Iridium (IRDM) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 23, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Matthew J. Desch
• Chief Financial Officer — Vincent J. O'Neill
• Vice President of Investor Relations — Kenneth Levy

TAKEAWAYS

• Total Revenue -- Increased 2% and aligned with company expectations as described in the opening remarks.
• Service Revenue -- Rose 2%, with commercial segment service revenue reaching $130.4 million, according to Vincent J. O'Neill.
• Operational EBITDA (OIBDA) -- Reported at $116.3 million, reflecting a 5% decline, mainly due to a $4.2 million impact from shifting incentive compensation to cash payments; full-year impact projected at $17 million.
• Commercial IoT Revenue -- Grew 5% to $46 million, with net subscriber numbers stabilizing after last year’s volatility caused by partner retail pricing changes.
• Voice and Data Revenue -- Increased 3% to $57.4 million, with a 7% year-over-year rise in average revenue per user (ARPU), mainly from pricing actions taken the previous summer.
• Commercial Broadband Revenue -- Decreased by 5% and continues to be impacted by customer migration to lower-cost backup companion services.
• Hosting and Other Data Services Revenue -- Recorded at $14.8 million, down approximately 1%, largely due to timing of payments with an existing non-PNT customer.
• Engineering and Support Revenue -- Rose to $40.8 million from $37.5 million, reflecting expanding government-related programs, particularly for the Space Development Agency.
• Government Service Revenue -- Increased modestly to $27.6 million, reflecting the final EMSS contract step-up implemented last September.
• Subscriber Equipment Sales -- Registered at $20.2 million, consistent with management’s internal expectations.
• Full-Year Guidance -- Reaffirmed for both service revenue and OIBDA, with operational OIBDA targeted between $480 million and $490 million for 2026.
• IoT Product Launch -- New TriMode Iridium 9,604 modem remains on track for commercial availability in June, combining satellite short burst data, cellular IoT, and GPS in a compact package.
• PNT ASIC Launch -- Commercial introduction scheduled for July, with over 100 companies expressing active interest.
• NTN Direct Agreements -- Seven mobile network operator (MNO) agreements signed for NTN Direct roaming, with additional agreements anticipated.
• Dividend Program -- Quarterly dividend of $15 per share paid on March 31, with company commitment to ongoing annual dividend growth.
• Cash and Liquidity -- Cash and equivalents stood at $111.6 million at quarter-end; net leverage at 3.4x OIBDA.
• Capital Expenditures (CapEx) -- Totaled $30 million in the quarter; full-year trajectory expected to match 2025 levels and support continued NTN Direct investment.
• Free Cash Flow Projection -- Pro forma free cash flow for the year estimated at $318 million, with projected capacity to generate $1.5 billion to $1.8 billion in free cash flow through the end of the decade.
• EMSS Contract Outlook -- Management expects the U.S. Government to exercise a six-month option to extend at current rates, projecting $110.5 million in EMSS service revenue for 2026.
• SG&A Expense Trends -- Higher first-quarter SG&A growth expected to moderate to low double-digit rates through the remainder of the year, with variability tied to stock appreciation rights (SARs) expense.

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RISKS

• CFO Vincent J. O'Neill noted, "This resulted in a $4.2 million hit to OIBDA and will have a full-year impact of $17 million in 2026," directly tying lower operational EBITDA to the shift to all-cash incentive compensation.
• Commercial broadband revenue declined by 5% as customers continue moving to lower-cost backup plans, creating ongoing ARPU pressure in this segment.

SUMMARY

Iridium Communications Inc. (NASDAQ:IRDM) reported stable revenue growth across core business lines and reiterated its full-year financial guidance despite a drop in operational EBITDA driven by a compensation policy change. The company emphasized accelerating product innovation with the upcoming launches of its Iridium 9,604 IoT modem and PNT ASIC, both attracting significant customer and partner engagement. Management highlighted multi-year demand for satellite-based IoT, assured PNT, and government programs as primary growth vectors, alongside expanding mobile network operator partnerships for its NTN Direct service.

• CEO Matthew J. Desch stated, "Total revenue grew 2%, as did service revenue. We are reiterating our guidance for the year," signaling continuity in management expectations.
• Vincent J. O'Neill confirmed, "We continue to have conviction that P and T will drive at least $100 million in annual revenue for Iridium Communications Inc. by 2030," reaffirming strategic revenue targets for PNT solutions.
• Management noted that the drop in broadband services was freeing spectrum capacity for the expansion of more efficient IoT and PNT applications.
• The company expects to hold ARPU steady at approximately $48 for the rest of the year amid positive momentum from pricing actions in voice and data.
• Ongoing investments and new hardware launches are aimed at diversifying use cases and expanding market reach into cost-sensitive industrial and consumer IoT segments.
• Capital position remains sound, with leverage intended to decrease quickly via continued free cash flow generation and disciplined spending.

INDUSTRY GLOSSARY

• PNT (Positioning, Navigation, and Timing): Satellite and network-based services delivering location, navigation, and highly accurate time signals, in this context as an assured backup or augmentation to traditional GNSS like GPS.
• NTN Direct (Non-Terrestrial Network Direct): 3GPP standards-based service enabling direct satellite connectivity for terrestrial mobile network operator subscribers beyond the reach of cellular infrastructure.
• EMSS (Enhanced Mobile Satellite Services): Dedicated U.S. Government contract with Iridium Communications Inc. supplying secure satellite-based voice and data services for defense and national security missions.
• ASIC (Application-Specific Integrated Circuit): Custom-designed semiconductor device for specific Iridium Communications Inc. PNT service applications, intended to accelerate integration by partner manufacturers.
• ARPU (Average Revenue Per User): Performance metric indicating average monthly or annual revenue generated per subscriber for a given business segment.
• 3GPP Release 19: Latest global mobile communications standard supporting advanced connectivity, including non-terrestrial (satellite) network integration.
• SARs (Stock Appreciation Rights): Compensation mechanism that provides employees with a payout based on the appreciation in the value of the company’s stock.
• GMDSS (Global Maritime Distress and Safety System): International maritime safety system incorporating satellite technologies for emergency and routine communications at sea.

Full Conference Call Transcript

Operator: Good morning, and welcome to Iridium Communications Inc. First Quarter 2026 Earnings Call. All participants, to withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Kenneth Levy, Vice President of Investor Relations. Please go ahead.

Kenneth Levy: Thanks, Dave. Good morning, and welcome to Iridium Communications Inc.’s first quarter 2026 earnings call. Joining me on the call this morning are our CEO, Matthew J. Desch, and our CFO, Vincent J. O'Neill. Today’s call will begin with a discussion of our first quarter results followed by Q&A. I trust you have had the opportunity to review this morning’s earnings release, which is available on the Investor Relations section of Iridium Communications Inc.’s website. Before I turn things over to Matthew J. Desch, I would like to caution all participants that our call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are statements that are not historical facts and could include statements about our future expectations, plans, and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in our filings with the Securities and Exchange Commission. Our remarks today should be considered in light of such risks. Any forward-looking statements represent our views only as of today, and while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or expectations change.

During the call, we will also be referring to certain non-GAAP financial measures including operational EBITDA and pro forma free cash flow. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Please refer to today’s earnings release and the Investor Relations section of our website for further explanation of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measures. With that, let me turn things over to Matthew J. Desch.

Matthew J. Desch: Thanks, Ken. Morning, everyone. We have had a good start to the year, and our results are right where we expected them to be. Total revenue grew 2%, as did service revenue. We are reiterating our guidance for the year, and Vincent J. O'Neill will give you the details in a minute. We continue to have some important new products under development for introduction this year, and they are driving a lot of activity with our partner base. In the IoT area, our new TriMode, which we call the Iridium 9,604, is on track for commercial availability in June, and our beta partners are now testing and preparing their first products using our next-gen platform.

The 9,604 combines our short burst data IoT service, cellular IoT, and GPS all in a very small and cost-effective package, and it is generating a lot of excitement across our partner ecosystem. We believe the module also has the horsepower to consolidate a number of our other legacy services over time, and that can be helpful to our sustaining cost and to simplify our portfolio. In the P and T area, the announcement of our new ASIC rolling out in July is also generating a lot of inbound activity and attracting a number of new partners who are looking to integrate this technology into their product.

ENSF disruptions around the world are highlighting the need for new assured PNT solutions. For drones and autonomous vehicles, shipping companies and their insurance providers, critical infrastructure in the U.S. and abroad, commercial aviation—the opportunities are expanding fast. Over 100 new companies have expressed interest in the ASIC, and we expect the commercial launch to drive deployments once it is in the market. Of course, our new Iridium NTN Direct standards-based service is generating a lot of activity as well as it progresses closer to commercial launch later this year.

We have been demonstrating it live over the air to mobile network operators and partners, and its performance has been impressing everyone even as we make enhancements and further tune the service. We have been expanding agreements with more MNOs, having signed seven to date with a number of others in the pipeline. There is clear demand from MNOs to roam onto the Iridium Communications Inc. network when their customers find themselves out of coverage. We are also in discussions with additional chip and module manufacturers to have their 3GPP Release 19 chips with Iridium capability available in 2027 and have gained support from the test set community as well.

It has been a big job for Iridium Communications Inc. to reprogram our satellites and build cloud-based processing and standards capabilities into our gateway, and I am very proud of my team for accomplishing so much so quickly. Iridium NTN Direct is positioned as complementary to the big D to D services that are emerging from Starlink, AST, and now Amazon LEO. As these companies focus on connecting smartphones from space, we will continue to focus on scalable, specialty applications that support low-cost IoT, particularly for industrial and government markets where reliability and coverage are critical.

While I have talked about some of the new products we have underway this year to drive growth, our partners are also making progress on products and certifications that will resonate with their target markets. They include launching some new terminals in the maritime GMDSS area and conducting flight trials for certification of our new Iridium Certus aviation safety service. More broadly, I want to remind you of the four growth factors I talked about on our fourth quarter call in February. These are areas where we are prioritizing investments and see significant opportunity to expand our revenues even as more competition eventually comes to the satellite sector.

First, in IoT, we are by far the leader in satellite IoT in terms of subscribers, revenues, and technology partners, and we believe that as we reduce costs by adopting standard 3GPP protocols, we will see continued success and growth. We are already pursuing cost-sensitive use cases that were more difficult to address with proprietary services, like automotive, smart meters, agriculture, and expanded asset tracking. Our network reliability, global coverage, partner ecosystem, and strong brand position will allow us to continue to expand our revenues, particularly when we add our second growth vector, P and T, into the mix.

I have already talked about how our new PNT ASIC is expanding our pipeline of opportunities, but it is also attracting major chip makers earlier than we expected. As these manufacturers eventually incorporate our PNT IP into their standard GNSS chipsets, we think our business could really explode. We provided guidance on revenue potential expected in this area over the next four years, and I am as bullish about meeting those targets as I have ever been. Some early customers are starting slowly, but they are building to the big roll up that we have been expecting.

We also believe that our engineering and development work on new identity management and trusted location products could open some very big new markets. We remain in the early phases of business development for these important services, but the opportunities are exciting. Our third growth area is national security missions with the U.S. government, and it is building off our success with the EMSS contract with the Space Force and the competency we have demonstrated in developing and operating the SDA’s satellite operation center. We see a growing need for commercial SATCOM providers to complement Starlink and other broadband networks as they are becoming part of the government’s space data network, or SDN as they are calling it.

We have a growing pipeline of work in this area. Some of it will generate service revenue, but also fast-growing engineering and support work. Requirements for Golden Dome are just now taking shape, and we think Iridium Communications Inc. is well positioned there. Finally, aviation safety is an area of distinction for us and a fourth factor for growth. We have a great position in this industry with our equity interest and strong relationship with Aireon, as well as for our ability to be certified to connect pilots and air traffic controllers by satellite.

Our efforts to develop some differentiated products that could bring more value to airlines are still in the early stages, but we are increasingly confident about our potential to disrupt the status quo in the market. I want to acknowledge all the attention that mobile satellite services has been getting of late, especially in light of Amazon’s plan to purchase Globalstar. People have realized the importance and significance of L- and S-band spectrum as it relates to connecting consumer devices on a global basis from space when out of coverage from cell towers, which happens over more than 85% of the planet’s surface. We share this view of the value of this spectrum.

Regardless, our priority today is to focus on expanding into these four growth areas while maintaining our revenue base and legacy services. We believe that this is the right direction for Iridium Communications Inc., and we will continue to stay focused on execution across the business. So we are off to a good start in 2026. Partner activity remains strong, and we continue to generate a lot of cash that we plan to invest in our growth vectors. I look forward to providing more updates on our progress in the coming quarters. Now let me turn the call over to Vincent J. O’Neill for details on the quarter. Vince?

Vincent J. O'Neill: Thanks, Matt, and good morning, everyone. I will start my remarks today by reviewing Iridium Communications Inc.’s financial results for the first quarter and some trends we are seeing within our major business lines. I will also provide an update on Iridium Communications Inc.’s leverage and cash position and discuss our outlook for the balance of the year. OIBDA was $116.3 million in the first quarter, down 5% from the prior-year period. The change largely reflected the impact of the shift to pay annual incentive compensation in cash, which I previewed on our fourth quarter call. This resulted in a $4.2 million hit to OIBDA and will have a full-year impact of $17 million in 2026.

This quarter’s OIBDA also reflects the benefit of a 2% increase in service revenue and ongoing growth in engineering and support. On the commercial side of our business, service revenue was up 2% to $130.4 million. This was in line with our forecast and reflected growth in commercial IoT and voice and data during the quarter. Voice and data revenue rose 3% from a year earlier to $57.4 million, driven by the price actions we implemented last summer. This drove a 7% increase in ARPU from a year earlier. Net subscriber trends have improved from a year-ago period when headwinds, primarily associated with deactivations, accentuated the level of seasonal deactivations.

Commercial IoT revenue was $46 million in the first quarter, up 5% from a year earlier. Net subscriber numbers this quarter have largely stabilized, following last year’s volatility related to a modification to retail pricing plans by one of our large consumer-oriented partners. As Matt noted, we are now in beta trials of the new hybrid modem, the Iridium 9,604, which combines cellular, satellite, and GPS in one engineered solution. Early feedback has been great, and we expect that the lower overall integration costs of incorporating this chip will help to accelerate subscriber growth.

Commercial broadband was down 5% from the year-ago period and continues to reflect the ongoing impact of customer conversions to backup companion services, a trend we have discussed previously. Hosting and other data services revenue was $14.8 million this quarter, down about 1% from last year’s comparable quarter. The decline mostly reflects the timing of expected payments related to activity with an existing non-PNT customer. We continue to be encouraged by the ever-increasing interest we are seeing for Iridium Communications Inc.’s assured PNT solution to address the vulnerabilities inherent to GPS and GNSS-based systems. The introduction of our PNT ASIC this July is expected to accelerate growth and expedite the pace of deployment of Iridium P and T solutions.

We continue to have conviction that P and T will drive at least $100 million in annual revenue for Iridium Communications Inc. by 2030. Government service revenue was up modestly in the first quarter to $27.6 million, reflecting the final step-up in our EMSS contract last September. Turning to subscriber equipment, sales were $20.2 million in the first quarter, largely in line with our expectations. Engineering and support revenue was $40.8 million in Q1, as compared to $37.5 million in the prior-year period. This rise in revenue continues to reflect Iridium Communications Inc.’s growing scope of work with the Space Development Agency and supports our strategic focus on revenue growth tied to national security missions.

As noted in this morning’s earnings release, we are reaffirming our full-year guidance for both service revenue and OIBDA. I would like to take a minute to review some of the drivers underlying this year’s forecast. Starting with our commercial business, in voice and data we expect revenues to grow in the first half of the year, benefiting from the price actions implemented last summer. As a result of these actions, we would expect ARPU to remain about $48 for the remainder of the year, consistent with our first quarter output. IoT revenue is expected to grow in the mid-single digits.

As Matt noted, we are deep into beta testing of our next-generation IoT modem and are targeting new markets and use cases that are highly sensitive to cost, form factor design, and integration timelines. Based upon the positive feedback we are getting on the Iridium 9,604, we believe it fills a gap in the satellite IoT market for utility at a value price. In our broadband business, we expect maritime customers to continue to move to lower-cost backup plans. However, the introduction of new partner terminals combining Iridium Communications Inc. service and GMDSS safety services will act as a tailwind for new subscriber growth, and over time we believe will help to offset current ARPU pressures.

We continue to believe that Iridium Communications Inc. will remain an important player in the maritime sector. With regards to our government business, we started discussions on our successor contracts with the U.S. government and continue to expect they will exercise their option to extend the MSS contract for a period of six months at current rates. Accordingly, we expect EMSS revenue of $110.5 million this year even as we expand our relationship with the U.S. government with incremental engineering work. As Matt discussed, we are getting a lot of inbound traffic on our assured P and T solution.

We continue to believe that this strong interest along with the availability of our PNT ASIC at this time may provide upside to our full-year hosted payload and other data revenue forecast. We also expect that the strong trend we saw in engineering and support in the first quarter will continue. This momentum is tied to our work with the SDA and should support another year of record engineering growth. As I noted earlier, Iridium Communications Inc. and its partners will introduce a number of new terminals and modems this year. Our focus on lower-cost hardware should broaden our sales funnel and allow Iridium Communications Inc. to extend its satellite solutions to customers that have not historically considered nonterrestrial services.

We continue to expect full-year equipment sales will be in line with historical levels between $80 million to $90 million in 2026. SG&A growth in Q1 was more pronounced than what we expect for the balance of the year, largely due to the timing benefit of program expenses in Q1 2025, the nonrecurring nature of some expenses incurred this quarter, and the increase in sales costs tied to stock price appreciation this year. Going forward, we expect SG&A run rate to moderate to low double digits in 2026, though stock appreciation could result in additional SARs expense.

Taken together, this outlook supports our forecast for flat to 2% growth in service revenue in 2026 and for operational OIBDA between $480 million and $490 million this year. I would again remind you that starting in 2026, Iridium Communications Inc. will pay annual incentive compensation entirely in cash rather than a mix of equity and cash as has been the company’s prior practice. This change is projected to have a $17 million impact to our OIBDA in 2026. Without this change, OIBDA would have been projected to be in the range of $497 million to $507 million in 2026.

I hope this color is helpful as you chart our progress and update the financial models for our first quarter results. Moving to our capital position, as of March 31, Iridium Communications Inc. had cash and cash equivalents of $111.6 million and ended the quarter with net leverage of 3.4 times OIBDA. Our strong free cash flow provides significant flexibility to reduce net leverage quickly. We also have the flexibility to utilize our strong liquidity position to invest in business growth opportunities through product investments or even a tactical acquisition. On March 31, Iridium Communications Inc. made a quarterly dividend payment of $15 per share to shareholders.

We remain committed to an active and growing dividend program and expect the Board will continue to grow Iridium Communications Inc.’s dividend consistent with prior years. Capital expenditures in the first quarter were $30 million. As we have noted previously, we anticipate CapEx this year to be consistent with 2025 to support our work on Iridium NTN Direct. Turning to our pro forma free cash flow, we present a detailed description of our cash flow metrics, along with a reconciliation to GAAP measures, in a supplemental presentation under the Events tab on our investor website. In those materials, we project pro forma free cash flow of about $318 million for 2026.

Based upon our expectations for Iridium Communications Inc.’s growth, we expect to have the capacity to generate at least $1.5 billion to $1.8 billion of free cash flow over the balance of the decade. Iridium Communications Inc. occupies a unique position in the satellite market, and we remain very excited about our prospects for incremental top-line growth and shareholder value creation. With that, I will turn things back to the operator and look forward to your questions.

Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question comes from Brent Penter with Raymond James. Please go ahead.

Brent Penter: Hey, good morning, everyone. Thanks for taking the questions. Matt, you touched on the Amazon acquisition of Globalstar. I would like to hit on that a little bit more. First, could you expand on what you think that deal signals about the value of Iridium Communications Inc. and the MSS spectrum that you own? And then second, how do you expect Amazon owning Globalstar may or may not change the competitive landscape of the markets you operate in?

Matthew J. Desch: Well, I think in general, it speaks to the value of the L- and S-band that we occupy. More so, it speaks to the confidence that I think the industry, certainly Amazon, feels about the potential for global direct-to-device services in the coming years. I think it is healthy for the industry to get another big competitor. I think it will create even more opportunities and expand the potential for that market widely. I am not sure—what was the second part of your question, Brent?

Brent Penter: Yeah, you started to hit on it. How does that change things competitively?

Matthew J. Desch: I do not think it changes anything for us competitively that dramatically. We are really positioned to be complementary. We started pivoting well over a year ago towards those areas where we believe we can create a differentiated advantage—whether it be aviation, national security missions, PNT, IoT, etc. In those areas we feel really good, regardless of how many large operators there are in sort of the more straight D to D space. So I do not think it really changes anything that dramatically.

Brent Penter: Okay. Got it. And then last quarter, you all talked about the possibility of strategic alliances related to your spectrum. Can you update us on any early learnings in those discussions? And given the recent spectrum activity and valuations, has that moved up the stack to become higher priority?

Matthew J. Desch: I do not know that I can really speak to that question. I think it is probably, at this point, an area of a lot of interest and activity in the industry, and I just think we need to not comment on that at this point, unfortunately.

Brent Penter: Okay. Got it. Thank you.

Operator: The next question comes from Christopher David Quilty with Quilty Space. Please go ahead.

Christopher David Quilty: Hey, Matt, maybe a little bit of a follow-up on that. Does Amazon’s acquisition of Globalstar in any way effectively kill the potential for a Big LEO proceeding round, in your opinion?

Matthew J. Desch: Describe what a Big LEO proceeding round would be.

Christopher David Quilty: Well, you know, SpaceX had been looking to reopen up the Big LEO band, and now you have got Amazon that has just committed $11.5 billion to take a position there. Presumably, you would not get a new round to review that spectrum at a time when there is an ongoing acquisition associated with it, primarily on SpaceX, right?

Matthew J. Desch: That is a kind of a fine detail overall there. Look, our position is more spectrum for mobile satellite services and D to D would be a good thing. We continue to lobby for more spectrum for the industry in general, whether it be for direct-to-device or for any of the other applications which are consumer friendly, device friendly—the kinds of things that Iridium Communications Inc. has been focused on. So I do not know if it makes it more likely or not likely. In general, it is a good thing.

It does create more competition in this area with what is happening—a better-funded sort of competitor in the D to D area—but I do not know what that will mean these days for the FCC or for spectrum at this point.

Christopher David Quilty: Gotcha. And Vince affirmed the $100 million for the P and T business in 2030, but you have gotten off to a slow start with customers. To hit that target, do you expect that as customers roll on, there are going to be chunky, step-function pickups in revenue, or does this grow on a per-subscriber basis where it starts slowly and then ramps up?

Matthew J. Desch: It is going to be both. I think you could see some large, major movements as customers come on and take sort of global business opportunities, and I think you will also see broad-based subscriber-by-subscriber growth. That is what we are seeing. The numbers of companies that are integrating solutions right now are pretty—as I said—pretty extraordinary in my experience at Iridium Communications Inc. All the activity around the discussions we are having around it—it just takes time for these devices to proliferate in the market and to create the kind of growth we are expecting. I think a lot of that will be accelerated by the ASIC. That was not completely required, but it is definitely an accelerator.

Christopher David Quilty: Gotcha. And final question, you mentioned lower cost for the 9,604 in terms of your partners’ implementation costs. Can you give us a sense of whether that is 10% cheaper or 50% cheaper? And can you also touch on supply constraints that you have historically had or not in ramping that up versus something that is standards-based? How fast do you think the product can be adopted and delivered?

Matthew J. Desch: In terms of pricing, it all depends on volume. At really high volumes, it could be significantly less expensive than our legacy portfolio—the 9,602 and 9,603. The 9,604 being built on a more global platform that is utilized for many other applications means that the cost overall is quite a bit lower. And, of course, the fact that it integrates multiple technologies into the same platform—cellular and GNSS—means customers who would have had to put those technologies separately into it get more in one. So it is really a fraction of the overall cost of the three solutions together.

I do not know whether that is 10%, 20%, or 30%, but it is a significant reduction, especially for those customers in volume who are utilizing all the power of the new product.

Christopher David Quilty: So if it is lower-cost hardware going into lower-cost applications, typically we would expect the ARPU to go down. But if you are bundling in additional capabilities like PNT, where does the ARPU go—hold steady, go up, or down?

Matthew J. Desch: First of all, it can support low- and high-ARPU applications. As I have often said, ARPU is kind of irrelevant. It is all incremental earnings to us. It is more a matter of what kind of resources of our network it utilizes. Typically, low-ARPU applications use almost no resources of our network, and higher applications use a bit more. The more important part here is how it expands use cases and applications. We are really talking about a lot more things that we had not seen before.

When you add that together with our NTN Direct service, which is standards-based and would use standard chips that are also low cost, in those cases there is almost no integration cost that people have to go through. A lot of times they already have applications—they are just upgrading the chipsets, and they can roam onto our network with almost no additional cost. That opens up not only lower-cost applications, but also applications with large industrial companies who are uncomfortable using proprietary standards. For example, I am really surprised at all the discussions we are having in the automotive industry right now.

Those take a while to create revenue, but they are high volume and could be really efficient users of a standards-based solution. So it is really not a matter of whether ARPU will go down or up. Maybe incremental ARPU in some of these applications will be lower, but overall revenues are what will grow, which is what is most important.

Christopher David Quilty: Okay. Thanks, guys. I had to ask a lot of questions in Ric’s stead since he was not on the call.

Matthew J. Desch: Thanks for that, sir.

Operator: The next question comes from Edison Yu with Deutsche Bank. Please go ahead.

Edison Yu: Hey, good morning, everyone. Thanks for taking our questions. I wanted to come back to the Amazon–Globalstar topic from a slightly different perspective. Is there any, would you say, industrial logic to having that full L-band block that you currently share—the 0.95 with Globalstar? Does that make any sense to combine it? Would there be any synergies you could derive from it, just kind of technically speaking?

Matthew J. Desch: That question, or that thesis that you are describing, has been very fully discussed by both analysts and others in the industry. I really need to leave it at that right now; otherwise it will sound like I am promoting or trying to highlight something that I am not comfortable doing in the current environment.

Edison Yu: Understand. That is fine. Second topic, there was some news about a drone outage—I am sure you probably saw it. Obviously, you guys are doing work there. Have there been any updates on the regulatory front or any recent discussions since the last quarter on drones?

Matthew J. Desch: You mentioned a drone outage. Is that another company’s technology? You are not talking about an Iridium Communications Inc. outage, right?

Edison Yu: It was reported in the media. It was not related to you, obviously. But I think it highlighted potentially some opportunities for you.

Matthew J. Desch: I will say, the drone environment for us is really hot—both in terms of integrating our communication technologies into drones as, if not a primary, then a backup source, and also our PNT technology makes a lot of sense as one of the technologies to maintain a location. Obviously, a lot of focus is on the Middle East and other areas right now where drones are being operated, but I am equally excited about the commercial side of drones, which needs all those technologies as well, with the new FAA Part 108 rules that are expected to come out later this year and finally open up beyond-visual-line-of-sight commercial drones, where Iridium Communications Inc. technology makes a lot of sense.

There is a lot of activity around that—whether it is the 9,604 or 9,704, which is the higher-speed IoT product, or Iridium NTN Direct—and of course a lot of discussion around PNT just to protect the integrity of the location.

Operator: The next question comes from Hamed Khorsand with BWS. Please go ahead.

Hamed Khorsand: Good morning. Thanks for taking the question. I just want to understand what you are seeing on the subscriber end on commercial IoT. Is any of that coming from the consumer side, or is this purely coming from industrial customers?

Matthew J. Desch: It is actually coming from both and looks a lot more this year like it did back in 2022, 2023, 2024—more normal growth—whereas last year the consumer side was going through a pricing change from a big customer that distorted subscriber numbers. We are seeing healthy subscriber growth, and we are getting growth across the board, industrial and consumer.

Hamed Khorsand: Okay. And then could you talk about this EMSS contract that you are saying would require a six-month extension? Is that the same aspect that happened a few years ago when you were going through the renegotiation process?

Matthew J. Desch: Yes. Our current EMSS contract, which has been a seven-year contract, is approaching its final seventh year, but there is an opportunity for the customer during negotiations—if it is not completed on time—to extend it at the current year-seven price for an extra six months. That has happened in the last three contract renewals that I have been a part of, and I am expecting it to happen again this time as well. Particularly, if the customer did not see the value in getting a new contract right away, they might extend the current one a little bit further.

Operator: The next question comes from Timothy Kelly Horan with Oppenheimer. Please go ahead.

Timothy Kelly Horan: Thanks, guys. It seems like if you can get your P and T embedded in every GPS chip out there, the market is orders of magnitude bigger—and I would say the same thing for IoT. Can you describe in a little more detail where you are in getting it adopted in the standards? And related to that, could you become a standard GPS replacement globally? How do you think about pricing in that environment? The lower you price it, the more likely you are to become the standard replacement. I know this is a complex question, but any thoughts would be helpful.

Matthew J. Desch: Just be careful about using the word “standards.” It does apply, but when I was referring in my comments to getting into GNSS chipsets, there are a number of suppliers who supply the majority of chipsets that go into consumer products—handheld units, golf carts, and other things. We always wanted to get into those chips, but they probably did not understand the value of a P and T service.

When the ASIC came out and became very public—and with all the interest it generated—we are now seeing some of those companies who understand what is involved and what the physical and technical attributes are, and we are in discussions with some about integrating that more powerful alternate PNT service directly into their chipset. You are right—that would expand the market dramatically. In addition, when you said the word “standard,” 6G includes the idea of PNT, and we are working to get our PNT technology embedded into the sixth-generation standards that are talking about enhancements to PNT. I would not use the term that we replace GPS. Our goal is always to be an alternative augmentation to GPS.

Currently, we are not as accurate as GPS, but we are very powerful and really difficult to jam or spoof, being encrypted, etc. We have plans to make our system much more accurate. I will talk about that more in the future. That would require some additional payloads in space, and we are in the early stages of working through that. We think we can do that pretty quickly and cost effectively. As far as the value, yes, it would be extremely large and dramatic in terms of potential units and impact across a wide variety of industries. It is a little early to talk about that—that is the 2030 kind of thing.

I am happy both reiterating our guidance on P and T through 2030 as well as the upside we see from identity management and trusted location products. We are working right now on a much bigger strategy that could be a lot larger.

Timothy Kelly Horan: And could you give us some color on the same concept for your IoT communications here—embedding in other chips like you described—what needs to happen to get really strong growth where they are not just using your customized ASICs but something embedded in another ASIC?

Matthew J. Desch: Honestly, our NTN Direct is completely about being embedded into standard chipsets. Right now, several of them are already in process of developing, including some of the largest and most prolific terrestrial IoT chip manufacturers. If they include our technology into those chips, then anytime those chips get into products, those customers could basically roam onto a satellite network. It does expand the market tremendously for IoT applications for us. We are expecting growth in this area generally—we are not giving exact guidance yet. There is some cannibalization of our legacy services embedded in that, but we believe that overall market expansion significantly goes beyond that so that our IoT services can continue to expand.

And, by the way, it does not replace all the existing technology we have, like the 9,604, because they provide tremendous value as well.

Timothy Kelly Horan: Last thing on the spectrum—some concern that maybe your spectrum is already being utilized and could not be ported over to other constellations or used for other purposes. Any thoughts on that?

Matthew J. Desch: Yes, our spectrum is being utilized, and it is generating a lot of cash and revenue. I do not apologize for that. We have a very efficient network architecture. Our satellites are regenerative. They can utilize spectrum on literally a message-by-message basis and can be highly configured and controlled and automated in a way that is extremely efficient. We have only improved that over time. I know the question some of you are asking is: could we make some of our spectrum available for lease or for sale, or could somebody else—if they controlled us—take advantage of our spectrum, particularly for 5G New Radio? The answer is yes, we believe it could.

Whether we were doing it ourselves or in conjunction with someone else, we could allocate some amount of spectrum to those other applications and continue to generate the revenues, cash flows, and growth we are expecting by very effectively moving around within our spectrum band on literally a call-by-call basis to serve the traffic we expect to see in the future. I know some of you asked if we would lease the spectrum to do that for someone else. Theoretically and technically it is possible, but I do not think that is the best way to add value from an Iridium Communications Inc. perspective to our shareholders. I am not looking for those kinds of opportunities right now.

It would be some other kind of arrangement that would make the most sense.

Operator: The next question comes from Analyst with New Street Research. Please go ahead.

Analyst: Yes, thank you very much for taking the question. My question is a direct follow-on to understand a bit more about the capacity utilization on your network. Matt, are you able to quantify at the peak hour of your network usage, or in certain global hotspots, what percentage of your capacity is currently being used? And in particular, going out towards the end of the decade as you roll out the new services you are talking about, how do you see the capacity utilization on your network evolving over the next four to five years?

Matthew J. Desch: It is a complicated question to answer simply. Our network reassigns itself every 90 milliseconds, and the ability to handle traffic varies moment by moment, literally position by position on the Earth’s surface. We do not have any brownouts today or peaks that constrain us. I am always sensitive to talk about this because we are one of the most efficient users of spectrum on the planet. We would like more spectrum. We believe we have enough spectrum to handle our growth plans going out into our next-generation system, and we have plans to create capacity through capital expenditure in the next-generation constellation.

That said, we have areas where we are much more fully utilized and places where we are less utilized. One thing I have talked about on previous earnings calls is that one of the most inefficient users of our spectrum was our broadband service. Seven to eight years ago when we implemented it, there was no Starlink or Amazon’s LEO services or other broadband traffic, and we were just competing with Inmarsat L-band broadband services. That service is in decline, and the good news is it is creating capacity for us, because the most efficient users of our network are IoT, PNT services, and safety services, whether aviation or maritime.

With that, we really believe we have the ability to utilize a portion of our spectrum and kind of repack our spectrum in a very effective way to create the ability to offer new services within our existing spectrum band.

Analyst: That is great. As you upgrade your satellite constellation, what kind of multiple do you think you can get on capacity increase? Is that a 2x increase or 10x increase? What are you planning on that front?

Matthew J. Desch: I challenged the team with a 10x increase, and some of the designs we are talking about—with smaller but many more satellites—currently have a design that maybe requires four times more satellites than we are operating today, but it really does expand the capacity greatly with other antenna technologies and smaller beams on the ground, etc. We are not having to really start developing that system for a number of years. We are excited about some of the technologies we see available to us that will lower the cost of launch or satellite bus capacity at a cost that is certainly not greater than the network cost we experienced last time and probably a bit lower.

So yes, I think we can get quite a bit of capacity in the future.

Operator: Our final questions come from Justin M. Lang with Morgan Stanley. Please go ahead.

Justin M. Lang: Hi, good morning. Thanks for taking the questions. Matt, staying on the topic of spectrum and any potential arrangement with a third party, how should we think about the fact that you have government users relying on the network? I am not sure we have seen that dynamic, at least not to the same extent, with other spectrum that has recently transacted—curious how that factors into the considerations, if at all. Thanks.

Matthew J. Desch: That gets a great deal of consideration, and nothing I would do or say would hurt our ability to operate our network out in the future for one of our most important customers—or really for any customers for that matter. One of the reasons, in terms of partnering to provide additional services using our spectrum, I want to be intimately involved is to evolve services seamlessly for our customers and partner base—which is the most extensive in the industry—out into the future.

There will be a lot of demand by our partners, whether they are government or industrial, to move to future standards-based services, and we think we could be extremely valuable in terms of managing that transition over the next ten years. We do not think it is an issue, and there should not be any concern by anybody in terms of anything we do with our network, particularly if we can help manage that transition.

Justin M. Lang: Great, that is perfect color. Thank you. And then maybe just one for Vince, actually. The larger P and T order that you have anticipated that sort of moved around quarter to quarter—any update on that front you can share and new timing expectations?

Vincent J. O'Neill: No, I think that is pretty much the same, Justin, as we talked about on our February call. As I highlighted in my scripted remarks, we do think that there is the potential for upside there in terms of our 2026 guide. We just feel it would be premature to include that in the outlook at this point.

Justin M. Lang: Got it. So that order is not in the guide factored into the outlook today, right?

Vincent J. O'Neill: That is right.

Matthew J. Desch: Okay.

Justin M. Lang: Perfect. Okay, thanks.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Matthew J. Desch: There is certainly a lot of interest in our spectrum. I certainly agree it has a lot of value elements, and we are demonstrating that. But I want to reiterate we are really head down and focused on organic growth—the things we are doing—as well as the investments we are making in our core growth pillars and new products we have coming out. I am really looking forward to continuing to talk about that in coming quarters with you as we demonstrate our continued ability to grow up here. Thank you for being on the call, and I look forward to talking to all of you.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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