Iridium Communications Inc (IRDM) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Iridium Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to Steve Kunszabo, Executive Director of Investor Relations, please begin.

Good morning and thanks for joining us. I'd like to welcome you to our fourth quarter 2014, earnings call. Joining me on the call this morning are CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our 2014 fourth quarter results, followed by Q&A.

Before I turn things over to Matt, I would like to caution all participants that our call this morning may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, and include statements about our future expectations, plans, and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from the 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 expectations or views change.

During the call, we will also be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. Please refer to today's earnings release and the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.

With that, let me turn it over to Matt.

Thank you, Steve and good morning everyone. I'll begin by highlighting that we exceeded our key financial targets for the full year 2014. Total service revenue gained 6% and operational EBITDA increased 8% to more than $216 million with solid contributions across our business portfolio. We issued our 2015 outlook and update our long range guidance today, which Tom will discuss in greater detail.

My focus will be on outline the progress we've made against our key programs including the status of our network. The plan scheduled for Iridium NEXT developments in our area and joint venture and our future expansion into broadband services. I'll finish up with a few details on our major lines of business. The first topic is as usually the case is the status of our current network is performing very well and as we expected, we've had no satellite losses during the fourth quarter or thus far in fact in 2015. It continues to deliver excellent user experience to our partners and customers around the world with leading coverage and performance statistics. We operate a flexible and resilient satellite networks. We should have no problem supporting our growing business, as we transitioned new Iridium NEXT satellites into the constellation starting later this year.

We have one spare still available in-orbit and continue to make improvements and add new software to the network to provide additional services. The important note that in regard to Iridium NEXT, our capital budget hasn't changed and remains approximately 3 billion. I can also report that the overall schedule for network completion hasn't changed either and is on track for 2017 and that has been confirmed by all of our suppliers.

However, recently we and our prime contractor to Thales Alenia Space decided to move out the first planned launch from June of this year to October of this year. When we looked at the software testing schedule, we felt a four-month delay was prudent to ensure we could finish all required testing and meet the new date with the high quality launch and satellite deployment.

I mentioned on our last call that these initial days could bounce around some as we refine the schedule and conduct final testing activities and this change reflects that view. I expect you'll agree with me that while the first launch is a big deal. I'm really focused on getting the network complete in 2017. I should also add that after our first launch of two satellite on Dnepr rocket in October. We'll fully checked them out in-orbit for four months before starting our main launch program of 10 satellites at the time on the space at Falcon 9 platform. So, our first SpaceX launch is now expected to be in the first quarter of 2016.

We'll then have six more launches with SpaceX in 2016 and 2017 until the network is done. I need to (inaudible) provide a few other details about this program and put these recent developments in perspective. All ground infrastructure upgrades are now complete. The commercial gateway, TelePort network and the satellite network operations center are already for Iridium NEXT, that's going to be a big effort and is an important milestone.

Five satellites are under various stages of construction at the Orbital Sciences factory including the first engineering model that is in our technology center in Arizona undergoing flight readiness testing and validation of its compatibility with our existing constellation.

A six satellite is undergoing qualification testing in France at Thales Alenia Space. Thales and Orbital are just about ready to move into high-rate production of our satellites over the next few months to meet our 2016 launch schedule. A number of key flight components have already been produced in quantity to prepare for the high rate production. For example, 24 Aireon payloads have now been completed by Harris, eight on board processors have been built by seeker engineering, eight spacecraft buses are ready and five main mission of antennas have been finished. Importantly, the Orbital factory has all the hardware needs to complete the first 2 satellites that will be launched. The initial testing phase of the Iridum NEXT platform software, which controls functions such as power management, solar array positioning and proportion has wrapped up. As I said the long pole in the tent is the payload software, which is taking longer than expected to test and validate. This process has caused the delay in our first launch, but one effect our target completion of the network in 2017.

With all these efforts to ready the first satellites for launch, we look forward to seeing many of you at our Analyst Day on March 12 in Arizona, only two weeks away. On the agenda after management presentations our tour of Iridum's Gateway and a visit to the Orbital Sciences factory, where you will see our satellite being integrated and put together. As we're getting our satellite into orbit SpaceX, our primary launch services provider continues to perform flawlessly. They are now 15-for-15 with their Falcon 9 platform dating back to 2010 and are really picking up the pace. They have already had two successful launches this year and with an excellent schedule for this coming weekend. They finished the dispenser qualification testing for the Iridum NEXT consolation in 2014, which is a customized structure that holds 10 Iridum NEXT satellites to the rocket and releases them once in orbit.

I think it's also worth emphasizing that SpaceX recently reported that it's on track to have the Falcon 9 rocket will be using to be certified as man rated in the next couple of years. This would be a tremendous achievement as man rated systems are very rare and unprecedented at the costs we're getting given us tremendous confidence in the reliability of our launches. We look forward to starting our primary launch campaign with spaceX out of California's Vandenberg, Air Force Base in about one year.

Our Aireon joint venture also continues to achieve important goals as it develops the world's first global aircraft surveillance system. Building off of growing base of prospects interest continues to build around the world from other air navigation service providers. Earlier this month, Iridum signed a collaborative agreement with Singapore's Air Traffic Management Agency to explore enhanced aircraft tracking our surveillance coverage over its area of responsibility or what is called a flight information region. They also announced a similar deal last week with our ASECNA, which controls significant parts of the air space over Africa and Madagasca.

These deals lay the groundwork for data service contracts and represent just some of the many prospective customers they're working around the world. Receptiveness to the area and system is getting stronger in the U.S. too. In fact, the FA's proposed fiscal 2016 budget clearly indicate their decision to begin the necessary preparations for operational readiness for space-based ADS-B. In its funding requests, the FA outlines as need to invest ahead of Iridum NEXT completion, so they can coordinate requirements, engage in pre-operational validation of space-based ADS-B and ultimately performance service acceptance testing for the potential future procurement space-based ADS-B.

With these developments, we continue to believe that Aireon will meet its hosting fee commitment to Iridium in the second half of 2016 and 2017. Lastly, Aireon also announced in February that the response center for its global emergency tracking solution will be located in Ireland only the Irish Aviation Authority, one of Aireon's key investors and customers.

This solution, which will be offered as a free public service to the aviation community, will provide aircraft tracking information in emergency and rescue situations even in airspace where an Air Traffic Management Agency has not yet subscribed to the Aireon service, while Aireon's economic significance is really built around billions in fuel savings another operational efficiencies provided for the World's Airlines, enhance public safety is also a big piece of the overall value.

Turning out of a quick update on our major lines of business, a new leg of our growth profile, which we've begun to discuss with you in previous earnings calls will be faster user terminals for the aviation, maritime and land sectors that take advantage of our Iridium NEXT enhanced capabilities.

This morning, we announced that this service will be called Iridium Certus broadband and we named four key manufacturers when we've licensed to develop higher speed broadband terminals. These four companies (inaudible), Rockwell Collins, L3 Communications and ICG demonstrate how excited the industry is reliable, safety certified, low latency and high-speed L-band service that Iridium NEXT will provide.

These companies are some of the best in the business in aviation and maritime and we'll be investing over the next 18 to 24 months to introduce a number of products. They will sell these products directly or through new and existing service partners that will both sign up and announce later this year.

We'll be providing these manufacturers with our core technology for their terminals with prototype transceivers being delivered to them in the second quarter. Now, this is a new approach for us, but we think it will bring more innovation and new distribution channels to support our future growth. We're expecting that the first Iridium service broadband terminals will be ready as early as late 2016. This represents a new addressable market of several hundred thousand customers and potential incremental revenue of more than $100 million by 2020 supporting our continued growth in the satellite broadband area.

Of course, we're already in the broadband business today and in the maritime market, we finished 2014 on a solid pace growing Iridium OpenPort service revenue 12% year-over-year with net subscribers, up approximately 20%. This was our third consecutive quarter of double-digit growth. Our partners continue to tell us that their confidence in the product has been restored, which was our top priority in 2014 and the numbers support that view.

The competitive landscape remains favorable for us to build market shares the value player and we will continue to capitalize on this momentum by optimizing our pricing, aggressively pursuing new fleet wins and driving data usage across the network. Even with the Iridum Certus broadband service on the way, Iridum OpenPort represents a great value product and an entry point for future broadband services. In M2M, our ongoing success is anchored by global coverage, high quality and a superior product portfolio. But the using the Iridum network to track personnel, manage fisheries for regulatory compliance or monitor engine diagnostics for a multi-million dollar mining truck.

We are known worldwide is the best choice in the satellite space and I can share that we continue to steadily penetrate the heavy equipment OEM space having signed an Asian construction equipment and engine manufacturer in December. This is now the third OEM, we've announced in the last year so and while I wish these companies would let us say their names, that's the way most of this industry likes to operate. We have more of these deals in our pipeline now and we'll update you as they close. By the way, harbor research now estimates that M2M market is expected to grow from 6 billion connected devices in 2014 to 28 billion connected devices in 2020 and we remain well positioned to ride this wave in the satellite part of the business. When closing 2014 was a rewarding year, we accomplish our most important financial and strategic objectives. I want to once again thank my colleagues at Iridum and our many partners and customers for their loyalty, dedication and hard work. Our investment thesis and our view to the financial transformation that sort occurred in 2018 are solidly intact.

We expect that much lower CapEx after Iridum next program is completed in 2017, combined with materially higher operational EBITDA will dramatically alter our free cash flow profile and create significant long-term value for stakeholders. We have to continue to do the blocking and tackling to get us there and see that 2015 will be another exciting year, as we start launching satellites. So with that, I'll turn it over to Tom for a more detailed financial review.

Thanks Matt and good morning everyone. I'll get started by outlined our key financial metrics with the fourth quarter and then summarize the 2015 financial targets we issued today. I'll wrap up my thoughts by bridging our results and annual guidance to our long-range outlook, and briefly reviewing our balance sheet and capital structure. Iridum reported fourth quarter total revenue of $100.5 million, which was up 2% from last year's comparable quarter, total revenue benefited primarily from a $1.7 million increase in the high-margin service component. Operational EBITDA came in at $51.8 million, an increase of 4% from the prior year period. Our operational EBITDA margin was 52% for the fourth quarter, up from 51% in the year ago period.

From an operating viewpoint, we reported commercial service revenue of $60.7 million in the fourth quarter, which was relatively flat versus last year. We added 10,000 net commercial customers during the quarter, with all of the net customer gain coming from our M2M business. Commercial M2M data subscribers now represent 48% of billable commercial subscribers, an increase from 45% during the year ago period.

It's important to know that while commercial voice and data subscribers increased 4% year-over-year, this was largely offset by a 9% ARPU decline, which resulted in service revenue being essentially flat.

As I reinforce in our last earnings call, we expected this to be the case as we booked at $3.6 million benefit in the fourth quarter of 2013, due to a change in our prepaid airtime policy that did not have the same impact in the fourth quarter of 2014.

Turning now to our government service business, which generated revenue of $17.5 million representing 12% year-over-year growth, driven by the step up in our fixed price airtime services contract with the Department of Defense. This important customer continues to expand its footprint with Iridium, engagements users around the globe to take advantage of universal access to our network and services. Government voice and data subscribers grew at their fastest clip since mid 2011, posting 13% year-over-year growth. In addition, we reached a record 60,000 total U.S. government customers during the fourth quarter. As we look ahead to 2015, there's a high level of business development activity underway.

We're seeing renewed investment in our tactical radio program Netted Iridium and the deployment of a variety of M2M tracking application including devices that were recently filed at as part of the Ebola Crisis Response. Notably, the Department of Defense is actively engaged with us developing new secure handset based on Iridium extreme platforms. Not only will this initiative modernize the world's only NFA accredited Type I secure satellite handset. They will also allow government users to take advantage of the enhanced location-based services that the Iridium extreme handset provides today.

We're also seeing strong interest in Iridium goal. All of this activity demonstrates the U.S. government's growing partnership with us, as a mission-critical communications provider and the recognition of the cost saving to come within this using and established commercial technology. Our focus NEXT on equipment revenue, which was $17.1 million for the fourth quarter, it grew 8% year-over-year, primarily due to higher Iridium Go Volumes and increased shipments of data devices in support of the large heavy equipment OEM contract. We do not expect equipment revenue to grow in 2015, as we see reduced commercial handset sales given the recent pronounced increase in the strength of the U.S. dollar.

This effect should be partially offset by shipments of new products specifically Iridum Go and Commercial Push-to-Talk. As a company, its partner's sell all over the globe in dollars, seeing reduced uptake for our handset products and services. U.S. dollar has risen substantially in many of the key international markets. They represent a meaningful portion of our commercial traffic, notably Russia, Canada, Australia, and Europe. In effect, this foreign exchange impact acts as a price increase to our customers and ultimately reduces their purchasing power. I have more on this topic in a bit, when I give context around our service revenue trajectory.

Moving now to our 2015 financial guidance, which we issued this morning. We forecast total service revenue growth between 3% and 6%. On the same basis for the full year 2015, we expect operational EBITDA between $230 million to $240 million, which compared to $216.5 million in 2014 and is about 9% growth at the midpoint of the guidance range.

To provide some additional context for this year's financial targets, I ask you to consider the following key elements. First, the M2M business remains the foundation of our success going forward. We expect it will be pressured this year by roughly $3 million revenue decrease related to a change in the usage profile of the NATO customer that we supported for tracking aviation assets in conflict areas. Even including this headwind, we expect double-digit subscriber and revenue gains in 2015. This growth will be supported not only by our expansion in traditional vertical markets, but also through continued penetration of the heavy equipment OEM segment, which really is in our numbers yet. Second, we are back on solid ground and maritime business, as Iridum OpenPort product pose to 12% growth for the full year 2014. With the improved product, then attractive competitive landscape, where again growing market share in the value segment of this sector.

And lastly, we've seen our commercial service revenue come under pressure as well due to the stronger dollar. Much like with equipment sales, it actually the price increases in commercial air time purchases. In addition, our operations in Russia will cause a related, but distinct impact and the appreciation of the dollar versus the ruble. In Russia, we though subscribers in rubles, the ruble has dropped 70% to 80% against the dollar since October. We estimate adjusted valuation of the ruble will cause an approximately $3 million decrease in our airtime revenue from Russian usage.

All this currency exposure affects our service revenue growth rate. The impact on our operational EBITDA is muted because we also have ruble denominated expenses. As for our long-range outlook, we expect total service revenue of between $420 million and $485 million for the full year 2018, which represents a compound annual growth rate between 8% and 12% from the 2014, level of $309.4 million. The fact that our projected 2015, service revenue growth rate is below our long-range trajectory warrants and clarification. As we bridged through our gross profit future years, there are a number of factors at play to give us confidence in our forecast. First, we've been known $22 million increase in government service revenue when comparing 2018 to 2014, as outlined by our airtime services deal with the Department of Defense. 2015 will be 15% higher than 2014 and 2016 will be up 17% from there.

Given the developments in our Aireon business over the last year, I also think it's pretty safe to say that this venture is well capitalized and on track to launch the world's first space-based global aviation monitoring system, once Iridium NEXT is completed in 2017. When combine the revenue, we expect to book from hosting fees and customer data contract. This business will wrap to 34 million in incremental annual revenue in 2018. While Aireon is our primary hosted payload on Iridium NEXT, you'll remember that we also signed a contract with Harris Corporation in 2013 to manage the remaining payload space. Harris has been quite successful filling up that space and we estimate that hosting and data fees from this arrangement will add over 6 million to our service revenue in 2018. In fact, we've already collected 19 million in cash from this contract. We expect meaningful contributions from new products including Iridium GO and commercial push-to-talk during this timeframe.

Our anticipated 2016 certification for the provision of mobile satellite communications in the global maritime distress in safety system for GMDSS represents a source of growth in our maritime business. This initiative not only expands our addressable market to all of the 60,000 vessels that required to have the safety service, but also enhances our relevance proposed safety and operational communication. And the final pillar of our growth as Matt described will be the launch of enhanced broadband services for Iridium Certus broadband as Iridium NEXT is deployed.

The mobile satellite services industry is expected to grow from roughly 2 billion in 2015 to more than 5 billion in 2025, according to Northern Sky Research. And much of this expansion will come from the adoption of broadband services. New faster user terminals are being developed to the aviation and maritime sectors take advantages of the network enhance capabilities. This program represents a multi-hundred million dollar market opportunity for Iridium, and we're pleased to be working with world class manufacturing partners in each of these spaces to bring these offerings to our subscribers over the next couple of years.

Getting back to the other components of our long-range outlook, you expect an operational EBITDA margin of approximately 60% in 2018. We expect negligible cash taxes from 2015 to approximately 2020. We expect peak net leverage of 66.5 times in 2016. This change reflects our current expectation for the milestone payments to Thales Alenia Space related to be Iridium NEXT program. We expect net leverage of approximately four times in 2018 and finally a review of our capital structure and liquidity position. As of the end of fourth quarter, we had drawn $1.3 billion from the Coface facility and had cash and marketable securities balance of approximately $472.4 million.

In wrapping up my thoughts, we're proud of our accomplishments in 2014 and ready for the excitement that 2015 is expected to bring. Iridum NEXT is on schedule to complete full deployment in 2017, and Aerion is executing well against this business plan. Our U.S. government customer continues to strengthen its relationship with us and notwithstanding the macroeconomic headwinds we're seeing our handset business. We generally see solid growth across the rest of our commercial product portfolio. We look forward to updating you on our progress in late April.

With that, I'll turn things back to the operator for the Q&A portion of this morning's call.

(Operator Instructions) first question is from James Breen of William Blair. Your line is open.

Thanks for taking the question. Just a couple questions, the once for Tom. You talked about the FX impact, there any -- is it service direct FX headwinds that we are seeing with some other companies at $3 million. They are more directly related just (inaudible) power of the end user. And I guess competitively the weakness that you're seeing in that segment, is it really just more

about customers not buying, are you seeing more competition of market. Thanks.

Yes. So I would answer the question said it's both general impact and a specific impact in Russia, so Russia is essentially the only country that we do bill in other than U.S. dollars and what is happened in Russia is the ruble has depreciated materially versus the dollar since October. And so we're principally a prepaid offering in Russia and so prepaid vouchers that we sold in 2014, at a higher ruble value have devalued 2015. We are going to get about $3 million less than we would have been in 2014. That's -- so that's unique to Russia that $3 million. And so what I think about that is the only way that recur the Russian values 80% like it just did in a span of three months. The ruble has spent between $25 to $35 U.S. dollars for a decade and it's now in the high '60s I think. And so that's -- that feels like an acute (inaudible). We don't see that recurring in terms of the running the dollar versus ruble. So, that's Russia and the other impacts just a sort of hard to quantify. The dollar has strengthened in places where we do business and we've seen in -- it highly correlated to our equipment or handset shipments in November, December, January, we just on saw kind of the comps versus the prior year started to fall off, and so it's hard to be precise here, but it feels like the dollar is impacting us in terms of handset sales and net adds. And so that's why we're -- that's why we're calling it the way we're calling it at the moment, it is a most recent acute trend that we're trying to -- we're attempted to assess here.

We do not believe it is great competition. We've done channel checks with our service providers and they're seeing softness across the board as all of the providers sell in dollars.

So, as we think about that the guidance you gave at 3% to 6% for service revenue growth, essentially as we look at that 14 number, we're probably taking about $3 million out of that for the FX and another $3 million for that laid out customer, and then you think about the growth from there, is really was the true service all of growth is?

It's right, Jim.

Okay. And then just for -- it's been general on the competitive front, and with the FAA within the U.S., we've seen a competition and the space for some of these large equipment guys, and then with the FAA, just wondering what gives you the confidence you talk about the budget, is it clear now that they're putting money in the budget for this process with the expectation that they'll jump on board sometime at the end of this year or early 2016?

Yes, so M2M competition is still pretty much as the same, where I think we typically win where ever we compete, and also it's a more matter of just making sure we compete in all the places, specifically in the heavy equipment OEMs space, as I said, there's sort of a slow but relentless move towards Iridium, I think with the whole group, and we have quite a long pipeline of brand name, operators who are working with us from every stage from discussions to trials to commercial discussions and negotiations around that segment and that hasn't really changed in fact seems still very, very positive in terms of the future for us plan, a big role in that specific market segment. That's not the only segment, that's growing right now. There's a number of other places as well that we compete, and compete in fact better than anyone, for example, like the consumer space, you know our personal trackers, and that sort of thing have been really kind of hit their stride here in the last year, and I think that will continue.

And again we offer unique value proposition there given our, the ability to have really low size and low power and portable kind of usage that really allows us to have a dynamic market there. So, a number of areas, they are doing very well, and the competition really has not changed.

On the second one, the FAA -- I try to describe, they're really -- we can't declare victory yet because that's a data services contract, but really, all signs are very positive in terms of budgetary movements, and the activity within the FAA around getting ready, it's always slower than you like, but it's moving definitely in a right direction on behalf of Aireon. I think it's really both due to the great value of the system we bring, but also the continued success that Aireon's having in all the flight Information region, they surround

the U.S. airspace. So, all those aircraft are going to be arriving in U.S. airspace on smaller intervals, and they can't get -- I think understand they can't be trying to move those back out to accommodate not been able to see them. So, they are moving in the direction, they have budgetary pressures, but I think those are working to get solved -- to get them ready for 2018 implementation.

And just one more if I could, with the launch pushed out. You see that anyway affecting you guys financially or is it just more of a timing issue in terms of getting more launches in 2016 and 2017?

So, the only financial impact we say and you thought in the tweak to our peak net leverages is going to be the payments to Thales it's build out of 2015 into 2016. But, net no impact in our kind of our long-range outlook anything like that, Jim.

Just important to know, I mean Iridium NEXT is a continuity of our growth as opposed to necessarily brand new growth, except as it relates to things like Iridium Service Broadband, which will be implemented on the same schedule of this first launch, doesn't really affect that, we're still expecting to see the initial products come out late next year and into 2017, from some of these suppliers that I discussed.

And then of course, Aireon revenues, but that's once the network is complete, which is why we focus so heavily on network completion as opposed to when the first launch is coming, but we'll be launching satellite this year.

The next question is from Andrew Spinola of Wells FargoSure. Your line is open.

One other follow up on that point that you just mentioned about the completion of NEXT. I think -- help me understand it sounds like they're going to be able to test the software while the hardware is still being built. Is that the correct way to think about that. So, there's no real delay to the completion here because the work can be done concurrently?

Not exactly, the way you should think about it is to build 81 satellites. You want to first of all completely validate the design both the hardware and software to ensure that when you move into high rate production of these systems, which as I said will occur over the next few months. All of our hardware is qualified, it's tested and it's going to work fine and that process is going very well. The hardware is looking really good and it's on track for high rate production and hardware will be there. The software is not completely independent, but there is two main components of it. There's platform software that controls the satellite itself and of course is really critical making sure that the network, operates completely and that's been doing very well. I would say on track and it's going to be there. The payload software that controls, our individual service that makes the connection is hitting milestones, but more slowly than they expected and so it's going to get delayed, but once it's complete, which will be done before our first launch. It really than its cookie cutter if you willing to all the satellites that they're built and launched in the space. So, it doesn't have to continue to delay anything. So, once we have our first launch, we have a qualified design with tested software everything working well. We spent four months in space validating that actually providing live service and working in the network and then we go into launching tender to time every few months out of California and that really just basically replicate that success that will have this year, getting the first launch. Does that make sense?

Yes, that makes sense. Thank you. A second question on the Iridum service broadband. You mentioned that this is a first for you to, I guess how this essentially selected suppliers to provide the hardware. I'm wondering why you chose to go this route and what do you think the benefits of doing it this way versus the old way are?

Great question. Today when we make OpenPort units and while we make very minor margin on them. I guess is devices they we sell them directly through our service providers. And then, they get out in the marketplace, but it's just one solution really for that sector. With Iridum service broadband we want lots of solutions in the marketplace. And well, I guess we could try to fully R&D together to create say the right kind of high-speed broadband connection for commercial airliners further avionics.

it's a lot more powerful to have one of the top two players in that space Rockwell Collins or an L3, which is all over an aircraft or Cobham, which is across the aviation sector creating a number of solutions that are tied into maybe even other technologies really well and using there distribution channels as well as some of the distribution channels we use today, so, it really puts a lot more (inaudible) in the water for revenues with Iridum NEXT then we currently have in the water today and and that's quite exciting.

Sure, and then a last question from me, I guess you were sort of progressing towards the full launch of Inmarsat Global Xpress here in another few months and I'm just wondering what the competitive environment is for you in the maritime business considering maybe they have somewhat of a lead over the competition in terms of getting high throughput satellites up over the oceans. I'm just wondering if that impacts you or is it maybe not as big of a deal since you're doing the L-Band. Thank you.

I don't think it's a changing deal, so Global Xpress really more competes I think with what I would call the traditional (inaudible) or high-speed terminals, the FSS space and we've always, if you will, not so much we've never really competed in that space. We act as a complement to that on many ships. So given that the coverage and you know things like weather and other things affect that space, we're either a complement so that we make sure that that works in all cases or we're at the lower end of more the value end of that where people don't really want to spend that kind of money for connectivity on their ships.

So that doesn't really change with Global Xpress. I guess there is the dynamic that they have both an L-Band products and if you will, a higher speed product and they can play with both sides of that equation but I think the market has seen that that can be problematic especially since they have often raised prices on the more fragil end of that pace. They can provide solutions a lot of the market really wants to pick their own technologies and don't really want to necessarily get it all from one supplier.

So I mean, that creates a great opportunity for us both alone and developed -- and selling our products, and especially once they are higher speed and performing frankly even maybe even better, they certainly will have better coverage and maybe higher speeds ultimately than the Iridium L-Band product.

But our partners -- those in our space who actually deliver high speed products will deliver even more powerful products I think to the maritime sector and then the market can pick the best high speed products and they can pick the best L-Band product to put on their ship. So I think that's going to be the space we play in and I think we line up very well against Inmarsat going forward with Iridium Certus Broadband.

Thank you. (Operator Instructions) Chris Quilty, Raymond James. Your line open.

Thanks, Matt. I want to circle back on the voice business, given some of the pricing pressure, does your guidance contemplate any pricing cuts or is it simply the expected impact of lower demand?

The latter, crisis. It's really just, as handset sales are pressured, net adds are pressured and so that's what we're talking out here. So, we do not expect any price cuts.

And right now, I really would say that the competitive dynamic really hasn't changed in the handset market around the world. Everybody will be going in the same direction, and I don't know that we would fix that by really doing anything on pricing anyway. So, we have new products in the space with the Iridium GO! coming into its own this year. That's been very well received and continues to ramp. So I think between it and our handsets will have to take the branch of the dollar a bit, but I think overall, we still like the business.

I think on Iridium GO!, you said you had shipped 5,000 last quarter. Have you seen that initial channel fill slow down a bit and are you still seeing a sizable backlog?

You're right, I mean, the product then come out that long ago and the initial channel fill occurred and then there was a bit of a low, but it's starting to pick back up again now as we're higher than that level already and we're starting to see the orders coming in and we expect that really is more of a factor that starts happening more in March, April, and May as the year heats up, and we go through a more faster growth part of the summer, et cetera. So that's what we'll be looking for.

And are you seeing any kind of a benefit on the ARPU side there?

Yes, I mean a big percentage of our customers again have taken the real high, the higher unlimited and other kind of service package because I think they see a more robust offering if you will being to work with their iPhones and Android phones, and they don't really want to have to count the penny thus so. That's been one of the surprises to us, but that it is producing higher ARPUs than handsets have done. And it's been, as I said in previous calls, it has been a more broader market, I think acceptance and I think we're expecting, but there's a lot of activity and DoD and other militaries and we certainly are seeing a great activity in the maritime and in the GA space and first a traditional sort of enthusiasts, hikers, safety enterprise and other -- and even some M2M segment. So it's a broad acceptance.

Is it possible that the GO is also cannibalizing some of your more traditional voice business?

May be around the edges, but right now it doesn't really seem that way to us and our partners have been telling us that, in fact we reconfirmed that at our Partners Conference here a week or two ago that we just had. That was one of the questions I was asking a number of them and I kept getting no. We really don't see that, we think we're opening up to some new markets with the product and people who are still buying handsets because they offer a different value proposition. So, I don't really think so yet.

Okay, and final voice question, the commercial Netted Iridium service, I think that's due to launch soon and can you give us a sense of what your -- maybe what you heard back from your channel partner conference in terms of indication levels for that service?

Yes, we are in, call it, commercial transition period and I also want to say that we almost have launched at this point because our betas continue to grow. There's been a lot of pressure from our customers because of the demand for it to get it out in the hands of customers, while we -- frankly we're making some final tweaks to it that make it even better.

I can tell you it's still really, really, again one of the highlights of the recent Partners Conference, people are really excited about, they're telling us they have opportunities literally all over the world. They're telling us it's a game changer, they're using that kind of terminology that there just hasn't ever been a product like this that can provide the kinds of service that it's telling us one partner to tell me that his customer told them it was a miracle, I love that quote. I've been using that a lot lately. I can assure that wasn't a miracle. There's a lot of hard work, but it really is a great product. (inaudible) will transition into commercial revenues I think here into the second or third quarter of this year is we're starting to ship devices and start seeing these networks to roll out and (inaudible) our business this year or next year.

And are you looking at a alternative equipment strategy on that because right now I think the customers are sort of locked and they drop in 1200 or 1300 box on a extreme netted-enabled device, but I would think there is a market for a lower cost purpose-built piece of hardware.

Yes, I don't know the exact numbers, but we have a couple of our partners we have license to our -- we know are building a purpose-builts multiservice product based upon the 95-23 module. So you can really take any of our partners can take push to talk and embedded into one of their own products and we know couple of that that's happening and we think that's going to be a big revenue grower for us too. And we're also going to see, I think that technology evolve into aviation in the maritime products and also out of the traditional land based Public Safety space and really frankly could be adopted with Iridium Service because while we talked about speed for that platform, that's really a multiservice platform that can do a number of different things and really bring all the different services that Iridium brings the table to those kind of new customers that have higher speed usage too. So, there's a lot of way, the technology is going to be deployed, not just through an Iridium Extreme PT handset.

Okay, final question, your announcement on the manufacturing partners was oriented towards your Aviation maritime partners. Can you give us an update on the strategy on that M2M and voice side.

Yeah, you know, we've talked a bit about that at our partners conference. We have investment underway right now to evolve our -- I mean continue to improve and evolve our technologies particularly bringing sort of Iridium NEXT space technology and what you would call the evolution from our investment into NEXT with Iridium Service back into our M2M and voice. I mean, a real strategy isn't that -- is that those segments start to blur technologically that we start bringing technologies to our partners in which they can write applications and it takes the best technology, the best speed and the best delivery mechanism for their data to get through.

There is a lot more about that in the coming time. We're not really announcing anything right now, but that's really the power of the Iridium satellite system and network to be able to deliver lots of different technologies in a more efficient way. So I don't have anything really to announce, but that's our plans. We're working on it and I think it's going to make this even more competitive in the future to be able to not just have an M2M product, but to have a portfolio of products across variety of speeds and capability.

Let me ask in a different way. The last fall, you get a price cut on the M2M side on the hardware modules. Have you seen a distinct pickup in volumes that would offset the margin and profit loss on equipment sales.

Well, I mean 2014 results were pretty good and I think you've sort of blurred a little bit in terms of exactly how that impacts, because people don't necessarily say what they would have bought or what they did bought, you know, we kind of brought down the headline price for low volume in it. So, I think that is very encouraging to those who maybe only of applications for a couple of 100 devices or 1000 devices they can now that really price is less of a factor, probably had less of an impact on a real high volume because they were getting pretty aggressive prices before and more technologies is coming in, we brought in this new Cykon Technology that we brought in 2014 that's rolling across our product lines in 2015, that helps drive sort of cost down on the models ourselves and that helps us really look at new business as we look forward in M2M, but overall, I mean I think we have a very competitively price products. We're even have more room if we need to work really big opportunities and we will do that, but it wasn't just about cutting prices. It was more about a lineup with certain market segments.

: Got you. Thank you.

: Thanks, Chris.

Thank you. And the next question is from Jim McIlree of Chardan Capital. Your line is open.

it looks like at the midpoint of your revenue guidance. The revenues go up and maybe $14 million or so and the midpoint of your EBITDA guidance goes up about $18 million or so. I'm just wondering how you're doing that, what costs are coming down. I didn't hear anything about major cost or margin group?

Yeah, we see most all the -- right Jim, we see materially lower warranty costs related to our OpenPort product. That product is performing really well and our repair costs are down. So, we get a benefit from that.

Okay. And so that the opening port costs are in the services side or were you referring to an equipment?

There is a being cost of equipment.

okay. Alright and so last year, or excuse me last year in 2014. (inaudible) 70% cost of sales. And I'm sorry yes about 70% cost of sales so that's going down to, is their normal range, so I can look back on and say?

Please see the OpenPort benefit in the area of $5 million year-over-year.

Got you.

Okay, great. That's it from me. Thank you.

Thank you. There are no further questions at this time. I will turn the call back over for closing remarks.

Thanks very much for joining us. I hope I see many of you in a couple weeks here and I think it will be great to show you the progress that we're making on the satellites and be able to talk about the business in more details. So we'll see you then. And the rest at the next quarterly call. Thanks for joining.

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day