will replace the first-generation satellites in our constellation
without affecting the service to our end users. We plan to deploy 75 satellites on seven dedicated Falcon 9 rockets and one shared
Falcon 9 rocket launched by Space Exploration Technologies Corporation, or SpaceX. We estimate the costs associated with the
design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2018 to be approximately $3 billion.
Our funding plan for these costs includes the substantial majority of the funds available under our $1.8 billion credit facility, or the
Credit Facility, which is now fully drawn as of February 2017, together with cash on hand and internally generated cash flows,
including contracted cash flows from hosted payloads.
The Iridium NEXT constellation will also host the AireonSM system to provide a global air traffic surveillance service through a series
of automatic dependent surveillance-broadcast, or ADS-B, receivers on the Iridium NEXT satellites. We formed Aireon LLC in 2011,
with subsequent investments from the air navigation service providers, or ANSPs, of Canada, Italy, Denmark and Ireland, to develop
and market this service. Aireon has contracted to provide the service to our co-investors in Aireon, as well as NATS (En Route) PLC,
the ANSP of the United Kingdom, and other ANSPs. Aireon also plans to offer the service to other customers worldwide, including
the U.S. Federal Aviation Administration, or FAA. Aireon has contracted to pay us a fee to host the ADS-B receivers on Iridium
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NEXT, as well as data service fees for the delivery of the air traffic surveillance data over the Iridium NEXT system. In addition, we
have entered into an agreement with Harris Corporation, the manufacturer of the Aireon hosted payload, pursuant to which Harris
pays us fees to allocate the remaining hosted payload capacity to its customers; we anticipate that Harris will also pay us data service
fees on behalf of these customers.
Our commercial business, which we view as our primary source of long-term growth, is diverse and includes markets such as
emergency services, maritime, aviation, government, utilities, oil and gas, mining, recreation, forestry, heavy equipment, construction
and transportation. Many of our end users view our products and services as critical to their daily operations and integral to their
communications and business infrastructure. For example, multinational corporations in various sectors use our services for business
telephony, e-mail and data transfer, including telematics, and to provide mobile communications services for employees in areas
inadequately served by other telecommunications networks. Commercial enterprises use our services to track assets in remote areas
and provide telematics information such as location and engine diagnostics. Ship crews and passengers use our services for ship-to-
shore calling, as well as to send and receive e-mail and data files, and to receive electronic media, weather reports, emergency
bulletins and electronic charts. Shipping operators use our services to manage operations on board ships and to transmit data, such as
course, speed and fuel stock. Aviation end users use our services for air-to-ground telephony and data communications for position
reporting, emergency tracking, weather information, electronic flight bag updates and fleet information.
The U.S. government, directly and indirectly, has been and continues to be our largest single customer, generating $110.4 million in
service and engineering and support service revenue, or 25% of our total revenue, for the year ended December 31, 2016. This does
not include revenue from the sale of equipment that may be ultimately purchased by U.S. or non-U.S. government agencies through
third-party distributors, or airtime services purchased by U.S. or non-U.S. government agencies that are provided through our
commercial gateway, as we lack visibility into these activities and the related revenue. We have a multi-year, fixed-price contract with
the U.S. government to provide satellite airtime services for an unlimited number of U.S. Department of Defense, or DoD, and other
federal government subscribers, with a total contract value of $400 million over its five-year term through October 2018.
The DoD owns and operates a dedicated gateway in Hawaii that is only compatible with our satellite network. The U.S. armed
services, State Department, Department of Homeland Security, Federal Emergency Management Agency, or FEMA, Customs and
Border Protection, and other U.S. government agencies, as well as other nations’ governmental agencies, use our voice and data
services for a wide variety of applications. Our voice and data products are used for numerous primary and backup communications
solutions, including logistical, administrative, morale and welfare, tactical, and emergency communications. In addition, our products
are installed in ground vehicles, ships, rotary and fixed-wing aircraft and are used for command-and-control and situational awareness
purposes. Our satellite network provides increased network security to the DoD because traffic is routed across our satellite
constellation before being brought down to earth through the dedicated, secure DoD gateway, thus providing additional levels of
protection. The DoD has made, and continues to make, significant investments to upgrade its dedicated gateway for Iridium NEXT
and to purchase our voice and data devices, all of which are only compatible with our satellite network. In addition, the DoD
continues to invest directly and indirectly in additional services on our network such as Distributed Tactical Communications
Services, or DTCS.
We sell our products and services to commercial end users primarily through a wholesale distribution network, encompassing
approximately 65 service providers, approximately 195 value-added resellers, or VARs, and approximately 80 value-added
manufacturers, or VAMs, which create and sell technology that uses the Iridium® network either directly to the end user or indirectly
through other service providers, VARs or dealers. These distributors often integrate our products and services with other
complementary hardware and software and have developed a broad suite of applications using our products and services to target
specific lines of business. We expect that demand for our services will increase as more applications are developed and deployed that
utilize our technology.
At December 31, 2016, we had approximately 850,000 billable subscribers worldwide, representing a 9% increase compared to
December 31, 2015. Total revenue increased from $411.4 million in 2015 to $433.6 million in 2016.
Industry
We compete in the mobile satellite services sector of the global communications industry. Mobile satellite services operators provide
voice and data services to people and machines using a network of satellites and ground facilities. Mobile satellite services are
intended to meet users’ needs for connectivity in all locations where terrestrial wireline and wireless communications networks do not
exist, do not provide sufficient coverage, or are impaired. Further, many regions of the world benefit from satellite networks, such as
rural and developing areas that lack adequate wireless or wireline networks, airways, ocean and polar regions where few alternatives
exist, and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.
Government organizations, including military and intelligence agencies and disaster response agencies, non-governmental
organizations and industrial operations and support teams depend on mobile and fixed voice and data satellite communications
services on a regular basis. Businesses with global operations require reliable communications services when operating in remote
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locations around the world. Mobile satellite services users span many sectors, including emergency services, maritime, aviation,
government, utilities, oil and gas, mining, recreation, forestry, heavy equipment, construction, and transportation, among others. Many
of our customers view satellite communications services as critical to their daily operations.
We believe that increasing mobile penetration will provide a significant market opportunity for the mobile satellite services industry.
According to a 2016 study by the GSM Association, total mobile connections reached 7.3 billion throughout the world as of the end of
2015 and are projected to reach 8.9 billion by 2020.
We believe that growth in the terrestrial wireless industry has increased awareness of the need for reliable mobile voice and data
communications services. In addition, despite significant penetration and competition, terrestrial wireless systems only serve a small
fraction of the earth’s surface and are focused mainly in those areas where people live, excluding oceans and other remote regions
where ships, airplanes and other remote assets may travel or be located. By offering mobile communications services with global
voice and data coverage, mobile satellite service providers address the demand from businesses, governments and individuals for
connectivity and reliability in locations not consistently served by wireline and wireless terrestrial networks.
The mobile satellite services industry also benefits from the continued development of innovative, lower-cost technology and
applications integrating mobile satellite products and services, including the continued advancement of the Internet of Things, or IoT.
We believe that growth in demand for mobile satellite services is driven in large part by the declining cost of these services, the
diminishing size and lower costs of voice, data and machine-to-machine, or M2M, devices, the rollout of new applications tailored to
the specific needs of customers across a variety of markets, and a more favorable regulatory environment in international markets.
Communications industry sectors include:
(cid:129) mobile satellite services, which provide customers with voice and data connectivity to mobile and fixed devices using
ground facilities and networks of geostationary, or GEO, satellites, which are located approximately 22,300 miles above
the equator, medium earth orbit satellites, which orbit between approximately 6,400 and 10,000 miles above the earth’s
surface, or low earth orbit, or LEO, satellites, such as those in our constellation, which orbit between approximately 300
and 1,000 miles above the earth’s surface;
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fixed satellite services, which use GEO satellites to provide customers with broadband communications links between
fixed points on the earth’s surface; and
terrestrial services, which use a network of land-based equipment, including switching centers and radio base stations, to
provide wireless or wireline connectivity and are complementary to satellite services.
Within the major satellite sectors, fixed satellite services and mobile satellite services operators differ significantly from each other
with respect to size of antenna and types of services offered. Fixed satellite services providers, such as Intelsat S.A., Eutelsat
Communications S.A. and SES S.A., are characterized by large, often stationary or fixed ground terminals that send and receive high-
bandwidth signals to and from the satellite network for video and high-speed data customers and international telephone markets. By
contrast, mobile satellite services providers, such as us, Inmarsat plc, Globalstar, Inc., and ORBCOMM Inc. focus more on voice and
data services, where mobility and small-sized terminals are essential.
A LEO system, such as the system we operate, generally has lower transmission delays than a GEO system, such as that operated by
Inmarsat, due to the shorter distance signals have to travel, which also enables the use of smaller antennas on mobile devices. We
believe the unique interlinked mesh architecture of our constellation, combined with the global footprint of our satellites, distinguishes
us from regional LEO satellite operators such as Globalstar and ORBCOMM, by allowing us to route voice and data transmissions to
and from anywhere on the earth’s surface without the need for local infrastructure. As a result, we are the only mobile satellite
services operator offering real-time, low-latency services with true global coverage, including full coverage of the polar regions.
Our Competitive Strengths
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Iridium NEXT. The Iridium NEXT constellation, which we have begun launching and expect to complete in 2018, will
offer new products and services to our customers, including our planned global broadband offering, Iridium CertusSM,
support more bandwidth and higher speeds for new products, provide service continuity and backwards compatibility to
our first-generation constellation, and support Aireon’s aircraft tracking service, as well as other hosted payload missions.
Attractive and growing markets. We believe that the mobile satellite services industry will continue to experience growth
driven by the increasing awareness of the need for reliable mobile voice and data communications services, the lack of
coverage by terrestrial wireless systems of most of the earth’s surface, and the continued development of innovative,
lower cost technology, applications integrating mobile satellite products and services and the continued development of
the IoT. Only satellite providers can offer global coverage, and the satellite industry is characterized by significant
financial, technological and regulatory barriers to entry.
True global coverage. Our network provides true global coverage, which none of our competitors, whether LEO or GEO,
can offer. Our network design of 66 operational satellites relies on an interlinked mesh architecture to transmit signals
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from satellite to satellite, which reduces the need for multiple local ground stations around the world and facilitates the
global reach of our services, and the Iridium NEXT constellation will maintain this architecture. GEO satellites orbit
above the earth’s equator, limiting their visibility to far northern or southern latitudes and polar regions. LEO satellites
from operators like Globalstar and ORBCOMM use an architecture commonly referred to as “bent pipe,” which requires
voice and data transmissions to be immediately routed to ground stations in the same region and can only provide real-
time service when they are within view of a ground station, limiting coverage to areas near where they have been able to
license and locate ground infrastructure. The LEO design of our satellite constellation produces minimal transmission
delays compared to GEO systems due to the shorter distance our signals have to travel. Additionally, LEO systems
typically have smaller antenna requirements and are less prone to signal blockage caused by terrain and other
environmental factors than GEO satellite networks. As a result, we believe that we are well-positioned to capitalize on the
growth in our industry from end users who require reliable, easy-to-use communications services in all locations.
(cid:129) Wholesale distribution network. The specialized needs of our global end users span many markets, including emergency
services, maritime, aviation, government, utilities, oil and gas, mining, recreation, forestry, heavy equipment, construction
and transportation. We sell our products and services to commercial end users primarily through a wholesale distribution
network of service providers, VARs and VAMs, which often specialize in a particular line of business. Our distributors
use our products and services to develop innovative and integrated communications solutions for their target markets,
often combining our products with other technologies, such as GPS and terrestrial wireless technology. In addition to
promoting innovation, our wholesale distribution model allows us to capitalize on the research and development
expenditures of our distributor partners, while lowering overall customer acquisition costs and mitigating some risks, such
as consumer relationship risks. By partnering with these distributors to develop new products, services and applications,
we believe we create additional demand for our products and services and expand our target markets at a lower cost than
would a more direct marketing model. We believe our distribution network can continue to grow with us and increase our
market penetration.
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Strategic relationship with the U.S. government. The U.S. government is our largest single customer, and we have had a
relationship with the DoD since our inception. We believe the DoD views our DTCS, M2M devices, encrypted handset
and other products as mission-critical services and equipment. The DoD continues to make significant investments in a
dedicated gateway on a U.S. government site to provide operational security and allow DoD handset users to
communicate securely with other U.S. government communications equipment. This gateway is only compatible with our
satellite network. In October 2013, we entered into a five-year, fixed-price contract with the U.S. government to provide
satellite airtime services for an unlimited number of DoD and other federal government subscribers, with a total contract
value of $400 million. We have seen significant annual increases in the number of federal government subscribers during
the term of this agreement.
Our Business and Growth Strategies
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Complete the deployment of the Iridium NEXT constellation. We have begun launching our next-generation satellite
constellation, Iridium NEXT, which will replace our first-generation constellation with a more powerful satellite network
while maintaining backward compatibility with our first-generation system and end-user devices. Iridium NEXT will
maintain our first-generation system’s key attributes, including the capability to upload new software, while providing
new and enhanced capabilities, such as higher data speeds and increased capacity. We believe Iridium NEXT will expand
our target markets by enabling us to develop and offer a broader range of products and services, including a wider array of
cost-effective and competitive broadband data services.
Leverage our largely fixed-cost infrastructure by growing our service revenue. Our business model is characterized by
high capital costs, primarily incurred every 10 to 15 years, in connection with designing, building and launching new
generations of our satellite constellation, but the incremental cost of providing service to additional end users is relatively
low. We believe that service revenue will be our largest source of future growth and profits, and we intend to focus on
growing both our commercial and government service revenue in order to leverage our largely fixed-cost infrastructure.
In particular, we believe that M2M services, where we are engaging large, global enterprises as long-term customers for
telematics solutions, represent an opportunity for service revenue growth.
Accelerate the development of personal communications capabilities. Part of our strategy for the development of personal
mobile satellite communications is to allow users to connect to our network in more ways, including from devices such as
smartphones, tablets and laptops through our Iridium GO!® device; by making our technology more accessible and cost-
effective for our distribution partners to integrate by licensing our core technologies; by adding new functionality, such as
push-to-talk, or PTT, capability, allowing multiple users to participate in talk groups worldwide; by providing rugged,
dependable devices and services; and by developing new services, such as Iridium Certus, that will take advantage of the
improved capabilities of the Iridium NEXT constellation.
Continue to expand our distribution network. We believe our wholesale distribution network lowers our costs and risks,
and we plan to continue to selectively expand our network of service providers, VAMs and VARs and to expand our sales
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and distribution efforts geographically. We expect that our current and future value-added partners will continue to
develop customized products, services and applications targeted to the land mobile, maritime, aviation, M2M and
government markets. We believe these markets represent an attractive opportunity for continued subscriber growth.
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Continued growth in services provided to the DoD. In October 2013, we executed a five-year Enhanced Mobile Satellite
Services, or EMSS, contract with the Defense Information Systems Agency, or DISA. Under the terms of this agreement,
we provide Iridium airtime and airtime support to U.S. government and other authorized customers, including voice, low-
and high-speed data, paging, broadcast, and distributed tactical communication, or netted, services. The service fee under
the EMSS contract is $88 million per year for the remaining term. In addition, other services we are developing, such as
future broadband capabilities, and satellite time and location services, provide us with opportunities to offer new products
and services to the DoD for an additional fee.
Continue to develop Aireon. Aireon, which we formed in 2011, is our primary hosted payload customer. Aireon received
subsequent investments from four ANSPs, NAV CANADA, Enav (Italy), Naviair (Denmark) and the Irish Aviation
Authority. Aireon has developed an ADS-B receiver to be hosted on Iridium NEXT to provide a global air traffic
surveillance service. Aireon has contracted to offer its service to our co-investors in Aireon, as well as NATS and other
ANSPs, and plans to offer it to other customers worldwide, including the FAA. Aireon has contracted to pay us a fee to
host the ADS-B receivers on Iridium NEXT, as well as data service fees for the delivery of the air traffic surveillance data
over the Iridium NEXT system. We will also continue to hold an equity stake in Aireon.
Distribution Channels
We sell our products and services to customers through a wholesale distribution network of approximately 65 service providers,
approximately 195 VARs and approximately 80 VAMs. These distributors sell our products and services to end users, either directly
or indirectly through service providers, VARs or dealers. Of these distributors, 32 sell primarily to U.S. and international government
customers. Our distributors often integrate our products and services with other complementary hardware and software and have
developed individual solutions targeting specific lines of business. We also sell airtime services directly to the U.S. government,
including the DoD, for resale to other government agencies. The U.S. government and international government agencies may
purchase additional services as well as our products and related applications through our network of distributors.
We provide our distributors with support services, including assistance with coordinating end user sales and marketing, strategic
planning and training, and second-tier customer support, as well as helping them respond to new opportunities for our products and
services. We have representatives covering three regions around the world to better manage our distributor relationships: the
Americas, which includes North, South and Central America; Asia Pacific, which includes Australia and Asia; and Europe, the
Middle East, Africa and Russia. We have also established a global service program to provide portside service for our maritime
customers at major ports worldwide. In addition, we maintain various online management tools that allow us to communicate
efficiently with our distributors, and allow them to manage their customers’ Iridium devices from anywhere in the world. By relying
on our distributors to manage end user sales, we believe that we reduce some of the risks and costs related to our business, such as
consumer relationship risks and sales and marketing costs, while providing a broad and expanding distribution network for our
products and services with access to diverse and geographically dispersed niche markets. We are also able to benefit from the
specialized expertise of our distributors, who continue to develop innovative and improved solutions and applications integrating our
product and service offerings, providing us with an attractive platform to support our growth.
Commercial Markets
We view our commercial business as our primary source of long-term growth. Service providers and VARs serve as our main
distribution channel by purchasing our products and services and marketing them directly to their customers or indirectly through
independent dealers. They are each responsible for customer billing, end user customer care, managing credit risk and maintaining all
customer account information. If our service providers or VARs provide our services through dealers, these dealers will often
provide such services directly to the end user. Service providers typically purchase our most basic products and services, such as
mobile voice services and related satellite handsets, and offer additional services such as voice mail. Unlike service providers, our
VARs typically focus more on data applications and provide a broader array of value-added services specifically targeted to the niche
markets they serve, such as maritime, M2M, aviation and government markets, where high-use customers with specialized needs are
concentrated. These VARs integrate our handsets, transceivers, high-speed data devices and Short-Burst DataSM, or SBDSM, modems
with other hardware and software to create packaged solutions for end users. Examples of these applications include cockpit voice
and data solutions for use by the aviation sector and voice, data and tracking applications for industrial customers, the DoD and other
U.S. and foreign government agencies. Our service providers include satellite service providers such as Marlink SAS, Applied
Satellite Technology Limited and Network Innovations, as well as some of the largest telecommunications companies in the world,
including Telstra Corporation Limited, KDDI Corporation and Singapore Telecommunications Limited. Our VARs include Gogo
Business Aviation LLC, ARINC Incorporated, Blue Sky Network, LLC, Caterpillar Inc., Garmin Ltd., General Dynamics
Corporation, Komatsu Limited, MetOcean Telematics Limited, Kore Telematics Inc., Mix Telematics International (Pty) Ltd., NAL
Research Corporation, OnixSat Rastreamento de Veículos Ltda. and Zunibal S.A.
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We also sell our products to VAMs, who integrate our transceivers into their proprietary hardware. These VAMs produce
specialized end-user equipment, including integrated ship, vehicular and aviation communications systems, and global asset
tracking devices, which they offer to end users in maritime, aviation, government and M2M markets. As with our service
providers and VARs, VAMs sell their products either directly or through other distributors, including some of our service
providers and VARs. Our VAMs include Applied Satellite Engineering, Inc., Beam Communications Pty Ltd., Garmin Ltd., Gilat
Satcom Ltd., Honeywell, Calamp Wireless Networks Corporation, Quake Global, Inc. and Cobham plc.
In addition to VARs and VAMs, we maintain relationships with approximately 40 value-added developers, or VADs. We typically
provide technical information to these companies on our products and services, which they then use to develop software and
hardware that complements our products and services in line with the specifications of our VARs and VAMs. These products
include handset docking stations, airline tracking and flight management applications and crew e-mail applications for the maritime
industry. We believe that working with VADs allows us to create new platforms for our products and services and increases our
market opportunity while reducing our overall research and development, marketing and support expenses. Our VADs include
Two10degrees Limited, Global Marine Networks, LLC, Hirschmann Automation and Controls, Inc. and Maxtena, Inc.
We maintain a pricing model for our commercial products and services with a consistent wholesale rate structure. Under our
distribution agreements, we charge our distributors wholesale rates for commercial products and services, subject to discount and
promotional arrangements and geographic pricing. We also charge fixed monthly access fees per subscriber for some of our
services. Our distributors are in turn responsible for setting their own pricing to their customers. Our agreements with distributors
typically have terms of one year and are automatically renewable for additional one-year terms, subject to termination rights. We
believe this business model provides incentives for distributors to focus on selling our commercial product and service portfolio
and developing additional applications. An additional benefit of this model is simplicity. This model reduces back-office
complexities and costs and allows distributors to remain focused on revenue generation.
Government Markets
We provide mission-critical mobile satellite products and services to all military branches of the DoD as well as other U.S.
government departments and agencies. These users require voice and two-way data capability with global coverage, low latency,
mobility and security and often operate in areas where no other terrestrial or wireless means of communications are available. We
believe we are well-positioned to satisfy demand from these users. Our 9505A satellite handset is the only commercial, mobile
handheld satellite phone that is capable of Type I encryption accredited by the U.S. National Security Agency for Top Secret
voice communications. In addition, the DoD continues to make significant investments in a dedicated gateway that provides
operational security and allows users of encrypted DoD handsets to communicate securely with other U.S. government
communications equipment. These investments include upgrading the gateway to take advantage of the enhanced capabilities of
Iridium NEXT. This gateway is only compatible with our satellite network.
We provide Iridium airtime and airtime support to U.S. government and other authorized customers pursuant to our five-year
EMSS contract, which was effective as of October 22, 2013. Under the terms of this agreement, authorized customers utilize
Iridium airtime services, provided through the DoD’s dedicated gateway. These services include unlimited global secure and
unsecure voice, low and high-speed data, paging, broadcast, and DTCS services for an unlimited number of DoD and other
federal subscribers. Other services may be purchased at an additional cost. The fixed-price rate for the remaining contract years,
which run from October 22 through the following October 21 of each year, is $88 million per year. While we sell airtime directly
to the U.S. government for resale to end users, our hardware products are sold to U.S. government customers through our network
of distributors, which typically integrate them with other products and technologies. Pursuant to federal acquisition regulations,
the U.S. government may terminate the EMSS contract, in whole or in part, at any time.
We also provide maintenance services for the DoD gateway pursuant to our Gateway Maintenance and Support Services, or
GMSS, contract managed by DISA. This agreement, effective September 2013, provides for a one-year base term and up to four
additional one-year options exercisable at the election of the U.S. government, the first three of which have been exercised. If the
U.S. government elects to exercise all available one-year options, the total value of the contract to us would be approximately
$38 million. The U.S. government may terminate the GMSS contract, in whole or in part, at any time.
In October 2012, we were also awarded a five-year indefinite-delivery/indefinite-quantity contract from DISA to upgrade the
DoD gateway and ensure its compatibility with Iridium NEXT. This contract has a one-year base period and four one-year
options, all of which have been exercised, and has a value of $47 million to us over the full five-year period.
U.S. government services accounted for approximately 25% of our total revenue for the year ended December 31, 2016. Our
reported U.S. government revenue includes airtime revenue derived from the EMSS contract and services provided through the
GMSS contract and other engineering and support contracts with the U.S. government. This revenue does not include airtime
services purchased by U.S. or non-U.S. government agencies that are provided through our commercial gateway, which we report
as commercial service revenue, or equipment purchased by government customers from third-party distributors. We are unable to
determine the specific amount of U.S. government revenue derived from these commercial sources.
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Lines of Business
The specialized needs of our global customers span many markets. Our system is able to offer our customers cost-effective
communications solutions with true global coverage in areas unserved or underserved by existing telecommunications infrastructure.
Our mission-critical communications solutions have become an integral part of the communications and business infrastructure of
many of our end users. In many cases, our service is the only connectivity for these critical applications or is used to complement
terrestrial communications solutions. We expect our planned introduction of Iridium Certus to impact our opportunities in each of our
lines of business, by providing end users an additional competitive broadband communication solution.
Our current principal lines of business include land mobile, M2M, maritime, aviation, and government.
Land Mobile
We are the leading provider of mobile satellite communications services to the land mobile sector, providing handset services to
areas not served or inconsistently served by existing terrestrial communications networks. In a 2015 report, Euroconsult estimated
that there were approximately 625,000 active satellite handsets in the market in 2015. Mining, forestry, construction, oil and gas,
utilities, heavy industry and transport companies as well as the military, public safety and disaster relief agencies constitute the
largest portion of our land mobile end users. We also include sales of Iridium GO! and Iridium push-to-talk, or PTT, services in
the land mobile sector. We believe that demand for mobile communications devices operating outside the coverage of terrestrial
networks, combined with our small, lightweight, durable handsets with true global coverage, will allow us to capitalize on growth
opportunities among these users.
Our land mobile end users utilize our satellite communications services for:
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Voice and data: Multinational corporations in various sectors use our services for business telephony, e-mail and data
transfer services, location-based services, and to provide pay telephony services for employees in areas inadequately
served by terrestrial networks. Oil and gas and mining companies, for example, provide their personnel with our
equipment solutions while surveying new drilling and mining opportunities and while conducting routine operations in
remote areas that are not served by terrestrial wireless communications networks. In addition, a number of recreational,
scientific and other outdoor segments rely on our mobile handheld satellite phones and services for use when beyond
terrestrial wireless coverage. In addition, Iridium PTT offers military, first responder, oil and gas, civil government and
other users the ability to hold group calls using the Iridium Extreme® PTT handset. Our VAMs and VARs can also
develop their own land mobile, fixed, aviation or maritime Iridium PTT devices using the Iridium 9523 PTT.
(cid:129) Mobile and remote office connectivity: A variety of enterprises use our services to make and receive voice calls and to
establish data, e-mail, internet and corporate network connections.
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Public safety and disaster relief: Relief agencies, such as FEMA, and other agencies, such as the Department of
Homeland Security, use our products and services in their emergency response plans, particularly in the aftermath of
natural disasters such as the Nepal earthquake, Hurricane Sandy, the Japan earthquake and tsunami and Typhoon Haiyan.
These agencies generate significant demand for both our voice and data products, especially in advance of the hurricane
season in North America.
Public telephone infrastructure: Telecommunications service providers use our services to satisfy regulatory mandates
and government expectations regarding the availability of communications services for rural populations currently not
served by terrestrial infrastructure. Telstra Corporation, for example, uses our services to provide communications
services in some of Australia’s most remote locations.
Machine-to-Machine
We are one of the leading providers of satellite-based M2M services. We believe the early stage of this market and its low
penetration present opportunities for future growth. As with land mobile, our largest M2M users include mining, construction, oil
and gas, utilities, heavy industry, maritime, forestry and transport companies, as well as the military, public safety and disaster
relief agencies. We believe increasing demand for automated data collection processes from mobile and remote assets operating
outside the coverage of terrestrial wireline and wireless networks, as well as the continued need to integrate the operation of such
assets into enterprise management and information technology systems, will likewise increase demand for our M2M applications.
For example, our M2M devices have been adopted as standard equipment and as factory options by heavy equipment
manufacturers to provide telematics solutions for end users.
Our M2M services are used for:
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Heavy equipment monitoring: Large, global, heavy equipment original equipment manufacturers, such as Caterpillar Inc.,
Komatsu Limited, CNH Global N.V. and AGCO Corporation, use our global M2M services to monitor their off-road
heavy equipment in markets such as construction, mining, agriculture and forestry.
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Fleet management: Our global coverage permits our products and services to be used to monitor the location of vehicle
fleets, hours of service and engine telemetry data, as well as to conduct two-way communications with drivers around the
world. Fleet management companies, such as Trimble Transportation & Logistics, Mix Telematics and Zatix, use our
service to provide distance drivers with reliable communication to their dispatchers and their destinations to coordinate
changing business needs, and our satellite network provides continuous communications coverage while they are in
transit. We expect that the need for more efficient, cost-effective and safer fleet operations as well as the imposition of
regulatory mandates related to driver safety, such as drive-time monitoring, will increase demand for our services in this
area.
Fixed-asset monitoring: Multinational corporations, such as oil-field service companies like Schlumberger Limited and
ConocoPhillips Company, use our services to run applications that allow remote monitoring and operation of equipment
and facilities around the globe, such as oil pipelines and offshore drilling platforms.
Asset tracking: Leveraging M2M applications developed by several of our distributors, companies use our services and
related devices to track assets, including personnel, for logistics, theft-prevention and safety purposes. Companies and
organizations that have fleets of vehicles use M2M solutions from Iridium distributors to improve the efficiency of their
operations. For example, customers use inthinc’s waySmart M2M solution to reduce accidents and increase vehicle
uptime, and the Department of Homeland Security Office of Enforcement and Removal uses Fleet Management
Solutions’ M2M solution to transmit position, direction, speed and other data for management of its vehicle fleet.
Resource management: Our global coverage and data throughput capabilities support natural resource management
applications, such as fisheries management systems. CLS and FW Telematics, two of our VARs, have developed
applications for the fishing industry that enable regulatory compliance of fishing practices in a number of countries
around the world.
Scientific data monitoring: The global coverage of our network supports many scientific data collection applications such
as the Argo float program of the National Oceanographic and Atmospheric Administration, or NOAA, and the Global
Ocean Observation project Challenger, operated by Rutgers University. These programs rely on our M2M services to
collect scientific data from buoys and ocean gliders located throughout the world’s oceans for monitoring and analysis.
We believe the increased need for monitoring climate and environmental data associated with global climate change and
human impact on the planet will increase demand for these services.
Personal Tracking Devices and Location-Based Services: Several of our VAMs and VARs, such as Garmin, NAL
Research and Track24, have introduced small, portable personal tracking devices that will provide personal tracking and
data communications services to commercial end users. In addition, Iridium GO! and the Iridium Extreme handset offer
personal tracking and location-based services. These devices use M2M data services to send location information and
other data to web-based portals for tracking of and messaging with users.
Maritime
We serve the commercial maritime market with a variety of products including broadband terminals, embedded devices and
handsets. This market space includes merchant shipping, fishing, research vessels and specialized water craft. The majority of our
revenue in this segment is derived from shipboard data terminals including the Iridium Pilot®. While some Iridium Pilot
equipment serves the terrestrial market, the vast majority of Iridium Pilot service revenue comes from the commercial maritime
market described above. Our products and services targeting the maritime market typically have high average revenue per
subscriber. Once a system is installed on a vessel, it often generates a multi-year recurring revenue stream from the customer. As
a consequence, from time to time we may offer promotions or rebates to accelerate new customer acquisitions and a long-term
revenue stream.
We believe demand for higher-speed, low-cost data services will allow us to capitalize on opportunities in this market. We believe
Iridium Pilot, which uses our Iridium OpenPort® service to offer uncompressed data speeds of up to 134 kilobits per second, or
kbps, and three independent voice lines, presents a competitive communication solution to users in the maritime market. Iridium
Certus, which will be enabled by Iridium NEXT, will provide increased throughput, along with a portfolio of voice and data
services that we expect to increase the addressable market for our services.
Maritime end users utilize our satellite communications services for the following:
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Business critical data applications: Ship operators use our services to exchange e-mail and data files and to receive other
information such as meteorological reports, emergency bulletins, cargo and voyage data and electronic chart updates. We
believe Iridium Pilot provides attractively priced options for shipping operators and fishing fleets seeking increased
functionality, as well as for yachts, work boats and other vessels for which traditional marine satellite systems have
typically been costly and underperforming.
Voice services: Maritime global voice services are used for both vessel operations and communications for crew welfare.
Merchant shipping companies use prepaid phone cards for crew use at preferential around-the-clock flat rates.
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Vessel management and asset tracking: Shipping operators, such as China Ocean Shipping Company (COSCO) and
Zodiac Shipping Ltd., use our services to manage operations on ships and to transmit data, such as course, speed and fuel
stock. Our services are commonly integrated with GPS to provide a real-time position reporting capability. Many fishing
vessels are required by law to carry terminals using approved mobile satellite services for tracking purposes as well as to
monitor catches and to ensure compliance with geographic fishing restrictions. European Union regulations, for example,
require EU-registered fishing vessels of over 15 meters to carry terminals for the purpose of positional reporting of those
vessels. Furthermore, new security regulations in some jurisdictions are expected to require tracking of merchant vessels
in territorial waters, which would provide an additional growth opportunity for us.
Safety and Security applications: Ships in distress, including as a result of potential piracy, hijack or terrorist activity, rely
on mobile satellite voice and data services. The Ship Security and Alert Systems and Long Range Identification Tracking
regulations were adopted by the International Maritime Organization, or IMO, to enhance maritime security in response to
the threat from terrorism and piracy. Most deep-sea passenger and cargo ships must be fitted with a device that can send
an alert message containing the ship’s ID and position whenever the ship is under threat or has been compromised. In
addition, the IMO and a NATO advisory group have recommended the installation of a safe room equipped with a
standalone secure communication link the crew can use from inside the room to communicate with rescuing forces. We
and our distribution partners have developed several product solutions to meet these requirements for merchant and
fishing vessels.
The Global Maritime Distress and Safety System, or GMDSS, is a maritime service built to alert a maritime rescue
coordination center of each vessel’s situation and position, information that can then be used to coordinate search and
rescue efforts among ships in the area. The IMO requires all vessels flagged by signatories to the International
Convention for the Safety of Life at Sea (SOLAS) over 300 gross tons and certain passenger vessels, irrespective of size,
that travel in international waters to carry distress and safety terminals that use GMDSS applications. We are working
through the authorization process with the IMO for inclusion in the GMDSS. Upon completing this process, we expect
Iridium Certus terminals, which will include GMDSS service capabilities developed by our manufacturing licensees, to be
available to vessel operators.
Aviation
We are one of the leading providers of mobile satellite communications services to the aviation sector. Our services are
increasingly used in commercial and global government aviation applications, principally by corporate jets, corporate and
government helicopter fleets, specialized general aviation fleets, such as medevac companies and fire suppression fleets, and
high-end personal aircraft. Our services are also employed by commercial airline operators for cockpit voice and data link
services for aircraft operational and safety communications. As a result of the 2011 FAA announcement that it will approve
Iridium for flight safety data communications and the U.S. Federal Communications Commission’s, or FCC’s, approval of
Iridium for flight safety communications, commercial operators are installing avionics that use the Iridium network on the flight
deck to comply with international air navigation communications requirements to operate in oceanic and remote airspace. Our
voice and data devices from our VAMs and VARs have been adopted as standard equipment and as factory options for a range of
airframe manufacturers in business aviation and air transport, such as Gulfstream Aerospace Corporation, Bombardier Inc.,
Cessna Aircraft Company, Boeing and Airbus. Our devices are also installed in the aftermarket on large volume and a variety of
other types of aircraft.
Aviation end users utilize our satellite communications services for:
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Aviation operational communications: Aircraft crew and ground operations use our services for air-to-ground telephony
and data communications. This includes the automatic reporting of an aircraft’s position and mission-critical condition
data to the ground and controller-pilot data link communication for clearance and information services. We provide
critical communications applications for airlines and air transport customers such as Hawaiian Airlines, United Airlines,
UPS, Cathay Pacific Airways and El Al Airlines. These operators rely on our services because other forms of
communication may be unaffordable or unreliable in areas such as the polar regions. Rockwell Collins and SITA, SC, the
two leading providers of voice and data link communications services and applications to the commercial airline industry,
integrate our products and services into their offerings.
Aviation passenger communications: Corporate and private fleet aircraft passengers use our services for air-to-ground
telephony and data communications. Operators are currently using our services to enable passengers to e-mail using their
own Wi-Fi-enabled mobile devices, including smartphones, without causing interference with aircraft operation. We
believe our distributors’ small, lightweight, cost-effective solutions offer an attractive option for aircraft operators,
particularly small fleet operators. With the introduction of Iridium Certus, we expect that users in the corporate aviation
market, and original equipment manufacturers (OEMs) for business jets, will increase adoption of Iridium for in-flight,
passenger data communications. We believe this presents a significant opportunity to increase market penetration and
revenues in this market.
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Rotary and general aviation applications: We are also a major supplier for rotary aviation applications to end users in a
number of markets, including medevac, law enforcement, oil and gas, and corporate work fleets. Companies such as Air
Logistics, EagleMed and Air Evac Lifeteam rely on applications from our distributors for traditional voice
communications, fleet tracking and management, and real-time flight diagnostics. VARs and VAMs such as Flightcell
International Ltd., Garmin International, Inc., Honeywell International, Inc., SkyTrac and Spider Tracks Limited
incorporate Iridium products and services into applications for this market.
Air traffic control communications and safety applications: The International Civil Aviation Organization, or ICAO, has
approved standards and recommended practices allowing us to provide Aeronautical Mobile Satellite (Route) Services to
commercial aircraft on long-haul routes. This allows member states to evaluate and approve our services for safety
communications on flights in oceanic and remote airspace. After several years of working with the Performance Based
Aviation Rules Making Committee, or PARC, and illustrating a successful operational evaluation using Iridium data
services, in 2011 the FAA announced that it would approve Iridium for use in the Future Air Navigation Services (FANS)
and Automatic Dependent Surveillance—Contract (ADS-C) datalink communications with air traffic control. We are
currently coordinating with PARC on an operational evaluation of our voice communications services for air traffic
control. Aircraft crew and air traffic controllers will be able to use our services for data and voice communications
between the aircraft flight deck and ground-based air traffic control facilities. We are the only satellite provider capable of
offering such critical flight safety applications around the entire globe, including the polar regions. We believe this
particular sector of the market will present us with significant growth opportunities, as our services and applications will
serve as a cost-effective alternative to systems currently in operation.
Government
We are one of the leading providers of mobile satellite communications services to the U.S. government, principally the DoD. We
provide mobile satellite products and services to all branches of the U.S. armed forces. Our voice products are used for a variety
of primary and backup communications solutions, including tactical operations, logistical, administrative, morale and welfare, and
emergency communications. In addition, our products and related applications are installed on ground vehicles, ships, rotary- and
fixed-wing aircraft, embedded in unattended sensors and used for command and control and situational awareness purposes.
Global security concerns are among the factors driving demand for our products and services in this sector. See “—
U.S. Government Services” for more information.
Seasonality
Our business is subject to seasonal usage changes for commercial customers, and we expect it to be affected by similar seasonality
going forward. March through October are typically the peak months for commercial voice traffic and related subscriber equipment
sales, given the predominance of population and activity in the northern hemisphere. U.S. government usage and commercial M2M
usage have been less subject to seasonal changes.
Services and Products
At December 31, 2016, we had approximately 850,000 billable subscribers worldwide. Our principal services are mobile satellite
services, including mobile voice and data services, M2M services and high-speed data services and engineering services. Sales of our
commercial services collectively accounted for approximately 58% of our total revenue for the year ended December 31, 2016. We
also sell related voice and data equipment to our customers, which accounted for approximately 17% of our total revenue for the year
ended December 31, 2016. In addition, we offer services to U.S. government customers, including the DoD. U.S. government
services, including engineering services, accounted for approximately 25% of our total revenue for the year ended December 31,
2016.
Commercial Services
Postpaid Mobile Voice and Data Satellite Communications Services
We sell our mobile voice and data services to service providers and VARs who in turn offer such services to end users, either
directly or indirectly through dealers, using various packaged solutions such as monthly plans with differing price levels that
vary depending upon expected usage. In exchange for these services, we typically charge service providers and VARs a
monthly access fee per subscriber, as well as usage fees for airtime resources consumed by their respective subscribers.
Prepaid Mobile Voice Satellite Communications Services
We also offer mobile voice services to service providers and VARs through prepaid plans. Service providers and VARs pay
us in advance for defined blocks of airtime minutes with expiration periods in various configurations, ranging from 30 days
to two years. These services are then generally sold to subscribers in the form of prepaid scratch cards and e-vouchers that
enable subscribers to use our services on a per-minute basis. Unused minutes are forfeited on the applicable expiration date.
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We believe service providers and VARs are drawn to these services because they enable greater cost control by eliminating
the need for monthly billings and reducing collection costs, and can be sold in countries where credit may not be readily
available for end users. Our distributors often offer our prepaid voice services through fixed devices to subscribers in rural
villages, at remote industrial, commercial and residential sites and on ships at sea, among other places. Fixed voice satellite
communications services are in many cases an attractive alternative to handheld mobile satellite communications services in
situations where multiple users will access the service within a defined geographic area and terrestrial wireline or wireless
service is not available. Fixed phones, for example, can be configured as pay phones that accept prepaid scratch cards and can
be installed at a central location, for example in a rural village or on a maritime vessel.
Iridium PTT Service
Building on the foundation of DTCS, which provided regional tactical radio service to DoD users, our Iridium PTT service
enables regional PTT calls, or global PTT calls among users on the same talkgroup in up to 10 geographically disparate
locations around the world, providing a fast and robust communication experience. Iridium PTT can be used via the Iridium
Extreme PTT satellite phone or the Iridium 9523 PTT core transceiver, which gives our VAMs the ability to build Iridium
PTT into existing land mobile, maritime and aviation communications platforms. We and our partners are also developing
interoperability solutions for existing terrestrial Land Mobile Radio systems, which will further extend the utility of the
service.
Broadband Data Services
Our broadband data service, Iridium OpenPort, offers maritime, aviation and terrestrial users speeds of up to 134 kbps and
three independent voice lines. We believe Iridium OpenPort offers a competitive alternative to other satellite broadband
services. For our Iridium OpenPort service, we typically charge service providers usage fees for airtime consumed by the
respective subscribers for voice and data communications. In conjunction with our distributors, we also offer additional
services that permit service providers and VARs to offer complete integrated solutions for prepaid calling, e-mail and
IP-based data communications. For example, we offer a product with one of our distribution partners, KVH Industries, Inc.,
that integrates Iridium Pilot with its mini-VSATSM broadband service to provide backup connectivity when the mini-VSAT
terminal is out of its coverage area or out of service.
We are also developing a new broadband service, Iridium Certus, with enhanced capabilities that will be enabled by the more
powerful Iridium NEXT. Iridium Certus will support a variety of data speeds and antenna types, ranging from 22kbps to
700kbps, and eventually up to 1.4Mbps after the entire Iridium NEXT constellation is available. We have licensed the
Iridium Certus technology to an initial group of terminal manufacturers who are developing products for the maritime,
aviation and land mobile markets. We will also be designating distribution partners for the Iridium Certus service in each of
these vertical markets. We believe Iridium Certus will provide a competitive, cost-effective and reliable range of narrowband
and broadband services to the market, in standalone applications or as a complement to other wireless technologies.
Machine-to-Machine Services
Our M2M services are designed to address the market need for a small and cost-effective solution for sending and receiving
data, such as location, from fixed and mobile assets in remote locations to a central monitoring station. This service operates
through a two-way SBD transmission between our network and a transceiver, which may be located, for example, on a
container in transit or a buoy monitoring oceanographic conditions. The small size of our units makes them attractive for use
in applications such as tracking asset shipments, monitoring unattended remote assets, including oil and gas assets, vehicle
tracking and mobile security. We sell our M2M services to our distributors, who incorporate them and in turn provide a
solution package to commercial and government customers. Increasingly, our M2M transceivers are being built into products
for consumer markets, such as personal location devices that provide two-way messaging. As with our mobile voice and data
offerings, we typically charge service providers and VARs a monthly access fee per subscriber as well as usage fees for data
used by their respective subscribers.
Other Services
In addition to access and usage fees, we generate revenue from several ancillary services related to our core service offerings,
such as inbound connections from the public switched telephone network, or PSTN, short message services, or SMS,
subscriber identity module, or SIM, activation, customer reactivation and other peripheral services. We also provide research
and development services to assist customers in developing new technologies compatible with our system, which we may
leverage for use in service and product offerings in the future. We charge our distributors fees for these services.
U.S. Government Services
We provide U.S. government customers bulk access to our services, including voice, netted voice, data, messaging and paging
services, as well as maintenance services for the DoD’s dedicated gateway. We provide airtime to U.S. government subscribers
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through DoD’s gateway, under the EMSS contract, which is a fixed-price contract covering voice, low-speed data, paging,
broadcast and DTCS services. Additional services, such as future broadband capabilities utilizing Iridium Certus, would be
provided at an additional fee. To comply with U.S. government requirements, we ensure handsets sold for use by the U.S.
government are manufactured in the United States. U.S. government customers procure our voice and data products through our
network of distributors. Our VARs and VAMs typically integrate our products with other products, which they then offer to
U.S. government customers as customized products. Our voice and data solutions include:
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personnel tracking devices;
asset tracking devices for equipment, vehicles and aircraft;
beyond-line-of-sight aircraft communications applications;
submarine communications applications;
specialized communications solutions for high-value individuals; and
specialized, secure, mobile communications and data devices for the military and intelligence community, such as secure
satellite handsets with U.S. National Security Agency Type I encryption capability.
With funding support from the DoD, we continue to invest in research and development to develop new products and applications
for use by all branches of the U.S. armed forces, including a new secure handset. In conjunction with DISA, we and our
distribution partners offer DTCS, which provides critical, secure, PTT, netted communications using a lightweight, handheld
tactical radio. In addition, in 2017 we expect to introduce to the U.S. government a next-generation secure satellite phone based
on the Iridium Extreme, which we have also developed with funding support from the DoD. We expect this secure handset to be
accredited by the National Security Agency (NSA) to provide Type-1 encryption, enabling communications up to Top Secret
from anywhere in the world.
Our Products
We offer a broad array of voice and data products for customers that work worldwide. In most cases, our devices or an antenna
must be located outside and within view of a satellite to be able to access our network.
Satellite Handsets
Our principal handset offerings are the Iridium 9555 and Iridium Extreme satellite handsets, which are similar in
functionality to ordinary cellular phones but with the solid, durable feel that many satellite phone users demand. We believe
our reputation for industrial-strength products is critical for customers, many of whom are located in the most inhospitable
spots on the planet and require rugged and reliable communications equipment.
Iridium 9555. The Iridium 9555 provides voice, SMS and data connectivity. This model introduced several features
including a larger, brighter screen, improved SMS and e-mail capabilities, an integrated antenna and speakerphone. The
Iridium 9555 weighs 9.4 ounces and offers up to 3.1 hours of talk time. The Iridium 9555 has an industrial feel, with a
rugged housing to protect its sophisticated satellite transceiver.
Iridium Extreme. The Iridium Extreme adds to the Iridium 9555’s capabilities by providing a rugged exterior that meets
DoD Military Standard 810F for durability, a dedicated, two-way emergency SOS button and fully integrated GPS and
location-based services. These extra features are provided in a handset that is even smaller than the Iridium 9555,
weighing 8.7 ounces and offering up to four hours of talk time. An emergency response service provided by GEOS
Travel Safety Group, or GEOS, is included with the purchase of the phone and airtime usage. The two-way emergency
SOS button initiates a phone call and an emergency message via SMS to GEOS, which then coordinates with local
emergency responders.
Iridium Extreme PTT. We also offer the Iridium Extreme PTT, which enhances the Iridium Extreme with an intelligently
designed push-to-talk mode, expanded loudspeaker, reinforced PTT button, and extended capacity battery. The user
interface provides access to multiple communication services, including voice calling, SMS and SOS in phone mode and
PTT mode, allowing users to connect to a talkgroup located in up to 10 geographic regions worldwide. The Iridium
Extreme PTT weighs 9.5 ounces and offers up to 6.5 hours of talk time in phone mode and five hours of talk time in PTT
mode.
We expect these devices to maintain our competitive position as premium offerings in the market due to their
capabilities, mobility, reliability and global coverage. In addition to these devices, we offer the Iridium 9505A handset
and variants of the Iridium 9555 and Iridium Extreme handsets that are qualified for sale to U.S. government customers.
We are also working with one of our VADs to develop a secured version of the Iridium Extreme for use by the U.S.
government.
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Iridium GO!
We also offer Iridium GO!, a small, rugged, personal connectivity device that connects to the Iridium network to create a
Wi-Fi hotspot, enabling the use of smartphones and tablets to make voice calls, send text messages and emails, post to social
networking sites, and use the mobile web. Iridium GO! also has an emergency SOS button and GPS and location-based
services. Smartphone or tablet access is provided through special applications downloaded for free from the Apple App Store
or through Google Play for Android smartphones or tablets. A software development kit is available to enable the creation of
additional applications or integrate Iridium GO! connectivity into existing applications, targeted to specific customer
segments.
Voice and Data Modems
We also offer a combined voice transceiver and data modem, which our distributors integrate into a variety of
communications solutions that are deployed in different applications around the world. Our principal offering in this space is
the Iridium Core 9523 L-Band transceiver, which utilizes the transceiver core of our Iridium Extreme satellite handset. The
Iridium Core 9523 provides a small voice and data module that can be integrated with other components to create a modem
tailored for typical VAM applications as well as specific applications, such as a dual-mode terrestrial radio and satellite
phone or M2M applications that require larger data packets. The Iridium 9523 PTT adds PTT capability, allowing
development partners to design and build land mobile, fixed, aviation and maritime devices with Iridium PTT. We also offer
the 9522B L-Band transceiver, which utilizes the same transceiver core that is used in our Iridium 9555 satellite handset to
provide voice and circuit-switched data services. Our principal customers for our L-Band transceivers are VAMs and VARs,
who integrate them into specialized devices that access our network.
Broadband Data Devices
Our Iridium Pilot terminal provides up to three independent voice lines and an internet connection for data communications
of up to 134kbps, using our Iridium OpenPort service. All voice and data capabilities can be used simultaneously. Our
principal customers for Iridium Pilot are service providers who integrate the device with their own hardware and software
products to provide a suite of customer-focused voice and IP-based data packages for ship operation, crew calling and e-mail.
We believe our Iridium Pilot terminal, with its high bandwidth and flexible service options, provides an excellent low-cost
option to the maritime market, including market sectors such as luxury yachts, tug boats and other fishing and cruising
vessels. Iridium Pilot also offers a low-cost solution as a complement to maritime Very Small Aperture Terminal, or VSAT,
systems providing broadband and data services for ships, where Iridium Pilot can fill in coverage gaps, provide services
where the VSAT terminal is not licensed to operate, and provide an alternate channel for VSAT maintenance and
configuration. We also offer Iridium Pilot Land Station, which allows remote individuals and businesses from off-the-grid
terrestrial locations to obtain reliable internet connections and voice calling no matter where they are located. We have
selected several VAMs to manufacture terminals for use with our Iridium Certus broadband service. We expect these units
will begin to be commercially available once the Iridium Certus service is launched.
Machine-to-Machine Data Devices
Our principal M2M devices are the Iridium 9602 and 9603 full-duplex SBD transceivers. The Iridium 9602 is a small data
device with two-way transmission, capable of sending packet data to and from any point in the world with low latency. The
principal customers for our Iridium 9602 data modems are VARs and VAMs, who embed the Iridium 9602 into their
tracking, sensor, and data applications and systems, such as asset tracking systems. Our partners often combine the Iridium
9602 with a GPS receiver to provide location information to customer applications. We also offer the Iridium 9603, an even
smaller transceiver that is functionally identical to the Iridium 9602. In addition, an increasing number of VARs and VAMs
are including a cellular modem as part of their Iridium applications to provide low-cost cellular data transmission when
available. These types of multimode applications are adopted by end users who require the ability to regularly transfer data
but operate in areas with inconsistent cellular coverage. We provide gap-filler coverage for these applications, allowing users
to operate anywhere on the globe. We continue to invest in research and development to develop smaller, lighter products in
this market. We also offer Iridium Burst®, our one-to-many global data broadcast service, which enables enterprises to send
data to an unlimited number of devices anywhere in the world, even inside buildings, vehicles or aircraft, and are developing
Iridium EdgeTM, an off-the-shelf, environmentally sealed, rugged device that will complement existing cellular solutions to
create dual-mode connectivity for the most remote and inaccessible areas of the world, with an expected launch in 2017. We
expect Iridium Edge to reduce the cost and complications associated with hardware development, manufacture and
certification of satellite-specific terminal.
Device Development and Manufacturing
We contract with Cambridge Consulting Ltd. and other suppliers to develop all of our devices, and with Benchmark
Electronics Inc., or Benchmark, to manufacture our devices in facilities in Thailand and the U.S. Pursuant to our contract
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with Benchmark, we may be required to purchase excess materials at cost plus a contractual markup if the materials are not
used in production within the periods specified in the agreement. Benchmark generally repurchases the materials from us at
the same price we paid, as required for the production of the devices. Our agreement with Benchmark is automatically
renewable for additional one-year terms unless terminated by either party.
We generally provide our distributors with a warranty on subscriber equipment for one to five years from the date of
activation, depending on the product. We also utilize other suppliers, some of which are the sole source, to manufacture some
of the component parts of our devices.
In addition to our principal products, we also offer a selection of accessories for our devices, including extended-life
batteries, holsters, earbud headphones, portable auxiliary antennas, antenna adaptors, USB data cables and charging units,
among others. We purchase these products from several third-party suppliers either pursuant to contractual agreements or off
the shelf at market prices.
Our Spectrum
We hold licenses to use 8.725 MHz of contiguous spectrum in the L-Band, which operates at 1.6 GHz, and allows for two-way
communication between our devices and our satellites. In addition, we are authorized to use 200 MHz of K-Band
(23 GHz) spectrum for satellite-to-satellite communications, known as inter-satellite links, and 400 MHz of Ka-Band spectrum
(19.4 GHz to 19.6 GHz and 29.1 to 29.3 GHz) for two-way communication between our satellites and our gateways, known as
feeder links. Our license for the launch and operation of our Iridium NEXT constellation also authorizes our use of the
156.0125-162.0375 MHz spectrum for reception of Automatic Identification System transmissions from maritime vessels and the
1087.7-1092.3 MHz spectrum for reception of Automatic Dependent Surveillance-Broadcast transmissions from aircraft. Access
to this spectrum enables us to design satellites, network and terrestrial infrastructure enhancements cost effectively because each
product and service can be deployed and sold worldwide. In February 2013, we filed a petition with the FCC for an additional
1.775 MHz of L-band spectrum to increase our total amount to 10.5 MHz of contiguous spectrum. Our products and services are
offered in over 100 countries, and we and our distributors continue to seek authorizations in additional countries.
Our use of spectrum is globally coordinated and recorded by, and subject to the frequency rules and regulations of, the
International Telecommunication Union, or ITU. The ITU is the United Nations organization responsible for worldwide
co-operation in the telecommunications sector. In order to protect satellite systems from harmful radio frequency interference
from other satellite systems, the ITU maintains a Master International Frequency Register of radio frequency assignments. Each
ITU administration is required to give notice of, coordinate and record its proposed use of radio frequency assignments with the
ITU’s Radiocommunication Bureau. The coordination negotiations are conducted by the national administrations with the
assistance of satellite operators. When the coordination process is completed, the ITU formally notifies all proposed users of
frequencies and orbital locations in order to protect the recorded assignments from subsequent nonconforming or interfering uses
by member states of the ITU. Only member states have full standing within this inter-governmental organization. Filings to the
ITU for our first-generation constellation were made on our behalf by the United States.
The ITU also controls the assignment of country codes used for placing telephone calls between different countries. Our network
has been assigned the 8816 and 8817 country codes and uses these numbers for calling and communications between terminals.
Domestic and Foreign Revenue
We supply services and products to customers in a number of foreign countries. We allocate revenue geographically based on where
we invoice our distributors, whom we bill for mobile satellite services and related equipment sales, and not according to the location
of the end user. These distributors sell services directly or indirectly to end users, who may be located elsewhere. It is not possible for
us to determine the geographical distribution of revenue from end users, as we do not contract directly with them. Substantially all of
our revenue is invoiced in U.S. dollars. The table below sets forth the percentage of our revenue by country for the last three years.
United States
Canada
United Kingdom
Other Countries (1)
2016
Year Ended December 31,
2015
2014
52%
10%
11%
27%
50%
10%
11%
29%
47%
11%
12%
30%
(1) No other single country represented more than 10% of our revenue for any of the periods indicated.
For more information about our revenue from sales to foreign and domestic customers, see Note 11 to our consolidated financial
statements included in this annual report.
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Traffic Originating Outside the United States
A significant portion of our voice and data traffic originates outside the United States. The table below sets forth the percentage of our
commercial voice and data traffic originating outside the United States, excluding Iridium OpenPort traffic, for the last three years.
Commercial voice traffic (minutes)
Commercial data traffic (kilobytes)
Our Network
Our Constellation
2016
Year Ended December 31,
2015
2014
88%
72%
88%
67%
90%
69%
Both our first-generation satellite network and our next-generation satellite constellation, Iridium NEXT, have an architecture of
66 operational LEO satellites in six orbital planes of eleven vehicles each in nearly circular polar orbits, in addition to in-orbit
spares. Our operational satellites orbit at an altitude of approximately 483 miles (778 kilometers) above the earth and travel at
approximately 16,689 mph, resulting in a complete orbit of the earth approximately every 100 minutes. The design of our
constellation ensures that generally at least one satellite is visible to subscribers from any point on the earth’s surface, covering all
of the world’s population. While our constellation offers true global coverage, most of our devices and antennas must have a
direct line of sight to a satellite to transmit or receive a signal, and services on those devices are not available in locations where a
satellite signal cannot be transmitted or received, such as inside a building.
We have begun launching our Iridium NEXT system. We launched ten Iridium NEXT satellites in January 2017. After
completion of in-orbit testing, these satellites will begin to replace first-generation satellites in our constellation, minimizing
disruption to our end users. Once our Iridium NEXT satellites begin carrying traffic, we will operate a hybrid constellation
through the full deployment of Iridium NEXT, which we expect to occur during 2018. We will deorbit our first-generation
satellites on an individual basis after they are replaced by Iridium NEXT vehicles, although some Iridium NEXT satellites will
take a year or more to reach the appropriate orbital plane.
Our first-generation constellation and Iridium NEXT are unique among commercial constellations in the usage of radio frequency
crosslinks between our satellites, which eliminates the need for local ground infrastructure. These crosslinks enable each satellite
to communicate with up to four other satellites in space, two in the same orbital plane and two in adjacent planes. Our traffic is
routed automatically between satellites to a predetermined satellite that is in contact with one of the Iridium teleport network, or
TPN, locations. The TPN sites then transmit the traffic to and from the gateways which provide the interface to terrestrial-based
networks such as the PSTN. The use of a TPN allows grounding traffic at multiple locations within our ground network
infrastructure. This added flexibility allows for rapid reconfiguration of grounding traffic from the satellites in the event of a
space, antenna or ground routing anomaly and results in greater reliability of our network. The design of our space and ground
control system also facilitates the real-time intervention and management of the satellite constellation and service upgrades via
software enhancements. In addition, we upgraded all our ground systems, including gateway and teleport technology and satellite
control systems in anticipation of the completion of Iridium NEXT. We also have a gateway located in Russia, which was
completed during 2016 and serves commercial users operating our devices within the Russian territory.
We believe our interlinked satellite infrastructure provides several advantages over low earth orbiting “bent-pipe” satellite
networks that rely on multiple terrestrial gateways, such as Globalstar’s and ORBCOMM’s networks. We have the only satellite
network with true global coverage, and our constellation is less vulnerable to single points of failure, since traffic can be routed
around any one satellite problem to complete the communications path. In addition, the small number of ground stations increases
the security of our constellation, a factor that makes our network particularly attractive to government institutions and large
enterprises. The low orbit of our constellation also allows our network to operate with low latency and with smaller antennas due
to the proximity of our satellites to the earth.
Our constellation is designed to provide significant coverage overlap for mitigation of service gaps from individual satellite
outages, particularly at higher northern and southern latitudes. Each satellite, both in our first-generation constellation and our
Iridium NEXT system, was designed with a high degree of on-board subsystem robustness, an on-board fault detection system,
and isolation and recovery capabilities for safe and quick risk mitigation. Our ability to reposition our satellites provides us with
operating flexibility and enhances our ability to maintain a commercially acceptable level of service. Historically, if a satellite
should fail or become unusable, in most cases, we were able to reposition one of our in-orbit spare satellites to take over its
functions. Today, if a failure occurs in an orbital plane in which we have an in-orbit spare, we may be able to reposition the spare
within days, with minimal impact on our services. If there is no in-orbit spare located in the relevant orbital plane, we would
replace it with a newly launched Iridium NEXT satellite, when available.
Our primary commercial gateway is located in Tempe, Arizona, and we completed a second dedicated gateway in Russia during
2016, which serves commercial users physically located within the Russian territory. Our network has multiple antennas, located
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at the TPN facilities, including the Tempe gateway, that communicate with our satellites and pass calls between the gateway and
the satellites as the satellites traverse our antennas, thereby connecting signals from the terminals of end users to our gateways.
This system, together with our satellite crosslinks, enables communications that are not dependent on a ground station in the
region where the end user is using our services. A gateway can also generate and control user information pertaining to registered
users, such as geo-location and call detail records. The DoD owns and operates a dedicated gateway for U.S. government users to
take advantage of this capability. This gateway provides an interface between voice and data devices and the Defense Information
Systems Network and other terrestrial infrastructure, providing DoD users with secure communications capabilities.
We operate our satellite constellation from our satellite network operations center in Leesburg, Virginia. This facility manages the
performance and status of each of our satellites, developing and distributing routing tables for use by the satellites, TPN facilities
and gateways, directing traffic routing through the network and controlling the formation of coverage areas by the satellites’ main
mission antennas. We also operate TPN facilities in Fairbanks, Alaska and Chandler, Arizona in the United States, and in northern
Canada and Norway that perform telemetry, tracking and control functions. Three of our northern ground stations also provide
earth terminal capability for the Tempe gateway.
From time to time, individual satellites in our constellation experience operating problems that may result in a satellite outage, but
due to the overlapping coverage within our constellation, the individual satellite outages typically do not negatively affect our
customers’ use of our system for a prolonged period. In addition, most system processing related to our service is performed using
software onboard each satellite instead of on the ground. We believe this provides us with significant flexibility and has
contributed to the longevity of the system by enabling engineers to develop additional functionality and software-based solutions
to occasional faults and anomalies in the system.
We have experienced fourteen satellite losses since we reintroduced commercial satellite services in 2001 that have resulted in the
complete loss of the affected satellites or the loss of the ability of the satellite to carry traffic on the network, the last one being in
June 2016. Twelve of these losses were from satellites that failed in orbit, we disposed of one satellite by initiating its de-orbit,
and one satellite was lost in 2009 as a result of a collision with a non-operational Russian satellite.
Based on the failures and anomalies we have experienced to date, and considering the potential for future anomalies, we believe
our first-generation constellation will provide a commercially acceptable level of service through the completion of Iridium
NEXT, which we expect during 2018. We expect to be able to mitigate most satellite failures through initial placement of Iridium
NEXT satellites, the implementation of software solutions, and by landing communications traffic using the sites within the TPN
infrastructure and backhauling traffic to the Tempe gateway for processing and termination.
We also own spare parts for some of the equipment in our gateway and TPN facilities. We selectively replace parts for our
gateway and TPN facilities as necessary and maintain an inventory of spare parts, which we continuously monitor. When we do
not have necessary spares in inventory or our spares become obsolete, we rely on third parties to develop necessary parts.
Boeing has operated and maintained our satellite constellation under an operations and maintenance agreement since our
inception. During 2016, Boeing provided these services to us pursuant to the terms of the Iridium NEXT support services
agreement. Pursuant to this agreement, Boeing provided personnel services in support of the development of Iridium NEXT and
agreed to operate and maintain Iridium NEXT, including a transitional period that began on January 1, 2015, during which Boeing
supported a hybrid operations mode involving network elements from both the first-generation Iridium system and the Iridium
NEXT system. Boeing provided these services on a time-and-materials fee basis.
In November 2016, we restructured our relationship with Boeing. We entered into an insourcing agreement, pursuant to which we
hired, as of January 2017, the majority of the Boeing team that performed the operations and maintenance on our system. This
transition will allow us to more directly manage our network and optimize operational expenses going forward. As part of this
arrangement, we agreed to pay Boeing a fee of $5.5 million, of which one-half was paid in December 2016 and the remainder will
be paid in December 2017. In addition, we entered into a separate development services contract with Boeing, which will dedicate
key Boeing personnel to continue the design and growth required for bringing new services and capabilities to the Iridium NEXT
network.
Pursuant to an amended and restated transition services, products and asset agreement, or the TSA, with Motorola, and a separate
agreement with Boeing, Motorola, and the U.S. government, we are required to maintain an in-orbit liability insurance policy,
which also covers planned or unplanned de-orbits of individual first-generation satellites, with a de-orbiting endorsement to cover
the mass de-orbit of our first-generation satellite constellation in the amount of $500.0 million per occurrence, and $1.0 billion in
the aggregate. The current policy together with the de-orbiting endorsement covers amounts that we and other specified parties
may become liable to pay for bodily injury or property damage to third parties related to processing, maintaining and operating
our first-generation satellite constellation, including twelve individual satellite de-orbits, and, in the case of the de-orbiting
endorsement, a mass de-orbit of the first-generation satellite constellation, although it contains exceptions for third-party damages
which may result from the 2009 in-orbit satellite collision. The policy covers us, the U.S. government, Boeing, as the former
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operator of our system, Motorola Solutions, Inc., or Motorola Solutions, as successor to Motorola, and other named beneficiaries.
The policy has been renewed annually since the expiration of the original policy’s three-year term in 2003 and currently expires
on December 8, 2017. We expect to continue to renew this policy annually through the life of our first-generation constellation.
During 2016, we de-orbited one satellite from our first-generation constellation. We anticipate de-orbiting additional satellites
once Iridium NEXT satellites begin to replace those in our first-generation constellation.
In addition, we maintain a separate $1.0 billion product liability policy to cover Motorola Solutions’ potential liability as
manufacturer of the first-generation satellites. Given the flexibility of our satellite constellation and upcoming Iridium NEXT
launches, we do not maintain in-orbit insurance covering losses from satellite failures or other operational problems affecting our
first-generation constellation, although the terms of our Credit Facility require us to do so for a period of time with respect to our
Iridium NEXT satellites. See “—Iridium NEXT” below.
Our first-generation satellite constellation license from the FCC has been extended until January 31, 2018, and we will file to
further extend it as needed. During 2016, we also received the FCC space station license for the launch and operation of our
Iridium NEXT constellation. Our U.S. gateway earth station licenses expire between 2018 and 2026, and our U.S. government
customer’s and commercial subscribers’ earth station licenses for end user devices will expire in 2021. We must file renewal
applications for earth station licenses between 30 and 90 days prior to expiration.
Iridium NEXT
Our first-generation constellation satellites continue to perform well, but they have exceeded their original design lives, and we
have begun launching Iridium NEXT. We have contracted with Thales to construct the Iridium NEXT satellites.
We plan to deploy 70 satellites on seven Falcon 9 rockets launched by SpaceX, carrying ten satellites each. We have also
contracted separately with SpaceX for an eighth Falcon 9 launch, which we intend to share with the GFZ German Research
Centre for Geosciences, or GFZ, to launch five Iridium NEXT satellites and NASA’s two Gravity Recovery and Climate
Experiment Follow-On satellites. Additionally, we have contracted to launch two satellites on a Dnepr rocket launched by
Kosmotras, but Kosmotras has to date been unable to obtain permission to launch our satellites.
The Iridium NEXT constellation will also host the Aireon system. The Aireon system is being developed by Aireon LLC, which
we formed in 2011, with subsequent investments from the ANSPs of Canada, Italy, Denmark and Ireland, to provide a global air
traffic surveillance service through a series of ADS-B receivers on the Iridium NEXT satellites. Aireon has contracted to offer
this service to our co-investors in Aireon, as well as NATS and other ANSPs, and plans to offer the service to other customers
worldwide, including the FAA. These ANSPs will use the service to provide air traffic control services over the oceans, as well as
polar and remote regions. Aireon also plans to market the data to airlines and other users. Under our agreements with Aireon,
Aireon will pay us fees of $234 million to host the ADS-B receivers on Iridium NEXT, as well as data services fees of up to
approximately $20 million per year, once the system is fully operational, for the delivery of the air traffic surveillance data over
the Iridium NEXT system.
While the Aireon ADS-B receivers are the primary hosted payload on the Iridium NEXT satellites, we have also entered into an
agreement with Harris for it to utilize the remaining space for payloads it has constructed for its customers. We expect this
agreement to result in an additional $76 million in hosting and data service fees. We also offer Iridium PRIMESM to address the
traditional challenges of hosted payload missions, which include inflexible launch schedules, “one-off” mission control systems
and ground connectivity challenges. Iridium PRIME can provide customers with access to the Iridium NEXT satellite
constellation with flexibility as to the number of payloads they can deploy, the number of orbital planes they occupy, and
independent mission control, at substantial cost savings compared to current stand-alone solutions.
We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related infrastructure upgrades
through 2018 to be approximately $3 billion. We believe the Credit Facility, as described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Credit Facility,” together with cash on hand and internally generated
cash flows, including contracted cash flows from hosted payloads, will be sufficient to fully fund the aggregate costs associated
with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2018.
The Credit Facility requires us to obtain insurance covering the launch and first 12 months of operation of the Iridium NEXT
satellites, which we finished placing during 2016.
These insurance policies use nine ground spares and a prepaid relaunch right with SpaceX to self-insure a portion of our launch
and in-orbit risks, as permitted under the Credit Facility. While we believe this enabled us to obtain insurance at a substantially
lower cost than would have been possible without the ground spares and relaunch right, if we use our ground spares to replace lost
satellites, we will likely choose to purchase additional satellites to maintain a backup supply of ground spares. The cost of such
additional ground spares is not included in the $3 billion estimated cost for the design, build and launch of Iridium NEXT and
related infrastructure upgrades through 2018.
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Full Scale Development and Launch Services Agreements
In June 2010, we executed a primarily fixed price full scale development contract, or FSD, with Thales for the design and
manufacture of satellites for Iridium NEXT. The total price under the FSD will be approximately $2.3 billion, and we expect
our payment obligations under the FSD to extend through 2018. As of December 31, 2016, we had made total payments of
$1,753.6 million to Thales, of which $1,490.6 million were from borrowings under the Credit Facility. We used the Credit
Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand;
however, the Credit Facility is now fully drawn as of February 2017. We now expect to pay 100% of each invoice received
from Thales from cash and marketable securities on hand as well as internally generated cash flows, including contracted
cash flows from hosted payloads.
In March 2010, we entered into an agreement with SpaceX as the primary launch services provider for Iridium NEXT. The
contract price under the SpaceX agreement is $468.1 million, which includes the exercise of our reflight option in the event
of launch failure. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXT satellites to orbit with each launch. In
November 2016, we entered into an additional agreement with SpaceX for an eighth Falcon 9 launch for a contract price of
$67.9 million. Although we are the customer of record with SpaceX, we have contracted separately with GFZ for
$31.8 million to share the launch of NASA’s two Gravity Recovery and Climate Experiment Follow-On satellites on a
specially designed dispenser on the Falcon 9 rocket. As of December 31, 2016, we had made aggregate payments of
$394.0 million to SpaceX, and received $16.5 million from GFZ. We also maintain a $1.5 million refundable deposit for the
reservation of an additional future launch with SpaceX, which is not included in the total contract price.
In June 2011, we entered into an agreement with Kosmotras as a supplemental launch service provider for Iridium NEXT.
The Kosmotras agreement originally provided for the purchase of up to six launches with options to purchase additional
launches. Each launch can carry two satellites. In June 2013, we exercised an option for one launch to carry the first two
Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the contract including this single
launch will be $51.8 million. As of December 31, 2016, we had made aggregate payments of $36.8 million to Kosmotras.
The option to purchase two dedicated launches expired as of December 31, 2013, and in June 2015 we agreed with
Kosmotras to replace the remaining options with a new set of options to purchase up to six dedicated launches. Kosmotras
has to date been unable to obtain permission to launch our satellites. We may be unable to recover the amounts already paid
to Kosmotras.
Aireon LLC Agreement
On November 19, 2012, Iridium Satellite and Aireon entered into an Amended and Restated Limited Liability Company
Agreement with NAV CANADA, the ANSP of Canada, and a wholly owned subsidiary of NAV CANADA. On February 14,
2014, we entered into a Second Amended and Restated Limited Liability Company Agreement, or the Aireon LLC
Agreement, with NAV CANADA; Enav S.p.A., the ANSP of Italy; Naviair, the ANSP of Denmark; Irish Aviation Authority
Limited, the ANSP of Ireland; and wholly owned subsidiaries of NAV CANADA, Enav and Naviair.
Under the Aireon LLC Agreement, NAV CANADA’s subsidiary may acquire up to a 51% interest in Aireon and the other
ANSP investors or their subsidiaries may acquire up to a 24.5% interest, collectively, with Iridium retaining a 24.5% interest.
The Aireon LLC Agreement provides for the purchase by these investors of preferred membership interests in multiple
tranches for an aggregate purchase price of $270 million, of which $243 million has been invested to date, with one tranche
remaining. The final tranche is subject to the satisfaction of various operational, commercial, regulatory and financial
conditions, including the completion of the Iridium NEXT constellation, which we expect the investors to waive in order to
fund the final tranche in 2017. Following the completion of the investments by the new investors and NAV CANADA’s
subsidiary, Aireon will be required, if and when funds are available, to redeem a portion of our ownership interest for a
payment of $120 million. We expect this redemption of our ownership interest to occur in 2019.
The Aireon LLC Agreement provides for Aireon to be managed by a board of directors consisting of 11 members. Currently,
Iridium Satellite may nominate four directors, NAV CANADA may nominate four directors, Enav may nominate one
director and the other two investors may together nominate one director. The chief executive officer of Aireon serves as the
eleventh director. Following the final investment tranche, expected in 2017, NAV CANADA will be able to nominate six
directors and Iridium Satellite will be able to nominate two directors, with the remaining nomination rights unchanged. The
Aireon LLC Agreement also provides the minority-interest holders with several protective provisions.
Constellation De-Orbiting Obligations
When Iridium Satellite purchased the assets of Iridium LLC out of bankruptcy, Boeing, Motorola and the U.S. government
required specified de-orbit rights as a way to control potential liability risk arising from future operation of our first-generation
constellation, and to provide for the U.S. government’s obligation to indemnify Motorola pursuant to the Indemnification
Agreement described below. As a result, Iridium Satellite, Boeing, Motorola and the U.S. government entered into the
18
Indemnification Agreement, as subsequently amended in September 2010, giving the U.S. government the right, in its sole
discretion, to require us to de-orbit our first-generation constellation in the event of: (a) Iridium Satellite’s failure to maintain
certain insurance and pay certain insurance premiums; (b) Iridium Satellite’s bankruptcy; (c) Iridium Satellite’s sale or the sale of
any major asset in our satellite system; (d) Boeing’s replacement as the operator of our satellite system; (e) Iridium Satellite’s
failure to provide certain notices as contemplated by the Indemnification Agreement; or (f) at any time after January 1, 2015.
Prior to the September 2010 amendment of the Indemnification Agreement, the U.S. government had the right to require us to
de-orbit our first-generation constellation at any time after June 5, 2009. Pursuant to the September 2010 amendment, the U.S.
government may withdraw its agreement to postpone the exercise of its de-orbit right: (i) on or after January 1, 2015; (ii) if
Iridium Satellite violates any terms of the Indemnification Agreement or fails to comply with any terms of the September 2010
amendment; (iii) if more than four satellites have insufficient fuel to execute a 12-month de-orbit; (iv) if Iridium Satellite fails to
comply with the de-boost plans; (v) upon a finding by the FCC, not remedied by Iridium Satellite in the time set forth by the FCC,
that Iridium Satellite has failed to comply with the terms of the Iridium Orbital Debris Mitigation Plan filed with the FCC and
then in effect; (vi) upon the cancellation, non-renewal or refusal to provide any insurance required by the Indemnification
Agreement; or (vii) upon the termination or completion of the current or any successor agreement between Iridium Satellite and
the DoD pursuant to which Iridium Satellite provides mobile satellite services to the DoD. Because it is after January 1, 2015,
more than four of our satellites currently have insufficient fuel to execute a 12-month de-orbit and due to the Boeing insourcing
transaction described below in “Our Network”, the U.S. government currently has the right to require us to de-orbit our first-
generation constellation. In addition, the U.S. government also has the right to require us to de-orbit any of our individual
functioning first-generation constellation satellites, including in-orbit spares that have been in orbit for more than seven years,
unless the U.S. government grants a postponement. All of our functioning first-generation constellation satellites have been in
orbit for more than seven years. We believe the probability that the U.S. government will exercise these rights is remote.
Motorola Solutions, as successor to Motorola, also has the right to require us to de-orbit our first-generation constellation
pursuant to the TSA and pursuant to our previous operations and maintenance agreement, or O&M Agreement, with Boeing.
Under these agreements, Motorola Solutions may require the de-orbit of our first-generation constellation upon the occurrence of
any of the following: (a) the bankruptcy of our company, Iridium Holdings, Iridium Constellation LLC or Iridium Satellite;
(b) Iridium Satellite’s breach of the TSA; (c) Boeing’s breach of the O&M Agreement or a related agreement between Boeing and
Motorola Solutions; (d) an order from the U.S. government requiring the de-orbiting of our satellites; (e) Motorola Solutions’
determination that changes in law or regulation may require it to incur specified costs relating to the operation, maintenance,
re-orbiting or de-orbiting of our first-generation constellation; or (f) our failure to obtain, on commercially reasonable terms,
product liability insurance to cover Motorola Solutions’ position as manufacturer of the first-generation constellation satellites,
provided the U.S. government has not agreed to cover what would have otherwise been paid by such policy.
We have certain de-orbit obligations under our FCC licenses. Specifically, pursuant to an orbital debris mitigation plan
incorporated into our FCC satellite constellation license in 2002, we are required to lower each satellite to an orbit with a perigee
of approximately 250 kilometers as it reaches the end of its useful life and to coordinate these orbit-lowering maneuvers with the
United States Space Command. In August 2014, we received a license modification from the FCC permitting us to operate up to
ten satellites pursuant to the less stringent 600 kilometer de-orbit standards for non-geostationary satellites that the FCC
acknowledged in 2004 would serve the public interest and has been utilized for other satellite constellations since that time.
Competition
The mobile satellite services industry is highly competitive but has significant barriers to entry, including the cost and difficulty
associated with obtaining spectrum licenses and successfully building and launching a satellite network. In addition to cost, there is a
significant amount of lead-time associated with obtaining the required licenses, building and launching the satellite constellation and
deploying the ground network technology. We currently face substantial competition from other service providers that offer a range of
mobile and fixed communications options. Currently, our principal mobile satellite services competitors are Inmarsat, Globalstar,
Thuraya Telecommunications Co., or Thuraya, and ORBCOMM. We compete primarily on the basis of coverage, quality, mobility
and pricing of services and products.
Inmarsat owns and operates a fleet of GEO satellites. Unlike LEO satellites, GEO satellites orbit the earth at approximately 22,300
miles above the equator. GEO operators require substantially larger and more expensive antennas, and typically have higher
transmission delays than LEO operators. Due to its GEO system, Inmarsat’s coverage area extends and covers most bodies of water
except for a majority of the polar regions. Inmarsat is the leading provider of satellite communications services to the maritime sector.
Inmarsat also offers land-based and aviation communications services.
Globalstar owns and operates a fleet of LEO satellites. Globalstar’s service is available only on a multi-regional basis as a result of its
“bent pipe” architecture, which requires that voice and data transmissions be routed from satellites immediately to nearby ground
stations. This design requires the use of multiple ground stations, which are impractical in extreme latitudes or over oceans. Unlike
Inmarsat and us, Globalstar sells a higher percentage of its products and services directly to end users. Globalstar completed its most
recent launch campaign in February 2013. It has currently arranged to replace only 24 of its original 48 satellites.
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ORBCOMM also provides commercial services using a fleet of LEO satellites. Like Globalstar, ORBCOMM’s network also has a
“bent pipe” architecture, which limits its real-time coverage area. ORBCOMM’s principal focus is low-cost data and M2M services,
where it directly competes with our M2M offerings. Because a ground station may not be within view of a satellite, ORBCOMM’s
services may have a significant amount of latency, which may limit their use in some mission-critical applications. It does not offer
voice service or high-speed data services.
We also compete with regional mobile satellite communications services in several geographic markets. In these cases, the majority of
our competitors’ customers require regional, not global, mobile voice and data services, so our competitors may present a viable
alternative to our services. All of these regional competitors operate or plan to operate GEO satellites. Our regional mobile satellite
services competitors currently include Thuraya, principally in Europe, the Middle East, Africa, Australia and several countries in
Asia.
While we view our services as largely complementary to terrestrial wireline and wireless communications networks, we also compete
with them indirectly. We provide service in areas that are inadequately covered by these ground systems. To the extent that terrestrial
communications companies invest in underdeveloped areas, we will face increased competition in those areas. We believe that local
telephone companies currently are reluctant to invest in new switches, landlines and cellular towers to expand their networks in rural
and remote areas due to high costs and limited usage. Many of the underdeveloped areas are sparsely populated, making it difficult to
generate the necessary returns on the capital expenditures required to build terrestrial wireless networks in those areas. We believe
that our solutions offer a cost-effective and reliable alternative to terrestrial-based wireline and wireless systems in these remote
regions.
Research and Development
Our research and development efforts have focused on the development, design and testing of new products and services, such as
Iridium PTT, Iridium Burst, Iridium Pilot Land Station and Iridium GO!, each introduced in 2014, and the planning and development
of the Iridium NEXT constellation, ground infrastructure and chipsets, as well as new products and services to be offered on Iridium
NEXT, such as Iridium Certus and Iridium Edge. We also develop product and service enhancements and new applications for our
existing products and services. Our research and development expenses were $16.1 million, $16.1 million and $17.6 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
Employees
As of December 31, 2016, we had 244 full-time employees, none of whom is subject to any collective bargaining agreement. After the
completion of the Boeing insourcing, as of January 3, 2017, we had 393 full-time employees, none of whom is subject to any
collective bargaining agreement. We consider our employee relations to be good.
Intellectual Property
At December 31, 2016, we held fourteen U.S. patents and one foreign patent. These patents cover several aspects of our satellite
system, our global network, our communication services, and our devices.
In addition to our owned intellectual property, we also license critical system technology from Motorola Solutions, including software
and systems to operate and maintain our network as well as technical information for the design and manufacture of our devices. This
intellectual property is essential to our ability to continue to operate our first-generation constellation and sell our devices. We also
have licensed technology from Motorola Solutions relating to the development and operation of Iridium NEXT and related ground
infrastructure, products and services. We maintain our licenses with Motorola Solutions pursuant to several agreements, which can be
terminated by Motorola Solutions upon the commencement by or against us of any bankruptcy proceeding or other specified
liquidation proceedings or upon our material failure to perform or comply with any provision of the agreements. If Motorola Solutions
were to terminate any such agreement, it may be difficult or, under certain circumstances, impossible to obtain the technology from
alternative vendors. Motorola Solutions has assigned to a third party a portion of the patents that are covered by some of these
licenses.
We license additional system technology from other third parties and expect to do so in the future both in connection with our first-
generation network, products and services and with the development and operation of Iridium NEXT and related ground
infrastructure, products and services. If any such third party were to terminate its agreement with us or cease to support and service
this technology, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more
expensive or impossible to obtain substitute technology from alternative vendors. Any substitute technology may also have lower
quality or performance standards, which would adversely affect the quality of our products and services. For more information, see
“Risk Factors—We are dependent on intellectual property licensed from third parties to operate our constellation and sell our devices
and for the enhancement of our existing products and services.”
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Available Information
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments, if any, to
those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge
through our website at www.iridium.com and on the website of the Securities and Exchange Commission, or SEC, at www.sec.gov. A
request for any of these reports may also be submitted to us by writing: Investor Relations, Iridium Communications Inc., 1750
Tysons Boulevard, Suite 1400, McLean, VA 22102, or by calling our Investor Relations line at 703-287-7570.
ITEM 1A. Risk Factors
Our business plan depends on increased demand for mobile satellite services, among other factors.
Our business plan is predicated on growth in demand for mobile satellite services. Demand for mobile satellite services may not grow,
or may even contract, either generally or in particular geographic markets, for particular types of services or during particular time
periods. A lack of demand could impair our ability to sell products and services, develop and successfully market new products and
services and could exert downward pressure on prices. Any decline in prices would decrease our revenue and profitability and
negatively affect our ability to generate cash for capital expenditures, investments and other working capital needs.
Our ability to successfully implement our business plan will also depend on a number of other factors, including:
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our ability to maintain the health, capacity and control of our first-generation satellites through the deployment of
Iridium NEXT;
our ability to operate a hybrid constellation and to successfully replace individual first-generation satellites with their
Iridium NEXT replacements;
our ability to complete the Iridium NEXT constellation and related products and services, and, once fully deployed, our
ability to maintain the health, capacity and control of the new satellite constellation;
the level of market acceptance and demand for our products and services;
our ability to introduce innovative new products and services that satisfy market demand, including new product and
service offerings on Iridium NEXT;
our ability to expand our business using our existing spectrum resources both in the United States and internationally;
our ability to sell our products and services in additional countries;
our ability to maintain our relationship with U.S. government customers, particularly the DoD;
the ability of our distributors to market and distribute our products, services and applications effectively and their
continued development of innovative and improved solutions and applications for our products and services;
the effectiveness of our competitors in developing and offering similar services and products;
our ability to de-orbit our first-generation satellites; and
our ability to maintain competitive prices for our products and services and to control our costs.
Our business plan depends in large part on the success of our subsidiary, Aireon LLC, which is our primary hosted payload
customer.
In June 2012, we announced our plans to host a payload being developed by our subsidiary, Aireon LLC, as our primary hosted
payload on Iridium NEXT. We currently expect to rely on the cash flows generated from this hosted-payload arrangement with
Aireon to satisfy a portion of our capital requirements for the development and deployment of Iridium NEXT. Aireon’s payload is a
satellite-based automatic dependent surveillance-broadcast, or ADS-B, system for global air traffic monitoring, and Aireon’s success
will depend on its ability to successfully deploy this system. Deploying an ADS-B system on satellites is a new and unproven method
for providing this service.
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In addition, Aireon’s ability to pay us hosting fees will depend on the development of the market for a space-based ADS-B service
among air navigation service providers, or ANSPs, particularly the FAA. Aireon does not have a contract to provide commercial,
operational ADS-B services to the FAA, and there can be no assurance that it will be successful in securing such a contract. The
FAA’s activities to date have been limited to preparing to use space-based ADS-B, and no funds have been allocated by the FAA for a
commercial, operational commitment to Aireon. If Aireon is not successful in entering into a contract for the provision of operational
ADS-B services to the FAA, it may not be able to make its hosting reimbursement payments to us when we currently anticipate or at
all.
Aireon will itself require significant additional capital to complete the successful deployment and operation of its system. The Aireon
LLC Agreement provides for the purchase by NAV CANADA Satellite and three other ANSP investors of additional membership
interests in multiple tranches through 2017 for an aggregate investment of up to $270 million, of which $243 million has been funded
through February 2017. The remaining tranche is subject to the satisfaction of various operational, commercial, regulatory and
financial conditions, some of which will be out of our control, and the investors have significant discretion in the determination of
whether those conditions have been met. Further, Aireon is in the process of raising additional operating capital. If Aireon issues
equity to raise such capital, we may experience dilution of our ownership interest in Aireon.
The management of Aireon is not within our control given that we only have rights to appoint a minority of the members of the
Aireon board of directors, as well as significant veto rights and other protective provisions provided to NAV CANADA and the other
investors. As a result, we may not be able to cause Aireon to take actions that we believe are necessary for its ultimate success.
If Aireon is unable to pay its hosting reimbursement costs, our ability to pursue our business plan would be compromised unless we
were able to replace those amounts with capital from other sources. In addition, Aireon’s failure to pay our data fees and make the
anticipated redemption of a portion of our equity interest would negatively affect our expected future results of operations.
We may need additional capital to complete Iridium NEXT, develop and launch new products and services, and pursue additional
growth opportunities. If we fail to maintain access to sufficient capital, our liquidity could be compromised and we will not be able
to successfully implement our business plan.
Our business plan calls for the continued deployment of Iridium NEXT, the development of new product and service offerings,
upgrades to our current services, and upgrades to our business systems. We estimate the costs associated with the design, build and
launch of Iridium NEXT and related ground infrastructure upgrades through 2018 to be approximately $3 billion. Our funding plan
for these costs includes the substantial majority of the funds under our $1.8 billion Credit Facility, which we have fully drawn,
together with cash on hand and internally generated cash flows, including contracted cash flows from hosted payloads.
There can be no assurance that our internally generated cash flows will meet our current expectations, or that we will not encounter
increased costs. For example, Aireon may be unable to pay its hosting reimbursement costs. If internally generated cash flows,
including potential cash from Aireon, are less than we expect, we might need to finance the remaining cost of Iridium NEXT by
raising additional debt or equity financing. In addition, we may need additional capital to design and launch new products and services
on Iridium NEXT. We would have to seek the permission of the lenders under the Credit Facility in order to obtain many alternative
sources of financing, and there can be no assurance that we would have access to other sources of financing on acceptable terms, or at
all.
If we are unable to generate sufficient cash flows or to raise additional capital for one or more of these needs, our ability to maintain
our network, complete Iridium NEXT, develop new products and services, and pursue additional growth opportunities will be
impaired, which would significantly limit the development of our business and impair our ability to provide a commercially
acceptable level of service. We expect our overall liquidity levels in the coming years to be lower than our recent liquidity levels as
we have fully drawn our Credit Facility and expect to begin repayments in early 2018. Inadequate liquidity could compromise our
ability to pursue our business plans and growth opportunities, delay the continued deployment of Iridium NEXT, or otherwise impair
our business and financial position or, we might need to satisfy our liquidity needs by raising additional debt or equity financing.
If we default under the Credit Facility, the lenders may require immediate repayment in full of amounts borrowed or foreclose on
our assets.
The Credit Facility contains events of default, including:
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non-compliance with the covenants under the Credit Facility, including financial covenants and covenants relating to
hosted payloads and launch and in-orbit insurance;
cross-default with other indebtedness;
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insolvency of any obligor under the Credit Facility;
revocation of the COFACE insurance policy;
failure to maintain our first-generation satellites or complete Iridium NEXT by a specified date; and
a determination by the lenders that we have experienced a material adverse change in our business.
Some of these events of default are outside of our control or otherwise difficult to satisfy. If we experience an event of default, the
lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have
adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the
lenders may foreclose on the assets we have pledged under the Credit Facility, which includes substantially all of our assets and those
of our domestic subsidiaries.
The Credit Facility restricts the manner in which we may operate our business, which may prevent us from successfully
implementing our business plan.
The Credit Facility contains restrictions on the operation of our business, including limits on our ability to:
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carry out mergers and acquisitions;
dispose of, or grant liens on, our assets;
enter into transactions with our affiliates;
pay dividends or make distributions to our stockholders;
incur indebtedness;
prepay indebtedness; and
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The Credit Facility also prohibits us from paying dividends to holders of our preferred stock, including our Series A Preferred Stock
and Series B Preferred Stock, if we are unable to certify that we anticipate being able to comply with the financial covenants of the
Credit Facility for the next twelve months each time we declare a dividend. If we are unable to make that certification, we will not be
able to pay the dividends on our outstanding preferred stock. If we do not pay dividends on our preferred stock for six quarterly
periods (whether or not consecutive), the holders of the Series A Preferred Stock and Series B Preferred Stock collectively will have
the power to elect two members of our board of directors. The interests of the holders of our preferred stock may differ from those of
our other stockholders. In addition, any dividend we fail to pay will accrue, and the holders of our Series A Preferred Stock and Series
B Preferred Stock will be entitled to a preferential distribution of the original purchase price per share plus all accrued and unpaid
dividends before any distribution may be made to holders of our common stock in connection with any liquidation event.
Complying with these restrictions may cause us to take actions that are not favorable to holders of our common stock and may make it
more difficult for us to successfully execute our business plan and compete against companies who are not subject to such restrictions.
If we are unable to effectively deploy Iridium NEXT before our first-generation satellites cease to provide a commercially
acceptable level of service, our business will suffer.
We are currently launching Iridium NEXT. While we expect our first-generation satellites to provide a commercially acceptable level
of service through the completion of the transition to Iridium NEXT, we cannot guarantee it will do so. If we are unable to effectively
complete the deployment of Iridium NEXT for any reason, whether as a result of insufficient funds, manufacturing or launch delays,
launch failures, in-orbit satellite failures, inability to achieve or maintain orbital placement, failure of the satellites to perform as
expected, interference between any hosted payload and our network, or otherwise, before our first-generation satellites cease to
provide a commercially acceptable level of service, or if we experience backward compatibility problems with our new constellation,
we would likely lose customers and business opportunities to our competitors, resulting in a potentially material decline in revenue
and profitability and the inability to service our debt.
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Iridium NEXT may not be completed on time, and the costs associated with it may be greater than expected.
We estimate that the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades
through 2018 will be approximately $3 billion, although our actual costs could substantially exceed this estimate. We may not
complete Iridium NEXT on time, on budget or at all. Our first launch, originally scheduled for the first quarter of 2015, was delayed
until January 2017 because of delays by our satellite manufacturer, the failure of one of our launch providers, Kosmotras, to obtain
approval for launch, and delays by our other launch provider, SpaceX, and we may experience further delays. The design,
manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost overruns.
Deployment of Iridium NEXT may suffer from additional delays, interruptions or increased costs due to many factors, some of which
may be beyond our control, including:
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lower than anticipated internally generated cash flows, including from Aireon and other hosted payloads;
inadequate liquidity;
operating and other requirements imposed by the lenders under the Credit Facility;
Thales’s ability to manufacture the Iridium NEXT satellites on time and on budget, including issues that might be found
late in the process, for example during systems-level testing;
interference between any hosted payload and our network;
complex integration of our ground segment with the Iridium NEXT satellites and the transition from our first-generation
satellites;
denial or delays in receipt of regulatory approvals or non-compliance with conditions imposed by regulatory authorities;
the breakdown or failure of equipment or systems;
non-performance by third-party contractors, including the prime system contractor;
the inability to license necessary technology on commercially reasonable terms or at all;
use of the SpaceX launch vehicle, which has a limited operating history, or the failure of SpaceX to sustain its business;
launch delays or failures or in-orbit satellite failures once launched or the decision to manufacture additional
replacement satellites for future launches;
labor disputes or disruptions in labor productivity or the unavailability of skilled labor;
increases in the costs of materials;
changes in project scope;
additional requirements imposed by changes in laws; or
severe weather or catastrophic events, such as fires, earthquakes or storms.
If the manufacture and deployment of Iridium NEXT costs more or takes longer than we anticipate, our ability to continue to develop
Iridium NEXT could be compromised.
Our Russian launch services provider has been unable to launch two of our Iridium NEXT satellites.
We contracted with International Space Company Kosmotras, or Kosmotras, a Russian launch services provider, for the launch of two
of our Iridium NEXT satellites. Kosmotras has, to date, been unable to secure approval from the Russian Ministry of Defense to
launch the Dnepr rocket from the military base in Yasny, Russia. Kosmotras may never be able to provide the launch services for
which we contracted, and we may be unable to recover the amounts we have already paid to Kosmotras.
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Loss of any Iridium NEXT satellite during launch or delays in our launch schedule could delay or impair our ability to offer our
services or increase our costs.
The launch of our Iridium NEXT satellites will be subject to the inherent risk of launch failures, which could result in the loss or
destruction of one or more satellites. We have entered into two launch services agreements with SpaceX, pursuant to which SpaceX
will provide launch services to us in connection with our deployment of Iridium NEXT. The SpaceX agreements contemplate seven
launches of ten satellites and one shared launch of five satellites, each on SpaceX’s Falcon 9 rocket, over a two-year period. SpaceX is
a rapidly growing company in a technically complicated industry, is working to meet an aggressive launch manifest and has
experienced failures leading to launch delays in the past. In the event of a launch failure resulting in the destruction of our satellites,
we may not be able to have enough replacement satellites manufactured in time to conduct all contracted launches. A failure by
SpaceX to maintain its launch schedule could expose us to delay or the need to utilize an alternate launch services provider, which
could substantially increase our launch costs.
Our launch insurance contains significant elements of self-insurance and some variability in premiums, as a result of which we
may be subject to increased costs.
The launch and in-orbit insurance we have obtained contains, consistent with the terms of the Credit Facility, elements of self-
insurance and deductibles, providing reimbursement only after a specified number of satellite failures. Further, some policies covering
launches three through seven require the payment of additional premiums if there are losses on the first two launches. As a result, a
failure of one or more of our satellites, or the occurrence of equipment failures and other related problems, could constitute an
uninsured loss or require the payment of additional premiums and could harm our financial condition. Furthermore, launch and
in-orbit insurance does not cover lost revenue.
Both our first-generation and our Iridium NEXT satellites have a limited life and may fail prematurely, which would cause our
network to be compromised and materially and adversely affect our business, prospects and profitability.
Since we introduced commercial services in 2001, we have experienced fourteen first-generation satellite losses, most recently in June
2016. Twelve of our satellites have failed in orbit, which has resulted in either the complete loss of the affected satellites or the loss of
the ability of the satellite to carry traffic on the network, we disposed of one satellite by initiating its de-orbit, and one satellite was
lost as a result of a collision with a non-operational Russian satellite. Also, our first-generation satellites have already exceeded their
original design lives. In addition, we may experience in-orbit malfunctions of Iridium NEXT satellites, which could adversely affect
the reliability of their service or result in total failure of the satellite. While actual useful life typically exceeds original design life, the
useful lives of our satellites may be shorter than we expect, and additional satellites may fail or collide with space debris or other
satellites in the future. If we experience a failure in an orbital plane other than a plane in which we have a spare, we do not expect to
replace the failure until we have an Iridium NEXT satellite available to do so. As a result, while we expect our first-generation
satellites to provide a commercially acceptable level of service through the completion of the transition to Iridium NEXT, we cannot
guarantee it will be able to do so.
In-orbit failure of a satellite may result from various causes, including component failure, loss of power or fuel, inability to control
positioning of the satellite, solar or other astronomical events, including solar radiation and flares, and space debris. Other factors that
could affect the useful lives of our satellites include the quality of construction, gradual degradation of solar panels and the durability
of components. Radiation-induced failure of satellite components may result in damage to or loss of a satellite before the end of its
expected life. As our first-generation satellites have aged, some of our satellites have experienced individual component failures
affecting their coverage or transmission capacity, and other satellites may experience such failures in the future, which could
adversely affect the reliability of their service or result in total failure of the satellite. As a result, fewer than 66 of our first-generation
satellites are fully functioning at any time. Although we do not incur any direct cash costs related to the failure of a satellite, if a
satellite fails, we record an impairment charge in our statement of operations to reduce the remaining net book value of that satellite to
zero, and any such impairment charges could depress our net income for the period in which the failure occurs.
From time to time, we are advised by our customers and end users of temporary intermittent losses of signal cutting off calls in
progress, preventing completions of calls when made or disrupting the transmission of data. If the magnitude or frequency of such
problems increase and we are no longer able to provide a commercially acceptable level of service, our business and financial results
and our reputation would be hurt and our ability to pursue our business plan would be compromised.
We may be required in the future to make further changes to our constellation to maintain or improve its performance. Any such
changes may require prior Federal Communications Commission, or FCC, approval, and the FCC may subject the approval to other
conditions that could be unfavorable to our business. In addition, from time to time we may reposition our satellites within the
constellation in order to optimize our service, which could result in degraded service during the repositioning period. Although we
have some ability to remedy some types of problems affecting the performance of our satellites remotely from the ground, the
physical repair of our satellites in space is not feasible.
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We will have to de-orbit all of our first-generation satellites, and we may not be able to obtain or maintain adequate de-orbit
insurance.
Our FCC license requires us to de-orbit a first-generation satellite following its replacement with an Iridium NEXT constellation
satellite and to notify the FCC within 30 days following removal of a first-generation satellite from its operational orbit for purposes
of de-orbit. We must seek additional FCC authorization to retain a first-generation satellite as a spare following its replacement with
an Iridium NEXT satellite.
Our current insurance policy covers amounts that we and other specified parties may become liable to pay for bodily injury and
property damages to third parties related to a de-orbit of our first-generation satellites. Our current policy has a one-year term, which
expires on December 8, 2017, and only covers the de-orbit of 12 satellites, unless we pay an additional premium. The price, terms and
availability of insurance have fluctuated significantly since we began offering commercial satellite services. The cost of obtaining
insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Higher premiums on insurance
policies would increase our cost. De-orbit liability insurance policies on satellites may not continue to be available on commercially
reasonable terms or at all or in sufficient amount to cover the planned de-orbit, over time, of all satellites in our first-generation
constellation. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and
additional policy exclusions. For example, our current de-orbit insurance covers only twelve months from attachment and therefore
would not cover losses arising outside that timeframe. In addition, even if we continue to maintain a de-orbit liability insurance
policy, the coverage may not protect us against all third-party losses, which could be material.
Our agreements with U.S. government customers, particularly the DoD, which represent a significant portion of our revenue, are
subject to termination.
The U.S. government, through a dedicated gateway owned and operated by the DoD, has been and continues to be, directly and
indirectly, our largest customer, representing 25% and 23% of our revenue for the years ended December 31, 2016 and 2015,
respectively. We provide the majority of our services to the U.S. government pursuant to our Gateway Maintenance and Support
Services, or GMSS, and EMSS contracts. We entered into these contracts in September 2013 and October 2013, respectively. The
GMSS contract provides for a one-year base term and up to four additional one-year options exercisable at the election of the U.S.
government, three of which have been exercised so far, and the EMSS contract provides for a five-year term. The U.S. government
may terminate these agreements, in whole or in part, at any time for its convenience. If the U.S. government terminates either of the
agreements or decides not to exercise options under the GMSS agreement, we would lose a significant portion of our revenue.
We are dependent on intellectual property licensed from third parties to operate our constellation and sell our devices and for the
enhancement of our existing products and services.
We license critical system technology, including software and systems, to operate and maintain our network as well as technical
information for the design, manufacture and sale of our devices. This intellectual property is essential to our ability to continue to
operate our constellation and sell our services and devices. In addition, we are dependent on third parties to develop enhancements to
our current products and services even in circumstances where we own the intellectual property. If any third-party owner of such
intellectual property were to terminate any license agreement with us or cease to support and service this technology or perform
development on our behalf, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult,
more expensive or impossible to obtain such technology or services from alternative vendors. Any substitute technology may also be
costly to develop and integrate, or could have lower quality or performance standards, which would adversely affect the quality of our
products and services. In connection with the manufacture and operation of Iridium NEXT and the development of new products and
services to be offered on Iridium NEXT, we may be required to obtain additional intellectual property rights from third parties. We
can offer no assurance that we will be able to obtain such intellectual property rights on commercially reasonable terms or at all. If we
are unable to obtain such intellectual property rights on commercially reasonable terms, we may not be able to complete Iridium
NEXT on budget or at all or may not be able to develop new products and services to be offered on Iridium NEXT.
Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or
deficiencies or events outside of our control, which would seriously harm our business and reputation.
Our products and services are subject to the risks inherent in a large-scale, complex telecommunications system employing advanced
technology. Any disruption to our satellites, services, information systems or telecommunications infrastructure could result in the
inability of our customers to receive our services for an indeterminate period of time. These customers include government agencies
conducting mission-critical work throughout the world, as well as consumers and businesses located in remote areas of the world and
operating under harsh environmental conditions where traditional telecommunications services may not be readily available. Any
disruption to our services or extended periods of reduced levels of service could cause us to lose customers or revenue, result in delays
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or cancellations of future implementations of our products and services, result in failure to attract customers or result in litigation,
customer service or repair work that would involve substantial costs and distract management from operating our business. The failure
of any of the diverse elements of our system, including our satellites, our commercial gateway, our satellite teleport network facilities
or our satellite network operations center, to function as required could render our system unable to perform at the quality and
capacity levels required for success. Any system failures, repeated product failures or shortened product life or extended reduced
levels of service could reduce our sales, increase costs or result in warranty or liability claims or litigation, cause us to extend our
warranty period and seriously harm our business.
Our failure to effectively manage the expansion of our product portfolio could impede our ability to execute our business plan, and
we may experience increased costs or disruption in our operations.
We are dependent on our ability to develop and market new products for substantial future revenue growth. We currently face a
variety of challenges, including maintaining the infrastructure and systems necessary for us to manage the growth of our business. As
our product portfolio continues to expand, the responsibilities of our management team and other company resources also grow.
Consequently, we may further strain our management and other company resources with the increased complexities and
administrative burdens associated with a larger, more complex product portfolio. For example, we have in the past experienced
quality issues and incorrect market assessments in connection with the introduction of new products and services, and we may
experience such issues in the future. Our failure to meet these challenges as a result of insufficient management or other resources
could significantly impede our ability to execute our business plan, which relies in part on our ability to leverage our largely fixed-
cost infrastructure. To properly manage our growth, we may need to hire and retain additional personnel, upgrade our existing
operational management and financial and reporting systems, and improve our business processes and controls. Failure to effectively
manage the expansion of our product portfolio in a cost-effective manner could result in declines in product and service quality and
customer satisfaction, disruption of our operations or increased costs, any of which would reduce our ability to increase our
profitability.
As we and our distributors expand our offerings to include more consumer-oriented devices, we are more likely to be subject to
product liability claims, recalls or litigation, which could adversely affect our business and financial performance.
Through our network of distributors, we offer several products and services aimed at individual consumers, and we and our
distributors continue to introduce additional products and services. These products and services, such as satellite handsets, personal
locator devices and location-based services, may be used in isolated and dangerous locations, including emergency response
situations, and users who suffer property damage, personal injury or death while using the product or service may seek to assert
claims or bring lawsuits against us. Further, it is possible that our products would become the subject of consumer protection
litigation, including class actions. We seek to limit our exposure to all of these claims through appropriate disclosures,
indemnification provisions and disclaimers, but these steps may not be effective. We also maintain product liability insurance, but this
insurance may not cover any particular claim or litigation, or the amount of insurance may be inadequate to cover the claims brought
against us. Product liability insurance could become more expensive and difficult to maintain and might not be available on
acceptable terms or at all. In addition, it is possible that our products would become the subject of a product recall as a result of a
product defect. We do not maintain recall insurance, so any recall could have a significant effect on our financial results. In addition
to the direct expenses of product liability claims, recalls and litigation, a claim, recall or litigation might cause us adverse publicity,
which could harm our reputation and compromise our ability to sell our products in the future.
The collection, storage, transmission, use and disclosure of user data and personal information could give rise to liabilities or
additional costs as a result of laws, governmental regulations and evolving views of personal privacy rights and information
security standards.
We transmit, process, and in some cases store, end user data, including personally identifiable information. In jurisdictions around the
world, the transmission and storage of personally identifiable information is becoming increasingly subject to legislation and
regulations intended to protect consumers’ privacy and the security of their personal information. The standards for processing,
storing and using personally identifiable information continue to evolve, and may impose additional obligations and risk on our
business, and have the potential to make some of our business processes less feasible. In addition, the interpretation of privacy and
data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some
jurisdictions remains unclear. These laws may be interpreted, applied and enforced in conflicting ways from country to country and in
a manner that is not consistent with our current data protection practices. Complying with these varying international requirements
could cause us to incur additional costs and change our business practices. Because our services are accessible in many foreign
jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even where we have no local
entity, employees or infrastructure. We could face a variety of enforcement actions or government inquiries or be forced to incur
significant expenses if we were required to modify our products, our services or our existing security and privacy procedures in order
to comply with new or expanded regulations.
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In addition, if end users allege that their personal information is not collected, stored, transmitted, used or disclosed by us or our
business partners appropriately or in accordance with our privacy policies or applicable laws, or that our failure to adequately secure
their information compromised its security, we could have liability to them or to consumer protection agencies, including claims and
litigation resulting from such allegations. Any failure on our part to protect end users’ privacy and data could result in a loss of user
confidence, hurt our reputation and ultimately result in the loss of users.
Our satellites may collide with space debris or another spacecraft, which could adversely affect the performance of our
constellation.
In February 2009, we lost an operational satellite as a result of a collision with a non-operational Russian satellite. Although we have
some ability to actively maneuver our satellites to avoid potential collisions with space debris or other spacecraft, this ability is limited
by, among other factors, uncertainties and inaccuracies in the projected orbit location of and predicted conjunctions with debris
objects tracked and cataloged by the U.S. government. Additionally, some space debris is too small to be tracked and therefore its
orbital location is completely unknown; nevertheless, this debris is still large enough to potentially cause severe damage or a failure of
our satellites should a collision occur. If our constellation experiences additional satellite collisions with space debris or other
spacecraft, our service could be impaired.
The space debris created by the February 2009 satellite collision may cause damage to other spacecraft positioned in a similar
orbital altitude.
The 2009 collision of one of our satellites with a non-operational Russian satellite created a space debris field concentrated in the
orbital altitude where the collision occurred, and thus increased the risk of space debris damaging or interfering with the operation of
our satellites, which travel in this orbital altitude, as well as satellites owned by third parties, such as U.S. or foreign governments or
agencies and other satellite operators. Although there are tools used by us and providers of tracking services, such as the U.S. Joint
Space Operations Center, to detect, track and identify space debris, we or third parties may not be able to maneuver the satellites away
from such debris in a timely manner. Any such collision could potentially expose us to significant losses and liability if we were
found to be at fault.
If we experience operational disruptions with respect to our commercial gateways or operations center, we may not be able to
provide service to our customers.
Our commercial satellite network traffic is supported by gateways in Tempe, Arizona, and Izhevsk, Russia, for traffic within Russian
boundaries, and we operate our satellite constellation from our satellite network operations center in Leesburg, Virginia. Currently, we
do not have a backup facility for our primary gateway in Arizona, and our facilities are subject to the risk of significant malfunctions
or catastrophic loss due to unanticipated events and would be difficult to replace or repair and could require substantial lead-time to
do so. Material changes in the operation of these facilities may be subject to prior FCC approval, and the FCC might not give such
approval or may subject the approval to other conditions that could be unfavorable to our business. Our gateways and operations
center may also experience service shutdowns or periods of reduced service in the future as a result of equipment failure, delays in
deliveries or regulatory issues. Any such failure would impede our ability to provide service to our customers.
We may be negatively affected by global economic conditions.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic
conditions poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit,
negative financial news, declines in income or asset values or budgetary constraints. Reduced demand would cause a decline in our
revenue and make it more difficult for us to operate profitably, potentially compromising our ability to pursue our business plan.
While we expect the number of our subscribers and revenue to continue to grow, we expect the future growth rate will be slower than
our historical growth and may not continue in every quarter of every year. We expect our future growth rate will be affected by the
sluggish global economy, increased competition, maturation of the satellite communications industry and the difficulty in sustaining
high growth rates as we increase in size. Any substantial appreciation of the U.S. dollar may also negatively affect our growth by
increasing the cost of our products and services in foreign countries.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis
could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations of the SEC and The NASDAQ Global
Select Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures
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and internal controls over financial reporting. We perform system and process evaluation and testing of our internal controls over
financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual
Reports on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we
may not be able to produce timely and accurate financial statements, and we may conclude that our internal controls over financial
reporting are not effective. If that were to happen, the market price of our stock could decline, and we could be subject to sanctions or
investigations by The NASDAQ Global Select Market, the SEC or other regulatory authorities.
Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. If we fail
to maintain such controls, it could result in a material misstatement of our financial statements that would not be prevented or detected
on a timely basis and which could cause investors and other users to lose confidence in our financial statements.
We could lose market share and revenue as a result of increasing competition from companies in the wireless communications
industry, including cellular and other satellite operators, and from the extension of land-based communications services.
We face intense competition in all of our markets, which could result in a loss of customers and lower revenue and make it more
difficult for us to enter new markets. We compete primarily on the basis of coverage, quality, portability and pricing of services and
products.
The provision of satellite-based services and products is subject to downward price pressure when capacity exceeds demand or as a
result of aggressive discounting by some operators under financial pressure to expand their respective market share. In addition, we
may face competition from new competitors, new technologies or new equipment, including proposed new LEO constellations. For
example, we may face competition for our land-based services in the United States from incipient ancillary terrestrial component, or
ATC, service providers who are designing a satellite operating business and a terrestrial component around their spectrum holdings. In
addition, some of our competitors have announced plans for the launch of additional satellites. As a result of competition, we may not
be able to successfully retain our existing customers and attract new customers.
In addition to our satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, could further
expand into rural and remote areas and provide the same general types of services and products that we provide through our satellite-
based system. Although satellite communications services and terrestrial communications services are not perfect substitutes, the two
compete in some markets and for some services. Consumers generally perceive terrestrial wireless voice communication products and
services as cheaper and more convenient than those that are satellite-based. Many of our terrestrial competitors have greater resources,
wider name recognition and newer technologies than we do. In addition, industry consolidation could hurt us by increasing the scale
or scope of our competitors, thereby making it more difficult for us to compete.
Some of the hardware and software we use in operating our gateways are significantly customized and tailored to meet our
requirements and specifications and could be difficult and expensive to service, upgrade or replace.
Some of the hardware and software we use in operating our gateways are significantly customized and tailored to meet our
requirements and specifications and could be difficult and expensive to service, upgrade or replace. Although we maintain inventories
of some spare parts, it nonetheless may be difficult, expensive or impossible to obtain replacement parts for the hardware due to a
limited number of those parts being manufactured to our requirements and specifications. In addition, our business plan contemplates
updating or replacing some of the hardware and software in our network as technology advances, but the complexity of our
requirements and specifications may present us with technical and operational challenges that complicate or otherwise make it
expensive or infeasible to carry out such upgrades and replacements. If we are not able to suitably service, upgrade or replace our
equipment, our ability to provide our services and therefore to generate revenue could be harmed.
Rapid and significant technological changes in the satellite communications industry may impair our competitive position and
require us to make significant additional capital expenditures.
The satellite communications industry is subject to rapid advances and innovations in technology. We may face competition in the
future from companies using new technologies and new satellite systems. New technology could render our system obsolete or less
competitive by satisfying customer demand in more attractive ways or through the introduction of incompatible standards. Particular
technological developments that could adversely affect us include the deployment by our competitors of new satellites with greater
power, flexibility, efficiency or capabilities than our first-generation satellites or Iridium NEXT, as well as continuing improvements
in terrestrial wireless technologies. For us to keep up with technological changes and remain competitive, we may need to make
significant capital expenditures, including capital to design and launch new products and services on Iridium NEXT. Customer
acceptance of the products and services that we offer will continually be affected by technology-based differences in our product and
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service offerings compared to those of our competitors. New technologies may also be protected by patents or other intellectual
property laws and therefore may not be available to us. Any failure on our part to implement new technology within our system may
compromise our ability to compete.
Use by our competitors of L-band spectrum for terrestrial services could interfere with our services.
In February 2003, the FCC adopted ATC rules that permit satellite service providers to establish terrestrial wireless networks in
previously satellite-only bands, subject to certain requirements intended to ensure that terrestrial services remain ancillary to primary
satellite operations. In 2011, Lightsquared (now known as Ligado Networks) was granted a waiver at the FCC to convert Ligado
Network’s L-band satellite spectrum to terrestrial use including a 10 MHz band close to the spectrum that we use for all of our
services. That waiver was subsequently suspended in 2012 due to concerns about potential interference to GPS operations. Ligado
Networks sought another waiver in 2015 to modify the ATC of its L-band mobile satellite service network with a new proposal to
address GPS industry concerns. We oppose this waiver out of concern for the interference that Ligado Network’s proposed operations
would cause to our operations in the L-band.
In addition, in November 2012, Globalstar, Inc. filed a petition for rulemaking, proposing to deploy a terrestrial low-power service in
its S-band spectrum and to deploy a high power terrestrial service (LTE) in both the L-band and S-band. We share 0.95 MHz of
L-band spectrum (1617.775-1618.725 MHz) with the Globalstar system, which also operates in additional L-band (1610-1617.775
MHz) and S-band (2483.5-2495 MHz) spectrum. In December 2016, the FCC adopted rule changes that permit Globalstar to seek
authorization to deploy a terrestrial low-power broadband network using its S-band spectrum. The FCC will consider separately
Globalstar’s additional request for rule changes concerning its deployment of a high power terrestrial service (LTE) technology in
both its S-band (2483.5-2495 MHz) and L-band (1610-1617.775 MHz) spectrum and our February 2013 petition for access to an
additional 1.775 MHz (1616-1617.775 MHz) of the L-band spectrum licensed to Globalstar.
The implementation of ATC services by satellite service providers in the United States or other countries may result in increased
competition for the right to use L-band spectrum in the 1.6 GHz band, which we use to provide our services, and such competition
may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. In addition, the
FCC’s decision to permit ATC services was based on assumptions relating to the level of interference that the provision of ATC
services would likely cause to other satellite service providers that use the L-band spectrum. If the FCC’s assumptions prove
inaccurate, or the level of ATC services provided exceeds those estimated by the FCC, such as the proposed use by Ligado Networks,
ATC services could substantially interfere with our satellites and devices, which would adversely affect our services. Outside the
United States, other countries have implemented, or are considering implementing, regulations to facilitate ATC-like services.
Our networks and those of our third-party service providers may be vulnerable to security risks.
We expect the secure transmission of confidential information over public networks to continue to be a critical element of our ability
to compete for business, to manage our risks, and protect our customers and our reputation. Our network and those of our third-party
service providers and our customers may be vulnerable to unauthorized access, computer viruses and other security problems. Persons
who circumvent security measures could wrongfully obtain or use information on the network or cause interruptions, delays or
malfunctions in our operations, any of which could harm our reputation, cause demand for our products and services to fall and
compromise our ability to pursue our business plans. Recently, there have been reported a number of significant, widespread security
breaches that have compromised network integrity for many companies and governmental agencies, in some cases reportedly
originating from outside the United States. In addition, there are reportedly private products available in the market today which may
attempt to unlawfully intercept communications made using our network. We may be required to expend significant resources to
protect against the threat of security breaches or to remediate harm caused by a breach, including compliance with applicable data
breach notification laws, and to alleviate problems, including reputational harm and litigation, caused by any breaches. In addition,
our customer contracts may not adequately protect us against liability to third parties with whom our customers conduct business.
Although we have implemented and intend to continue to implement industry-standard and other security measures, these measures
may prove to be inadequate and result in incidents, including system failures and delays, that could limit network availability, which
could harm our business and our reputation and result in substantial liability.
We are dependent on third parties to market and sell our products and services.
We select third-party distributors and rely on them to market and sell our products and services to end users and to determine the
prices end users pay in some cases on an exclusive basis. We also depend on our distributors to develop innovative and improved
solutions and applications integrating our product and service offerings. As a result of these arrangements, we are dependent on the
performance of our distributors to generate most of our revenue. Our distributors operate independently of us, and we have limited
control over their operations, which exposes us to significant risks. Distributors may not commit the necessary resources to market
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and sell our products and services and may also market and sell competitive products and services. In addition, our distributors may
not comply with the laws and regulatory requirements in their local jurisdictions, which could limit their ability to market or sell our
products and services. If our distributors develop faulty or poorly performing products using our technology or services, we may be
subject to claims, and our reputation could be harmed. If current or future distributors do not perform adequately, or if we are unable
to locate competent distributors in particular countries and secure their services on favorable terms, we may be unable to increase or
maintain our revenue in these markets or enter new markets, we may not realize our expected growth, and our brand image and
reputation could be hurt.
In addition, we may lose distributors due to competition, consolidation, regulatory developments, business developments affecting our
distributors or their customers, or for other reasons. In 2009, one of our largest competitors, Inmarsat, acquired our then largest
distributor, Stratos Global Wireless, Inc., and in January 2014, Inmarsat acquired Globe Wireless, one of our service providers.
Following each acquisition, Inmarsat essentially stopped promoting sales of our products and services, and they may further reduce
their efforts in the future. Any future consolidation of our distributors would further increase our reliance on a few key distributors of
our services and the amount of volume discounts that we may have to give those distributors. Our two largest distributors, Applied
Satellite Technology LTD and Inmarsat, represented a total of 10% of our revenue for the year ended December 31, 2016 and our ten
largest distributors represented, in the aggregate, 37% of our revenue for the year ended December 31, 2016. The loss of any of these
distributors, or a decrease in the level of effort expended by any of them to promote our products and services, could reduce the
distribution of our products and services as well as the development of new products and applications.
We rely on a limited number of key vendors for supply of equipment and services.
We currently rely on Benchmark Electronics Inc., or Benchmark, as the exclusive manufacturer of our current devices, including our
mobile handsets, L-Band transceivers, SBD devices and Iridium Pilot terminals. Benchmark may choose to terminate its business
relationship with us when its current contractual obligations are completed, or if we default under our current agreement. We also
utilize sole source suppliers for some of the component parts of our devices. If Benchmark or any of our other suppliers were to
terminate its relationship with us, we may not be able to find a replacement supplier in a timely manner, at an acceptable price or at
all.
Our manufacturer and suppliers may become capacity-constrained as a result of a surge in demand, a natural disaster or other event, or
one or more component suppliers may decide to cease production of various components of our products, resulting in a shortage or
interruption in supplies or an inability to meet increased demand. Although we may be able to replace sole source suppliers, there
could be a substantial period of time in which our products would not be available; any new relationship may involve higher costs and
delays in development and delivery, and we may encounter technical challenges in successfully replicating the manufacturing
processes. If our manufacturers or suppliers terminate their relationships with us, fail to provide equipment or services to us on a
timely basis or fail to meet our performance expectations, we may be unable to provide products or services to our customers in a
competitive manner, which could in turn negatively affect our financial results and our reputation.
We have also historically been dependent upon Boeing for operations and maintenance of our satellite network. In November 2016,
we restructured our relationship with Boeing. We entered into an insourcing agreement, pursuant to which we hired, as of January
2017, the majority of the Boeing team that performed the operations and maintenance on our system. While the insourcing transition
will allow us to more directly manage our network and optimize operational expenses going forward, we must now manage a larger
employee base and retain and integrate the new employees. If we are not able to successfully manage that integration, we may not
realize the expected benefits of this insourcing transaction.
We also entered into a separate development services contract with Boeing, which will dedicate key Boeing personnel to continue the
design and growth required for bringing new services and capabilities to the Iridium NEXT network. Technological competence is
critical to our business and depends, to a significant degree, on the work of technically skilled personnel, such as these Boeing
contractors. If Boeing’s performance falls below expected levels or if Boeing has difficulties retaining the personnel servicing our
network development, the development of new products and services on Iridium NEXT could be compromised. In addition, if Boeing
terminates its agreement with us, we may not be able to find a replacement provider on favorable terms or at all, which could impair
our operations and performance.
We have been and may in the future become subject to claims that our products violate the patent or intellectual property rights of
others, which could be costly and disruptive to us.
We operate in an industry that is susceptible to significant intellectual property litigation. As a result, we or our products may become
subject to intellectual property infringement claims or litigation. The defense of intellectual property suits is both costly and time-
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consuming, even if ultimately successful, and may divert management’s attention from other business concerns. An adverse
determination in litigation to which we may become a party could, among other things:
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subject us to significant liabilities to third parties, including treble damages;
require disputed rights to be licensed from a third party for royalties that may be substantial;
require us to cease using technology that is important to our business; or
prohibit us from selling some or all of our products or offering some or all of our services.
Conducting and expanding our operations outside the United States creates numerous risks, which may harm our operations and
compromise our ability to expand our international operations.
We have significant operations outside the United States. We estimate that commercial data traffic originating outside the United
States, excluding our Iridium OpenPort broadband data service traffic, accounted for 72% and 67% of total commercial data traffic for
the years ended December 31, 2016 and 2015, respectively, while commercial voice traffic originating outside the United States,
excluding Iridium OpenPort traffic, accounted for 88% of total commercial voice traffic for each of the years ended December 31,
2016 and 2015. We cannot provide the precise geographical distribution of revenue from end users because we do not contract
directly with them. Instead, we determine the country in which we earn our revenue based on where we invoice our distributors. These
distributors sell services directly or indirectly to end users, who may be located or use our products and services elsewhere. We and
our distributors are also seeking authorization to sell our services in additional countries.
Conducting operations outside the United States involves numerous risks and, while expanding our international operations would
advance our growth, it would also increase our exposure to these risks. For example, in 2013 we commenced the provision of satellite
communications services in Russia through a local subsidiary and its authorized Russian service providers and subsequently
constructed a dedicated gateway in Russia. The U.S. government has imposed economic and diplomatic sanctions on certain Russian
corporations, banks, and citizens and might impose additional sanctions in the future. If such sanctions, or any Russian response to
such sanctions, affects our operations in Russia, it could limit our growth in Russia or prevent us from continuing to operate there at
all, which would reduce our revenues.
Other risks associated with the proposed expansion of our international operations include:
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difficulties in penetrating new markets due to established and entrenched competitors;
difficulties in developing products and services that are tailored to the needs of local customers;
lack of local acceptance or knowledge of our products and services;
lack of recognition of our products and services;
unavailability of, or difficulties in establishing relationships with distributors;
significant investments, including the development and deployment of dedicated gateways, as some countries require
physical gateways within their jurisdiction to connect the traffic coming to and from their territory;
instability of international economies and governments;
changes in laws and policies affecting trade and investment in other jurisdictions, including the United Kingdom’s
proposed exit from the European Union;
exposure to varying legal standards, including intellectual property protection in other jurisdictions;
difficulties in obtaining required regulatory authorizations;
difficulties in enforcing legal rights in other jurisdictions;
local domestic ownership requirements;
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requirements that operational activities be performed in-country;
changing and conflicting national and local regulatory requirements; and
foreign currency exchange rates and exchange controls.
If any of these risks were to materialize, it could affect our ability to successfully compete and expand internationally.
Government organizations, foreign military and intelligence agencies, natural disaster aid associations and event-driven response
agencies use our commercial voice and data satellite communications services. Accordingly, we may experience reductions in usage
due to changing global circumstances, including as a result of reductions in U.S. and foreign personnel in Afghanistan and Iraq.
The prices for our products and services are typically denominated in U.S. dollars. Any appreciation of the U.S. dollar against other
currencies will increase the cost of our products and services to our international customers and, as a result, may reduce the
competitiveness of our international offerings and make it more difficult for us to grow internationally. Conversely, in some locations,
primarily Russia, we conduct business in the local currency, and a depreciation of the local currency against the U.S. dollar will
reduce the U.S. dollar value of our revenues from those countries. In recent years, Russia has experienced significant currency
depreciation against the U.S. dollar.
We are currently unable to offer service in important regions of the world due to regulatory requirements, which limits our growth.
Our ability to provide service in some regions is limited by local regulations. Some countries have specific regulatory requirements
such as local domestic ownership requirements or requirements for physical gateways within their jurisdiction to connect traffic
coming to and from their territory. While we have had discussions with parties in these countries to satisfy these regulatory
requirements, we may not be able to find an acceptable local partner or reach an agreement to develop additional gateways, or the cost
of developing and deploying such gateways may be prohibitive, which could impair our ability to expand our product and service
offerings in such areas and undermine our value for potential users who require service in these areas. Also, other countries where we
already provide service may impose similar requirements, which could restrict our ability to continue to provide service in those
countries. The inability to offer to sell our products and services in all major international markets could impair our international
growth. In addition, the construction of such gateways in foreign countries may trigger and require us to comply with various U.S.
regulatory requirements that could conflict with or contravene the laws or regulations of the local jurisdiction. Any of these
developments could limit, delay or otherwise interfere with our ability to construct gateways or other infrastructure or network
solutions around the world.
The U.S. government and Motorola Solutions may unilaterally require us to de-orbit our first-generation satellites upon the
occurrence of specified events.
When Iridium Satellite purchased the assets of Iridium LLC, a non-affiliated debtor in possession, out of bankruptcy, Motorola and
the U.S. government required specified de-orbit rights as a way to control potential liability exposure arising from future operation of
our first-generation constellation. As a result, Iridium Satellite, Boeing, which then operated our constellation, Motorola and the U.S.
government entered into an agreement giving the U.S. government the right, in its sole discretion, to require us to de-orbit our first-
generation satellites upon the occurrence of specified events, including any time on or after January 1, 2015 or if more than four of
our first-generation satellites have insufficient fuel to execute a 12-month de-orbit, both of which have already occurred. In addition,
the U.S. government has the right to require us to de-orbit any of our individual functioning first-generation satellites, including
in-orbit spares, that have been in orbit for more than seven years, unless the U.S. government grants a postponement. All of our
functioning first-generation satellites have been in orbit for more than seven years.
Motorola Solutions, as successor to Motorola also has the right to require us to de-orbit our first-generation satellites pursuant to our
agreements and upon the occurrence of specified events.
We cannot guarantee that the U.S. government or Motorola Solutions will not unilaterally exercise their de-orbiting rights upon the
occurrence of any of the specified events. If we were required to de-orbit our first-generation satellites prior to the deployment of an
adequate number of Iridium NEXT satellites, we may be unable to continue to provide a commercially acceptable level of service.
We may be unable to obtain and maintain contractually required liability insurance, and the insurance we obtain may not cover all
liabilities to which we may become subject.
Under our agreement with Motorola, we are required to maintain an in-orbit liability insurance policy with a de-orbiting endorsement.
The current policy, together with the de-orbiting endorsement, covers amounts that we and other specified parties may become liable
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to pay for bodily injury and property damages to third parties related to processing, maintaining and operating our first-generation
satellites and, in the case of the de-orbiting endorsement, a mass de-orbit of our first-generation satellites. Our current policy has a
one-year term, which expires on December 8, 2017, and excludes coverage for all third-party damages relating to the 2009 collision of
our satellite with a non-operational Russian satellite. The price, terms and availability of insurance have fluctuated significantly since
we began offering commercial satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or
general conditions in the insurance industry. Higher premiums on insurance policies would increase our cost. In-orbit liability
insurance policies on satellites may not continue to be available on commercially reasonable terms or at all. In addition to higher
premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional policy exclusions. For
example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising
outside that timeframe. Our failure to renew our current in-orbit liability insurance policy or obtain a replacement policy would trigger
de-orbit rights with respect to our first-generation satellites held by the U.S. government and Boeing described in the immediately
preceding risk factor, which, if exercised prior to the deployment of an adequate number of Iridium NEXT satellites, would harm our
ability to provide a commercially acceptable level of service. In addition, even if we continue to maintain an in-orbit liability
insurance policy, the coverage may not protect us against all third-party losses, which could be material.
Our current in-orbit liability insurance policy contains, and we expect any future policies would likewise contain, specified exclusions
and material change limitations customary in the industry. These exclusions may relate to, among other things, losses resulting from
in-orbit collisions such as the one we experienced in 2009, acts of war, insurrection, terrorism or military action, government
confiscation, strikes, riots, civil commotions, labor disturbances, sabotage, unauthorized use of the satellites and nuclear or radioactive
contamination, as well as claims directly or indirectly occasioned as a result of noise, pollution, electrical and electromagnetic
interference and interference with the use of property.
In addition to our in-orbit liability insurance policy, we are required to purchase product liability insurance to cover the potential
liability of Motorola Solutions, as the manufacturer of our first-generation satellites. We may not in the future be able to renew this
product liability coverage on reasonable terms and conditions, or at all. Our failure to maintain this insurance could increase our
exposure to third-party damages that may be caused by any of our satellites. If we are unable to obtain such insurance on
commercially reasonable terms and the U.S. government has not agreed to cover the amounts that would have otherwise been paid by
such insurance, Motorola Solutions could invoke its de-orbit rights which, if exercised prior to the deployment of an adequate number
of Iridium NEXT satellites, would harm our ability to provide a commercially acceptable level of service.
Wireless devices’ radio frequency emissions are the subject of regulation and litigation concerning their environmental effects,
which includes alleged health and safety risks. As a result, we may be subject to new regulations, demand for our services may
decrease, and we could face liability based on alleged health risks.
There has been adverse publicity concerning alleged health risks associated with radio frequency transmissions from portable hand-
held telephones that have transmitting antennas. Lawsuits have been filed against participants in the wireless industry alleging a
number of adverse health consequences, including cancer, as a result of wireless phone usage. Other claims allege consumer harm
from failures to disclose information about radio frequency emissions or aspects of the regulatory regimes governing those emissions.
Although we have not been party to any such lawsuits, we may be exposed to such litigation in the future. While we comply with
applicable standards for radio frequency emissions and power and do not believe that there is valid scientific evidence that use of our
devices poses a health risk, courts or governmental agencies could determine otherwise. Any such finding could reduce our revenue
and profitability and expose us and other communications service providers or device sellers to litigation, which, even if frivolous or
unsuccessful, could be costly to defend.
If consumers’ health concerns over radio frequency emissions increase, they may be discouraged from using wireless handsets.
Further, government authorities might increase regulation of wireless handsets as a result of these health concerns. Any actual or
perceived risk from radio frequency emissions could reduce the number of our subscribers and demand for our products and services.
Our business is subject to extensive government regulation, which mandates how we may operate our business and may increase
our cost of providing services and slow our expansion into new markets.
Our ownership and operation of a satellite communications system and the sale of products that operate on that system are subject to
significant regulation in the United States, including by the FCC, the U.S. Department of Commerce and others, and in foreign
jurisdictions by similar local authorities. The rules and regulations of these U.S. and foreign authorities may change, and such
authorities may adopt regulations that limit or restrict our operations as presently conducted or currently contemplated. Such
authorities may also make changes in the licenses of our competitors that affect our spectrum. Such changes may significantly affect
our business. Further, because regulations in each country are different, we may not be aware if some of our distribution partners or
persons with whom we or they do business do not hold the requisite licenses and approvals. Our failure to provide services in
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accordance with the terms of our licenses or our failure to operate our satellites or ground stations as required by our licenses and
applicable laws and government regulations could result in the imposition of government sanctions on us, including the suspension or
cancellation of our licenses. Our failure or delay in obtaining the approvals required to operate in other countries would limit or delay
our ability to expand our operations into those countries. Our failure to obtain industry-standard certifications for our products could
compromise our ability to generate revenue and conduct our business in other countries. Any imposition of sanctions, loss of license
or failure to obtain the authorizations necessary to use our assigned radio frequency spectrum and to distribute our products in the
United States or foreign jurisdictions could cause us to lose sales, hurt our reputation and impair our ability to pursue our business
plan.
In addition, one of our subsidiaries, Iridium Carrier Services LLC, holds a common carrier radio license and is thus subject to
regulation as a common carrier, including limitations and prior approval requirements with respect to direct or indirect foreign
ownership. A change in the manner in which we provide service, or a failure to comply with any common carrier regulations that
apply to us or pay required fees, could result in sanctions including fines, loss of authorizations, or the denial of applications for new
authorizations or the renewal of existing authorizations.
Security and emergency services regulations in the U.S. and other countries may affect our ability to operate our system and to
expand into new markets.
Our operations are subject to regulations of the U.S. Department of Commerce’s Bureau of Industry and Security relating to the
export of satellites and related technical data as well as our subscriber equipment, the U.S. Treasury Department’s Office of Foreign
Assets Control relating to transactions involving entities sanctioned by the United States, and the U.S. State Department’s Office of
Defense Trade Controls relating to satellite launch. We are also required to provide U.S. and some foreign government law
enforcement and security agencies with call interception services and related government assistance, in respect of which we face legal
obligations and restrictions in various jurisdictions. Given our global operations and unique network architecture, these requirements
and restrictions are not always easy to comply with or harmonize. In addition, some countries require providers of
telecommunications services to connect specified emergency numbers to local emergency services. We have discussed and continue
to discuss with authorities in various countries the procedures used to satisfy our obligations, and have had to, and may in the future
need to, obtain amendments or waivers to licenses or obligations in various countries. Countries are not obligated to grant requested
amendments or waivers, and there can be no assurance that relevant authorities will not suspend or revoke our licenses or take other
legal actions to attempt to enforce the requirements of their respective jurisdictions.
These U.S. and foreign obligations and regulations may limit or delay our ability to offer products and services in a particular country.
As new laws and regulations are issued, we may be required to modify our business plans or operations. In addition, changing and
conflicting national and local regulatory requirements may cause us to be in compliance with local requirements in one country, while
not being in compliance with the laws and regulations of another. If we fail to comply with regulations in the United States or any
other country, we could be subject to substantial fines or sanctions that could make it difficult or impossible for us to operate in the
United States or such other country, or we may need to make substantial additional expenditures to bring our systems, products and
services into compliance with the requirements.
If the FCC revokes, modifies or fails to renew our licenses, or fails to grant a new license or modification, our ability to operate
will be harmed or eliminated.
We hold FCC licenses, specifically a license for our first-generation satellite constellation, a license for the Iridium NEXT
constellation, licenses for our U.S. gateway and other ground facilities and blanket earth station licenses for U.S. government
customers and commercial subscribers, that are subject to revocation if we fail to satisfy specified conditions. The FCC licenses are
also subject to modification by the FCC. Our first-generation satellite constellation license from the FCC has been extended until
January 31, 2018. Our Iridium NEXT license expires fifteen years following the date we notify the FCC that the first satellite in the
Iridium NEXT constellation has commenced operations in its authorized orbit. Our U.S. gateway earth station and the U.S.
government customer and commercial subscriber earth station licenses expire between September 2018 and the year 2026. There can
be no assurance that the FCC will renew the FCC licenses we hold or grant new ones or modifications. If the FCC revokes, modifies
or fails to renew the FCC licenses we hold, or fails to grant a new license or modification, or if we fail to satisfy any of the conditions
of our respective FCC licenses, we may not be able to continue to provide mobile satellite communications services.
Pursuing strategic transactions may cause us to incur additional risks.
We may pursue acquisitions, joint ventures or other strategic transactions from time to time, such as the Boeing insourcing
transaction. We may face costs and risks arising from any such transactions, including integrating a new business into our business or
managing a joint venture. These risks may include adverse legal, organizational and financial consequences, loss of key customers
and distributors and diversion of management’s time.
35
In addition, any major business combination or similar strategic transaction would require approval under the Credit Facility and may
require significant external financing. Depending on market conditions, investor perceptions of our company and other factors, we
might not be able to obtain approvals under the Credit Facility or financing on acceptable terms, in acceptable amounts or at
appropriate times to implement any such transaction. Any such financing, if obtained, may further dilute existing stockholders.
Spectrum values historically have been volatile, which could cause the value of our business to fluctuate.
Our business plan is evolving, and it may in the future include forming strategic partnerships to maximize value for our spectrum,
network assets and combined service offerings in the United States and internationally. Values that we may be able to realize from
such partnerships will depend in part on the value placed on our spectrum authorizations. Valuations of spectrum in other frequency
bands historically have been volatile, and we cannot predict at what amount a future partner may be willing to value our spectrum and
other assets. In addition, to the extent that the FCC takes action that makes additional spectrum available or promotes the more
flexible use or greater availability of existing satellite or terrestrial spectrum allocations, for example by means of spectrum leasing or
new spectrum sales, the availability of such additional spectrum could reduce the value of our spectrum authorizations and, as a result,
the value of our business.
Our ability to operate our company effectively could be impaired if we lose members of our senior management team or key
technical personnel.
We depend on the continued service of key managerial and technical personnel and personnel with security clearances, as well as our
ability to continue to attract and retain highly qualified personnel. We compete for such personnel with other companies, government
entities, academic institutions and other organizations. The unexpected loss or interruption of the services of such personnel could
compromise our ability to effectively manage our operations, execute our business plan and meet our strategic objectives.
The market price of our common stock may be volatile.
The trading price of our common stock may be subject to substantial fluctuations. Factors affecting the trading price of our common
stock may include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
failure in the performance of our first-generation or future satellites;
further delays in the launch of Iridium NEXT;
failure of Aireon to successfully develop and market its service;
failure to comply with the terms of the Credit Facility;
actual or anticipated variations in our operating results, including termination or expiration of one or more of our key
contracts, or a change in sales levels under one or more of our key contracts;
sales of a large number of shares of our common stock or the perception that such sales may occur;
the dilutive effect of outstanding stock options and other equity awards;
changes in financial estimates by industry analysts, or our failure to meet or exceed any such estimates, or changes in the
recommendations of any industry analysts that elect to follow our common stock or the common stock of our
competitors;
impairment of intangible assets;
actual or anticipated changes in economic, political or market conditions, such as recessions or international currency
fluctuations;
actual or anticipated changes in the regulatory environment affecting our industry;
changes in the market valuations of our competitors;
low trading volume; and
36
(cid:129)
announcements by our competitors regarding significant new products or services or significant acquisitions, strategic
partnerships, divestitures, joint ventures or other strategic initiatives.
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if
these events do not directly affect us. If our stock, the market for other stocks in our industry, or the stock market in general
experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business,
financial condition or results of operations.
We do not expect to pay dividends on our common stock in the foreseeable future.
We do not currently pay cash dividends on our common stock and, because we currently intend to retain all cash we generate to fund
the growth of our business and the Credit Facility restricts the payment of dividends, we do not expect to pay dividends on our
common stock in the foreseeable future.
Our common stock ranks junior to the Series A Preferred Stock and Series B Preferred Stock with respect to dividends and
amounts payable in the event of our liquidation.
Our common stock ranks junior to the Series A Preferred Stock and Series B Preferred Stock with respect to the payment of dividends
and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have
been paid or set aside for payment on all outstanding shares of Series A Preferred Stock and Series B Preferred Stock for all past
completed dividend periods, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or
involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we
have paid to holders of the Series A Preferred Stock and Series B Preferred Stock the applicable liquidation preference plus accrued
and unpaid dividends. As a result, the value of your investment in our common stock may suffer in the event that sufficient funds are
not available to first satisfy our obligations to the holders of our preferred stock in the event of our liquidation.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
We own or lease the facilities described in the following table:
Location
McLean, Virginia . . . . . . . . . . . . . . . . . .
Chandler, Arizona . . . . . . . . . . . . . . . . . .
Leesburg, Virginia . . . . . . . . . . . . . . . . .
Tempe, Arizona . . . . . . . . . . . . . . . . . . .
Tempe, Arizona . . . . . . . . . . . . . . . . . . .
Fairbanks, Alaska . . . . . . . . . . . . . . . . . .
Country
USA
USA
USA
USA
USA
USA
Approximate
Square Feet
Facilities
Owned/Leased
30,600 Corporate Headquarters
197,000 Technical Support Center,
Distribution Center, Warehouse and
Satellite Teleport Network Facility
Leased
Leased
40,000 Satellite Network Operations Center
Owned
31,000 System Gateway and Satellite Teleport
Network Facility
Owned Building on
Leased Land
25,000 Operations and Finance Office Space
4,000 Satellite Teleport Network Facility
Leased
Owned
Svalbard . . . . . . . . . . . . . . . . . . . . . . . . . Norway
1,800 Satellite Teleport Network Facility
Yellowknife, Northwest Territories . . . . Canada
1,800 Satellite Teleport Network Facility
Iqaluit, Nunavut
. . . . . . . . . . . . . . . . . . . Canada
1,800 Satellite Teleport Network Facility
Owned Building on
Leased Land
Owned Building on
Leased Land
Owned Building on
Leased Land
Izhevsk, Udmurtia . . . . . . . . . . . . . . . . .
Russia
8,785 System Gateway and Satellite Teleport
Leased
Network Facility
Moscow . . . . . . . . . . . . . . . . . . . . . . . . . .
Russia
2,158 Sales and Administration Offices
Leased
37
Item 3.
Legal Proceedings
Neither we nor any of our subsidiaries are currently subject to any material legal proceeding, nor, to our knowledge, is any material
legal proceeding threatened against us or any of our subsidiaries.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently listed on the NASDAQ Global Select Market under the symbol “IRDM.” The following table sets
forth, for the quarters indicated, the quarterly high and low sales prices of our common stock as reported on the NASDAQ Global
Select Market.
PART II
Common Stock
High
Low
Quarter Ended March 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended September 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended March 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter Ended December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9.94
11.36
9.35
8.99
8.53
8.88
9.37
11.15
$
8.24
9.00
5.98
5.85
6.14
7.15
6.80
7.50
On February 21, 2017, the closing price of our common stock was $9.35. As of February 17, 2017 there were 74 holders of record of
our common stock.
Dividend Policy
We have not paid any dividends on our common stock to date. The Credit Facility currently restricts us from declaring, making or
paying dividends on our common stock, and we do not anticipate that we will declare any dividends on our common stock in the
foreseeable future.
38
Stock Price Performance Graph
The graph below compares the cumulative total return of our common stock from December 31, 2011 through December 31, 2016
with the comparable cumulative return of three indices, the S&P 500 Index, the Dow Jones Industrial Average Index and the
NASDAQ Telecommunications Index. The graph plots the growth in value of an initial investment of $100 in each of our common
stock, the S&P 500 Index, the Dow Jones Industrial Average Index and the NASDAQ Telecommunications Index over the indicated
time periods. The stock price performance shown on the graph is not necessarily indicative of future price performance.
$210
$200
$190
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
$70
$60
$50
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
Iridium Communications Inc.
S&P 500 Index
Dow Jones Industrial Average Index
NASDAQ Telecommunications Index
Iridium Communications Inc.
. . . . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dow Jones Industrial Average Index . . . . . . . . . . . . . .
NASDAQ Telecommunications Index . . . . . . . . . . . . .
$
$
$
$
100.00
100.00
100.00
100.00
$
$
$
$
87.16
113.41
107.26
102.00
$
$
$
$
81.06
146.98
135.68
126.50
$
$
$
$
126.46
163.72
145.88
137.77
$
$
$
$
109.08
162.53
142.62
127.44
$
$
$
$
124.51
178.02
161.76
146.39
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
39
Item 6.
Selected Financial Data
Iridium Communications Inc.
The following selected historical financial data for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 was derived from
our audited financial statements. The selected financial data below should be read in conjunction with our financial statements and
related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in
this Form 10-K. The selected financial data is historical data and is not necessarily indicative of our future results of operations.
Statement of Operations Data
Revenue:
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subscriber equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering and support services . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding - basic . . . . . . . . . . . . . . .
Weighted average shares outstanding - diluted . . . . . . . . . . . . . .
Net income (loss) per share - basic . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share - diluted . . . . . . . . . . . . . . . . . . . . .
2016
334,822
74,211
24,607
433,640
257,269
176,371
111,032
114,649
95,967
124,875
1.00
0.89
$
$
$
$
$
$
$
$
2015
For the Year Ended December 31,
2014
(In thousands, except per share amounts)
2013
$
$
$
$
$
$
$
$
317,022
73,615
20,741
411,378
337,575
73,803
7,123
980
95,097
95,097
(0.09)
(0.09)
$
$
$
$
$
$
$
$
309,424
78,152
20,981
408,557
285,646
122,911
74,989
72,758
88,080
109,400
0.71
0.69
$
$
$
$
$
$
$
$
292,092
73,303
17,254
382,649
272,755
109,894
62,517
62,185
76,909
87,511
0.72
0.71
2012
273,491
93,866
16,163
383,520
278,446
105,074
64,631
64,499
74,239
78,182
0.85
0.83
$
$
$
$
$
$
$
$
Balance Sheet Data
2016
2015
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets (1) (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
516,770
$ 3,499,625
$ 2,072,673
$ 1,343,758
$
481,718
$ 3,071,174
$ 1,740,839
$ 1,228,721
As of December 31,
2014
(In thousands)
$
573,113
$ 2,773,237
$ 1,439,023
$ 1,231,864
2013
2012
$
369,558
$ 2,179,760
$ 1,138,766
939,495
$
$
367,166
$ 1,792,545
827,335
$
876,558
$
(1)
Includes goodwill impairment charge which decreased operating income and total assets by $87.0 million for the year ended
December 31, 2015.
(2) As a result of implementing Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30),
Simplifying the Presentation of Debt Issuance Costs, deferred financing costs were reclassified from total assets to total long-
term liabilities to present Credit Facility, net, for all years presented.
Other Data
Cash provided by (used in):
2016
2015
For the Year Ended December 31,
2014
(In thousands)
2013
2012
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 225,199
$ (242,360)
$ 202,151
$ 217,479
$ (439,374)
$ 197,066
$ 214,872
$ (626,254)
$ 438,844
$ 183,048
$ (485,836)
$ 234,712
$ 174,023
$ (443,542)
$ 387,571
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Background
We were initially formed in 2007 as GHL Acquisition Corp., a special purpose acquisition company. In 2009, we acquired all the
outstanding equity in Iridium Holdings LLC and changed our name to Iridium Communications Inc.
Overview of Our Business
We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We
are the second largest provider of satellite-based mobile voice and data communications services based on revenue, and the only
commercial provider of communications services offering true global coverage. Our satellite network provides communications
services to regions of the world where telecommunications networks do not exist or are impaired, including extremely remote or rural
land areas, airways, open ocean, the polar regions and regions where the telecommunications infrastructure has been affected by
political conflicts or natural disasters.
40
We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental
organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit spares and
related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio
frequency crosslinks. This unique architecture minimizes the need for ground facilities to support the constellation, which facilitates
the global reach of our services and allows us to offer services in countries and regions where we have no physical presence.
We sell our products and services to commercial end users through a wholesale distribution network, encompassing approximately 65
service providers, approximately 195 value-added resellers, or VARs, and approximately 80 value-added manufacturers, or VAMs,
who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often
integrate our products and services with other complementary hardware and software and have developed a broad suite of applications
for our products and services targeting specific lines of business.
At December 31, 2016, we had approximately 850,000 billable subscribers worldwide, an increase of 68,000, or 9%, from
approximately 782,000 billable subscribers at December 31, 2015. We have a diverse customer base, including end users in the
following lines of business: land mobile; machine-to-machine, or M2M; maritime; aviation; and government.
We recognize revenue from both the provision of services and the sale of equipment. Service revenue represented 77% of total
revenue for each of the years ended December 31, 2016 and 2015. Voice, data and M2M data service revenue have historically
generated higher gross margins than subscriber equipment revenue.
We are currently devoting a substantial part of our resources to develop Iridium NEXT, our next-generation satellite constellation,
along with the development of new product and service offerings, upgrades to our current services, and hardware and software
upgrades to maintain our ground infrastructure. We estimate the aggregate costs associated with the design, build and launch of
Iridium NEXT and related ground infrastructure upgrades through 2018 to be approximately $3 billion. We expect to fund the costs of
Iridium NEXT with the substantial majority of the funds from our $1.8 billion loan facility, or the Credit Facility, which was fully
drawn in February 2017, as well as cash on hand and internally generated cash flows, including contracted cash flows from hosted
payloads.
In 2015, we began construction on gateway and ground stations in Russia to support our voice and data satellite communications
services to commercial and government subscribers through a local subsidiary and its authorized Russian service providers.
Construction on the gateway and ground stations was completed in 2016.
We believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12
months.
Full Scale Development and Launch Services Agreements
In June 2010, we executed a primarily fixed price full scale development contract, or FSD, with Thales Alenia Space France, or
Thales, for the design and manufacture of satellites for Iridium NEXT. The total price under the FSD will be approximately
$2.3 billion, and we expect our payment obligations under the FSD to extend through 2018. As of December 31, 2016, we had made
total payments of $1,753.6 million to Thales, of which $1,490.6 million were from borrowings under the Credit Facility, which are
classified within property and equipment, net, in our consolidated balance sheet included in this report. We have used the Credit
Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand. The
Credit Facility was fully drawn in February 2017 and, as a result, we will now pay 100% of each invoice received from Thales from
cash and marketable securities on hand as well as internally generated cash flows, including contracted cash flows from hosted
payloads.
In March 2010, we entered into an agreement with Space Exploration Technologies Corp., or SpaceX, as the primary launch services
provider for Iridium NEXT. The contract price under the SpaceX agreement is $468.1 million, which includes the exercise of our
reflight option in the event of launch failure. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXT satellites to orbit
with each launch. In November 2016, we entered into an additional agreement with SpaceX for an eighth Falcon 9 launch for a
contract price of $67.9 million. Although we are the customer of record with SpaceX, we have contracted separately with GFZ
German Research Centre for Geosciences, or GFZ, for $31.8 million to share the launch of NASA’s two Gravity Recovery and
Climate Experiment Follow-On satellites on a specially designed dispenser on the Falcon 9 rocket. As of December 31, 2016, we had
made aggregate payments of $394.0 million to SpaceX, and received $16.5 million from GFZ. We also maintain a $1.5 million
refundable deposit for the reservation of an additional future launch with SpaceX, which is not included in the total contract price.
In June 2011, we entered into an agreement with International Space Company Kosmotras, or Kosmotras, as a supplemental launch
services provider for Iridium NEXT. The Kosmotras agreement originally provided for the purchase of up to six launches with options
to purchase additional launches. Each launch can carry two satellites. In June 2013, we exercised an option for one launch to carry two
Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the Kosmotras agreement including this
single launch will be $51.8 million. As of December 31, 2016, we had made aggregate payments of $36.8 million to Kosmotras,
41
which were capitalized as construction in process within property and equipment, net. The option to purchase two dedicated launches
expired as of December 31, 2013, and in June 2015, we agreed with Kosmotras to replace the remaining options with a new set of
options to purchase six dedicated launches. Kosmotras has to date been unable to obtain permission to launch our satellites. We may
be unable to recover the amounts already paid to Kosmotras.
Credit Facility
In October 2010, we entered into a credit facility with a syndicate of bank lenders, which we amended and restated in May 2014. We
refer to this amended and restated credit facility, as further amended to date, as the Credit Facility. Ninety-five percent of our
obligations under the Credit Facility are insured by Compagnie Française d’Assurance pour le Commerce Extérieur, or COFACE. The
Credit Facility consists of two tranches, with draws and repayments applied pro rata in respect of each tranche:
(cid:129)
(cid:129)
Tranche A – $1,537,500,000 at a fixed rate of 4.96%; and
Tranche B – $262,500,000 at a floating rate equal to the London Interbank Offer Rate, or LIBOR, plus 1.95%.
In connection with each draw made under the Credit Facility, we borrowed an additional amount equal to 6.49% of such draw to
cover the premium for the COFACE insurance. We also paid a commitment fee of 0.80% per year, in semi-annual installments, on
any undrawn portion of the Credit Facility. The commitment fee on the undrawn portion of the Credit Facility for the year ended
December 31, 2016 was $1.3 million and is included in other income (expense) in our consolidated statement of operations and
comprehensive income. Funds drawn under the Credit Facility have been used to pay 85% of each invoice issued by Thales under the
FSD. The Credit Facility was fully drawn in February 2017.
Scheduled semi-annual principal repayments will begin six months after the earlier of (i) the successful deployment of a specified
number of Iridium NEXT satellites or (ii) September 30, 2017. The Credit Facility will mature seven years after the start of the
principal repayment period. During this repayment period, we will pay interest on the same date as the principal repayments. Prior to
the repayment period, interest payments are due on a semi-annual basis in April and October. Interest incurred during the year ended
December 31, 2016 was $77.7 million. We capitalize all interest costs incurred pursuant to the Credit Facility during the construction
period of the assets; accordingly, we capitalized $77.7 million in interest incurred in 2016. We pay interest on each semi-annual due
date through a combination of a cash payment and a deemed additional loan. The $77.7 million in interest incurred during the year
ended December 31, 2016 consisted of $33.3 million payable in cash, of which $19.2 million was paid during the year and
$14.1 million was accrued at year end, and $44.4 million payable by deemed loans, all of which was paid during the year.
Following the completion of the Iridium NEXT constellation, we may prepay the borrowings subject to the payment of interest
makeup costs. We may not subsequently borrow any amounts that we repay. We must repay the loans in full upon a delisting of our
common stock, a change in control of our company or our ceasing to own 100% of any of the other obligors, or the sale of all or
substantially all of our assets. We must apply all or a portion of specified capital raise proceeds, insurance proceeds, condemnation
proceeds and proceeds from the disposal of any interests in Aireon to the prepayment of the loans. The Credit Facility includes
customary representations, events of default, covenants and conditions precedent to our drawing of funds.
As of December 31, 2016, we had borrowed a total of $1,777.8 million under the Credit Facility. The unused portion of the Credit
Facility as of December 31, 2016 was $22.2 million, and the Credit Facility was fully drawn in February 2017. Under the terms of the
Credit Facility, we were required to maintain a minimum cash reserve for debt service of $113.0 million as of December 31, 2016,
which is classified as restricted cash on our consolidated balance sheet. This minimum cash reserve requirement will increase over the
term of the Credit Facility to $189.0 million in 2017.
In addition to the minimum debt service reserve levels, financial covenants under the Credit Facility include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
an available cash balance of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total
stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;
specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT
satellites) through the year ending December 31, 2024;
specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or
operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites
measured each December 31 and June 30 from June 30, 2016 through December 31, 2017;
a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and
specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve
months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.
42
Our available cash balance, as defined by the Credit Facility, was $382.0 million as of December 31, 2016. Our debt-to-equity ratio
was 0.51 to 1 as of December 31, 2016. We were also in compliance with the operational EBITDA covenant, the annual capital
expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant as of
December 31, 2016.
The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a
measurement, which we refer to as available cure amount, that is derived using a complex calculation based on overall cash flows, as
adjusted by numerous measures specified in the Credit Facility. In a period in which our capital expenditures exceed, or our
operational EBITDA or hosted payload cash flows falls short of, the amount specified in the respective covenant, we would be
permitted to allocate available cure amount, if any, to prevent a breach of the applicable covenant. As of December 31, 2016, we had
no available cure amount, although it was not necessary for us to apply any available cure amount to maintain compliance with the
covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and we expect that it will
continue to do so.
The covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions, dispose of assets,
grant security interests, declare, make or pay dividends, enter into transactions with affiliates incur additional indebtedness, or make
loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any
opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may
require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate
funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may
foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our
domestic subsidiaries.
As of February 23, 2017, we have fully drawn the total $1.8 billion under the Credit Facility.
Boeing Insourcing Agreement
Boeing has operated and maintained our satellite constellation under an operations and maintenance agreement since our inception.
During 2016, Boeing provided these services to us pursuant to the terms of the Iridium NEXT support services agreement. Pursuant to
this agreement, Boeing provided personnel services in support of the development of Iridium NEXT and agreed to operate and
maintain Iridium NEXT, including a transitional period that began on January 1, 2015, during which Boeing supported a hybrid
operations mode involving network elements from both the first-generation Iridium system and the Iridium NEXT system. Boeing
provided these services on a time-and-materials fee basis.
In November 2016, we restructured our relationship with Boeing. We entered into an insourcing agreement, pursuant to which we
hired, as of January 3, 2017, the majority of the Boeing team that performed the operations and maintenance on our system. This
transition will allow us to more directly manage our network and optimize operational expenses going forward. As part of this
arrangement, we agreed to pay Boeing a fee of $5.5 million, of which one-half was paid in December 2016 and the remainder will be
paid in December 2017. In addition, we entered into a separate development services contract with Boeing, which will dedicate key
Boeing personnel to continue the design and growth required for bringing new services and capabilities to the Iridium NEXT network.
After the completion of the Boeing insourcing, as of January 3, 2017, we had 393 full-time employees.
Material Trends and Uncertainties
Our industry and customer base has historically grown as a result of:
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(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
demand for remote and reliable mobile communications services;
increased demand for communications services by disaster and relief agencies, and emergency first responders;
a broad wholesale distribution network with access to diverse and geographically dispersed niche markets;
a growing number of new products and services and related applications;
improved data transmission speeds for mobile satellite service offerings;
regulatory mandates requiring the use of mobile satellite services;
a general reduction in prices of mobile satellite services and subscriber equipment; and
geographic market expansion through the ability to offer our services in additional countries.
Nonetheless, we face a number of challenges and uncertainties in operating our business, including:
(cid:129)
(cid:129)
our ability to continue to develop and launch Iridium NEXT;
our ability to develop new and innovative products and services for Iridium NEXT;
43
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
our ability to generate sufficient internal cash flows, including contracted cash flows from hosted payloads, to fund a
portion of the remaining costs associated with Iridium NEXT and to support our ongoing business;
Aireon LLC’s ability to successfully deploy and market its space-based ADS-B, global aviation monitoring service to be
carried as a hosted payload on the Iridium NEXT system;
Aireon’s ability to raise sufficient funds to pay hosting fees to us;
our ability to maintain the health, capacity, control and level of service of our first-generation satellites through the
completion of Iridium NEXT;
changes in general economic, business and industry conditions, including the effects of currency exchange rates;
our reliance on a single primary commercial gateway and a primary satellite network operations center;
competition from other mobile satellite service providers and, to a lesser extent, from the expansion of terrestrial-based
cellular phone systems and related pricing pressures;
(cid:129) market acceptance of our products;
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
regulatory requirements in existing and new geographic markets;
rapid and significant technological changes in the telecommunications industry;
reliance on our wholesale distribution network to market and sell our products, services and applications effectively;
reliance on single-source suppliers for the manufacture of most of our subscriber equipment and for some of the
components required in the manufacture of our end-user subscriber equipment and our ability to purchase parts that are
periodically subject to shortages resulting from surges in demand, natural disasters or other events; and
reliance on a few significant customers, particularly agencies of the U.S. government, for a substantial portion of our
revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our
revenue and collectability of related accounts receivable.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The
preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to revenue recognition, collectability of accounts receivable, useful lives of property and equipment,
long-lived assets, goodwill and other intangible assets, inventory, internally developed software, deferred financing costs, asset
retirement obligations, income taxes, stock-based compensation, warranty expenses, loss contingencies, and other estimates. We base
our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex
and subjective management judgments are discussed below. Our accounting policies are more fully described in Note 2 in Item 8
“Financial Statements and Supplementary Data.” Please see the notes to our consolidated financial statements for a full discussion of
these significant accounting policies.
Revenue Recognition
For revenue arrangements with multiple elements in which we determine, based on judgment, that the elements qualify as separate
units of accounting, we allocate the guaranteed minimum arrangement price among the various contract elements based on each
element’s relative selling price. The selling price used for each deliverable is based on vendor-specific objective evidence when
available, third-party evidence when vendor-specific evidence is not available, or the Company’s estimate of selling price when
neither vendor-specific evidence nor third-party evidence is available. We determine vendor-specific objective evidence of selling
price by assessing sales prices of subscriber equipment, airtime and other services when they are sold to customers on a stand-alone
basis. Our determination of best estimate of selling price is consistent with our determination of vendor-specific objective evidence of
selling price and we assess qualitative and quantitative market factors and entity-specific factors when estimating the selling price. We
recognize revenue for each element based on the specific characteristics of that element.
We sell prepaid services in the form of e-vouchers and prepaid cards. A liability is established equal to the cash paid upon purchase
for the e-voucher or prepaid card. We recognize revenue from the prepaid services upon the use of the e-voucher or prepaid card by
the customer or, if unused, upon the expiration of the right to access the prepaid service. While the terms of prepaid e-vouchers can be
extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond three or four years, dependent on
the initial expiry period when purchased. We do not offer refunds for unused prepaid services.
44
Revenue associated with some of our fixed-price engineering services arrangements is recognized when the services are rendered,
typically on a proportional performance method of accounting based on our estimate of total costs expected to complete the contract,
and the related costs are expensed as incurred. We recognize revenue on cost-plus-fixed-fee arrangements to the extent of actual costs
incurred plus an estimate of the applicable fees earned, where such estimated fees are determined using a partial performance method
calculation. If actual results are not consistent with our estimates or assumptions, we may be exposed to changes to earned and
unearned revenue that could be material to our results of operations.
Stock-Based Compensation
We account for stock-based compensation, which consists of stock options and restricted stock units, based on the grant date
estimated fair value. In the case of restricted stock units, grant date fair value is equal to the closing price of our common stock on the
date of grant. The expected vesting of our performance-based RSUs is based upon the probability that we achieve the defined
performance goals. The level of achievement of performance goals, if any, is determined by the compensation committee. In the case
of stock options, grant date fair value is calculated using the Black-Scholes option pricing model. We recognize stock-based
compensation on a straight-line basis over the requisite service period. The Black-Scholes option pricing model requires us to make
several assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the Black-
Scholes option pricing model were to change significantly, stock-based compensation expense may differ materially in the future from
that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for
those awards expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is
different from our estimate, stock-based compensation expense is adjusted accordingly.
Income Taxes
We account for income taxes using the asset and liability approach. This approach requires that we recognize deferred tax assets and
liabilities based on differences between the financial statement bases and tax bases of our assets and liabilities. Deferred tax assets and
liabilities are recorded based upon enacted tax rates for the period in which the deferred tax items are expected to reverse. Changes in
tax laws or tax rates in various jurisdictions are reflected in the period of change. Significant judgment is required in the calculation of
our tax provision and the resulting tax liabilities as well as our ability to realize our deferred tax assets. Our estimates of future taxable
income and any changes to such estimates can significantly affect our tax provision in a given period. Significant judgment is required
in determining our ability to realize our deferred tax assets related to federal, state and foreign tax attributes within their carryforward
periods including estimating the amount and timing of the future reversal of deferred tax items in our projections of future taxable
income. A valuation allowance is established to reduce deferred tax assets to the amounts we expect to realize in the future. We also
recognize tax benefits related to uncertain tax positions only when we estimate that it is “more likely than not” that the position will
be sustainable based on its technical merits. If actual results are not consistent with our estimates and assumptions, this may result in
material changes to our income tax provision.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated or
amortized over their estimated useful lives. We apply judgment in determining the useful lives based on factors such as engineering
data, our long-term strategy for using the assets, contractual terms related to the assets, laws and regulations that could impact the
useful lives of the assets and other economic factors. In evaluating the useful lives of our satellites, we assess the current estimated
operational life of the satellites, including the potential impact of environmental factors on the satellites, ongoing operational
enhancements and software upgrades. Additionally, we review engineering data relating to the operation and performance of our
satellite network.
We depreciate our satellites over the shorter of their potential operational life or the period of their expected use. The appropriateness
of the useful lives is evaluated on a quarterly basis or as events occur that require additional assessment. Our first-generation satellites
are depreciated on a straight-line basis through the earlier of their estimated remaining useful life or the date they are expected to be
replaced by Iridium NEXT satellites, which defines the period of their expected use, because we expect this will occur before the end
of their operational lives.
In addition to the changes made in prior quarters, in the fourth quarter of 2016, we updated our analysis of the first-generation
satellites’ remaining useful lives based on the refinement of the launch schedule, health of the first-generation satellites, and
deployment plan for our next-generation satellite constellation. As a result, the estimated useful lives of the first-generation satellites
have been extended and are consistent with the expected deployment of Iridium NEXT. We began deployment of our next-generation
satellite constellation in January 2017, and, based on the current launch schedule, we expect the final launch to occur in 2018. If our
actual operational results are not consistent with our estimates and assumptions, we may experience changes in depreciation and
amortization expense that could be material to our results of operations. In the event there are changes to the launch schedule of
Iridium NEXT satellites, the period of intended use for our first-generation satellites could be affected, also resulting in changes to
depreciation and amortization expense that could be material to our results of operations.
45
Assets under construction primarily consist of costs incurred associated with the design, development and launch of the Iridium
NEXT satellites, upgrades to our current infrastructure and ground systems and internal software development costs. Once these
assets are placed in service, they will be depreciated using the straight-line method over their respective estimated useful lives. We
capitalize interest on the Credit Facility during the construction period of Iridium NEXT. Capitalized interest is added to the cost of
our next-generation satellites.
Recoverability of Intangible Assets with Indefinite Lives
A portion of our intangible assets consists of our spectrum licenses and trade names which are indefinite-lived intangible assets. We
reevaluate the indefinite life determination for these assets periodically to determine whether events and circumstances continue to
support an indefinite life.
We assess the recoverability of indefinite-lived assets on an annual basis or when indicators of impairment exist. Historically, we have
assessed the possibility of impairment by comparing the carrying amount of the asset to its estimated fair value. If the estimated fair
value of the indefinite-lived asset is less than the carrying amount, an impairment loss is recognized. We made assumptions and
applied judgment in estimating the fair value based on quoted market prices and various other valuation techniques, including
replacement costs, discounted cash flows methods and other market multiple analyses. The various valuation techniques require
significant assumptions about future cash flows, replacement cost, revenue growth, capital expenditures, working capital fluctuations,
asset life and incremental borrowing rates. In our annual analysis performed in 2016, we chose the optional qualitative assessment to
test indefinite-lived intangible assets for impairment. The qualitative assessment permits companies to assess whether it is more likely
than not that an indefinite-lived intangible asset is impaired. If a company concludes based on the qualitative assessment that it is not
more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it would not have to
quantitatively determine the assets’ fair value. Based on the results of this analysis, it was not more likely than not that the intangible
assets not subject to amortization were impaired. Therefore, a quantitative analysis was not necessary, and no impairment charge was
recorded during the period.
Internally Developed Software
We capitalize the costs of acquiring, developing and testing software to meet our internal needs. Capitalization of costs associated
with software obtained or developed for internal use commences when the preliminary project stage is complete and it is probable that
the project will be completed and used to perform the function intended. Capitalized costs include external direct cost of materials and
services consumed in developing or obtaining internal-use software as well as payroll and payroll-related costs for employees who are
directly associated with, and devote time to, the internal-use software project. Capitalization of these costs ceases no later than the
point in time at which the project is substantially complete and ready for its intended use. Internal use software costs are amortized
once the software is placed in service using the straight-line method over periods ranging from three to seven years. Judgments and
estimates are required in the determination of when development costs should be capitalized. We evaluate and estimate, based on
engineering data, when the preliminary project stage is completed and the point when the project is substantially complete and ready
for use.
Deferred Financing Costs
Direct and incremental costs incurred in connection with securing debt financing are deferred on our balance sheet and amortized as
additional interest expense using the effective interest method over the term of the related debt. The effective interest rate calculation
requires us to make assumptions and estimates in determining estimated periodic interest expense. The calculation includes
assumptions and estimates with respect to future borrowing dates and amounts, repayment dates and amounts, and projected future
LIBOR rates. If actual borrowing amounts and dates, repayment amounts and dates, and future LIBOR rates are not consistent with
our estimates or assumptions, we may be exposed to changes that could be material to our property and equipment, net balance (since
we are capitalizing interest expense as part of the cost of Iridium NEXT), deferred financing costs balance, depreciation expense,
interest expense, income from operations and net income.
46
Comparison of Our Results of Operations for the Year Ended December 31, 2016 and the Year Ended December 31, 2015
Year Ended December 31,
2016
% of Total
Revenue
2015
% of Total
Revenue
Change
Dollars
Percent
($ In thousands)
Revenue:
Service revenue
Commercial
Government
Total service revenue
Subscriber equipment
Engineering and support services
Total revenue
Operating expenses:
Cost of services (exclusive of depreciation
and amortization)
Cost of subscriber equipment
Research and development
Selling, general and administrative
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Operating income
Other income (expense):
Interest income, net
Undrawn credit facility fees
Other income (expense), net
Total other income (expense)
Income before income taxes
Provision for income taxes
Net income
Commercial Service Revenue
$
246,822
88,000
334,822
74,211
24,607
433,640
64,958
44,286
16,079
82,552
49,394
—
257,269
176,371
2,934
(1,346)
206
1,794
178,165
(67,133)
111,032
$
57%
20%
77%
17%
6%
100%
15%
10%
4%
19%
11%
0%
59%
41%
1%
0%
(1%)
(1%)
40%
(15%)
25%
$
$
241,925
75,097
317,022
73,615
20,741
411,378
60,306
40,807
16,144
81,445
51,834
87,039
337,575
73,803
3,069
(3,289)
(468)
(688)
73,115
(65,992)
7,123
2%
17%
6%
1%
19%
5%
8%
9%
0%
1%
(5%)
100%
(24%)
139%
(4%)
(59%)
(144%)
(361%)
144%
2%
1,459%
59%
18%
77%
18%
5%
100%
15%
10%
4%
20%
13%
21%
82%
18%
1%
(1%)
(1%)
(1%)
17%
(16%)
1%
$
$
4,897
12,903
17,800
596
3,866
22,262
4,652
3,479
(65)
1,107
(2,440)
(87,039)
(80,306)
102,568
(135)
1,943
674
2,482
105,050
(1,141)
103,909
Change
Billable
Year Ended December 31,
2016
Billable
2015
(Revenue in millions and subscribers in thousands)
Billable
Revenue
Subscribers (1) ARPU (2)
Revenue
Subscribers (1) ARPU (2)
Revenue
Subscribers ARPU
Commercial voice and
data
Commercial M2M data
Total Commercial
$
$
180.5
66.3
246.8
353 $
413
766
42 $
14
$
180.6
61.3
241.9
351 $
359
710
42 $
15
$
(0.1)
5.0
4.9
2 $ —
(1)
54
56
(1) Billable subscriber numbers shown are at the end of the respective period.
(2) Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the
number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and
then dividing the result by the number of months in the period. ARPU excludes revenue from our non-subscriber satellite,
timing, and location service that was launched in the second quarter of 2016.
For the year ended December 31, 2016, total commercial revenue increased $4.9 million, or 2%, primarily due to the increase in M2M
of $5.0 million, or 8%, compared to the prior year. The increase in M2M is primarily due to a 15% increase in commercial M2M
billable subscribers, offset by slightly lower ARPU. Commercial voice and data remained flat due to continued declines in telephony
airtime usage substantially offset by increases in Iridium OpenPort services and push-to-talk, or PTT, services.
47
Government Service Revenue
Year Ended December 31,
2016
2015
(Revenue in millions and subscribers in thousands)
Billable
Billable
Change
Revenue
Subscribers (1) Revenue
Subscribers (1) Revenue
Billable
Subscribers
Government service revenue
$88.0
84
$75.1
72
$12.9
12
(1) Billable subscriber numbers shown are at the end of the respective period.
We provide Iridium airtime and airtime support to U.S. government and other authorized customers pursuant to a five-year EMSS
contract executed in October 2013 and managed by DISA. The EMSS contract replaced our previous EMSS contract which we
originally entered into in April 2008. Under the terms of this agreement, authorized customers utilize Iridium airtime services
provided through the U.S. Department of Defense’s, or DoD’s, dedicated gateway. These services include unlimited global secure and
unsecure voice, low and high-speed data, paging, broadcast and Distributed Tactical Communications System, or DTCS, services for
an unlimited number of DoD and other federal subscribers. DTCS is a service that provides beyond-line-of-sight, netted tactical radio
service for user-defined groups. The service fee under the EMSS contract is $88 million per year for the remaining term.
Government service revenues for the year ended December 31, 2016 increased to $88.0 million from $75.1 million in the prior year as
a result of the scheduled price increase under the EMSS contract.
Subscriber Equipment Revenue
Subscriber equipment revenue increased by $0.6 million, or 1%, to $74.2 million for the year ended December 31, 2016 compared to
the prior year. This increase was primarily due to increased unit sales of Iridium Pilot® terminals and M2M devices partially offset by
fewer sales of handsets and L-Band transceivers.
Engineering and Support Service Revenue
Year Ended December 31,
2016
2015
(In millions)
Change
Government
Commercial
Total
$
$
22.4
2.2
24.6
$
$
18.7
2.0
20.7
$
$
3.7
0.2
3.9
Engineering and support service revenue increased by $3.9 million, or 19%, for the year ended December 31, 2016 compared to the
prior year primarily as a result of a DoD contract entered into in late 2015 to adapt the Iridium Extreme® handset for DoD use.
Operating Expenses
Cost of Services (exclusive of depreciation and amortization)
Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including
contractors, software maintenance, product support services and cost of services for government and commercial engineering and
support service revenue.
Cost of services (exclusive of depreciation and amortization) increased by $4.7 million, or 8%, for the year ended December 31, 2016
compared to the prior year, primarily due to an increase in scope of work for government sponsored contracts, partially offset by
lower costs incurred to manage the first-generation satellites.
Cost of Subscriber Equipment
Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of
overhead, and warranty costs.
Cost of subscriber equipment increased by $3.5 million, or 9%, for the year ended December 31, 2016 compared to the prior year. The
increase was primarily due to a decline in the warranty provision for our Iridium OpenPort terminal during the year ended December
31, 2015 that did not recur in the year ended December 31, 2016. The remaining cost increase is due to a higher volume of Iridium
Pilot terminal sales and M2M device sales, partially offset by decreased sales of handsets and L-Band transceivers and by reduced
costs on certain products due to manufacturing cost efficiencies.
48
Selling, General and Administrative
Selling, general and administrative expenses include sales and marketing costs as well as legal, finance, information technology,
facilities, billing and customer care expenses.
Selling, general and administrative expenses increased by $1.1 million, or 1%, for the year ended December 31, 2016 compared to the
prior year primarily due to increases in employee-related expenses and professional fees, partially offset by lower supplier transition
expenses and lower non-income taxes.
Depreciation and Amortization
Depreciation and amortization expense decreased by $2.4 million, or 5%, for the year ended December 31, 2016 compared to the prior
year, primarily due to continued changes in the estimated useful lives of the first-generation satellites, partially offset by the addition
of new assets and the impairment charges that we recorded during the second quarter of 2016 as a result of two satellites having
ceased operations. We updated our analysis of the first-generation satellites’ remaining useful lives throughout 2016. We will
continue to evaluate the useful lives of our first-generation satellites through the full deployment of Iridium NEXT as the satellites are
placed into service.
Other Expense
Undrawn Credit Facility Fees
The commitment fee on the undrawn portion of the Credit Facility was $1.3 million for the year ended December 31, 2016 compared
to $3.3 million for the prior year. The decrease of the commitment fee on the undrawn portion directly relates to the increase in the
amounts borrowed under the Credit Facility as we continue to finance the development of Iridium NEXT. As we are fully drawn on
the Credit Facility as of February 2017, the undrawn portion and related fees will decrease to zero beginning in the second quarter of
2017.
Provision for Income Taxes
For the year ended December 31, 2016, our income tax provision was $67.1 million compared to $66.0 million for the prior year. Our
effective tax rate was approximately 37.7% for the year ended December 31, 2016 compared to 90.3% for the prior year. The decrease
in the effective tax rate was primarily related to the impact of a one-time non-cash impairment of goodwill in the prior year as well as
an increased benefit related to the impact of the Arizona tax law changes (both tax rate and apportionment method) and state
apportionment changes in other jurisdictions compared to the prior year. As our current estimates change in future periods, the impact
on the deferred tax assets and liabilities may change correspondingly.
Net Income
Net income was $111.0 million for the year ended December 31, 2016, an increase of $103.9 million from the prior year. This
increase in net income was driven by an $87.0 million non-cash goodwill impairment charge taken in 2015 and the $22.3 million
increase in total revenue, which was primarily related to the $12.9 million increase from the EMSS contract. The increase was
partially offset by a $5.0 million increase in costs of services as described above.
49
Comparison of Our Results of Operations for the Year Ended December 31, 2015 and Combined Results of Operations for the
Year Ended December 31, 2014
($ In thousands)
Revenue:
Service revenue
Commercial
Government
Total service revenue
Subscriber equipment
Engineering and support services
Total revenue
Operating expenses:
Cost of services (exclusive of depreciation
and amortization)
Cost of subscriber equipment
Research and development
Selling, general and administrative
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Operating income
Other income (expense):
Interest income, net
Undrawn credit facility fees
Other expense, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
Revenue
Year Ended December 31,
2015
% of Total
Revenue
2014
% of Total
Revenue
Change
Dollars
Percent
$
241,925
75,097
317,022
73,615
20,741
411,378
60,306
40,807
16,144
81,445
51,834
87,039
337,575
73,803
3,069
(3,289)
(468)
(688)
73,115
(65,992)
7,123
$
59%
18%
77%
18%
5%
100%
15%
10%
4%
20%
13%
21%
82%
18%
1%
(1%)
(1%)
(1%)
17%
(16%)
1%
$
$
243,875
65,549
309,424
78,152
20,981
408,557
62,085
54,569
17,587
78,636
72,769
—
285,646
122,911
3,640
(5,825)
(4,274)
(6,459)
116,452
(41,463)
74,989
60%
16%
76%
19%
5%
100%
15%
14%
4%
19%
18%
0%
70%
30%
1%
(1%)
(2%)
(2%)
29%
(10%)
18%
$
$
(1,950)
9,548
7,598
(4,537)
(240)
2,821
(1,779)
(13,762)
(1,443)
2,809
(20,935)
87,039
51,929
(49,108)
(571)
2,536
3,806
5,771
(43,337)
(24,529)
(67,866)
(1%)
15%
2%
(6%)
(1%)
1%
(3%)
(25%)
(8%)
4%
(29%)
100%
18%
(40%)
(16%)
(44%)
(89%)
(89%)
(37%)
59%
(91%)
Total revenue increased to $411.4.6 million for the year ended December 31, 2015 compared to $408.6 million for the prior year. This
increase in total revenue was primarily due to a $7.6 million increase in service revenue. Government service revenue increased by
$9.5 million primarily due to the price increase in the Enhanced Mobile Satellite Services, or EMSS, fixed-price government contract.
The increases were partially offset by a decrease in subscriber equipment revenue of $4.5 million.
Commercial Service Revenue
Year Ended December 31,
2015
2014
Revenue
Billable
Subscribers (1)
Commercial voice and
(Revenue in millions and subscribers in thousands)
Billable
ARPU (2)
Revenue
Subscribers (1) ARPU (2)
Revenue
Subscribers ARPU
Change
Billable
data
$
180.6
351 $
42 $
185.5
354 $
45 $
(4.9)
(3) $
(3)
Commercial M2M
data
Total Commercial
$
61.3
241.9
359
710
15
$
58.4
243.9
325
679
16
$
2.9
(2.0)
(1)
34
31
(1) Billable subscriber numbers shown are at the end of the respective period.
(2) ARPU is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the
beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the
number of months in the period.
For the year ended December 31, 2015, commercial voice and data revenue decreased $4.9 million, or 3%, primarily due to continued
declines in airtime usage, partially offset by higher telephony access fees due to a higher weighted-average number of subscribers in
2015 than in 2014. Also offsetting the decline in airtime usage was higher Iridium OpenPort service revenue.
50
For the year ended December 31, 2015, commercial M2M data revenue increased by $2.9 million, or 5%, compared to the prior year
primarily due to a 10% increase in commercial M2M billable subscribers, offset by slightly lower ARPU.
Government Service Revenue
Year Ended December 31,
2015
2014
(Revenue in millions and subscribers in thousands)
Billable
Billable
Change
Revenue
Subscribers (1) Revenue
Subscribers (1) Revenue
Billable
Subscribers
Government service revenue
$75.1
72
$65.5
60
$ 9.6
12
(1) Billable subscriber numbers shown are at the end of the respective period.
Government service revenues for the year ended December 31, 2015 increased to $75.1 million from $65.5 million in the prior year as
a result of the scheduled price increase under the EMSS contract. As we continue to innovate and better meet the needs of our
customers, additional services not contemplated under the EMSS contract may be provided in future periods at an amount mutually
agreed upon by both parties.
Subscriber Equipment Revenue
Subscriber equipment revenue decreased by $4.5 million, or 6%, to $73.6 million for the year ended December 31, 2015 compared to
the prior year. This decrease was primarily due to decreased unit sales of established handsets, Iridium GO!® handsets, and Iridium
Pilot® terminals. The decrease was partially offset by higher M2M device unit sales and the sales of our Iridium Extreme PTT
handsets which were introduced in 2015.
Operating Expenses
Cost of Services (exclusive of depreciation and amortization)
Cost of services (exclusive of depreciation and amortization) decreased by $1.8 million, or 3%, for the year ended December 31, 2015
compared to the prior year, primarily due to lower costs related to government contracts and satellite operations.
Cost of Subscriber Equipment
Cost of subscriber equipment decreased by $13.8 million, or 25%, for the year ended December 31, 2015 compared to the prior year.
The decrease was primarily due to an $8.1 million decline in the warranty provision, primarily related to fewer expected returns of
Iridium Pilot units and a decrease in the average repair costs compared to the prior year. The decrease in the warranty provision also
included a $0.8 million reduction in expenses resulting from an initiative to replace older Iridium OpenPort units. The remaining
decrease in cost of subscriber equipment was due to lower overall sales volume of equipment. The decrease in cost was proportionally
greater than the decrease in revenue due to equipment manufacturing efficiencies.
Research and Development
Research and development expenses decreased by $1.4 million, or 8%, for the year ended December 31, 2015 compared to the prior
year primarily due to the completion of certain product development activities such as PTT, partially offset by an increase in Iridium
NEXT projects including development costs associated with enabling faster data speeds on our network and subscriber equipment.
Selling, General and Administrative
Selling, general and administrative expenses increased by $2.8 million, or 4%, for the year ended December 31, 2015 compared to the
prior year primarily due to an increase in non-income taxes and equipment supplier transition costs.
Depreciation and Amortization
Depreciation and amortization expense decreased by $20.9 million, or 29%, for the year ended December 31, 2015 compared to the
prior year. Of the total decrease for the year ended December 31, 2015, $11.7 million was related to depreciation and the remaining
$9.2 million decrease related to amortization.
In addition to changes made during 2014, we updated our analysis of the first-generation satellites’ remaining useful lives in each of
the first three quarters of 2015. Based on the results of the analyses and the refinement of the Iridium NEXT launch schedule and
deployment plan, the estimated useful lives of the first-generation satellites were extended and are consistent with the expected
deployment of Iridium NEXT. These changes in estimated useful life resulted in a $10.6 million decrease in depreciation expense for
the year ended December 31, 2015 when compared to the prior year. We will continue to evaluate the useful lives of our first-
51
generation satellites through the full deployment of Iridium NEXT as the satellites are placed into service. Also contributing to the
decrease in depreciation expense was a $2.2 million impairment charge recorded during the year ended December 31, 2014 related to
three of our in-orbit satellites with which we lost communication during the year ended December 31, 2014. We have since replaced
the lost satellites with in-orbit spares. We did not lose any satellites in 2015. The decreases described above were partially offset by
increases in depreciation expense resulting from additions to property and equipment for ground infrastructure compatible with
Iridium NEXT.
In addition, amortization expense decreased by $9.2 million for the year ended December 31, 2015 compared to the prior year due to
the completion of amortization of certain definite-lived intangibles in 2014. These definite-lived intangible assets included customer
relationships, core developed technology and software from our 2009 acquisition of Iridium Holdings LLC. These assets were
amortized over useful lives of five years.
Other Expense
Interest Income, Net
Interest income, net, decreased by $0.6 million, or 16%, to $3.1 million for the year ended December 31, 2015 compared to the prior
year primarily due to more timely customer collections resulting in lower customer finance charges.
Undrawn Credit Facility Fees
The commitment fee on the undrawn portion of the Credit Facility was $3.3 million for the year ended December 31, 2015 compared
to $5.8 million for the prior year. The decrease of the commitment fee on the undrawn portion directly relates to the increase in the
amounts borrowed under the Credit Facility as we finance the development of Iridium NEXT.
Other Income (Expense), net
Other expense, net was $0.5 million for the year ended December 31, 2015 compared to $4.3 million for the prior year. This change
primarily resulted from our share of the 2014 loss from our investment in Aireon LLC. Aireon is accounted for as an equity method
investment. As of June 30, 2014, due to our cumulative recognition of our share of Aireon’s reported losses, our investment balance in
Aireon was zero. To the extent that Aireon continues to incur losses, we will suspend recognition of these losses on our condensed
consolidated statement of operations until such time that future Aireon income exceeds cumulative accrued preferred dividends and
accumulated suspended losses.
Provision for Income Taxes
For the year ended December 31, 2015, our income tax provision was $66.0 million compared to $41.5 million for the prior year. Our
effective tax rate was approximately 90.3% for the year ended December 31, 2015 compared to 35.6% for the prior year. The change
in the effective tax rate was primarily related to the impact of a one-time non-cash impairment of goodwill as well as lower benefit for
the impact of the Arizona tax law changes (both tax rate and apportionment method). As our current estimates change in future
periods, the impact on the deferred tax assets and liabilities may change correspondingly.
Net Income
Net income was $7.1 million for the year ended December 31, 2015, a decrease of $67.9 million, or 91%, from the prior year. This
decrease in net income was driven by an $87.0 million non-cash goodwill impairment charge and a $24.5 million increase in our
provision for income taxes. The decrease was partially offset by a $7.6 million increase in service revenue, primarily due to the
$9.5 million favorable impact of the EMSS contract and a $9.2 million favorable subscriber equipment margin. Also adding to the
offset was the $20.9 million decrease in depreciation and amortization primarily due to the change in our first-generation satellites’
estimated remaining useful lives and completion of amortization related to certain definite-lived intangible assets in 2014.
Liquidity and Capital Resources
As of December 31, 2016, our total cash and cash equivalents balance was $371.2 million, and our marketable securities balance was
$39.3 million. Our principal sources of liquidity are cash, cash equivalents and marketable securities, internally generated cash flows,
and, until it was fully drawn in February 2017, the Credit Facility. Our principal liquidity requirements over the next twelve months
are to meet capital expenditure needs, principally the continued deployment of Iridium NEXT, as well as for working capital, interest
and debt service reserve payments on the Credit Facility, and dividends payable on our Series A Preferred Stock and Series B
Preferred Stock.
We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related infrastructure upgrades
through 2018 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available
under the Credit Facility, which is now fully drawn as of February 2017, together with cash and marketable securities on hand, and
52
internally generated cash flows, including contracted cash flows from hosted payloads. Now that our Credit Facility is fully drawn, we
expect to pay each invoice received from Thales and all interest and debt service reserve payments under the Credit Facility from
cash, cash equivalents and marketable securities on hand, and internally generated cash flows, including contracted cash flows from
hosted payloads.
While the contracted cash flows from our primary hosted payload customer, Aireon, are interest-bearing if not paid on time, we
expect those hosted payload payments will continue to be delayed. Aireon is working to secure contracts with ANSPs, including the
FAA, for the sale of Aireon’s space-based ADS-B services. Aireon is currently seeking to raise the capital it will need to fund its
continued operations and our hosted payload payments. Its ability to fund our hosted payload payments in the previously anticipated
timeframe has been adversely affected by delays in its sales efforts to these ANSPs, which we believe in part results from delays in
the development, construction and launch of the Iridium NEXT system.
In anticipation of potential delays in receipt of the Aireon hosting payments, we entered into discussions with our Credit Facility
lenders and Thales to delay or reduce our payment obligations. We have received terms from our lenders to delay our contributions to
the cash reserve account for debt repayment, or DSRA, and from Thales to delay some of the construction milestone payments that we
otherwise anticipate making in 2017 and 2018 under our full scale development contract, or FSD; however, we would need full
payment of the Aireon hosting fees or other financing arrangements by the first quarter of 2019 in order to make these deferred
payments. The terms from our lenders also contemplate the temporary suspension of dividend payments on our Series A Preferred
Stock and Series B Preferred Stock, but do not include any requirements that we raise additional equity. These terms would permit us
to maintain liquidity well into 2018.
There can be no assurance that our internally generated cash flows, including those from hosted payloads on our Iridium NEXT
satellites, will meet our current expectations. If we do not generate sufficient cash flows, or if the cost of implementing Iridium NEXT
or the other elements of our business plan are higher than anticipated, we may need further external funding. Our ability to obtain
additional funding may be adversely affected by a number of factors, including global economic conditions, and such funding may not
be available on reasonable terms or at all. If we are not able to secure such funding in a timely manner, our ability to maintain our
network, to design, build and launch Iridium NEXT and related ground infrastructure, products and services, and to pursue additional
growth opportunities will be impaired, and we would likely need to delay some elements of our Iridium NEXT development. Our
liquidity and our ability to fund our liquidity requirements also depend on our future financial performance, which is subject to
general economic, financial, regulatory and other factors that are beyond our control.
Holders of Series A Preferred Stock and Series B Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of
$7.00 and $16.875 per share, respectively. Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and
December 15. For each full quarter that the Series A Preferred Stock or Series B Preferred Stock, as applicable, is outstanding, and
assuming that no shares have been converted into common stock, we are required to pay cash dividends of $1.75 million and
$2.1 million, respectively. We expect that we will satisfy dividend requirements, if and when declared, from internally generated cash
flows.
As of December 31, 2016, we reported $1,657.1 million in borrowings under the Credit Facility in our condensed consolidated
balance sheet, net of $120.7 million of deferred financing costs, for an aggregate balance of $1,777.8 million outstanding under the
Credit Facility. The unused portion of the Credit Facility as of December 31, 2016 was $22.2 million. In February 2017, we borrowed
the remaining portion of the Credit Facility. Pursuant to the Credit Facility, we maintain the DSRA. As of December 31, 2016, the
DSRA balance was $113.0 million, which is classified as restricted cash in our condensed consolidated balance sheet. The DSRA
requirement is scheduled to increase to $189.0 million in 2017. In addition to the minimum debt service levels, financial covenants
under the Credit Facility, as amended to date, include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
an available cash balance of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total
stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;
specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT
satellites) through the year ending December 31, 2024;
specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or
operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites,
measured each December 31 and June 30, from June 30, 2016 through December 31, 2017;
a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and
specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve
months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.
53
Our available cash balance, as defined by the Credit Facility, was $382.0 million as of December 31, 2016. Our debt-to-equity ratio
was 0.51 to 1 as of December 31, 2016. We were also in compliance with the operational EBITDA and hosted payload cash flow
covenants and the annual capital expenditure covenant as of December 31, 2016.
The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a
measurement, which we refer to as available cure amount, that is derived using a complex calculation based on overall cash flows, as
adjusted by numerous measures specified in the Credit Facility. In a period in which our capital expenditures exceed, or our
operational EBITDA or hosted payload cash flows falls short of, the amount specified in the respective covenant, we would be
permitted to allocate available cure amount, if any, to prevent a breach of the applicable covenant. As of December 31, 2016, we had
no available cure amount, although it was not necessary for us to apply any available cure amount to maintain compliance with the
covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and we expect that it will
continue to do so.
The covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions, dispose of assets,
grant security interests, declare, make or pay dividends, enter into transactions with affiliates, incur additional indebtedness, or make
loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any
opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may
require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate
funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may
foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our
domestic subsidiaries.
We believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12
months.
Cash and Indebtedness
At December 31, 2016, our total cash equivalents balance was $371.2 million, our total marketable securities balance was
$39.3 million, and we had an aggregate of $1,657.1 million of external indebtedness related to borrowings under the Credit Facility.
Cash Flows - Comparison of the Year Ended December 31, 2016 and the Year Ended December 31, 2015
The following table shows our consolidated cash flows from operating, investing and financing activities for the years ended
December 31 (in millions):
Statement of Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
2016
2015
Change
$
$
$
225.2
(242.4)
202.2
$
$
$
217.5
(439.4)
197.1
$
$
$
7.7
197.0
5.1
Cash Flows from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2016 increased by $7.7 million from the prior year. This
increase was primarily due to improvements in net income, excluding the 2015 non-cash goodwill impairment, and a decrease in
certain product inventory during 2016 as a result of improved inventory management. These changes were offset by payments for the
in-orbit portion of insurance to support the Iridium NEXT launch campaign.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2016 decreased by $197.0 million primarily due to the increase
in net sales of marketable securities of $107.9 million and the $89.1 million decrease in capital expenditures related to the
construction of Iridium NEXT.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2016 increased by $5.1 million primarily due to the
$21.1 million increase in borrowings under the credit facility, offset by the $17.0 million increase in the restricted cash balance related
to the DSRA.
Effect of exchange rate changes on cash and cash equivalents
The effect of exchange rate changes on cash and cash equivalents was an increase in cash of $0.5 million for the year ended
December 31, 2016 compared to the prior year. The exchange rate changes were primarily due to a modest strengthening of the
Russian ruble against the U.S. dollar throughout 2016.
54
Cash Flows - Comparison of the Year Ended December 31, 2015 and the Year Ended December 31, 2014
The following table shows our consolidated cash flows from operating, investing and financing activities for the years ended
December 31 (in millions):
Statement of Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
2015
2014
Change
$
$
$
217.5 $
(439.4) $
197.1 $
214.9 $
(626.3) $
438.8 $
2.6
186.9
(241.7)
Cash Flows from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2015 increased by $2.6 million from the prior year. This
increase was primarily due to changes in working capital requirements compared to the prior year.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2015 decreased by $186.9 million primarily due to the increase
in net sales of marketable securities by $240.6 million, offset by a $53.7 million increase in capital expenditures related to the
construction of Iridium NEXT.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2015 decreased by $241.7 million primarily due to the
receipt of net proceeds of $219.7 million from the sale of our common stock and Series B Preferred Stock during the second quarter of
2014; no similar proceeds were received in 2015. In addition, borrowings under the Credit Facility decreased by $21.8 million for the
year ended December 31, 2015 compared to the prior year.
Contractual Obligations and Commitments
The following table summarizes our outstanding contractual obligations as of December 31, 2016 (in millions):
Contractual Obligations
Payment obligations:
Thales (1)
SpaceX (2)
Launch and in-orbit insurers (3)
Kosmotras (4)
Boeing (5)
Debt obligations: (6)
Principal
Contractual interest
Operating lease obligations (7)
Uncertain tax positions (8)
Unconditional purchase obligations (9)
Total
Less than
1 year
1-3 Years
3-5 years
More than
5 years
Total
$
$ 287.1
110.9
59.5
-
8.8
-
85.8
3.6
-
8.9
212.7
31.1
26.9
15.0
12.0
288.0
161.7
7.2
-
3.5
$
-
-
-
-
12.0
594.0
128.2
7.6
-
0.7
$
-
-
-
-
-
918.0
80.0
12.2
-
-
$ 499.8
142.0
86.4
15.0
32.8
1,800.0
455.7
30.6
0.9
13.1
$ 564.6
$ 758.1
$ 742.5
$ 1,010.2
$3,076.3
(1)
(2)
Thales obligations consist of commitments under the FSD for the design and manufacture of satellites for Iridium NEXT. We
previously used the Credit Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15%
funded from cash on hand. The Credit Facility was fully drawn in February 2017, and as a result, we will pay 100% of each
invoice received from Thales from cash and marketable securities on hand as well as internally generated cash flow, including
contracted cash flows from hosted payloads. As of December 31, 2016, we had made aggregate payments of $1,753.6 million to
Thales. The timing of a portion of the contractual obligation payments to Thales are based on SpaceX’s targeted launch
schedule to complete the NEXT constellation in mid-2018.
SpaceX obligations consist of remaining payments to secure SpaceX as the primary launch services provider for Iridium NEXT.
The total price for seven launches and a reflight option in the event of launch failure is $468.1 million. In November 2016, we
entered into an eighth launch with SpaceX to launch five spare satellites and share the services with GFZ. The total price under
the SpaceX Agreement for the eighth launch is $67.9 million. As of December 31, 2016, we had made aggregate payments of
$394.0 million to SpaceX. The timing of a portion of the contractual obligation payments to SpaceX are based on SpaceX’s
targeted launch schedule to complete the NEXT constellation in mid-2018.
55
(3)
The total premium is $117.9 million, and as of December 31, 2016, we had made aggregate payments of $31.5 million. The
timing of a portion of the contractual obligation payments are based on SpaceX’s targeted launch schedule to complete the
NEXT constellation in mid-2018.
(4) Kosmotras obligations consist of remaining payments to purchase one launch. In June 2013, we exercised an option for one
launch to carry two Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the contract
including this single launch will be $51.8 million. As of December 31, 2016, we had made aggregate payments of $36.8 million
to Kosmotras. The timing of a portion of the contractual obligation payments to Kosmotras are based on the earliest date we
plan to include Kosmotras into our launch profile.
(5) Boeing obligations represent a new five-year take-or-pay commitment with the execution of the Development Services
Agreement and the final payment for the acquisition of the assembled workforce due in December 2017.
(6) Debt obligations include amounts drawn under the Credit Facility as of December 31, 2016. We included the $22.2 million
February 2017 draw. We have included interest payments to be made on our fixed and variable rate tranches of the Credit
Facility. Interest payments for variable rate debt have been estimated based on the six-month LIBOR forward contracts. We did
not include the increase to the DSRA of $76.0 million, as required under the terms of the Credit Facility, from $113.0 million,
as of December 31, 2016, to $189.0 million in 2017. The DSRA is classified as restricted cash on the consolidated balance sheet
(7) Operating lease obligations do not include payments to landlords covering real estate taxes, common area maintenance and
other charges, as such fees are not determinable based upon the provisions of our lease agreements.
(8) As of December 31, 2016, we estimated our uncertain tax positions to be $0.9 million, including penalties and interest.
However, we are unable to reasonably estimate the period of the possible future payments for the remaining balance, and
therefore the remaining balance has not been reflected in a specified period.
(9) Unconditional purchase obligations include our agreement with a supplier for the manufacturing of our devices and various
commitments with other vendors that are enforceable, legally binding and have specified terms, including fixed or minimum
quantities, minimum or variable price provisions, and a fixed timeline. Unconditional purchase obligations do not include
agreements that are cancelable by us without penalty.
The contractual obligations table does not include future payments of dividends on the Series A Preferred Stock or Series B Preferred
Stock. Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends when, as and if declared from, and
including, the date of original issue at a rate of 7.00% per annum of the $100 liquidation preference per share, which is equivalent to
an annual rate of $7.00 per share. Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends when, as and
if declared from, and including, the date of original issue at a rate of 6.75% per annum of the $250 liquidation preference per share,
which is equivalent to an annual rate of $16.875 per share. Dividends on both the Series A Preferred Stock and Series B Preferred
Stock are payable quarterly in arrears, on March 15, June 15, September 15 and December 15 of each year. Neither the Series A
Preferred Stock nor the Series B Preferred stock has a stated maturity date. Holders of Series A Preferred Stock and Series B Preferred
Stock may convert some or all of their outstanding shares to common stock at the stated conversion rate. On or after October 3, 2017,
we may at our option cause some or all of the shares of Series A Preferred Stock to be automatically converted into shares of common
stock at the then prevailing conversion rate if specified conditions are satisfied. On or after May 15, 2019, we may, at our option,
convert some or all of the Series B Preferred Stock into the number of shares of common stock that are issuable at the then-applicable
conversion rate, subject to specified conditions. We cannot forecast the conversions, if any, of Series A Preferred Stock or Series B
Preferred Stock to common stock and thus cannot forecast with certainty the amounts of future dividend payments on outstanding
Series A Preferred Stock. As of December 31, 2016, there were 1,000,000 shares of Series A Preferred Stock and 500,000 shares of
Series B Preferred Stock outstanding.
Off-Balance Sheet Arrangements
We do not currently have, nor have we had in the last three years, any relationships with unconsolidated entities or financial
partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Seasonality
Our results of operations have been subject to seasonal usage changes for commercial customers, and our results will be affected by
similar seasonality going forward. March through October are typically the peak months for commercial voice services revenue and
related subscriber equipment sales. U.S. government revenue and commercial M2M revenue have been less subject to seasonal usage
changes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The fixed price under the FSD with Thales is denominated in U.S. dollars. As a result, we do not bear any foreign currency exchange
risk under the FSD.
We entered into the Credit Facility in October 2010 and have borrowed $1,777.8 million under the Credit Facility as of December 31,
2016. A portion of the borrowings under the Credit Facility bears interest at a floating rate equal to the LIBOR plus 1.95% and will,
56
accordingly, subject us to interest rate fluctuations in future periods. Had the currently outstanding borrowings under the Credit
Facility been outstanding throughout the year ended December 31, 2016, a one-half percentage point increase or decrease in the
LIBOR would not have had a material impact on our interest cost for the year.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, as well
as accounts receivable. We maintain our cash and cash equivalents with financial institutions with high credit ratings and at times
maintain the balance of our deposits in excess of federally insured limits. The majority of our cash is swept nightly into a money
market fund invested in U.S. treasuries, Agency Mortgage Backed Securities and/or U.S. government guaranteed debt. Accounts
receivable are due from both domestic and international customers. We perform credit evaluations of our customers’ financial
condition and record reserves to provide for estimated credit losses. Accounts payable are owed to both domestic and international
vendors.
We also currently hold marketable securities consisting of commercial paper and fixed-income debt securities. As of December 31,
2016, a 100 basis point change in interest rates would not have had a material impact on the fair value of our marketable securities.
57
Item 8. Financial Statements and Supplementary Data
Iridium Communications Inc.:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
59
60
61
62
63
65
58
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Iridium Communications Inc.
We have audited the accompanying consolidated balance sheets of Iridium Communications Inc. as of December 31, 2016 and 2015,
and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Iridium Communications Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its presentation of debt issuance costs as a
result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards
Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” effective January 1, 2016.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Iridium
Communications Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated February 23, 2017, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
February 23, 2017
59
Iridium Communications Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
December 31,
2016
December 31,
2015
$
$
$
$
371,167
39,328
57,373
18,204
30,698
516,770
2,813,084
113,139
10,836
45,796
3,499,625
11,131
23,840
14,136
34,087
83,194
13,138
1,657,145
361,656
36,417
4,317
2,155,867
-
-
96
1,060,311
288,797
(5,446)
1,343,758
3,499,625
$
$
$
$
185,665
203,329
51,668
27,926
13,130
481,718
2,443,567
91,112
8,188
46,589
3,071,174
31,525
29,402
3,720
36,967
101,614
14,182
1,388,766
296,832
28,567
12,492
1,842,453
-
-
95
1,044,488
193,201
(9,063)
1,228,721
3,071,174
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Other assets
Intangible assets, net
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Interest payable
Deferred revenue
Total current liabilities
Accrued satellite operations and maintenance expense, net of current portion
Credit facility, net
Deferred income tax liabilities, net
Deferred revenue, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Series A Preferred Stock, $0.0001 par value, 1,000 shares authorized, issued and
outstanding
Series B Preferred Stock, $0.0001 par value, 500 shares authorized, issued and
outstanding
Common stock, $0.001 par value, 300,000 shares authorized, 95,879 and 95,126
shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements
60
Iridium Communications Inc.
Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share amounts)
2016
Year Ended December 31,
2015
2014
Revenue:
Services
Subscriber equipment
Engineering and support services
Total revenue
Operating expenses:
Cost of services (exclusive of depreciation and amortization)
Cost of subscriber equipment
Research and development
Selling, general and administrative
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Operating income
Other income (expense):
Interest income, net
Undrawn credit facility fees
Other income (expense), net
Total other income (expense)
Income before income taxes
Provision for income taxes
Net income
Series A Preferred Stock dividends
Series B Preferred Stock dividends
Net income (loss) attributable to common stockholders
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Net income (loss) attributable to common stockholders per share -
basic
Net income (loss) attributable to common stockholders per share -
diluted
Comprehensive income:
Net income
Foreign currency translation adjustments
Unrealized gain (loss) on marketable securities, net of tax
Comprehensive income
$
$
$
$
$
$
$
334,822
74,211
24,607
433,640
64,958
44,286
16,079
82,552
49,394
-
257,269
176,371
2,934
(1,346)
206
1,794
178,165
(67,133)
111,032
7,000
8,436
$
317,022
73,615
20,741
411,378
60,306
40,807
16,144
81,445
51,834
87,039
337,575
73,803
3,069
(3,289)
(468)
(688)
73,115
(65,992)
7,123
7,000
8,436
95,596
$
(8,313)
$
95,967
124,875
1.00
0.89
111,032
3,487
130
114,649
$
$
$
$
95,097
95,097
(0.09)
(0.09)
7,123
(5,777)
(366)
980
$
$
$
$
309,424
78,152
20,981
408,557
62,085
54,569
17,587
78,636
72,769
-
285,646
122,911
3,640
(5,825)
(4,274)
(6,459)
116,452
(41,463)
74,989
7,000
5,320
62,669
88,080
109,400
0.71
0.69
74,989
(2,325)
94
72,758
See notes to consolidated financial statements
61
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Iridium Communications Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2016
2015
2014
$
111,032
$
7,123
$
74,989
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash items included in net income
Deferred income taxes
Depreciation and amortization
Impairment of goodwill
Stock-based compensation (net of amounts capitalized)
Excess tax benefit from stock-based compensation
Provision for doubtful accounts
Provision for obsolete inventory
Loss on equity method investment
Amortization of premiums on marketable securities
Non-cash foreign currency losses, net
Changes in operating assets and liabilities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Income tax receivable
Other assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Accrued satellite and network operation expense, net of
current portion
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Purchases of marketable securities
Sales and maturities of marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under the Credit Facility
Payment of deferred financing fees
Restricted cash deposits
Releases from restricted cash
Proceeds from exercise of stock options
Tax payment upon settlement of stock awards
Excess tax benefits from stock-based compensation
Proceeds from issuance of Series B Preferred Stock, net of issuance
costs
Proceeds from issuance of common stock, net of issuance costs
Payment of Series A Preferred Stock dividends
Payment of Series B Preferred Stock dividends
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
63,808
49,394
-
13,708
-
703
1,053
-
888
166
(6,037)
9,029
(16,613)
-
(2,128)
3,209
(6,416)
4,115
(1,045)
333
225,199
(405,687)
(19,865)
183,192
(242,360)
251,498
(11,806)
(22,027)
-
549
(627)
-
-
-
(7,000)
(8,436)
202,151
512
185,502
185,665
371,167
$
63,376
51,834
87,039
8,603
(806)
252
723
-
2,030
196
(1,843)
(169)
(3,644)
(144)
(1,253)
3,110
(7,815)
9,038
(869)
698
217,479
(494,810)
(204,672)
260,108
(439,374)
230,421
(14,984)
(5,009)
-
2,154
(886)
806
-
-
(7,000)
(8,436)
197,066
(755)
(25,584)
211,249
185,665
$
40,226
72,769
-
9,601
-
13
931
4,130
709
962
3,855
251
1,520
679
(2,926)
(2,636)
634
10,603
(1,338)
(100)
214,872
(441,065)
(275,819)
90,630
(626,254)
252,198
(17,580)
(15,889)
11,009
1,508
(83)
-
120,753
98,897
(7,000)
(4,969)
438,844
(2,555)
24,907
186,342
211,249
See notes to consolidated financial statements
63
Iridium Communications Inc.
Consolidated Statements of Cash Flows, continued
(In thousands)
Supplemental cash flow information:
Interest paid
Income taxes paid, net
Supplemental disclosure of non-cash investing activities:
Property and equipment received but not paid for yet
Interest capitalized but not paid
Capitalized amortization of deferred financing costs
Capitalized paid-in-kind interest
Capitalized stock-based compensation
Supplemental disclosure of non-cash financing activities:
Dividends accrued on Series A Preferred Stock
Dividends accrued on Series B Preferred Stock
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2016
2015
2014
22,910
1,391
2,753
14,136
28,688
52,873
2,265
292
351
$
$
$
$
$
$
$
$
$
18,878
3,429
26,770
12,232
18,372
43,073
1,046
292
351
$
$
$
$
$
$
$
$
$
15,009
184
16,566
9,589
11,174
34,147
1,259
292
351
See notes to consolidated financial statements
64
Iridium Communications Inc.
Notes to Consolidated Financial Statements
December 31, 2016
1. Organization and Business
Iridium Communications Inc. (the “Company”), a Delaware corporation, offers voice and data communications services and products
to businesses, U.S. and international government agencies and other customers on a global basis. The Company is a provider of
mobile voice and data communications services via a constellation of low earth orbiting satellites. The Company holds various
licenses and authorizations from the U.S. Federal Communications Commission (the “FCC”) and from foreign regulatory bodies that
permit the Company to conduct its business, including the operation of its satellite constellation.
2. Significant Accounting Policies and Basis of Presentation
Principles of Consolidation and Basis of Presentation
The Company has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of (i) the Company, (ii) its
wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All intercompany transactions
and balances have been eliminated.
Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2015-03, Interest—Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).
ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance
for debt issuance costs is not affected by the amendment. Effective January 1, 2016, the Company applied the new guidance
retrospectively to all prior periods presented in the accompanying financial statements. The adoption had no effect on the Company’s
condensed consolidated statements of operations and comprehensive income, and condensed consolidated statements of cash flows for
each of the periods ended December 31, 2016 and 2015. The implementation of this accounting standard resulted in a reduction in the
deferred financing costs asset and in the credit facility as of December 31, 2016 and December 31, 2015, respectively, as shown
below.
Credit facility
Deferred financing costs
Credit facility, net
Recent Accounting Developments
2016
2015
(In thousands)
$ 1,777,789
(120,644)
$ 1,521,822
(133,056)
$ 1,657,145
$ 1,388,766
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, Improvements to Employee Share-Based
Payment Accounting (“ASU 2016-09”). ASU 2016-09 addresses multiple changes. The amendment requires all income tax effects of
awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase
more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to
account for forfeitures as they occur. This ASU is effective for public business entities for fiscal years beginning after December 15,
2016, and interim periods within those fiscal years. The Company will be required to make the disclosures about a change in
accounting principle, but will not have to quantify the income statement effect of the change in the period of adoption. The Company
anticipates adopting relevant changes prospectively and expects the impact to its condensed consolidated statements of operations and
comprehensive income to be immaterial.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to put most leases on
their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. This ASU is
effective for public business entities in fiscal years beginning after December 15, 2018, including interim periods within those years.
Early adoption is permitted and reporting organizations are required to use a modified retrospective approach for leases that exist or
are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating
the effect ASU 2016-02 may have on its condensed consolidated financial statements and related disclosures, but recognizing the
lease liability and related right-of-use asset will impact its balance sheet.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11
requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Inventory measured
65
using last-in, first-out and retail inventory method are excluded from this new guidance. This ASU replaces the concept of market
with the single measurement of net realizable value and is intended to create efficiencies for preparers and more closely aligns U.S.
GAAP with IFRS. This ASU is effective for public business entities in fiscal years beginning after December 15, 2016, including
interim periods within those years. The Company will apply this guidance prospectively beginning January 1, 2017, as required. The
Company does not anticipate a material impact on its inventory balances or cost of equipment expenses.
In May 2014, the FASB and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition
standard, Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) that will supersede
nearly all existing revenue recognition guidance under U.S. GAAP. Under the new standard, revenue is recognized when a customer
obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects
to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the
standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations, and most
recently, technical corrections on the interpretation of the new guidance. In July 2015, the FASB voted to defer the effective date of
ASU 2014-09 for public entities to be effective for annual and interim periods beginning after December 15, 2017. Early adoption
would be permitted no earlier than the original effective date beginning after December 15, 2016. ASU 2014-09 becomes effective for
the Company in the first quarter of fiscal 2018 and the Company anticipates using the full retrospective transition method.
The Company has established a project team in order to analyze the effect of the standard on its revenue streams by reviewing its
current accounting policies and practices to identify potential differences which would result from applying the requirements of the
new standard to its revenue contracts. The Company has identified each revenue stream and is continuing to assess all potential effects
of the standard. The Company has not yet completed its review of the effect of this guidance.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from
those estimates.
Fair Value Measurements
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine
the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by
management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash
equivalents, marketable securities, prepaid expenses and other current assets, accounts receivable, accounts payable and accrued
expenses and other current liabilities. Fair value is the price that would be received from the sale of an asset or paid to transfer a
liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a
hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. The
fair value hierarchy consists of the following tiers:
(cid:129)
(cid:129)
(cid:129)
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its
own assumptions.
The carrying values of short-term financial instruments (primarily cash and cash equivalents, prepaid expenses and other current
assets, accounts receivable, accounts payable, and accrued expenses and other current liabilities) approximate their fair values because
of their short-term nature. The fair value of the Company’s investments in money market funds approximates its carrying value; such
instruments are classified as Level 1 and are included in cash and cash equivalents on the accompanying consolidated balance sheets.
The fair value of the Company’s investments in commercial paper and short-term U.S. agency securities with original maturities of
less than ninety days approximates their carrying value; such instruments are classified as Level 2 and are included in cash and cash
equivalents on the accompanying consolidated balance sheets.
The fair value of the Company’s investments in fixed-income debt securities and commercial paper with original maturities of greater
than ninety days are obtained using similar investments traded on active securities exchanges and are classified as Level 2. For fixed
income securities that do not have quoted prices in active markets, the Company uses third-party vendors to price its debt securities
resulting in classification as Level 2. All fixed-income securities are included in marketable securities on the accompanying
consolidated balance sheets.
66
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, marketable securities, and receivables. The majority of cash is swept nightly into a money market fund invested in U.S.
treasuries, Agency Mortgage Backed Securities and/or U.S. Government guaranteed debt. While the Company maintains its cash and
cash equivalents with financial institutions with high credit ratings, it often maintains those deposits in federally insured financial
institutions in excess of federally insured (FDIC) limits. The Company’s marketable securities are highly-rated corporate and foreign
fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. The Company performs credit
evaluations of its customers’ financial condition and records reserves to provide for estimated credit losses. Accounts receivable are
due from both domestic and international customers.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents. These
investments, along with cash deposited in institutional money market funds, regular interest bearing depository accounts and
non-interest bearing depository accounts, are classified as cash and cash equivalents on the accompanying consolidated balance
sheets. The Company is required to maintain a minimum cash reserve for debt service related to its $1.8 billion loan facility (the
“Credit Facility”). As of December 31, 2016 and 2015, the Company’s restricted cash balance, which includes a minimum cash
reserve for debt service related to the Credit Facility and the interest earned on these amounts, was $113.0 million and $91.0 million,
respectively. For further discussion on the cash reserve for debt service related to the Credit Facility, see the Credit Facility footnote
below.
Marketable Securities
Marketable securities consist of fixed-income debt securities and commercial paper with an original maturity in excess of ninety days.
These investments are classified as available-for-sale and are included in marketable securities within current assets on the
accompanying consolidated balance sheets. All investments are carried at fair value. Unrealized gains and losses, net of taxes, are
reported as a component of other comprehensive income or loss. The specific identification method is used to determine the cost basis
of the marketable securities sold. There were no material realized gains or losses on the sale of marketable securities for the years
ended December 31, 2016 and 2015. The Company regularly monitors and evaluates the fair value of its investments to identify other-
than-temporary declines in value. The Company determined that any decline in fair value of these investments is temporary as the
Company does not intend to sell these securities and it is not likely that the Company will be required to sell the securities before the
recovery of their amortized cost basis.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and are subject to late fee penalties. Management develops its estimate
of an allowance for uncollectible receivables based on the Company’s experience with specific customers, aging of outstanding
invoices, its understanding of customers’ current economic circumstances and its own judgment as to the likelihood that the Company
will ultimately receive payment. The Company writes off its accounts receivable when balances ultimately are deemed uncollectible.
The allowance for doubtful accounts was $1.0 million and $0.6 million as of December 31, 2016 and 2015, respectively.
Foreign Currencies
The functional currency of the Company’s foreign consolidated subsidiaries is the local currency. Assets and liabilities of its foreign
subsidiaries are translated to U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are
translated at the weighted-average exchange rates prevailing during the reporting period. Translation adjustments are accumulated in a
separate component of stockholders’ equity. Transaction gains or losses are classified as other income (expense), net in the
accompanying consolidated statements of operations and comprehensive income.
Internally Developed Software
The Company capitalizes the costs of acquiring, developing and testing software to meet its internal needs. Capitalization of costs
associated with software obtained or developed for internal use commences when the preliminary project stage is complete and it is
probable that the project will be completed and used to perform the function intended. Capitalized costs include only (i) external
direct cost of materials and services consumed in developing or obtaining internal-use software and (ii) payroll and payroll-related
costs for employees who are directly associated with, and devote time to, the internal-use software project. Capitalization of such
costs ceases no later than the point at which the project is substantially complete and ready for its intended use. Internal use software
costs are amortized once the software is placed in service using the straight-line method over periods ranging from three to seven
years.
Deferred Financing Costs
Direct and incremental costs incurred in connection with securing debt financing are deferred and are amortized as additional interest
expense using the effective interest method over the term of the related debt. As of December 31, 2016 and 2015, the Company had
67
deferred approximately $120.7 million and $133.1 million, respectively, of direct and incremental financing costs, net of amortization,
associated with securing debt financing for Iridium NEXT, the Company’s next-generation satellite constellation.
Capitalized Interest
Interest costs associated with financing the Company’s assets during the construction period of Iridium NEXT have been capitalized.
Capitalized interest costs for the years ended December 31, 2016, 2015 and 2014 were $106.4 million, $83.1 million and
$62.0 million, respectively.
Inventory
Inventory consists primarily of finished goods, although the Company at times also maintains an inventory of raw materials from
third-party manufacturers. The Company outsources manufacturing of subscriber equipment to a third-party manufacturer and
purchases accessories from third-party suppliers. The Company’s cost of inventory includes an allocation of overhead, including
payroll and payroll-related costs of employees directly involved in bringing inventory to its existing condition, and freight. Inventories
are valued using the average cost method and are carried at the lower of cost or market. Accordingly, the Company recorded expenses
of $1.1 million, $0.7 million and $0.9 million, for the years ended December 31, 2016, 2015 and 2014, respectively, included within
the cost of subscriber equipment for excess and obsolete inventory. The expenses for the year ended December 31, 2016 were
primarily related to certain handset parts and accessories; the expenses for the year ended December 31, 2015 were primarily related
to Iridium Pilot equipment; and the expenses for the year ended December 31, 2014 were primarily related to Iridium 9505 handset
parts and accessories.
The Company has a manufacturing agreement with Benchmark Electronics Inc. (“Benchmark”) to manufacture subscriber equipment.
Pursuant to the agreement, the Company may be required to purchase excess materials if the materials are not used in production
within the periods specified in the agreement. Benchmark will then repurchase such materials from the Company at the same price
paid by the Company, as required for the production of the subscriber equipment.
Stock-Based Compensation
The Company accounts for stock-based compensation at fair value. The fair value of stock options is determined at the grant date
using the Black-Scholes option pricing model. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the
underlying common stock on the grant date. The fair value of an award that is ultimately expected to vest is recognized on a straight-
line basis over the requisite service or performance period and is classified in the consolidated statements of operations and
comprehensive income in a manner consistent with the classification of the recipient’s compensation. The expected vesting of the
Company’s performance-based RSUs is based upon the probability that the Company achieves the defined performance goals. The
level of achievement of performance goals, if any, is determined by the compensation committee. Stock-based awards to
non-employee consultants are expensed at their fair value as services are provided according to the terms of their agreements and are
classified in selling, general and administrative expenses in the accompanying consolidated statements of operations and
comprehensive income. Classification of stock-based compensation for the years ended December 31, 2016 and 2015 is as follows:
2016
2015
Property and equipment, net
Inventory
Cost of subscriber equipment
Cost of services (exclusive of depreciation and amortization)
Research and development
Selling, general and administrative
$
$
(In thousands)
1,906
359
56
1,655
457
11,540
Total stock-based compensation
$
15,973
$
998
48
135
721
221
7,526
9,649
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over
the following estimated useful lives:
First-generation satellites
Ground system
Equipment
Internally developed software and purchased software
Building
Building improvements
Leasehold improvements
15-19 years
5-7 years
3-5 years
3-7 years
39 years
5-39 years
shorter of useful life or remaining lease term
68
The estimated useful lives of the Company’s first-generation satellites reflect the period of expected use for each satellite. Satellites
are depreciated on a straight-line basis through the date they will be replaced by next-generation satellites. The Company began
deployment of its next-generation satellite constellation (“Iridium NEXT”) in January 2017, and, based on the current launch
schedule, the Company expects the final launch to occur in 2018. The Company’s next-generation satellites will be depreciated on a
straight-line basis over the estimated useful life which is currently estimated to be 12.5 years.
The Company calculates depreciation expense using the straight-line method and evaluates the appropriateness of the useful life used
in this calculation on a quarterly basis or as events occur that require additional assessment. In addition to the changes made in prior
years, in 2016, the Company updated its estimate of the first-generation satellites’ remaining useful lives based on the continued
refinement of the launch schedule, health of the existing constellation, and deployment plan for the Company’s next-generation
satellite constellation. As a result, the estimated useful lives of the first-generation satellites have been extended and are consistent
with the expected deployment of the next-generation satellites. The $2.4 million decrease in depreciation expense for the year ended
December 31, 2016 compared to the prior year is primarily related to the continued refinement in the estimated useful lives, partially
offset by the addition of new assets and the impairment of two lost satellites during the second quarter of 2016. For the year ended
December 31, 2016, the impact of the change in useful lives of the first-generation satellites resulted in an increase in basic and
diluted net income per share of $0.04 and $0.03, respectively. The impact for the year ended December 31, 2015, resulted in an
increase in both basic and diluted net loss per share by $0.01.
Repairs and maintenance costs are expensed as incurred.
Long-Lived Assets
The Company assesses its long-lived assets for impairment when indicators of impairment exist. Recoverability of assets is measured
by comparing the carrying amounts of the assets to the future undiscounted cash flows expected to be generated by the assets. Any
impairment loss would be measured as the excess of the assets’ carrying amount over their fair value.
The Company lost communication with three of its first-generation satellites in 2014. As a result, impairment charges totaling
$2.2 million were recorded within depreciation expense during 2014. The Company replaced the lost satellites with in-orbit spares. No
satellite loss occurred during 2015. During the second quarter of 2016 two first-generation satellites ceased operations. As a result,
impairment charges totaling $0.3 million were recorded within depreciation expense during 2016. The Company does not believe the
loss of these satellites in 2016 is an indicator of impairment of the remaining individual first-generation satellites or the
constellation as of December 31, 2016.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment
testing for goodwill is performed during the fourth quarter of each annual period or more frequently if indicators of potential
impairment exist. Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated
fair value of a reporting unit to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the
carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be
performed. To measure the amount of impairment loss, if any, the implied fair value of goodwill is determined in the same manner as
the amount of goodwill recognized in a business combination. Specifically, the estimated fair value of the reporting unit is allocated to
all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of
the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to
that excess.
The Company operates in a single reporting unit, and the possibility of impairment is assessed by comparing the carrying amount of
the reporting unit to its estimated fair value. The most recent annual assessment of goodwill and indefinite-lived assets was performed
on October 1, 2015 (the “2015 Analysis”).
Historically, the Company has determined the estimated fair value of the reporting unit based on a combination of the market
approach using comparable public companies (guideline company method) and the income approach using discounted cash flows.
These valuation techniques have involved the use of estimates and assumptions. However, as a result of a decrease in the Company’s
stock price and related market capitalization (one-year low) around the test date of the 2015 Analysis, management determined that
the Company’s market capitalization represented the best estimate of fair value of the reporting unit as of the test date.
Upon completion of step one of the 2015 Analysis, the Company determined the carrying value of the reporting unit exceeded its fair
value as a result of a decrease in the Company’s stock price and related market capitalization. The Company performed a step two
69
analysis to compare the carrying amount of goodwill to the implied fair value of that goodwill where the Company determined the
estimated fair values of the assets and liabilities of its single reporting unit. The implied fair value of goodwill for the Company’s
single reporting unit was determined in the same manner as utilized to recognize goodwill in a business combination. The implied fair
value of goodwill was measured as the excess of the fair value of the Company’s single reporting unit over the fair value of its assets
and liabilities. As a result of the step two test, the Company recorded a non-cash goodwill impairment charge of $87.0 million during
the fourth quarter of 2015. The Company did not record an impairment of goodwill during the year ended December 31, 2014. The
Company had no goodwill as of December 31, 2016 and 2015.
Intangible Assets Not Subject to Amortization
A portion of the Company’s intangible assets are spectrum, licenses, and trade names, which are indefinite-lived intangible assets. The
Company reevaluates the useful life determination for these assets each reporting period to determine whether events and
circumstances continue to support an indefinite useful life. The most recent annual assessment of indefinite-lived assets was
performed as of October 1, 2016 (the “2016 Analysis”). In this 2016 Analysis, the Company chose the optional qualitative assessment
to test indefinite-lived intangible assets for impairment. The qualitative assessment permits companies to assess whether it is more
likely than not that an indefinite-lived intangible asset is impaired. If a company concludes based on the qualitative assessment that it
is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it would not have
to quantitatively determine the assets’ fair value. Based on the results of the 2016 Analysis, it was not more likely than not that the
intangible assets not subject to amortization were impaired. Therefore, a quantitative analysis was not necessary, and no impairment
charge was recorded during the period.
Intangible Assets Subject to Amortization
The Company’s intangible assets that do have finite lives, consisting of intellectual property, are amortized over their useful lives and
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset
to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the
carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of
the asset and record an impairment loss, if any. The Company evaluates the useful lives for these intangible assets each reporting
period to determine whether events and circumstances warrant a revision in their remaining useful lives.
Asset Retirement Obligations
Liabilities arising from legal obligations associated with the retirement of long-lived assets are required to be measured at fair value
and recorded as a liability. Upon initial recognition of a liability for retirement obligations, a company must record an asset, which is
depreciated over the life of the asset to be retired.
As of December 31, 2016, under certain circumstances, each of the U.S. government, The Boeing Company (“Boeing”), and Motorola
Solutions, Inc. (“Motorola Solutions”) has the right to require the de-orbit of the Company’s satellite constellation. One such right the
U.S. government holds is to require the Company to de-orbit the satellite constellation at any time after January 1, 2015. In the event
the Company was required to effect a mass de-orbit, pursuant to the amended and restated operations and maintenance agreement (the
“O&M Agreement”) by and between the Company and Boeing, the Company would be required to pay Boeing $18.4 million, plus an
amount equivalent to the premium for mass de-orbit insurance coverage payable to the insurer ($2.5 million as of December 31,
2016). The Company has concluded that each of the foregoing de-orbit rights meets the definition of an asset retirement obligation.
However, the Company currently does not believe the U.S. government, Boeing or Motorola Solutions will exercise their respective
de-orbit rights. As a result, the Company believes the likelihood of any future cash outflows associated with the mass de-orbit
obligation is remote and has recorded an asset retirement obligation with respect to the potential mass de-orbit of approximately
$0.2 million at December 31, 2016, which is included in other long-term liabilities on the accompanying consolidated balance sheet.
There are other circumstances in which the Company could be required, either by the U.S. government or for technical reasons, to
de-orbit an individual satellite; however, the Company believes that such costs would not be significant relative to the costs associated
with the ordinary operations of the satellite constellation.
Revenue Recognition
The Company derives its revenue primarily as a wholesaler of satellite communications products and services. The primary types of
revenue include (i) service revenue (access and usage-based airtime fees), (ii) subscriber equipment revenue, and (iii) revenue
generated by providing engineering and support services to commercial and government customers.
70
Wholesaler of satellite communications products and services
Pursuant to wholesale agreements, the Company sells its products and services to service providers who, in turn, sell the products and
services to other distributors or directly to the end users. The Company recognizes revenue when services are performed or delivery
has occurred, evidence of an arrangement exists, the fee is fixed or determinable, and collection is reasonably assured, as follows:
Contracts with multiple elements
At times, the Company sells services and equipment through multi-element arrangements that bundle equipment, airtime and
other services. For multi-element revenue arrangements when the Company sells services and equipment in bundled
arrangements and determines that it has separate units of accounting, the Company allocates the bundled contract price among
the various contract deliverables based on each deliverable’s relative selling price. The selling price used for each deliverable is
based on vendor-specific objective evidence when available, third-party evidence when vendor-specific objective evidence is
not available, or the estimated selling price when neither vendor-specific evidence nor third party evidence is available. The
Company determines vendor-specific objective evidence of selling price by assessing sales prices of subscriber equipment,
airtime and other services when they are sold to customers on a stand-alone basis. The Company’s determination of best
estimate of selling price is consistent with its determination of vendor-specific objective evidence of selling price, and the
Company assesses qualitative and quantitative market factors and entity-specific factors when estimating the selling price.
When the Company determines the elements are not separate units of accounting, the Company recognizes revenue on a
combined basis as the last element is delivered.
Service revenue sold on a stand-alone basis
Service revenue is generated from the Company’s service providers through usage of its satellite system and through fixed
monthly access fees per user charged to service providers. Revenue for usage is recognized when usage occurs. Revenue for
fixed-per-user access fees is recognized ratably over the period in which the services are provided to the end user. The Company
sells prepaid services in the form of e-vouchers and prepaid cards. A liability is established equal to the cash paid upon purchase
for the e-voucher or prepaid card. The Company recognizes revenue from the prepaid services upon the use of the e-voucher or
prepaid card by the customer or upon the expiration of the right to access the prepaid service. While the terms of prepaid
e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond three or
four years, dependent on the initial expiry period when purchased. The Company does not offer refunds for unused prepaid
services.
Subscriber equipment sold on a stand-alone basis
The Company recognizes subscriber equipment sales and the related costs when title to the equipment (and the risks and
rewards of ownership) passes to the customer, typically upon shipment.
Services sold to the U.S. government
The Company provides airtime and airtime support to U.S. government and other authorized customers pursuant to the Enhanced
Mobile Satellite Services (“EMSS”) contract managed by the Defense Information Systems Agency (“DISA”). Effective October 22,
2013, the Company executed a new five-year EMSS contract, managed by DISA. Under the terms of this new agreement, authorized
customers continue to utilize airtime services, provided through the U.S. Department of Defense’s (“DoD”) dedicated gateway. These
services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast and Distributed Tactical
Communications Services (“DTCS”) services for an unlimited number of DoD and other federal subscribers. The fixed-price rate for
the remaining contract years, which run from October 22 through the following October 21 of each year, is $88 million per year.
Under this contract, revenue is based on the annual fee for the fixed-price contract with unlimited subscribers, and is recognized on a
straight-line basis over each contractual year.
The U.S. government purchases its subscriber equipment from third-party distributors and not directly from the Company.
Government engineering and support services
The Company provides maintenance services to the U.S. government’s dedicated gateway. This revenue is recognized ratably over the
periods in which the services are provided; the related costs are expensed as incurred.
Other government and commercial engineering and support services
The Company also provides engineering services to assist customers in developing new technologies for use on the Company’s
satellite system. The revenue associated with these services is recorded when the services are rendered, typically on a proportional
performance method of accounting based on the Company’s estimate of total costs expected to complete the contract, and the related
costs are expensed as incurred. Revenue on cost-plus-fixed-fee contracts is recognized to the extent of estimated costs incurred plus
the applicable fees earned. The Company considers fixed fees under cost-plus-fixed-fee contracts to be earned in proportion to the
allowable costs incurred in performance of the contract.
71
Warranty Expense
The Company provides the first end-user purchaser of its subscriber equipment a warranty for one to five years from the date of
purchase by such first end-user, depending on the product. The Company maintains a warranty reserve based on historical experience
of warranty costs and expected occurrences of warranty claims on equipment. Costs associated with warranties, including equipment
replacements, repairs, freight, and program administration, are recorded as cost of subscriber equipment in the accompanying
consolidated statements of operations and comprehensive income. The Company’s warranty provision for the year ended
December 31, 2016 increased by $2.3 million compared to the prior year. This increase was primarily the result of increased sales of
Iridium Pilot.
Changes in the warranty reserve for the years ended December 31, 2016 and 2015 were as follows:
Balance at beginning of the period
Provision
Utilization
Balance at end of the period
2016
2015
(In thousands)
$
$
3,320
604
(1,594)
2,330
$
$
7,381
(1,715)
(2,346)
3,320
Research and Development
Research and development costs are charged to expense in the period in which they are incurred.
Advertising Costs
Costs associated with advertising and promotions are expensed as incurred. Advertising expenses were $0.5 million for each of the
years ended December 31, 2016, 2015 and 2014.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or
expenses for temporary differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax
benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits.
The Company’s policy is to recognize interest and penalties on uncertain tax positions as a component of income tax expense.
Net Income (Loss) Per Share
The Company calculates basic net income (loss) per share by dividing net income (loss) attributable to common stockholders by the
weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into
account the effect of potential dilutive common shares when the effect is dilutive. The effect of potential dilutive common shares,
including common stock issuable upon exercise of outstanding stock options and stock purchase warrants, is computed using the
treasury stock method. The effect of potential dilutive common shares from the conversion of the outstanding convertible preferred
securities is computed using the as-if converted method at the stated conversion rate. The Company’s unvested RSUs awarded to the
board of directors contain non-forfeitable rights to dividends and therefore are considered to be participating securities in periods of
net income. The calculation of basic and diluted net income (loss) per share excludes net income attributable to these unvested RSUs
from the numerator and excludes the impact of these unvested RSUs from the denominator.
3. Cash and Cash Equivalents and Marketable Securities
Cash and Cash Equivalents
The following table summarizes the Company’s cash and cash equivalents as of December 31, 2016 and 2015:
Cash and cash equivalents:
Cash
Money market funds
Commercial paper
Total cash and cash equivalents
2016
2015
(In thousands)
$
$
102,194
266,478
2,495
371,167
$
$
67,005
118,660
-
185,665
Recurring Fair
Value Measurement
Level 1
Level 2
72
Marketable Securities
The following tables summarize the Company’s marketable securities as of December 31, 2016 and 2015:
As of December 31, 2016
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Fair Value
Recurring Fair
Value Measurement
Fixed-income debt
securities
U.S. Treasury notes
Total marketable
securities
$
30,037
9,283
$
39,320
$
$
(In thousands)
14
7
21
$
$
(11)
(2)
$
30,040
9,288
Level 2
Level 2
(13)
$
39,328
As of December 31, 2015
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Fair Value
Recurring Fair
Value Measurement
Fixed-income debt
securities
Commercial paper
U.S. Treasury notes
Total marketable
securities
$ 181,636
9,821
12,079
$ 203,536
$
$
(In thousands)
4
-
-
4
$
$
(200)
(1)
(10)
$ 181,440
9,820
12,069
(211)
$ 203,329
Level 2
Level 2
Level 2
The following table presents the contractual maturities of the fixed income debt securities, commercial paper and U.S. Treasury notes
held as of December 31, 2016 and 2015:
Mature within one year
Mature after one year and within three years
Total
December 31, 2016
December 31, 2015
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
(In thousands)
$
$
32,776
6,544
39,320
$
$
32,788
6,540
39,328
$
$
169,728
33,808
203,536
$
$
169,619
33,710
203,329
The decrease in marketable securities from December 31, 2015 to December 31, 2016 is due to the Company selling some of its
investments during 2016 and utilizing the proceeds to support the construction of Iridium NEXT.
4. Equity Transactions
Preferred Stock
The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. As described below,
the Company issued 1.0 million shares of preferred stock in the fourth quarter of 2012 and 0.5 million shares of preferred stock in the
second quarter of 2014. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of
December 31, 2016.
Series A Cumulative Perpetual Convertible Preferred Stock
In the fourth quarter of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Perpetual Convertible
Preferred Stock (the “Series A Preferred Stock”) in a private offering. The Company received proceeds of $96.5 million from the sale
of the Series A Preferred Stock, net of the aggregate $3.5 million in initial purchaser discount and offering costs. The net proceeds of
this offering were used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.
Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.00% per annum of the $100
liquidation preference per share (equivalent to an annual rate of $7.00 per share). Dividends are payable quarterly in arrears on each
March 15, June 15, September 15 and December 15. The Series A Preferred Stock does not have a stated maturity date and is not
subject to any sinking fund or mandatory redemption provisions. The Series A Preferred Stock ranks senior to the Company’s
common stock and on parity with the Company’s 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B
Preferred Stock”) with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding-up. Holders of
Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six
or more quarterly periods (whether or not consecutive) and in other specified circumstances. Holders of Series A Preferred Stock may
73
convert some or all of their outstanding Series A Preferred Stock at an initial conversion rate of 10.6022 shares of common stock per
$100 liquidation preference, which is equivalent to an initial conversion price of approximately $9.43 per share of common stock
(subject to adjustment in certain events).
In both 2016 and 2015, the Company paid $7.0 million in cash dividends to the holders of Series A Preferred Stock. As of
December 31, 2016, the Company had accrued $0.3 million in cash dividends for the holders of the Series A Preferred Stock, which is
included within accrued expenses and other current liabilities on the accompanying consolidated balance sheet.
On or after October 3, 2017, the Company may, at its option, convert some or all of the Series A Preferred Stock into the number of
shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. On or prior to
October 3, 2017, the holders of Series A Preferred Stock will have a special right to convert some or all of the Series A Preferred
Stock into shares of common stock in the event of fundamental changes described in the Certificate of Designations for the Series A
Preferred Stock, subject to specified conditions and limitations. In certain circumstances, the Company may also elect to settle
conversions in cash as a result of these fundamental changes.
Series B Cumulative Perpetual Convertible Preferred Stock
In May 2014, the Company issued 500,000 shares of its Series B Preferred Stock in an underwritten public offering at a price to the
public of $250 per share. The purchase price received by the Company, equal to $242.50 per share, reflected an underwriting discount
of $7.50 per share. The Company received proceeds of $120.8 million from the sale of the Series B Preferred Stock, net of the
$3.8 million underwriting discount and $0.4 million of offering costs.
Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at a rate of 6.75% per annum of the $250
liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends are payable quarterly in arrears on each
March 15, June 15, September 15 and December 15. The Series B Preferred Stock does not have a stated maturity date and is not
subject to any sinking fund or mandatory redemption provisions. The Series B Preferred Stock ranks senior to the Company’s
common stock and pari passu with respect to the Company’s Series A Preferred Stock with respect to dividend rights and rights upon
the Company’s voluntary or involuntary liquidation, dissolution or winding-up. Holders of Series B Preferred Stock generally have no
voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not
consecutive) and in other specified circumstances. Holders of Series B Preferred Stock may convert some or all of their outstanding
Series B Preferred Stock at an initial conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is
equivalent to an initial conversion price of approximately $7.47 per share of common stock (subject to adjustment in certain events).
In both 2016 and 2015, the Company paid $8.4 million in cash dividends to the holders of Series B Preferred Stock. As of
December 31, 2016, the Company had accrued $0.4 million in cash dividends for the holders of the Series B Preferred Stock, which is
included within accrued expenses and other current liabilities on the accompanying consolidated balance sheet.
On or after May 15, 2019, the Company may, at its option, convert some or all of the Series B Preferred Stock into the number of
shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. On or prior to May 15,
2019, in the event of certain specified fundamental changes, holders of the Series B Preferred Stock will have the right to convert
some or all of their shares of Series B Preferred Stock into the greater of (i) a number of shares of the Company’s common stock as
subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of the Company’s common stock equal to the
lesser of (a) the liquidation preference divided by the market value of the Company’s common stock on the effective date of such
fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, the Company may elect to cash settle any
conversions in connection with a fundamental change.
Common Stock
Registered Direct Public Offering
In May 2014, the Company issued 7,692,308 shares of its common stock in a registered direct public offering to certain investment
funds affiliated with Baron Capital Group Inc. (“Baron”) at a price of $6.50 per share for aggregate gross proceeds of $50.0 million.
The Company received proceeds of $49.9 million from the sale of the common stock to Baron, net of offering costs of $0.1 million.
Under the stock purchase agreement entered into with Baron, Baron was entitled to receive additional shares if, during the 90-day
period following the date of the stock purchase agreement, the Company issued or sold securities below specified prices. As a result
of the Company’s public offering of common stock, described below, and its public offering of Series B Preferred Stock, described
above, the Company delivered 504,413 additional shares of common stock to Baron on August 6, 2014.
Underwritten Public Offering
Concurrently with its public offering of Series B Preferred Stock in May 2014, the Company issued 8,483,608 shares of its common
stock in an underwritten public offering, including 1,106,558 shares upon the underwriters’ exercise of their overallotment option in
full, at a price to the public of $6.10 per share. The Company received proceeds of $49.0 million, net of $2.6 million of underwriting
discount and $0.2 million of offering costs.
74
The net proceeds of these common stock offerings and the Series B Preferred Stock offering are being used to partially fund the
construction and deployment of Iridium NEXT and for other general corporate purposes.
5. Debt
Credit Facility
In October 2010, the Company entered into a $1.8 billion credit facility with a syndicate of bank lenders, which was amended and
restated in May 2014 (as further amended to date, the “Credit Facility”). Ninety-five percent of the Company’s obligations under the
Credit Facility are insured by Compagnie Française d’Assurance pour le Commerce Extérieur (“COFACE”), the French export credit
agency. The Credit Facility is comprised of two tranches, with draws and repayments applied pro rata in respect of each tranche:
(cid:129)
(cid:129)
Tranche A – $1,537,500,000 at a fixed rate of 4.96%; and
Tranche B – $262,500,000 at a floating rate equal to the London Interbank Offer Rate (“LIBOR”) plus 1.95%.
Interest is payable on a semi-annual basis in April and October of each year. Prior to being fully drawn on the Credit Facility, which
occurred in February 2017, a portion of interest was paid via a deemed loan and added to the related tranche principal, and the
remainder was payable in cash. The amount of interest paid via a deemed loan for each tranche was as follows:
(cid:129)
(cid:129)
Tranche A – fixed rate of 3.56%; and
Tranche B – LIBOR plus 0.55%.
For the years ended December 31, 2016, 2015 and 2014, the Company incurred total interest of $77.7 million, $64.6 million and
$50.8 million, respectively, of which $44.4 million, $44.9 million and $35.3 million, respectively, is payable via a deemed loan and
the remainder is payable in cash on the scheduled semi-annual payment dates.
In connection with each draw it made under the Credit Facility, the Company also borrowed an amount equal to 6.49% of such draw
to cover the premium for the COFACE insurance policy. The Company also paid a commitment fee of 0.80% per year, in semi-annual
installments, on any undrawn portion of the Credit Facility through February 2017, when the Credit Facility was fully drawn.
Funds drawn under the Credit Facility have been used to pay for (i) 85% of the costs under a fixed price full scale development
contract (the “FSD”) with Thales Alenia Space France (“Thales”) for the design and manufacture of satellites for Iridium NEXT until
the Credit Facility was fully drawn in February 2017 (ii) the premium for the COFACE policy, and (iii) the payment of a portion of
interest during a part of the construction and launch phase of Iridium NEXT.
Scheduled semi-annual principal repayments will begin six months after the earlier of (i) the successful deployment of a specified
number of Iridium NEXT satellites or (ii) September 30, 2017. During this repayment period, interest will be paid on the same date as
the principal repayments. All interest costs incurred related to the Credit Facility have been capitalized during the construction period
of the assets. During the construction period, the Company pays interest on each semi-annual due date through a combination of a
cash payment and a deemed additional loan. The following tables present interest activity for the Credit Facility for the years ended
December 31, 2016 and 2015 payable via cash or deemed loan:
Beginning interest payable
Interest incurred
Interest payments
Ending interest payable
Beginning interest payable
Interest incurred
Interest payments
Ending interest payable
2016
Deemed
Loan
(In thousands)
$
$
8,514
44,359
(52,873)
-
2015
Deemed
Loan
(In thousands)
$
$
6,653
44,934
(43,073)
8,514
Total
12,234
77,685
(75,783)
14,136
Total
9,589
64,596
(61,951)
12,234
$
$
$
$
$
$
$
$
Cash
3,720
33,326
(22,910)
14,136
Cash
2,936
19,662
(18,878)
3,720
75
As of December 31, 2016, the Company had borrowed a total of $1,777.8 million under the Credit Facility. The unused portion of the
Credit Facility as of December 31, 2016 was $22.2 million, and that amount was fully drawn in February 2017. Future payments with
respect to the Credit Facility balance existing at December 31, 2016, plus the February 2017 draw of $22.2 million, by year and in the
aggregate, is as follows:
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Amount
(In thousands)
-
$
85,500
202,500
288,000
306,000
918,000
$
1,800,000
Under the terms of the Credit Facility, the Company is required to maintain a minimum cash reserve for debt service of $113.0 million
as of December 31, 2016, which increases to $189.0 million in 2017, and is classified as restricted cash on the accompanying
consolidated balance sheet. The Company recognized the semi-annual commitment fee on the undrawn portion of the Credit Facility
of $1.3 million, $3.3 million and $5.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. The Credit
Facility will mature seven years after the start of the repayment period.
Obligations under the Credit Facility are secured on a senior basis by a lien on substantially all of the Company’s assets. In addition to
the minimum debt service reserve levels, financial covenants under the Credit Facility include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
an available cash balance of at least $25 million;
a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total
stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;
specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT
satellites) through the year ending December 31, 2024;
specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or
operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;
specified minimum cumulative cash flow requirements from customers who have hosted payloads on the Company’s
satellites, measured each December 31 and June 30, from June 30, 2016 through December 31, 2017;
a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and
specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve
months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.
The Company’s available cash balance, as defined by the Credit Facility, was $382.0 million as of December 31, 2016. The
Company’s debt-to-equity ratio was 0.51 to 1 as of December 31, 2016. The Company was in compliance with the operational
EBITDA covenant, the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have
hosted payloads covenant as of December 31, 2016.
The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a
measurement, which the Company refers to as available cure amount, that is derived using a complex calculation based on overall
cash flows, as adjusted by numerous measures specified in the Credit Facility. In a period in which the Company’s capital
expenditures exceed, or the Company’s operational EBITDA or hosted payload cash flows falls short of, the amount specified in the
respective covenant, the Company would be permitted to allocate available cure amount, if any, to prevent a breach of the applicable
covenant. As of December 31, 2016, the Company had no available cure amount, although it was not necessary to apply any available
cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one
measurement period to the next, and the Company expects that it will continue to do so.
The covenants also place limitations on the Company’s ability and that of its subsidiaries to carry out mergers and acquisitions,
dispose of assets, grant security interests, declare, make or pay dividends, enter into transactions with affiliates, incur additional
indebtedness, or make loans, guarantees or indemnities. If the Company is not in compliance with the financial covenants under the
Credit Facility, after any opportunity to cure such non-compliance, or the Company otherwise experiences an event of default under
the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is
unlikely the Company would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If the
Company fails to repay such amounts, the lenders may foreclose on the assets the Company has pledged under the Credit Facility,
which include substantially all of its assets and those of its domestic subsidiaries.
76
Pursuant to the Company’s hosting agreement with its subsidiary, Aireon LLC, Aireon is obligated to pay the Company $200 million
for the placement of the Aireon payload on each of the Iridium NEXT satellites. In anticipation of potential delays in receipt of the
Aireon hosting payments, the Company entered into discussions with its Credit Facility lenders and Thales for deferral of certain
payments.
The Company believes that liquidity sources will provide sufficient funds for the Company to meet its liquidity requirements for at
least the next 12 months.
6. Boeing Operations and Maintenance (O&M) Agreements
On July 21, 2010, the Company and Boeing entered into the O&M Agreement, pursuant to which Boeing agreed to provide
continuing steady-state operations and maintenance services with respect to the satellite network operations center, telemetry, tracking
and control stations and the first-generation satellites (including engineering, systems analysis, and operations and maintenance
services). Boeing had, and Motorola Solutions and the U.S. government each currently have, the unilateral right to commence the
de-orbit of the Company’s first-generation satellites upon the occurrence of certain enumerated events. The O&M Agreement
incorporated a mass de-orbit plan for the first-generation satellites, which, if exercised, would have cost the Company approximately
$18.4 million to be paid to Boeing, plus an amount equivalent to the premium of the mass de-orbit insurance coverage to be paid to
the insurer.
On July 21, 2010, the Company and Boeing entered into an agreement pursuant to which Boeing would operate and maintain Iridium
NEXT (the “Iridium NEXT Support Services Agreement”). On January 1, 2015, Boeing supported a hybrid operations mode
involving network elements from both the first-generation satellites and the Iridium NEXT system. Boeing provided those services on
a time-and-materials fee basis. Obligations to Boeing represented the not to exceed (“NTE”) price for services under the Iridium
NEXT Support Services Agreement.
The Company incurred expenses of $29.0 million, $30.7 million and $32.1 million relating to satellite operations and maintenance
costs for the years ended December 31, 2016, 2015 and 2014, respectively, included in cost of services (exclusive of depreciation and
amortization) in the consolidated statements of operations and comprehensive income.
On November 28, 2016, the Company entered into an Insourcing Agreement with Boeing for the Company to hire, effective
January 3, 2017, the majority of Boeing employees and third party contractors who were responsible for the operations and
maintenance of the Company’s satellite constellation and ground infrastructure. Pursuant to the Insourcing Agreement, the Company
is obligated to pay Boeing $5.5 million, of which $2.75 million was paid during the year ended December 31, 2016 and the remaining
$2.75 million will be paid in December 2017. Concurrent with the hiring of the assembled workforce on January 3, 2017, the
Company and Boeing terminated both the O&M Agreement and the Iridium NEXT Support Service Agreement and entered into a
new Development Services Agreement (“DSA”) with a $6.0 million annual take-or-pay commitment through 2021. As a result of the
termination of certain Boeing agreements under the Insourcing Agreement, Boeing no longer has a unilateral right to commence the
de-orbit of the Company’s first-generation satellites. The assembled workforce will be recorded as a definite-lived intangible asset in
the first quarter of 2017 and will be amortized over an estimated useful life of 7 years. Additionally, by terminating the O&M
Agreement, the Company will recognize a $14.4 million gain from the derecognition of a purchase accounting liability created from
GHL’s acquisition of Iridium in 2009 related to the fair value of the contractual arrangement with Boeing as of that date and the
remainder of a credit from Boeing in the July 2010 Boeing O&M contract negotiations.
7. Property and Equipment
Property and equipment consisted of the following as of December 31, 2016 and 2015:
Satellite system
Ground system
Equipment
Internally developed software and purchased software
Building and leasehold improvements
Less: accumulated depreciation
Land
Construction in process:
Iridium NEXT systems under construction
Other construction in process
Total property and equipment, net of accumulated depreciation
77
2016
2015
(In thousands)
$
314,228
63,519
34,139
127,498
32,099
571,483
(422,098)
149,385
8,037
$
323,607
41,629
30,189
116,960
31,589
543,974
(385,860)
158,114
8,037
2,639,824
15,838
$ 2,813,084
2,252,290
25,126
$ 2,443,567
Other construction in process consisted of the following as of December 31, 2016 and 2015:
Internally developed software
Equipment
Ground system
Building and leasehold improvements
Total other construction in process
2016
2015
(In thousands)
$
$
14,218
1,546
74
-
15,838
$
$
7,708
1,981
15,143
294
25,126
Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $48.6 million, $51.0 million and $62.7 million,
respectively.
8. Intangible Assets
The Company had identifiable intangible assets as follows as of December 31, 2016 and 2015:
Indefinite life intangible assets:
Trade names
Spectrum and licenses
Total
Definite life intangible assets:
Intellectual property
Total
Total intangible assets
Indefinite life intangible assets:
Trade names
Spectrum and licenses
Total
Definite life intangible assets:
Intellectual property
Total
Total intangible assets
December 31, 2016
Useful
Lives
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
Indefinite
Indefinite
20 years
$
$
(In thousands)
21,195
14,030
35,225
16,439
16,439
51,664
$
$
-
-
-
(5,868)
(5,868)
(5,868)
December 31, 2015
$
$
21,195
14,030
35,225
10,571
10,571
45,796
Useful
Lives
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
Indefinite
Indefinite
19.5 years
(In thousands)
21,195
14,030
35,225
16,439
16,439
51,664
$
$
-
-
-
(5,075)
(5,075)
(5,075)
$
$
$
$
21,195
14,030
35,225
11,364
11,364
46,589
The Company evaluated the useful life of the remaining definite-lived intangible assets in 2016 to reflect the refinement of the Iridium
NEXT launch schedule and deployment plan. This resulted in a change in the weighted-average amortization period of intangible
assets from 19.5 years for the year ended December 31, 2015 to 20.0 years for the year ended December 31, 2016. Amortization
expense was $0.8 million, $0.8 million and $10.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
78
Future amortization expense with respect to intangible assets existing at December 31, 2016, by year and in the aggregate, is as
follows:
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
Amount
(In thousands)
783
$
783
783
783
783
6,656
Total estimated future amortization expense
$
10,571
9. Commitments and Contingencies
Thales
In June 2010, the Company executed a primarily fixed-price FSD with Thales for the design and build of satellites for Iridium NEXT.
The total price under the FSD is $2.3 billion, and the Company expects payment obligations under the FSD to extend through 2018.
As of December 31, 2016, the Company had made aggregate payments of $1,753.6 million to Thales, of which $1,490.6 million were
from borrowings under the Credit Facility and were capitalized as construction in progress within property and equipment, net in the
accompanying consolidated balance sheet. The Company’s obligations to Thales that are currently scheduled for the years ending
December 31, 2017 and 2018 are in the amounts of $287.1 million and $212.7 million, respectively. The timing of a portion of the
Company’s obligations to Thales is based on SpaceX’s targeted launch schedule to complete the NEXT constellation in mid-2018.
During 2016, the Company used the Credit Facility to pay 85% of each invoice received from Thales under the FSD, with the
remaining 15% funded from cash on hand. The Credit Facility was fully drawn in February 2017, and as a result, the Company will
pay 100% of each invoice received from Thales from cash and marketable securities on hand as well as internally generated cash
flows, including contracted cash flows from hosted payloads.
SpaceX
In March 2010, the Company entered into an agreement with Space Exploration Technologies Corp. (“SpaceX”) to secure SpaceX as
the primary launch services provider for Iridium NEXT (as amended to date, the “SpaceX Agreement”). The total price under the
SpaceX Agreement for seven launches and a reflight option in the event of launch failure is $468.1 million. The SpaceX Falcon 9
rocket is configured to carry ten Iridium NEXT satellites to orbit for each of the initial seven launches. In November 2016, the
Company entered into an agreement for an eighth launch with SpaceX to launch five spare satellites and share the launch services
with GFZ German Research Centre for Geosciences (“GFZ”). The total price under the SpaceX Agreement for the eighth launch is
$67.9 million. GFZ will pay Iridium $31.8 million to share the launch services to launch NASA’s two Gravity Recovery and Climate
Experiment Follow-On satellites. As of December 31, 2016, the Company made aggregate payments of $394.0 million to SpaceX,
which were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance
sheet. Additionally, the Company received $16.5 million from GFZ as of December 31, 2016. The Company maintains a $1.5 million
refundable deposit with SpaceX for the reservation of an additional future launch, which is not included in the total contract price. The
Company’s obligations to SpaceX currently scheduled for the years ending December 31, 2017, 2018 and 2019 are $110.9 million,
$20.9 million and $10.2 million, respectively. The timing of a portion of the Company’s obligations to SpaceX is based on SpaceX’s
targeted launch schedule to complete the NEXT constellation in mid-2018.
Kosmotras
In June 2011, the Company entered into an agreement with International Space Company Kosmotras (“Kosmotras”) as a supplemental
launch service provider for Iridium NEXT (the “Kosmotras Agreement”). In June 2013, the Company exercised an option for one
launch to carry two Iridium NEXT satellites. If the Company does not exercise any additional options, the total cost under the contract
including this single launch will be $51.8 million. As of December 31, 2016, the Company had made aggregate payments of
$36.8 million to Kosmotras, which were capitalized within property and equipment, net in the accompanying consolidated balance
sheet. In June 2015, the Company agreed with Kosmotras to replace the remaining options with a new set of options to purchase up to
six dedicated launches. Kosmotras has been unable to obtain permission to launch the Company’s satellites to date. The Company
may be unable to recover the amounts already paid to Kosmotras. The Company’s obligations to Kosmotras currently expected in the
year ending December 31, 2018 are $15.0 million. The timing of a portion of the Company’s obligations to Kosmotras is based on the
earliest date the Company plans to include Kosmotras into its launch profile.
79
Iridium NEXT Launch and In-Orbit Insurance
The Credit Facility requires the Company to obtain insurance covering the launch and first 12 months of operation of the Iridium
NEXT satellites. The launch and in-orbit insurance the Company has obtained contains elements, consistent with the terms of the
Credit Facility, of self-insurance and deductibles, providing reimbursement only after a specified number of satellite failures. As a
result, a failure of one or more of the Company’s satellites, or the occurrence of equipment failures and other related problems, could
constitute an uninsured loss or require the payment of additional premiums and could harm the Company’s financial condition.
Furthermore, launch and in-orbit insurance does not cover lost revenue.
The total premium is $117.9 million and as of December 31, 2016, the Company had made aggregate payments of $31.5 million. The
Company’s insurance obligations scheduled for the years ending December 31, 2017 and 2018 are $59.5 million and $26.9 million,
respectively. The timing of a portion of the contractual obligation payments are based on SpaceX’s targeted launch schedule to
complete the NEXT constellation in mid-2018.
Unconditional Purchase Obligations
The Company has a manufacturing agreement with Benchmark. Pursuant to the agreement, the Company may be required to purchase
certain materials if the materials are not used in production within the periods specified in the agreement. Benchmark will then
repurchase such materials from the Company at the same price paid by the Company, as required for the production of the devices. As
of December 31, 2016 and 2015, the Company had $0.5 million and $2.9 million, respectively, of such materials, and the amounts
were included in inventory on the accompanying consolidated balance sheets. The Company’s obligation to Benchmark for the year
ending December 31, 2017 is $3.4 million.
As of December 31, 2016, the aggregate unconditional purchase obligations were $45.9 million, which include the Company’s
commitments with Boeing and Benchmark. The unconditional purchase obligations scheduled for the years ending December 31,
2017 through 2021 are $17.7 million, $8.2 million, $7.3 million, $6.7 million and $6.0 million, respectively. The Boeing obligations
represent the new take-or-pay commitment with the execution of the DSA and final payment for the acquisition of the assembled
workforce.
In-Orbit Insurance
Due to various contractual requirements, the Company is required to maintain a third-party liability in-orbit insurance policy on its
first-generation satellites with a de-orbiting endorsement to cover potential claims relating to operating or de-orbiting the satellite
constellation or individual satellites. The policy covers the Company, Boeing as former operator, Motorola Solutions (the original
system architect and prior owner), contractors and subcontractors of the insured, the U.S. government and certain other sovereign
nations.
The current policy has a renewable one-year term, which is scheduled to expire on December 8, 2017. The policy coverage is
separated into Sections A, B, and C.
Section A coverage is currently in effect and covers product liability over Motorola’s position as manufacturer of the first-generation
satellites. Liability limits for claims under Section A are $1.0 billion per occurrence and in the aggregate. There is no deductible for
claims.
Section B coverage is currently in effect and covers risks in connection with in-orbit satellites and for the de-orbit of individual
satellites. Liability limits for claims under Section B are $500 million per occurrence and in the aggregate for space vehicle liability
and $500 million and $1.0 billion per occurrence and in the aggregate, respectively, with respect to de-orbiting. The balance of the
unamortized premium payment for Sections A and B coverage as of December 31, 2016 is included in prepaid expenses and other
current assets in the accompanying consolidated balance sheet. The deductible for claims under Section B is $250,000 per occurrence.
Section C coverage is effective once requested by the Company (the “Attachment Date”) and covers risks in connection with a mass
decommissioning of the first-generation satellites. Liability limits for claims under Section C are $500 million and $1.0 billion per
occurrence and in the aggregate, respectively. The term of the coverage under Section C is 12 months from the Attachment Date. The
premium for Section C coverage is $2.5 million and is payable on or before the Attachment Date. As of December 31, 2016, the
Company had not requested Section C coverage since no mass decommissioning activities are currently anticipated. The deductible
for claims under Section C is $250,000 per occurrence.
Operating Leases
The Company leases land, office space, and office and computer equipment under noncancelable operating lease agreements. Most of
the leases contain renewal options of 1 to 10 years. The Company’s obligations under the current terms of these leases extend through
2026.
80
Additionally, several of the Company’s leases contain clauses for rent escalation including, but not limited to, a pro-rata share of
increased operating and real estate tax expenses. Rent expense is recognized on a straight-line basis over the lease term. The Company
leases facilities located in Chandler, Arizona; Tempe, Arizona; McLean, Virginia; Canada; Russia; and Norway. Future minimum
lease payments, by year and in the aggregate, under noncancelable operating leases at December 31, 2016, are as follows:
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Operating
Leases
(In thousands)
3,589
$
3,554
3,644
3,734
3,827
12,251
$
30,599
Rent expense for the years ended December 31, 2016, 2015 and 2014 was $3.1 million, $3.4 million and $3.3 million, respectively.
Contingencies
The Company is not aware of any actions that it expects to have a material adverse impact on its business, financial results or financial
condition.
10. Stock-Based Compensation
During 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) to provide stock-based awards,
including nonqualified stock options, incentive stock options, restricted stock and other equity securities, as incentives and rewards for
employees, consultants and non-employee directors.
Stock Option Awards
The stock option awards granted to employees generally (i) have a term of ten years, (ii) vest over a four-year period with 25%
vesting after the first year of service and the remainder vesting ratably on a quarterly basis thereafter, (iii) are contingent upon
employment on the vesting date, and (iv) have an exercise price equal to the fair value of the underlying shares at the date of grant.
The stock option awards granted to the Company’s board of directors generally (i) represent a portion of their annual compensation,
(ii) have a term of ten years, (iii) vest over the calendar year with 25% vesting on the last day of each calendar quarter, (iv) are
contingent upon continued service on the vesting date, and (v) have an exercise price equal to the fair value of the underlying shares at
the date of grant. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
Expected volatility for options granted was based on the actual historical volatility of the Company’s stock price. The expected term
of the award was calculated using the simplified method. The Company does not anticipate paying dividends during the expected term
of the grants; therefore, the dividend rate was assumed to be zero. The risk-free interest rate assumed is based upon U.S. Treasury
Bond interest rates with similar terms at similar dates. To the extent the Company’s actual forfeiture rate is different from its estimate
of forfeitures, the stock-based compensation may differ in future periods.
In 2016, the Company granted stock options to new hires and promoted employees only. The Company’s board of directors and
non-employee consultants were granted restricted stock unit awards.
During 2016, 2015 and 2014, the Company granted approximately 249,000, 744,000 and 987,000 stock options, respectively, to its
employees, with an estimated aggregate grant-date fair value of $0.9 million, $2.9 million and $3.0 million, respectively.
During 2015 and 2014, certain members of the Company’s board of directors elected to receive a portion of their annual compensation
in the form of stock options in an aggregate amount of approximately 103,000 and 132,000 stock options, respectively. These options
vested quarterly through the end of the calendar year in which they were granted. Additionally, in October 2015, certain members of
the Company’s board of directors were granted 7,500 stock options, related to their service as part of a newly created Government
Advisory Committee, and vested through the end of 2015. The estimated aggregate grant-date fair value of the options granted to
directors in each of 2015 and 2014 was $0.4 million.
During 2015 and 2014, the Company granted 30,000 and 45,000 stock options, respectively, to its non-employee consultants, with an
estimated aggregate grant-date fair value of $0.2 million for each year, respectively. The stock options granted to consultants are
generally subject to service-based vesting and vest quarterly over a two-year service period. The fair value of the consultant options is
the then-current fair value attributable to the vesting portions of the awards, calculated using the Black-Scholes option pricing model.
81
Assumptions used in determining the fair value of the Company’s options were as follows:
Expected volatility
Expected term (years)
Expected dividends
Risk free interest rate
Year Ended December 31,
2015
2016
2014
40% - 42%
6.00 - 9.25
0%
39% - 42%
5.25 - 10.00
0%
41% - 43%
5.25 - 10.00
0%
1.15% - 2.45% 1.50% - 2.35% 1.10% - 2.35%
A summary of the activity of the Company’s stock options for the year ended December 31, 2016 is as follows:
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Shares
Options outstanding at January 1, 2016
Granted
Cancelled or expired
Exercised
Forfeited
Options outstanding at December 31, 2016
Options exercisable at December 31, 2016
Options exercisable and expected to vest at December 31, 2016
(In thousands, except years and per share data)
7,120
249
(39)
(73)
(55)
7.86
8.13
8.92
7.33
7.62
$
$
$
$
$
7,202
6,169
7,188
$
$
$
7.87
7.83
7.87
5.45
5.02
5.13
$ 12,473
$ 10,924
$ 12,442
The Company recognized $2.5 million, $3.4 million and $4.3 million of stock-based compensation expense related to stock options in
the years ended December 31, 2016, 2015 and 2014, respectively.
The weighted-average grant-date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $3.47,
$3.95 and $2.97 per share, respectively.
As of December 31, 2016, the total unrecognized cost related to non-vested options was approximately $3.1 million. This cost is
expected to be recognized over a weighted-average period of 2.0 years. The total fair value of the shares vested during the years ended
December 31, 2016, 2015 and 2014 was approximately $2.9 million, $3.6 million and $4.6 million, respectively.
Restricted Stock Unit Awards
Members of the Company’s board of directors may elect to receive a portion of their annual compensation in the form of RSUs. An
aggregate amount of approximately 126,000 service-based RSUs were granted in January 2016 with an estimated grant date fair value
of $1.0 million. These RSUs vest in full on the first anniversary of the grant date. In January 2015 and 2014, an aggregate amount of
approximately 62,000 and 108,000 RSUs were granted, respectively, with an estimated grant date fair value of $0.6 million and
$0.7 million, respectively. These RSUs vested over a one-year period, with 25% vesting on the last day of each calendar quarter. In
addition, 15,000 RSUs were granted in July 2015 to new directors, with an estimated aggregate grant-date fair value of $0.1 million,
and vested through the end of 2015, with 33% vesting immediately upon grant and 33% and 34% vesting on the last day of each
remaining calendar quarter in 2015.
During the years ended December 31, 2016, 2015 and 2014, the Company granted approximately 573,000, 596,000 and 786,000
service-based RSUs, respectively, to its employees, with an estimated grant date fair value of $4.0 million, $5.6 million and
$5.1 million, respectively. Employee service-based RSUs generally vest over a four-year service period, with 25% vesting on the first
anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter.
In March 2016, the Company awarded approximately 1,335,000 performance-based RSUs to the Company’s executives and
employees (the “2016 Bonus RSUs”), with an estimated grant date fair value of $9.4 million. The Company records stock-based
compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be
met. Vesting of the 2016 Bonus RSUs is dependent upon the Company’s achievement of defined performance goals for the 2016
fiscal year. Management believes it is probable that certain RSUs will vest. The level of achievement, if any, of performance goals
will be determined by the compensation committee of the Company’s board of directors and, if such goals are achieved, the 2016
Bonus RSUs will vest, subject to continued employment, on the anniversary of the grant date in March 2017. Similarly, in June 2014,
the Company awarded approximately 323,000 performance-based RSUs to its executives and employees (the “2014 Bonus RSUs”).
82
Vesting of the 2014 Bonus RSUs was dependent upon the Company’s achievement of defined performance goals for the 2014 fiscal
year. The level of achievement was determined by the compensation committee. Approximately 304,000 of the 2014 Bonus RSUs
were vested and released in March 2015 at an estimated aggregate fair value of $2.4 million, which was recognized as compensation
expense over the service period.
Additionally, in March 2016, 2015 and 2014, the Company awarded approximately 119,000, 161,000 and 207,000 performance-based
RSUs, respectively, to the Company’s executives (the “March Performance RSUs”). Vesting of each March Performance RSU award
is dependent upon the Company’s achievement of defined performance goals over a two-year period. Management believes it is
probable that certain RSUs will vest. The number of March Performance RSUs that will ultimately vest will range from 0% to 150%
of the original grant based on the level of achievement of the performance goals. If the Company achieves the performance goals,
50% of the March Performance RSUs will vest on the second anniversary of the grant date and the remaining 50% will vest on the
third anniversary of the grant date, in each case, subject to the executives continued service as of the vesting date. The estimated
aggregate grant date fair values of the March Performance RSUs granted in 2016 and 2015 was $0.8 million and $1.5 million,
respectively. The level of achievement of performance goals in connection with the 2014 March Performance RSUs was determined
by the compensation committee in March 2016. Approximately 155,000 of the 2014 March Performance RSUs were vested and
released in March 2016 at an estimated aggregate fair value of $1.0 million, and the remaining 155,000 will vest at the end of March
2017.
In June 2016, the Company granted approximately 35,000 RSUs to non-employee consultants with an estimated grant date fair value
of $0.3 million. The non-employee consultant RSUs are subject to service-based vesting and will vest 50% on the first anniversary of
the grant date and quarterly thereafter through the second anniversary of the grant date.
A summary of the Company’s activity for the year ended December 31, 2016 for outstanding RSUs is as follows:
Outstanding at January 1, 2016
Granted
Forfeited
Released
Outstanding at December 31, 2016
Vested at December 31, 2016
Weighted-
Average
Grant Date
Fair Value
Per RSU
$
$
$
$
$
7.76
7.09
7.44
7.36
7.40
RSUs
(In thousands)
1,944
2,297
(152)
(766)
3,323
395
A summary of the Company’s activity for the year ended December 31, 2016 for unvested RSUs is as follows:
Non-vested at January 1, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Weighted-
Average
Grant Date
Fair Value
Per RSU
$
$
$
$
$
7.83
7.09
7.36
7.44
7.39
RSUs
(In thousands)
1,541
2,297
(758)
(152)
2,928
As of December 31, 2016, the total unrecognized cost related to non-vested RSUs was approximately $5.9 million. This cost is
expected to be recognized over a weighted-average period of less than 1 year. The Company recognized $13.5 million, $6.3 million
and $6.5 million of stock-based compensation expense related to RSUs in the years ended December 31, 2016, 2015 and 2014,
respectively.
11. Segments, Significant Customers, Supplier and Service Providers and Geographic Information
The Company operates in one business segment, providing global satellite communications services and products.
The Company derived approximately 25%, 23% and 21% of the Company’s total revenue in the years ended December 31, 2016,
2015 and 2014, respectively, from prime contracts or subcontracts with agencies of the U.S. government. For the years ended
December 31, 2016, 2015 and 2014, no single commercial customer accounted for more than 10% of the Company’s total revenue.
83
Approximately 32% and 29% of the Company’s accounts receivable balance at December 31, 2016 and 2015, respectively, was due
from prime contracts or subcontracts with agencies of the U.S. government. As of December 31, 2016 and 2015, no other single
commercial customer accounted for more than 10% of the Company’s total accounts receivable balance.
The Company contracts for the manufacture of its subscriber equipment primarily from one manufacturer and utilizes other sole
source suppliers for certain component parts of its devices. Should events or circumstances prevent the manufacturer or the suppliers
from producing the equipment or component parts, the Company’s business could be adversely affected until the Company is able to
move production to other facilities of the manufacturer or secure a replacement manufacturer or an alternative supplier for such
component parts.
A significant portion of the Company’s satellite operations and maintenance service was previously provided by Boeing. On
January 3, 2017, the operation and maintenance responsibilities were transitioned to the Company pursuant to an Insourcing
Agreement.
Net property and equipment by geographic area was as follows as of December 31:
United States
Satellites in orbit
Iridium NEXT systems under construction
All others (1)
Total
2016
2015
(In thousands)
$
124,483
13,405
2,639,824
35,372
$
127,959
32,774
2,252,290
30,544
$
2,813,084
$
2,443,567
(1) No one other country represented more than 10% of property and equipment, net.
Revenue by geographic area was as follows for the years ended December 31:
United States
Canada
United Kingdom
Other countries (1)
Total
2016
226,190
42,373
47,135
117,942
433,640
$
$
2015
(In thousands)
204,777
$
42,063
44,012
120,526
$
411,378
2014
194,060
44,933
47,093
122,471
408,557
$
$
(1) No one other country represented more than 10% of revenue.
Revenue is attributed to geographic area based on the billing address of the distributor. Service location and the billing address are
often not the same. The Company’s distributors sell services directly or indirectly to end users, who may be located or use the
Company’s products and services elsewhere. The Company cannot provide the geographical distribution of end users because it does
not contract directly with them. The Company is exposed to foreign currency exchange fluctuations as foreign currency exchange rate
movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign currencies.
12. Employee Benefit Plan
The Company sponsors a defined-contribution 401(k) retirement plan (the “Plan”) that covers all employees. Employees are eligible
to participate in the Plan on the first day of the month following the date of hire, and participants are 100% vested from the date of
eligibility. The Company matches employees’ contributions equal to 100% of the salary deferral contributions up to 5% of the
employees’ compensation. Company-matching contributions to the Plan were $1.3 million, $1.5 million and $1.3 million for the years
ended December 31, 2016, 2015 and 2014, respectively. The Company pays all administrative fees related to the Plan.
13. Income Taxes
U.S. and foreign components of income before income taxes are presented below:
U.S. income
Foreign income (loss)
Total income before income taxes
Year Ended December 31,
2015
(In thousands)
75,431
$
(2,316)
$
73,115
$
$
2014
115,858
594
116,452
2016
$
$
176,448
1,717
178,165
84
The components of the Company’s income tax provision were as follows:
$
Current taxes:
Federal provision (benefit)
State provision (benefit)
Foreign provision
Total current tax provision
Deferred taxes:
Federal provision
State provision (benefit)
Foreign provision (benefit)
Total deferred tax provision
Total income tax provision
$
2016
Year Ended December 31,
2015
(In thousands)
2014
1,206
978
1,141
3,325
60,295
3,454
59
63,808
67,133
$
$
1,700
266
650
2,616
54,906
8,803
(333)
63,376
65,992
$
$
50
(90)
1,260
1,220
40,155
(77)
165
40,243
41,463
In 2011 and 2012, Arizona enacted tax law changes resulting in a benefit to the Company’s net deferred tax expense. Due to the size
and nature of the Company’s operations in Arizona, such changes have a significant impact on the tax provision in a given period. As
a result of these law changes, the Company’s deferred tax expense was reduced by approximately $3.0 million for the year ended
December 31, 2016, increased by approximately $0.1 million for the year ended December 31, 2015 and decreased by approximately
$5.5 million for the year ended December 31, 2014.
A reconciliation of the U.S. federal statutory income tax expense to the Company’s effective income tax provision is as follows:
2016
Year Ended December 31,
2015
(In thousands)
2014
Expected provision at U.S. federal statutory tax
rate
$
State taxes, net of federal benefit
State tax valuation allowance
Deferred impact of Arizona tax law changes and
elections
Impairment of goodwill
Other nondeductible expenses
Tax credits
Foreign taxes and other items
$
62,309
9,757
(2,710)
(2,962)
-
596
(442)
585
Total income tax provision
$
67,133
$
25,590
11,663
(2,763)
99
30,464
557
(97)
479
65,992
$
$
40,766
4,991
380
(5,525)
-
903
(994)
942
41,463
85
The components of deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:
As of December 31,
2016
2015
(In thousands)
Deferred tax assets
Long-term contracts
Deferred revenue
Federal, state and foreign net operating loss carryforwards and tax
$
74,720
6,309
$
credits
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Fixed assets and intangibles
Research and development expenditures
Other
Total deferred tax liabilities
60,667
27,216
168,912
(2,825)
166,087
(120,568)
(393,337)
(13,838)
(527,743)
64,287
8,312
104,996
24,603
202,198
(4,529)
197,669
(101,107)
(379,220)
(14,174)
(494,501)
Net deferred income tax liabilities
$
(361,656)
$
(296,832)
The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.
In assessing the likelihood of realization, management considers: (i) future reversals of existing taxable temporary differences;
(ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback
year(s) if carryback is permitted under applicable tax law; and (iv) tax planning strategies.
As of December 31, 2016, the Company had deferred tax assets related to cumulative U.S. and state net operating loss carryforwards
of approximately $126.5 million. These net operating loss carryforwards, if unutilized, will expire in various amounts from 2031
through 2036. The Company believes that the U.S. federal net operating losses will be utilized before the expiration dates and as such
no valuation allowance has been established for these deferred tax assets. As of December 31, 2016, the Company had deferred tax
assets related to the foreign net operating loss carryforwards of approximately $5.9 million in various jurisdictions that begin to expire
in 2018. The Company does not expect to fully utilize all of its foreign net operating losses within the respective carryforward periods
and as such reflects a partial valuation allowance against these deferred tax assets on its consolidated balance sheet. The timing and
manner in which the Company will utilize the net operating loss carryforwards in any year, or in total, may be limited in the future as
a result of alternative minimum taxes, changes in the Company’s ownership and any limitations imposed by the jurisdictions in which
the Company operates.
As of December 31, 2016, the Company had approximately $5.0 million of deferred tax assets related to research and development tax
credits that expire in various amounts from 2028 through 2036, $3.5 million of foreign tax credits which expire in various amounts
from 2020 through 2026, and $3.4 million of deferred tax assets related to Alternative Minimum Tax credits which do not expire. The
Company believes that the research and development credits will be fully utilized within the carryforward period. However, the
Company does not expect to utilize all of its foreign tax credits within the respective carryforward periods. As such, the Company has
a partial valuation allowance of $1.1 million as of December 31, 2016.
The Company has provided for U.S. income taxes on all undistributed earnings of its significant foreign subsidiaries since the
Company does not indefinitely reinvest these undistributed earnings. The Company measures deferred tax assets and liabilities using
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that
includes the enactment date.
Uncertain Income Tax Positions
The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Significant judgment is required in
evaluating tax positions and determining the provision for income taxes. The Company establishes liabilities for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. These liabilities are established
when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully
supportable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit.
The provision for income taxes includes the impact of changes to these liabilities.
86
The amount of uncertain tax positions, if recognized, at December 31, 2016 and 2015 was $0.9 million. Any changes are not
anticipated to have significant impact on the results of operations, financial position or cash flows of the Company. All of the
Company’s uncertain tax positions, if recognized, would affect its income tax expense.
The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component
of income tax expense. As of December 31, 2016 and 2015, potential interest and penalties on unrecognized tax benefits were not
significant.
The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often
complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits
pending. The Company’s corporate U.S. federal and state tax returns from 2010 to 2015 remain subject to examination by tax
authorities and the Company’s foreign tax returns from 2009 to 2015 remain subject to examination by tax authorities.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits which includes related interest and
penalties:
Balance at January 1,
Change attributable to tax positions taken in a prior period
Change attributable to final assessment
Change attributable to tax positions taken in the current period
Decrease attributable to lapse of statute of limitations
Balance at December 31,
14. Net Income (Loss) Per Share
The computations of basic and diluted net income (loss) per share are set forth below:
2016
2015
$
(In thousands)
916
$
25
-
8
(29)
$
920
$
1,150
50
(311)
29
(2)
916
Numerator:
Net income (loss) attributable to common stockholders
Dividends on Series A Preferred Stock
Dividends on Series B Preferred Stock
Numerator for diluted net income per share
Denominator:
Denominator for basic net income per share - weighted
average outstanding common shares
Dilutive effect of stock options
Dilutive effect of Performance RSUs
Dilutive effect of Series A Preferred Stock
Dilutive effect of Series B Preferred Stock
Denominator for diluted net income per share
Net income (loss) per share attributable to common
stockholders - basic
Net income (loss) per share attributable to common
stockholders - diluted
2016
Year Ended December 31,
2015
(In thousands, except per share data)
2014
$
$
$
$
95,596
7,000
8,436
111,032
95,967
250
1,328
10,602
16,728
124,875
1.00
0.89
$
$
$
$
(8,313)
-
-
(8,313)
95,097
-
-
-
-
95,097
(0.09)
(0.09)
$
$
$
$
62,669
7,000
5,320
74,989
88,080
85
-
10,602
10,633
109,400
0.71
0.69
For the year ended December 31, 2016, options to purchase 3.2 million shares of common stock were not included in the computation
of diluted net income per share, as the effect would be anti-dilutive. For the year ended December 31, 2016, 1.4 million unvested
non-performance RSUs were excluded from the computation of basic net income per share and not included in the computation of
diluted net income per share, as the effect would be anti-dilutive. In January 2017, the Company granted approximately 0.1 million
RSUs to members of the Company’s board of directors. These grants could have dilutive effects on net income per share in future
periods.
87
For the year ended December 31, 2015, 1.3 million unvested non-performance RSUs were not included in the computation of basic
net loss per share. Due to the Company’s net loss for the year ended December 31, 2015, all potential common stock equivalents are
anti-dilutive.
For the year ended December 31, 2014, warrants to purchase 0.3 million shares of common stock and options to purchase 3.6 million
shares of common stock were not included in the computation of diluted net income per share as the effect would be anti-dilutive.
Additionally, for the year ended December 31, 2014, 1.3 million unvested non-performance RSUs were not included in the
computation of basic net income per share and excluded from the computation of diluted net income per share.
15. Selected Quarterly Information (Unaudited)
The following represents the Company’s unaudited quarterly results for the years ended December 31, 2016 and 2015:
Revenue
Operating income
Net income
Net income per common share - basic
Net income per common share - diluted
Revenue
Operating income (loss) (1)
Net income (loss)
Net income (loss) per common share - basic
Net income (loss) per common share - diluted
Quarter Ended
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
(In thousands, except per share data)
104,202
43,278
28,520
0.26
0.23
$
$
$
$
$
109,195
41,729
26,854
0.24
0.22
$
$
$
$
$
112,794
49,768
31,555
0.29
0.26
$
$
$
$
$
107,449
41,596
24,103
0.21
0.19
Quarter Ended
March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
(In thousands, except per share data)
97,007
33,473
21,019
0.18
0.17
$
$
$
$
$
101,919
42,334
25,988
0.23
0.21
$
$
$
$
$
106,034
46,539
29,547
0.27
0.24
$
$
$
$
$
106,418
(48,543)
(69,431)
(0.77)
(0.77)
$
$
$
$
$
$
$
$
$
$
(1)
Includes a goodwill impairment charge which decreased operating income by $87.0 million for the three months ended
December 31, 2015.
The sum of the per share amounts does not equal the annual amounts due to changes in the weighted-average number of common
shares outstanding during the year.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer, who is our principal
executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, as of the end of the period covered by this report. In evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and
procedures relative to their costs. In addition, the design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance
with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or
fraud may occur and not be detected.
Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and
88
Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or
under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. Such internal control includes
those policies and procedures that:
(cid:129)
(cid:129)
(cid:129)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of our company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of our company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this
assessment, our management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on its assessment, our management has determined
that, as of December 31, 2016, our internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Ernst & Young LLP, has audited our 2016 financial statements. Ernst & Young
LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the
Board of Directors and committees of the Board. Ernst & Young LLP has issued an unqualified report on our 2016 financial
statements as a result of the audit and also has issued an unqualified report on our internal controls over financial reporting which is
attached hereto.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2016, there were no changes in our internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
89
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Iridium Communications Inc.
We have audited Iridium Communications Inc.’s internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). Iridium Communications Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Iridium Communications Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Iridium Communications Inc. as of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2016 and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
February 23, 2017
90
Item 9B.
Other Information
None.
PART III
We will file a definitive Proxy Statement for our 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”) with the SEC,
pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by
Part III has been omitted as permitted by General Instruction G (3) to Form 10-K. Only those sections of the 2017 Proxy Statement
that specifically address the items set forth herein are incorporated by reference.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference to the sections of our 2017 Proxy Statement entitled “Board of
Directors and Committees,” “Election of Directors,” “Management” and “Section 16(a) Beneficial Ownership Reporting
Compliance.”
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference to the sections of our 2017 Proxy Statement entitled
“Compensation Discussion and Analysis,” “Executive Compensation” and “Director Compensation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to the sections of our 2017 Proxy Statement entitled “Security
Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation
Plans.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the sections of our 2017 Proxy Statement entitled “Transactions
with Related Parties” and “Director Independence.”
Item 14.
Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to the section of our 2017 Proxy Statement entitled “Independent
Registered Public Accounting Firm Fees.”
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
Iridium Communications Inc.:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
59
60
61
62
63
65
(2) Financial Statement Schedules
The financial statement schedules are not included here because required information is included in the consolidated financial
statements.
(3) Exhibits
The exhibits that are filed or furnished with this report or that are incorporated by reference herein are set forth in the Exhibit Index on
page 93, which is incorporated by reference herein.
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
IRIDIUM COMMUNICATIONS INC.
SIGNATURES
Date: February 23, 2017
By:
/s/ Thomas J. Fitzpatrick
Thomas J. Fitzpatrick
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
Name
Title
Date
/s/ MATTHEW J. DESCH
Matthew J. Desch
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ THOMAS J. FITZPATRICK
Thomas J. Fitzpatrick
Chief Financial Officer, Chief Administrative Officer and
Director
(Principal Financial Officer)
/s/ RICHARD P. NYREN
Richard P. Nyren
Chief Accounting Officer
(Principal Accounting Officer)
February 23, 2017
February 23, 2017
February 23, 2017
/s/ ROBERT H. NIEHAUS
Robert H. Niehaus
/s/ THOMAS C. CANFIELD
Thomas C. Canfield
/s/
JANE L. HARMAN
Jane L. Harman
/s/ ALVIN B. KRONGARD
Alvin B. Krongard
/s/ ERIC T. OLSON
Eric T. Olson
/s/ STEVEN B. PFEIFFER
Steven B. Pfeiffer
/s/ PARKER W. RUSH
Parker W. Rush
/s/ HENRIK O. SCHLIEMANN
Henrik O. Schliemann
/s/ S. SCOTT SMITH
S. Scott Smith
/s/ BARRY J. WEST
Barry J. West
Director and Chairman of the Board
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
February 23, 2017
Director
Director
Director
Director
Director
Director
Director
Director
Director
92
Exhibit
No.
3.1
3.2
3.3
3.4
3.5
4.1
10.1†
10.2
10.3†
10.4†
EXHIBIT INDEX
Document
Amended and Restated Certificate of Incorporation dated September 29, 2009, incorporated herein by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 29, 2009.
Certificate of Designations of Iridium Communications Inc. filed on October 3, 2012 with the Secretary of State of the
State of Delaware designating the preferences, limitations, voting powers and relative rights of the 7% Series A
Cumulative Perpetual Convertible Preferred Stock, incorporated herein by reference to Exhibit 3.1 of the Registrant’s
Current Report on Form 8-K filed with the SEC on October 3, 2012.
Certificate of Designations of Iridium Communications Inc. filed on May 14, 2014 with the Secretary of State of the
State of Delaware designating the preferences, limitations, voting powers and relative rights of the 6.75% Series B
Cumulative Perpetual Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s
Registration Statement on Form 8-A filed with the SEC on May 14, 2014.
Certificate of Amendment to Amended and Restated Certificate of Incorporation dated May 12, 2015, incorporated by
reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 of the Registrant’s Current Report on
Form 8-K filed with the SEC on May 15, 2015.
Specimen Common Stock Certificate, incorporated herein by reference to Exhibit 4.2 of the Registrant’s Registration
Statement on Form S-1 (Registration No. 333-147722) filed with the SEC on February 4, 2008.
Supplemental Agreement dated as of May 2, 2014 between Iridium Satellite LLC and Société Générale, as COFACE
Agent, amending and restating the COFACE Facility Agreement among Iridium Satellite LLC, the Registrant, Iridium
Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Syncom-Iridium
Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank AG (Paris
Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A., BNP Paribas,
Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG; Deutsche
Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the COFACE
agent, dated as of October 4, 2010, as amended and restated on 1 August 2012, as amended on 26 July 2013 and as
amended on 30 October 2013, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2014.
Amendment, dated May 7, 2015, to the COFACE Facility Agreement among Iridium Satellite LLC, the Registrant,
Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Syncom-
Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank AG (Paris
Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A., BNP Paribas,
Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG; Deutsche
Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the COFACE
agent, dated as of October 4, 2010, as amended and restated on May 2, 2014, incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on July 30, 2015.
Amendment, dated November 24, 2015, to the COFACE Facility Agreement among Iridium Satellite LLC, the
Registrant, Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC,
Syncom-Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank
AG (Paris Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A.,
BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG;
Deutsche Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the
COFACE agent, dated as of October 4, 2010, as amended and restated on May 2, 2014, incorporated herein by
reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 25, 2016.
Amendment, dated December 31, 2015, to the COFACE Facility Agreement among Iridium Satellite LLC, the
Registrant, Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC,
Syncom-Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank
AG (Paris Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A.,
BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG;
Deutsche Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the
COFACE agent, dated as of October 4, 2010, as amended and restated on May 2, 2014, incorporated herein by
reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 25, 2016.
93
Exhibit
No.
10.5†
10.6†
10.7
10.8
10.9
10.10†
10.11
10.12†
10.13†
10.14
10.15
10.16
Document
Amendment, dated February 24, 2016, to the COFACE Facility Agreement among Iridium Satellite LLC, the
Registrant, Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC,
Syncom-Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank
AG (Paris Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A.,
BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG;
Deutsche Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the
COFACE agent, dated as of October 4, 2010, as amended and restated on May 2, 2014, incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on April 28, 2016.
Amendment, dated July 18, 2016, to the COFACE Facility Agreement among Iridium Satellite LLC, the Registrant,
Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Syncom-
Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank AG (Paris
Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A., BNP Paribas,
Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG; Deutsche
Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the COFACE
agent, dated as of October 4, 2010, as amended and restated on May 2, 2014, incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on October 27, 2016.
Security Agreement, dated as of October 13, 2010, between the Registrant, Iridium Satellite LLC, Iridium Holdings
LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, SE Licensing LLC, Iridium Government Services
LLC, Iridium Constellation LLC, Syncom-Iridium Holdings Corp. and Deutsche Bank Trust Company Americas,
acting as Security Agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K
filed with the SEC on March 7, 2011.
Pledge Agreement, dated as of October 13, 2010, between the Registrant, Syncom-Iridium Holdings Corp., Iridium
Holdings LLC, Iridium Carrier Holdings LLC, Iridium Satellite LLC, Iridium Constellation LLC and Deutsche Bank
Trust Company Americas, acting as Security Agent, incorporated by reference to Exhibit 10.3 to the Registrant’s
Annual Report on Form 10-K filed with the SEC on March 7, 2011.
Stock Pledge Agreement, dated as of October 13, 2010, between the Registrant and Deutsche Bank Trust Company
Americas, acting as Security Agent, incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on
Form 10-K filed with the SEC on March 7, 2011.
Second Amended and Restated Limited Liability Company Agreement of Aireon LLC, between Aireon LLC; Iridium
Satellite LLC; NAV CANADA; NAV CANADA Satellite, Inc.; Enav S.p.A.; ENAV North Atlantic LLC; Naviair;
Naviair Surveillance A/S; and Irish Aviation Authority Limited, dated as of February 14, 2014, incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 1, 2014.
Amendment No. 1 to Second Amended and Restated Limited Liability Company Agreement of Aireon LLC, dated as
of January 14, 2015, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q
filed with the SEC on April 30, 2015.
Amendment No. 2 to Second Amended and Restated Limited Liability Company Agreement of Aireon LLC, dated as
of July 6, 2015, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed
with the SEC on October 29, 2015.
Amendment No. 3 to Second Amended and Restated Limited Liability Company Agreement of Aireon LLC, dated as
of March 17, 2016, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed
with the SEC on April 28, 2016.
Amendment No. 4, dated as of July 1, 2016, to the Second Amended and Restated Limited Liability Company
Agreement of Aireon LLC, between Aireon LLC; Iridium Satellite LLC; NAV CANADA; NAV CANADA Satellite,
Inc.; Enav S.p.A.; ENAV North Atlantic LLC; Naviair; Naviair Surveillance A/S; and Irish Aviation Authority
Limited, dated as of February 14, 2014, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q filed with the SEC on October 27, 2016.
Subscription Agreement for Preferred Interests between Aireon LLC and Enav S.p.A., dated as of December 20, 2013,
incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K filed with the SEC on
March 4, 2014.
Subscription Agreement for Preferred Interests between Aireon LLC and Naviair, dated as of December 20, 2013,
incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed with the SEC on
March 4, 2014.
94
Exhibit
No.
10.17
10.18
10.19†
10.20†
10.21
10.22
10.23
10.24†
10.25
10.26†
10.27†
10.28†
10.29†
10.30†
10.31†
10.32†
Document
Subscription Agreement for Preferred Interests between Aireon LLC and Irish Aviation Authority Limited, dated as of
December 20, 2013, incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed
with the SEC on March 4, 2014.
Amended and Restated Subscription Agreement for Preferred Interests between Aireon LLC and NAV CANADA
Satellite, Inc., dated as of December 20, 2013, incorporated by reference to Exhibit 10.12 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 4, 2014.
Settlement Agreement between Iridium Holdings LLC, Iridium Satellite LLC, the Registrant and Motorola, Inc., dated
as of September 30, 2010, incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K
filed with the SEC on March 7, 2011.
Security Agreement, dated as of September 30, 2010, between Iridium Satellite LLC and Deutsche Bank Trust
Company Americas, acting as Collateral Agent, incorporated by reference to Exhibit C to Exhibit 10.5 to the
Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011.
Guaranty, dated as of September 30, 2010, by Iridium Holdings LLC and the Registrant in favor of Motorola, Inc.,
incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the SEC on
March 7, 2011.
Amended and Restated Transition Services, Products and Asset Agreement, between Iridium Satellite LLC, Iridium
Holdings LLC and Motorola, Inc., dated as of September 30, 2010, incorporated by reference to Exhibit 10.9 to the
Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011.
Amendment No. 1 to Amended and Restated Transition Services, Products and Asset Agreement, between Iridium
Satellite LLC, Iridium Holdings LLC and Motorola, Inc., dated as of December 30, 2010, incorporated by reference to
Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011.
System Intellectual Property Rights Amendment and Agreement, between Iridium Satellite LLC and Motorola, Inc.,
dated as of September 30, 2010, incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on
Form 10-K filed with the SEC on March 7, 2011.
Supplemental Subscriber Equipment Technology Amendment and Agreement, between Iridium Satellite LLC and
Motorola, Inc., dated as of September 30, 2010, incorporated by reference to Exhibit 10.12 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 7, 2011.
Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and Thales Alenia Space
France for the Iridium NEXT System, dated June 1, 2010, incorporated by reference to Annex 1 to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q/A filed with the SEC on October 29, 2010.
Amendment No. 1 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated August 6, 2010, incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the SEC on January 14, 2011.
Amendment No. 2 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated September 30, 2010, incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2010.
Amendment No. 3 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated October 25, 2010, incorporated by reference to
Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 7, 2011.
Amendment No. 4 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated as of April 29, 2011, incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2011.
Amendment No. 5 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated September 12, 2011, incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2011.
Amendment No. 6 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated October 24, 2011, incorporated by reference to
Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 6, 2012.
95
Exhibit
No.
10.33†
10.34†
10.35†
10.36†
10.37†
10.38†
10.39†
10.40†
10.41†
10.42†
10.43†
10.44†
10.45†
10.46†
10.47†
10.48†
Document
Amendment No. 7 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated March 12, 2012, incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 3, 2012.
Amendment No. 8 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated March 13, 2012, incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 3, 2012.
Amendment No. 9 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated June 19, 2012, incorporated by reference to
Exhibit 10.1 to the Registrant’s Annual Report on Form 10-Q filed with the SEC on August 2, 2012.
Amendment No. 10 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated June 19, 2012, incorporated by reference to
Exhibit 10.2 to the Registrant’s Annual Report on Form 10-Q filed with the SEC on August 2, 2012.
Amendment No. 11 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 3, 2012, incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.
Amendment No. 12 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 6, 2012, incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.
Amendment No. 13 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated October 25, 2012, incorporated by reference to
Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 5, 2013.
Amendment No. 14 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated November 8, 2012, incorporated by reference to
Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 5, 2013.
Amendment No. 15 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated June 11, 2013, incorporated herein by reference to
Exhibit 10.2 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 31, 2013.
Amendment No. 16 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 24, 2013, incorporated herein by reference to
Exhibit 10.3 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 31, 2013.
Amendment No. 17 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated August 20, 2013, incorporated herein by reference
to Exhibit 10.4 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 31, 2013.
Amendment No. 18 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated October 21, 2013, incorporated by reference to
Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 4, 2014.
Amendment No. 19 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated October 29, 2013, incorporated by reference to
Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 4, 2014.
Amendment No. 20 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 7, 2014, incorporated herein by reference to
Exhibit 10.1 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 30, 2014.
Amendment No. 21 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 9, 2014, incorporated herein by reference to
Exhibit 10.2 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 30, 2014.
Amendment No. 22 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated July 14, 2014, incorporated herein by reference to
Exhibit 10.3 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 30, 2014.
96
Exhibit
No.
10.49†
10.50†
10.51†
10.52†
10.53†
10.54†
10.55†
10.56
10.57†
10.58†
10.59†
10.60†
10.61†
10.62
10.63†
10.64†
Document
Amendment No. 23 to the Full Scale System Development Contract No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated January 30, 2015, incorporated herein by reference
to Exhibit 10.2 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on April 30, 2015.
Amendment No. 24 to the Full Scale System Development Contact No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated September 22, 2015, incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on October 29, 2015.
Amendment No. 26 to the Full Scale System Development Contact No. IS-10-021 between Iridium Satellite LLC and
Thales Alenia Space France for the Iridium NEXT System, dated September 19, 2016, incorporated herein by
reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on October 27, 2016.
Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space Exploration Technologies
Corp., dated March 19, 2010, incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on
Form 10-Q/A filed with the SEC on March 29, 2011.
Amendment No. 1 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., dated September 17, 2010, incorporated by reference to Exhibit 10.6 to the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2010.
Amendment No. 2 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., effective as of August 1, 2012, incorporated by reference to Exhibit 10.6 to the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.
Amendment No. 3 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., dated as of May 9, 2013, incorporated herein by reference to Exhibit 10.5 of the
Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 31, 2013.
Amendment No. 4 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., dated as of January 27, 2014, incorporated herein by reference to Exhibit 10.2 of the
Registrant’s Quarterly Report Form 10-Q filed with the SEC on May 1, 2014.
Amendment No. 5 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., dated as of September 15, 2014, incorporated herein by reference to Exhibit 10.4 of
the Registrant’s Quarterly Report Form 10-Q filed with the SEC on October 30, 2014.
Amendment No. 6 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space
Exploration Technologies Corp., dated as of November 2, 2015, incorporated herein by reference to Exhibit 10.53 of
the Registrant’s Annual Report Form 10-K filed with the SEC on February 25, 2016.
Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government
Communications Systems Division, dated as of June 19, 2012, incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q/A filed with the SEC on September 12, 2012.
Amendment No. 1 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of July 31, 2012, incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.
Amendment No. 2 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of September 4, 2012, incorporated by
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.
Amendment No. 3 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of March 18, 2013, incorporated herein by
reference to Exhibit 10.3 of the Registrant’s Current Report on Form 10-Q filed with the SEC on May 2, 2013.
Amendment No. 14 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of November 12, 2014, incorporated by
reference to Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 26, 2015.
Amendment No. 15 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of December 18, 2014, incorporated by
reference to Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 26, 2015.
97
Exhibit
No.
10.65†
10.66††
10.67
10.68†
10.69
10.70
10.71
10.72†
10.73†
10.74
10.75†
10.76*
10.77*
10.78*
10.79*
10.80*
10.81*
Document
Amendment No. 19 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris
Corporation Government Communications Systems Division, dated as of January 7, 2016, incorporated by reference
to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on April 28, 2016.
Insourcing Agreement, by and between Iridium Satellite LLC and The Boeing Company, dated as of November 28,
2016.
Indemnification Contract, dated December 5, 2000, among Iridium Satellite LLC, The Boeing Company, Motorola,
Inc. and the United States, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
Form 8-K filed with the SEC on September 29, 2009.
Terms and Conditions for De-Orbit Postponement Modification for Contract DCA100-01-C-3001, by and between
Iridium Satellite LLC, The Boeing Company and the United States Government, dated September 7, 2010,
incorporated herein by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q filed with the
SEC on November 9, 2010.
Intellectual Property Rights Agreement, dated December 11, 2000, among Motorola Inc. and Iridium Satellite LLC,
incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC
on September 29, 2009.
Subscriber Equipment Technology Agreement (Design), dated as of September 30, 2002, by and among Motorola Inc.
and SE Licensing LLC, incorporated herein by reference to Exhibit 10.4 of the Registrant’s Current Report on
Form 8-K filed with the SEC on September 29, 2009.
Subscriber Equipment Technology Agreement (Manufacturing), dated as of September 30, 2002, by and among
Motorola Inc. and SE Licensing LLC, incorporated herein by reference to Exhibit 10.5 of the Registrant’s Current
Report on Form 8-K filed with the SEC on September 29, 2009.
Contract for Enhanced Mobile Satellite Services between Iridium Satellite LLC and the Defense Information Systems
Agency, effective October 22, 2013, incorporated by reference to Exhibit 10.59 to the Registrant’s Annual Report on
Form 10-K filed with the SEC on March 4, 2014.
Amendment to Contract for Enhanced Mobile Satellite Services between Iridium Satellite LLC and the Defense
Information Systems Agency, dated as of June 3, 2015, incorporated herein by reference to Exhibit 10.3 of the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on July 30, 2015.
Form of Registration Rights Agreement, incorporated by reference to Annex D of the Registrant’s Proxy Statement
filed with the SEC on August 28, 2009.
Amendment No. 1 to Registration Rights Agreement, dated as of March 29, 2011, by and among Iridium
Communications Inc. and the parties listed on the signature pages thereto, incorporated by reference to Exhibit 10.1 of
the Registrant’s Current Report on Form 8-K, filed with the SEC on March 30, 2011.
Amended and Restated Employment Agreement, dated as of March 30, 2011, by and between the Registrant and
Matthew J. Desch, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,
filed with the SEC on April 5, 2011.
Employment Agreement, dated as of March 31, 2010, by and between the Registrant and Thomas J. Fitzpatrick,
incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the
SEC on May 10, 2010.
Amendment to Employment Agreement by and between the Registrant and Thomas J. Fitzpatrick, dated as of
December 31, 2010, incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed
with the SEC on March 7, 2011.
Employment Agreement between the Registrant and S. Scott Smith, dated as of March 2010, incorporated by
reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 6, 2012.
Amendment to Employment Agreement between the Registrant and S. Scott Smith, dated as of December 31, 2010,
incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K filed with the SEC on
March 6, 2012.
Employment Agreement between the Registrant and Bryan J. Hartin, dated as of December 10, 2012, incorporated by
reference to Exhibit 10.69 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 4, 2014.
98
Exhibit
No.
10.82*
10.83*
10.84
10.85*
10.86*
10.87*
10.88*
10.89*
10.90*
10.91*
10.92*
10.93*
10.94*
10.95*
10.96*
10.97*
10.98*
10.99*
Document
Employment Agreement between the Registrant and Thomas D. Hickey, dated as of April 29, 2011, incorporated by
reference to Exhibit 10.70 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 4, 2014.
2009 Iridium Communications Inc. Stock Incentive Plan, incorporated by reference to Annex E of the Registrant’s
Proxy Statement filed with the SEC on August 28, 2009.
Form of Indemnity Agreement between the Registrant and each of its directors and officers, incorporated by reference
to Exhibit 10.5 to the Registrant’s Form S-1/A filed with the SEC on February 4, 2008.
Form of Stock Option Award Agreement for use in connection with the 2009 Iridium Communications Inc. Stock
Incentive Plan, incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K filed with
the SEC on March 7, 2011.
Form of Restricted Stock Unit Agreement for use in connection with the 2009 Iridium Communications Inc. Stock
Incentive Plan, incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K filed with
the SEC on March 6, 2012.
Performance Share Program established under the Iridium Communications Inc. 2015 Equity Incentive Plan,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
March 3, 2016.
Form of Performance Share Award Grant Notice and Performance Share Award Agreement for use in connection with
the Performance Share Program established under the Iridium Communications Inc. 2015 Equity Incentive Plan,
incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on
March 3, 2016.
Form of Stock Option Agreement for Non-Employee Directors for use in connection with the 2009 Iridium
Communications Inc. Stock Incentive Plan, incorporated by reference to Exhibit 10.46 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 7, 2011.
Form of Restricted Stock Award Agreement for Non-Employee Directors for use in connection with the 2009 Iridium
Communications Inc. Stock Incentive Plan, incorporated by reference to Exhibit 10.47 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 7, 2011.
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the 2009 Iridium
Communications Inc. Stock Incentive Plan, incorporated by reference to Exhibit 10.48 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 7, 2011.
Iridium Communications Inc. 2012 Equity Incentive Plan, incorporated by reference to Appendix A to the
Registrant’s Proxy Statement filed with the SEC on April 10, 2012.
Forms of Stock Option Grant Notice and Stock Option Agreement for use in connection with the Iridium
Communications Inc. 2012 Equity Incentive Plan, incorporated by reference to Exhibit 99.2 to the Registrant’s
Current Report on Form 8-K filed with the SEC on May 23, 2012.
Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for use in connection with the
Iridium Communications Inc. 2012 Equity Incentive Plan, incorporated by reference to Exhibit 99.3 to the
Registrant’s Current Report on Form 8-K filed with the SEC on May 23, 2012.
Non-Employee Director Compensation Plan dated December 14, 2016.
Iridium Communications Inc. 2014 Executive Performance Bonus Plan, incorporated herein by reference to
Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 1, 2014.
Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Forms of Option Grant Notice and Option Agreement for use in connection with the Iridium Communications Inc.
2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K
filed with the SEC on May 15, 2015.
Forms of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement for use in
connection with the Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
99
Exhibit
No.
10.100*
10.101*
10.102*
10.103*
10.104*
10.105*
10.106*
21.1
23.1
31.1
31.2
32.1
Document
Forms of Non-Employee Director Option Grant Notice and Non-Employee Director Option Agreement for use in
connection with the Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Forms of Non-Employee Director Restricted Stock Unit Award Grant Notice and Non-Employee Director Restricted
Stock Unit Award Agreement for use in connection with the Iridium Communications Inc. 2015 Equity Incentive
Plan, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on
May 15, 2015.
UK Sub-Plan of the Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Forms of UK Option Grant Notice and UK Option Agreement for use in connection with the Iridium Communications
Inc. 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on
Form 8-K filed with the SEC on May 15, 2015.
Forms of UK Restricted Stock Unit Award Grant Notice and UK Restricted Stock Unit Award Agreement for use in
connection with the Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Forms of UK Non-Employee Director Option Grant Notice and UK Non-Employee Director Option Agreement for
use in connection with the Iridium Communications Inc. 2015 Equity Incentive Plan, incorporated by reference to
Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 15, 2015.
Forms of UK Non-Employee Director Restricted Stock Unit Award Grant Notice and UK Non-Employee Director
Restricted Stock Unit Award Agreement for use in connection with the Iridium Communications Inc. 2015 Equity
Incentive Plan, incorporated by reference to Exhibit 10.10 of the Registrant’s Current Report on Form 8-K filed with
the SEC on May 15, 2015.
List of Subsidiaries.
Consent of Ernst & Young LLP, independent registered public accounting firm.
Certification of Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
†
††
*
Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the
Securities and Exchange Commission.
Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the
Securities and Exchange Commission.
Denotes compensatory plan, contract or arrangement.
100
Subsidiary
Aireon LLC
Iridium Blocker-B Inc.
Syncom-Iridium Holdings Corp.
Iridium Holdings LLC
Iridium Satellite LLC
Iridium Constellation LLC
Iridium Carrier Holdings LLC
Iridium Carrier Services LLC
Iridium Government Services LLC
OOO Iridium Services
OOO Iridium Communications
Iridium Canada GS Ltd.
SUBSIDIARIES OF IRIDIUM COMMUNICATIONS INC.
Jurisdiction of Organization
EXHIBIT 21.1
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Russia
Russia
Canada
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-162206, and Form S-8 Nos. 333-165508,
333-181744 and 333-204236) of Iridium Communications Inc. of our reports dated February 23, 2017, with respect to the consolidated
financial statements of Iridium Communications Inc. and the effectiveness of internal control over financial reporting of Iridium
Communications Inc. included in this Annual Report (Form 10-K) of Iridium Communications Inc. for the year ended December 31, 2016.
/s/ Ernst & Young LLP
McLean, VA
February 23, 2017
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, Matthew J. Desch, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Iridium Communications Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2017
/s/ Matthew J. Desch
Matthew J. Desch
Chief Executive Officer
(principal executive officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Thomas J. Fitzpatrick, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Iridium Communications Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 23, 2017
/s/ Thomas J. Fitzpatrick
Thomas J. Fitzpatrick
Chief Financial Officer and Chief Administrative Officer
(principal financial officer)
EXHIBIT 32.1
CERTIFICATIONS OF
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the Chief Executive
Officer and the Chief Financial Officer of Iridium Communications Inc. (the “Company”) each hereby certifies that, to the best of his
knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, to which this Certification is
attached as Exhibit 32.1 (the “Form 10-K”), fully complies with the requirements of Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition of the Company at
the end of the period covered by the Form 10-K and results of operations of the Company for the periods covered in the
financial statements in the Form 10-K.
Dated: February 23, 2017
/s/ Matthew J. Desch
Matthew J. Desch
Chief Executive Officer
/s/ Thomas J. Fitzpatrick
Thomas J. Fitzpatrick
Chief Financial Officer and Chief Administrative Officer
This certification accompanies the Form 10-K and shall not be deemed “filed” by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended.
Non-GAAP Financial Measures & Definitions
In addition to disclosing financial results that are determined in accordance with U.S. GAAP, the Company provides Operational
EBITDA and Operational EBITDA margin, which are non-GAAP financial measures, as supplemental measures to help investors
evaluate the Company’s fundamental operational performance. In addition, in the fourth quarter of 2015 the Company took a non-
cash goodwill impairment charge, which resulted in a net loss for the quarter, and the Company decided to report, as a supplemental
measure, net income adjusted to eliminate the goodwill impairment charge. Operational EBITDA represents earnings before interest,
income taxes, depreciation and amortization, Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium
NEXT only), loss from investment in Aireon, share-based compensation expenses, and the impact of purchase accounting. Iridium
NEXT revenue and expenses are expected to be excluded from Operational EBITDA into 2017. During 2017, Iridium NEXT revenues
are expected to exceed recurring Iridium NEXT expenses (recurring Iridium NEXT expenses are not part of the approximately
$3 billion construction cost of Iridium NEXT (the “Construction Costs”)). Accordingly, the Company expects that during 2017,
Iridium NEXT revenues and these recurring expenses will no longer be excluded in calculating Operational EBITDA. U.S. GAAP
requires that certain of the Construction Costs be expensed. These certain Construction Costs, which in 2017 and later will principally
consist of in-orbit insurance, will continue to be excluded from the calculation of Operational EBITDA through 2018. The Company
also presents Operational EBITDA expressed as a percentage of GAAP revenue, or Operational EBITDA margin. Operational
EBITDA, along with its related measure, Operational EBITDA margin, does not represent, and should not be considered, an
alternative to U.S. GAAP measurements such as net income or loss, and the Company’s calculations thereof may not be comparable
to similarly titled measures reported by other companies. By eliminating interest, income taxes, depreciation and amortization,
Iridium NEXT revenue and expenses (for periods prior to the deployment of Iridium NEXT only), loss from investment in Aireon,
share-based compensation expenses, and the impact of purchase accounting, the Company believes the result is a useful measure
across time in evaluating its fundamental core operating performance. Management also uses Operational EBITDA to manage the
business, including in preparing its annual operating budget, debt covenant compliance, financial projections and compensation plans.
The Company believes that Operational EBITDA is also useful to investors because similar measures are frequently used by securities
analysts, investors and other interested parties in their evaluation of companies in similar industries. However, there is no standardized
measurement of Operational EBITDA, and Operational EBITDA as the Company presents it may not be comparable with similarly
titled non-GAAP financial measures used by other companies. As indicated, Operational EBITDA does not include interest expense
on borrowed money, the payment of income taxes, amortization of the Company’s definite-lived intangible assets, or depreciation
expense on the Company’s capital assets, which are necessary elements of the Company’s operations. It also excludes expenses in
connection with the development, deployment and financing of Iridium NEXT and the loss from investment in Aireon. Since
Operational EBITDA does not account for these and other expenses, its utility as a measure of the Company’s operating performance
has material limitations. Due to these limitations, the Company’s management does not view Operational EBITDA in isolation, but
also uses other measurements, such as net income, revenues and operating profit, to measure operating performance. Please refer to
the schedule below for a reconciliation of consolidated GAAP net income to Operational EBITDA and Iridium’s Investor Relations
webpage at www.iridium.com for a discussion and reconciliation of this and other non-GAAP financial measures.
GAAP net income
Impairment of goodwill
Adjusted net income
Interest expense
Interest income
Income taxes
Depreciation and amortization
EBITDA
Iridium NEXT expenses, net
Loss from investment in Aireon
Share-based compensation
Purchase accounting adjustments
Operational EBITDA
OEBITDA Margin
Reported revenue
Iridium NEXT revenue
Purchase accounting adjustments
Adjusted revenue
For the Year Ended December 31,
2012
2013
2014
2015
2016
$ 64,631
-
$ 62,517
-
$ 74,989
-
$
7,123
87,039
$111,032
-
64,631
114
(1,186)
30,387
81,110
175,056
23,042
826
7,332
(502)
62,517
583
(2,859)
47,948
74,980
183,169
8,064
3,332
6,715
(194)
74,989
954
(4,594)
41,463
72,769
185,581
18,064
4,296
9,559
(1,000)
94,162
2,416
(5,485)
65,992
51,834
208,919
17,296
-
8,602
(775)
111,032
1,159
(4,093)
67,133
49,394
224,625
16,732
-
13,689
(825)
$205,754
$201,086
$216,500
$234,042
$254,221
53.6%
52.6%
53.0%
56.9%
58.6%
For the Year Ended December 31,
2012
2013
2014
2015
2016
$383,520
(121)
415
$382,649
(298)
806
$408,557
(10)
-
$411,378
(845)
-
$433,640
(1,166)
-
$383,814
$383,157
$408,547
$410,533
$432,474
Company Profile
Corporate Information
The world’s only truly global mobile satellite communications company
2017 ANNUAL MEETING
Iridium Communications Inc. owns the only mobile voice and data satellite communications network that spans the
entire globe. A technology innovator and market leader, Iridium enables connections between people, organizations
and assets to and from anywhere, in real time.
Iridium's architecture of 66 low Earth orbiting (LEO) satellites operates as a fully meshed, cross-linked network
and is the world's largest commercial constellation. The company has a major development program underway for its
next-generation network – Iridium NEXT.
Reaching over oceans, through airways and across the polar regions, Iridium® solutions are ideally suited for
industries such as maritime, aviation, emergency services, mining, forestry, oil and gas, heavy equipment, transportation
and utilities. Iridium also provides service to subscribers from the U.S. Department of Defense, as well as other civil
and government agencies around the world.
Together with its ecosystem of partner companies, Iridium delivers an innovative and rich portfolio of reliable
solutions for markets that require truly global communications.
Who is Iridium?
2016 Operating Highlights
• We compete in attractive and growing markets
with high barriers to entry and favorable
• Generated 2016 Net Income of $111 million and delivered
Operational EBITDA (OEBITDA)* of $254 million, resulting
competitive dynamics.
in a five-year compound annual growth rate of 6%.
• We operate the world’s furthest reaching
• Surpassed 850,000 worldwide subscribers, a five-year
telecommunications network with 100% global
compound annual growth rate of 10%.
coverage. Our unique network architecture
provides a sustainable competitive advantage.
We have a comprehensive business plan for our
with government subscribers growing to a record
• Achieved a 17% increase in government service revenue
next-generation satellite constellation, Iridium
84,000 total users.
NEXT, which began deploying in January 2017.
• We benefit from a large, low-cost and extensive
ecosystem of partners and a robust product
portfolio.
• We benefit from a large, highly profitable
the significant operating leverage created by
a largely fixed-cost infrastructure, has us poised
to transform our cash flow profile in 2019.
• M2M data subscribers have grown at a 20% compound
annual growth rate since 2011 and now represent 53%
of our total customer base.
• Aireon LLC has executed ten customer data service contracts
since the beginning of 2013 and has $270 million in committed
• Reached total investment of approximately $2.
the ongoing development of Iridium NEXT.
4
billion in
recurring service revenue base, which along with
investment from four air traffic control agencies.
The Annual Meeting of Stockholders will be held on May 11, 2017 at 8:30 a.m. local time at The Ritz-Carlton, Tysons Corner:
1700 Tysons Boulevard, McLean, VA 22102
BOARD OF DIRECTORS
Robert H. Niehaus
Chairman of the Board
Chairman, GCP Capital Partners LLC
Thomas C. Canfield
Senior Vice President and General Counsel,
Spirit Airlines, Inc.
Matthew J. Desch
Chief Executive Officer
Thomas J. Fitzpatrick
Chief Financial Officer and
Chief Administrative Officer
Jane L. Harman
Director, President and
Chief Executive Officer,
Woodrow Wilson International
Center for Scholars
Alvin B. Krongard
Former Chairman and
Chief Executive Officer,
Alex. Brown Incorporated
Admiral Eric T. Olson (Ret.)
President and Managing Member,
ETO Group, LLC
Former Commander,
U.S. Special Operations Command
Steven B. Pfeiffer
Partner, Norton Rose Fulbright US LLP
Parker W. Rush
Chief Executive Officer,
ClearView Risk Holdings, LLC
Henrik O. Schliemann
Managing Partner,
PMB Capital LTD
S. Scott Smith
Chief Operating Officer
Barry J. West
Former Chief Executive Officer,
Collision Communications Inc.
GENERAL INFORMATION
INVESTOR INFORMATION
Transfer Agent and Registrar
American Stock Transfer and
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
www.amstock.com
Independent Registered Public
Accounting Firm
Ernst & Young LLP
8484 Westpark Drive
McLean, VA 22102
(703) 747-1000
www.ey.com
Stock Exchange
NASDAQ Global Select Market
Common Stock (IRDM)
Information Requests
Copies of the Company’s Annual Report
on Form 10-K and other investor
information are available to stockholders
upon written request to:
Iridium Communications Inc.
Attention: Investor Relations
1750 Tysons Boulevard, Suite 1400
McLean, VA 22102
EXECUTIVE OFFICERS
Matthew J. Desch
Chief Executive Officer
Thomas J. Fitzpatrick
Chief Financial Officer and
Chief Administrative Officer
Bryan J. Hartin
Executive Vice President,
Sales and Marketing
Thomas D. Hickey
Chief Legal Officer
Richard P. Nyren
Chief Accounting Officer
Scott T. Scheimreif
Executive Vice President,
Government Programs
S. Scott Smith
Chief Operating Officer
Donald L. Thoma
President and Chief Executive Officer,
Aireon LLC
Investor Inquiries
Kenneth B. Levy
Vice President, Investor Relations
(703) 287-7570
investor.relations@iridium.com
www.iridium.com
CORPORATE HEADQUARTERS
1750 Tysons Boulevard, Suite 1400
McLean, Virginia 22102
(703) 287-7400
www.iridium.com
BUSINESS OPERATIONS
8440 South River Parkway
Tempe, AZ 85284
(480) 752-1100
2016 ANNUAL REPORT
Iridium Communications Inc.
LAUNCHING
A NEW ERA
IN SPACE
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Only one communications company connects the entire globe
Iridium is the world’s only truly global mobile communications company, with coverage of the
entire earth, including oceans, airways and polar regions. Iridium voice and data products provide
communications solutions that allow global companies, government agencies and individuals to
stay connected, everywhere. The unique Iridium constellation, with its architecture of 66 low Earth
orbiting (LEO) cross-linked satellites routes communications traffic through space and around the
world, creating highly efficient and reliable connections.
www.iridium.com
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© Copyright 2017 Iridium Communications Inc. All rights reserved. Iridium is a registered mark of Iridium Satellite LLC. All other
trademarks and service marks are the property of their respective holders. Information is subject to change without notice.
R E L I A B L E • C R I T I C A L • L I F E L I N E S ®
R E L I A B L E • C R I T I C A L • L I F E L I N E S ®