UNIVERSITY OF OREGON
INVESTMENT GROUP
February 11th 2010
Technology
Iridium Communications
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Diluted Shares
Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparable Analysis
Target Price
Current Price
RECOMMENDATION: Buy
6.27 - 11.13
IRDM / NYSE
.796
74,040 thousand
413,627
$559 Million
$8.14
0.00
0.00%
10.59
15.82
10.59
8.14
Summary Financials (Thousands)
(2009A)
Revenue
Net Income
Operating Cash Flow
$318,940
$9,124
$56,902
BUSINESS OVERVIEW
Iridium Communications is a Mobile Satellite Communication Services (MSS) provider headquartered in Bethesda,
MD. Iridium was originally launched in November 1, 1998 under the name Iridium SSC with technological and
financial backing from Motorola. Less than a year later, Iridium SSC filed for chapter 11 bankruptcy. The company
was eventually bought for around $25 Million, forming Iridium Satellite LLC, despite the total cost of the
Covering Analysts: Ross McDonald, Ryan Dingler
Email: rossm@uoregon.edu & dingler@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
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constellation being over $5 Billion. Iridium Satellite LLC was then acquired by GHL Acquisition Corp. The
company then went public in September 2009 under the name Iridium Communications (IRDM).
“On February 21, 2008, we consummated our initial public offering and on September 29, 2009, we acquired, directly
and indirectly, all the outstanding equity of Iridium Holdings LLC, or Iridium Holdings, and we changed our name
from GHL Acquisition Corp. to Iridium Communications Inc. We refer to this transaction as the Acquisition.” IRDM
10-k
Iridium Communications is the second largest mobile satellite communications provider in the world and the only
company that can supply coverage to 100% of the Earth‟s Surface. The company runs a constellation of 66 Lower
Earth Orbital Satellites that enables data and voice communication services to both businesses and governments
domestically and internationally.
Distribution Network
Iridium solutions are distributed through a network consisting of 65 service providers, 130 value added resellers
(VAR) and 45 Value added manufacturers (VAMS). Having a strong distribution network allows Iridium to lower
customer location costs and develop new solutions for customers. Iridium leverages their distribution network‟s
expertise to combine their technology with other hardware and software to come up with solutions that meet the
needs of specific markets. Iridium provides assistance to the members of its distribution networks by supplying
strategic planning and customer support for themselves and end-users.
The Iridium Constellation
The constellation consists of 66 LEO satellites in-orbit, with
many spares to protect against the threat of satellite failure.
The satellites move together in six distinct orbital planes and
sit approximately 483 miles of above the earth‟s surface. They
travel at 16,689 mph, allowing each satellite to orbit the earth
in 100 minutes.
The constellation‟s unique mesh architecture allows each
satellite to communicate with four others at any point in time.
This allows the constellation to route traffic between each
satellite and creates the need for only one terrestrial gateway because the closes satellite to the gateway can transmit
info to and from the gateway and then throughout the constellation. Iridium maintains a contract with Boeing to
handle the operations and maintenance of the constellation.
Iridium‟s commercial gateway is located in Tempe, AZ, allowing for general communication between multiple
antennas‟ and the constellation. IRDM is able to add committed gateways to its network as it has done for the
Department of Defense (DoD), whose gateway is located in Hawaii. The ability to do this is critical for IRDM‟s
growth as an arrangement such as this would be required in China, Russia and India. The countries listed who want
physical gateways in their country if they allow IRDM to operate there.
The Iridium Network provides a reliable and safe option for businesses because of its high level of sub-system
redundancy. This means there are duplicates of critical components within the system to reduce the chance of
satellite failure. Even if one satellite becomes inoperable the network can continue excellent coverage as it will
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temporarily route information around that satellite before guiding an in-orbit spare to replace the non-functional
satellite. All of these functions are completed at their network operations center in Leesburg, VA. Iridium has
experienced six instances of satellite failure since 2001 and was successful in replacing each one without ever losing
coverage.
Products
Iridium offers a number of products that it markets to VARs, VAMs and directly to consumers. A
few of their main products are Satellite phones, Modems & Modules, OpenPort, Long Range
Identification and Tracking (LRIT) and Personal Locator Beacons.
Satellite Phones
Iridium recently developed their newest satellite phone, Iridium 9555, which features a large, brighter
screen, e-mail capabilities, an integrated antenna and a speakerphone. It is smaller, lighter (weighing
9.4 ounces) and more user friendly than the Iridium 9505A model. The 9555 model offers up to four
hours of talk time while maintaining the industrial feel of its predecessor, with a rugged housing to
protect its transceiver. The 9505A model is currently the only commercial mobile handheld satellite
phone available on the market that is capable of Type I encryption accredited by the U.S. National
Security Agency for top secret voice communications. The 9555 model is expected receive this capability within the
next year.
Voice and Data Modems
Iridium offers voice transceivers and data modems to its distributors who then integrate these products into a variety
of communications solutions that are deployed in different applications around the world. They recently developed
their next generation transceiver, the Iridium 9522B L-Band transceiver. This new model is smaller and less expensive
than its predecessor, which allows their customers to integrate it into smaller devices while improving Iridium‟s
margins. These transceivers are often the highest generators of traffic on their network. On-board crew calling
terminals are built around these modems which are then used as payphones and provide e-mail services to maritime
vessels.
Iridium OpenPort
This device provides the ability to use three independent telephone lines and a high-speed data port, configurable
from 9.6 to 128 kbps. All voice and data capabilities can be used at once. The device is about the size of a typical small
boat radar dome and contains no moving parts, this greatly reduces maintenance and repair costs. Iridium expects to
launch additional high-speed devices for non-maritime markets in the future.
Machine-to-Machine (M2M) Data Devices
Iridium‟s next generation short burst data modem 9601 provides two-way transmission capable of sending packet data
to and from any point in the world with low latency. Iridium‟s principal consumers are VARs and VAMs who embed
the device into their tracking, sensor and data applications. The M2M data device is often combined with a GPS
receiver to provide location information across their system to customer applications. Recently, an increased number
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of VARs and VAMs are including the product in a terrestrial mobile communication device to provide low cost data
transmission when cellular coverage is unavailable or unreliable.
Vertical Markets
Land Based Handset
Iridium is one of the world‟s foremost suppliers of handsets for businesses in industries from mining to forestry to oil
and gas. Both pre and post-paid options are available for access to the network. The Iridium 9555 is the primary
handset used for voice, simple messaging and data connectivity.
Voice and Data
Public safety and Disaster relief
Public Telephone Infrastructure
Businesses use solutions for email, data, and telephone services for areas
not served by traditional networks.
Agencies such as FEMA and the Department of Homeland Security have
contracts to use Iridium services in times of extreme disaster, such as
hurricanes, earthquakes and tsunami‟s
Public entities use satellites to satisfy regulation regarding communication
standards to rural population.
Maritime
This is one of Iridium‟s most important markets moving forward as they face intense competition from the industry
leader, Inmarsat. Companies who participate in fishing, energy, leisure, transport and the most significant, merchant
shipping, use Iridium for a variety of services while outside of terrestrial communication service areas. The company
sees high average revenue per customer but will often supply equipment at, or below cost to gain a long running
revenue source.
There is promising upside in this segment, as regulatory mandates and demand are creating opportunities for Iridium
to take advantage of their high-speed, low cost solutions. The most notable product is OpenPort, which has data
speeds at 128 kbps and three phone lines. OpenPort also enables ship tracking, which is a growing requirement of
regulatory bodies. Beyond that, they are developing a product for ship security, which alerts crews in cases of
attempted hijackings, piracy and terrorist attacks. This is a requirement of the International Maritime Organization
(IMO) for ships in excess of 300 gross tons and many passenger vessels.
Aviation
In this sector, Iridium services are used by
corporate jets, corporate and government
helicopters, personal jets, and specialized
aircrafts. Iridium voice and data products
have even become standard options for
several manufacturers, including:
Gulfstream, Bombardier, Cessna and
NetJets. The most important use in the
aviation sector is for airline crew to ground
communication which allows
communication of position, essential data,
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and voice to areas where there is no other option. Iridium is also seeking certification from The International Civil
Aviation Organization (ICAO) to use IRDM solutions on trans-ocean and polar flights for data and voice
communication by air traffic controllers. This would serve as a lower cost substitute for high-frequency radio
operators. The final use in this sector is for passenger‟s use of Wi-Fi that does not interfere with air-traffic control.
Machine-to-Machine (M2M)
Iridium is one of the primary satellite providers of M2M and by far the fastest growing segment for the company.
The reason behind this growth is corporations push to incorporate knowledge fixed assets operations of outside of
terrestrial wireless coverage into enterprise management and information technology. The major product used in this
area is the 9601 short burst modem. VAR‟s and VAM‟s are the major customers of this product and embed it into
their tracking, censoring, and data applications.
Transportation fleet management
Fixed-asset Monitoring
Asset tracking
Resource management
Scientific Data Monitoring
Allows companies to monitor location, service hours with equipment as
well as two way communication with drivers in transit. The push for
greater regulation, safety and monitoring will drive growth in this area.
Use of applications to operate and monitor assets around the globe. The
main users of this solution are oil field companies like Schlumberger and
Conoco Phillips who use this technology to monitor and operate
pipelines and off-shore platforms.
Leverages applications developed by distributors to track assets for
logistics, theft prevention, and safety purposes.
Designed by one of the distributors, applications have been developed to
assist companies in pursuing more efficient uses. The major use at this
point in time is in the fishing industry to assist fishing fleets.
Supports collection of data for research for organizations such as the
National Oceanographic and Atmospheric Association. Data is collected
from buoys throughout the Earth‟s oceans for analysis. Concern for the
environment will drive growth in this area for years to come.
IRIDIUM NEXT
Iridium NEXT is Iridium‟s plan for a second-generation satellite constellation that will completely replace the current
constellation. It will expand Iridium‟s capabilities to meet growing demand on land, at sea and in the skies. Iridium
NEXT will drive innovation and growth through:




Enterprise global voice and data connectivity
Asset tracking and other machine-to-machine (M2M) applications
New data-centric applications
More power enabling new opportunities
The new constellation will be launch in Q1 2015 and be fully operational by Q1 2017; it will consist of 66 cross-linked
satellites with low-Earth orbit (LEO) and 100 percent global coverage. In addition, there will be 6 in-orbit spares and
9 ground spares in case of a needed replacement. The new constellation will dramatically enhance and extend their
offered communication services. The system will have higher data speeds, advantages of IP technology and be
backward compatible with Iridium‟s current handsets, devices and applications.
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Iridium NEXT designers and management are planning to have no service interruptions when bringing NEXT online
with the current satellites. During 2015- 2017 they will actually have a hybrid constellation with old satellites and new
working together. The users on the ground will never know the difference relative to latency. With the rapidly
expanding data service business M2M is now the fastest growing segments. The NEXT system will be able to expand
this growth with higher processing power and computer memory.
The design team consists of 25 hand selected crew of engineers from aerospace and telecom industry. Almost half of
which worked on the original Motorola, Boeing, and Lockheed team that designed Iridium‟s first constellation.
Iridium also picked a prime satellite and contractor
provider with Thales Alenia Space in Toulouse,
France. Thales Alenia has built many GEO and LEO
satellites over the past few years. In addition, Iridium
maintains Boeing on their team. Boeing originally
wrote the communications software for the current
generation constellation and will have the same
function for Iridium NEXT.
Work on IRDM NEXT started in June 2010 creating
the preliminary design and requirements with Thales.
The NEXT schedule will have five major programs.
1. Top level requirements documenting
everything needed in the constellation.
2. Detailed design with piece parts design and the exact layout of things on the satellite.
3. Development, actually bending metal and writing source code.
4. Integration, Iridium expects to handcraft between three to four satellites a month.
5. the launch phase starting in early 2015 and completed by 2017. By first quarter 2017 Iridium expects the new
constellation to be fully operational.
The total cost of Iridium NEXT is estimated to be roughly $3 billion
dollars. Iridium will finance this cost through internally generated cash
flows and through a $1.8 billion long- term debt deal. They have secured
a financial agreement with the French export/import agency Coface. The
coupon is the 4.96% on the fixed rate tranche for $1.5 billion and a
LIBOR +1.95% for the remaining $.3 billion. The deal is tailor-made to
Iridium‟s needs. They can draw out debt over the next five years when
building Iridium NEXT and do not start repaying the funds until 2017,
including interest expense. The repayments will be staggered until 2020
then recur until fully paid off. Iridium believes they were able to receive
such a deal because the French government saw an opportunity to create
hundreds, if not a thousand high-tech jobs in France and solidify their
position in the world as an aerospace player.
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Iridium believes that the NEXT constellation will provide service through 2030 based on the performance of their
existing satellite constellation and upgrades to the design. Iridium sees a cash flow of $10.1 billion to $18.7 billion over
that time period depending upon industry and market share revenue growth.
Hosted Payloads
The concept of a hosted payload is not a new concept. It has been around since the beginning of the space program.
The idea is taking a secondary payload, that has nothing to do with the primary satellite, and bringing it up to space.
Iridium will use this concept but to new avail. Their hosted payloads will be able to piggyback the communications
that satellites provide and receive real-time access to the data or missions that those hosted payloads will provide.
Iridium expects the hosted payload slots to be filled quickly upon release (ex. FAA, John Hopkins University,
National Weather Service, National Space Policy, DoD).
The payloads offer a very cost effective way to get scientific, academic and military applications to orbit with minimal
effort from the paying organization. Iridium feels that the most likely outcome for hosted payloads will not be one
hosted payload mission on every satellite but probably going to be a mix of missions on individual satellites. Iridium
predicts a $200 to $300 million net cash contribution to Iridium with a recurring revenue stream for collecting and
providing over the NEXT constellation life cycle. Hosted payload announcements and contracts will likely be made in
2011 – 2012.
Orbital Debris
Orbital debris is a growing problem, which Iridium has had a bad experience with. Due to the usefulness of these
orbits, organizations and countries want to put large numbers of satellites in them. To manage this growing problem
the United States Air Force has an organization that they call JSpOC that‟s responsible for tracking everything in
orbit. Because space is precious real estate, they do not want it to get polluted with debris or they would have a serious
problem leveraging it in the future. Iridium has just established a protocol with JSpOC. JSpOC monitors their satellite
constellation and notifies Iridium if a piece of debris is getting to close to a satellite. Upon notification Iridium plans a
maneuver to avoid the collision and sends to maneuver back to JSpOC to model it. If the maneuver is sufficient,
Iridium will execute the move. This protocol happens quite frequently given their large number of satellites.
Advantages of Low Earth Orbit
Generally satellites orbit in three classes, Low Earth Orbit, Medium Earth Orbit (MEO) and Geosynchronous
satellites (GEO). Iridium operates their constellation in a LEO which forms a mesh around the planet. This design
was done for a number of reasons. The primary one was to have the user equipment much closer to the satellite to
shorten the latency time on voice calls. Using a GEO actually takes the speed of light a quarter second to get up and a
quarter second to get back down. As a result, talking on a handset with a GEO creates a walkie-talkie effect. Iridium‟s
LEO system does not have this effect. Having the user equipment closer to earth allows Iridium to also have lower
power devices and therefore have a longer battery life. Their satellites are roughly 485 miles from the surface of the
earth compared to GEO satellites which are roughly 22,236 miles.
The second advantage of a LEO is the grid format. If there is a problem with a particular satellite (which rarely
happens) the data traffic does not drop out, instead data is routed around the satellite. There is very high level of
resiliency within the constellation. In fact, Iridium estimates that as few as 36 satellites are needed to operate the
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system. Lastly, the grid format offers truly continuous global coverage everywhere. At anytime, anywhere you can
communicate with any other place on the planet.
Industry
Iridium Communications competes in the mobile satellite services (MSS) industry, offering data and voice
communications around the world. The companies do not compete against terrestrial communications services such
as AT&T and Verizon as they offer a connectivity service to all areas of the earth, places companies typically are
unable to reach. The areas which typically receive service are: rural and developing, places affected by political conflict,
natural disasters, ocean and polar regions with no other alternatives.
Government and associated organizations are major users of the
services for the reasons listed above.
Commercial business is the main consumer of MSS. All sorts of
industries take advantage of the services available including
maritime, utilities, aviation, Oil, mining, forestry, construction and
many others. These industries are hallmarked by the search for
naturally occurring goods. Whether it is fish, gold, petroleum or
timber, companies using MSS go to remote parts of the world in
search of goods for their business. As time goes on in these
industries, the low hanging fruit principle is fulfilled and companies
must search in more remote areas to find the commodities desired.
For this reason, companies will demand more MSS to fulfill their
needs going forward, leading a very positive outlook for the
industry.
The other major business trend leading to a positive forecast in MSS is increased regulation and safety requirements
for the aviation and maritime industries. Agencies are requiring more safety and tracking information which is most
cheaply and effectively accomplished through the use of MSS. As emerging markets become modernized, they will
have more regulation and safety requirements leading to further adoption of MSS. As a whole, MSS is projected to
grow between 10-12% annually from now until 2015 according to
Northern Sky Research.
The fairly strong industry growth prospects bode extremely well
for the current competitors within MSS because of the high
barriers to entry. Satellite constellations used by companies in this
industry can cost several billion dollars and can take upwards of a
decade to design, create and deploy. These factors lead to five
known competitors within the marketplace for the next decade or
more. The five competitors within MSS are Inmarsat, Iridium,
Thuraya, Globalstar and Orbcomm.
1. High Fixed Cost - Companies spend great deals of money every
10 to 15 years to build new satellite constellations. If companies
fail to update their constellation in a timely fashion, they will be put in situation like Globalstar, who is going to be
very unprofitable until their next system is deployed
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2. High Operating margins – MSS revenue is primarily driven by the acquisitions of new customers. The additional cost
of each customer is minimal because the system is already in place.
3. Profitable equipment revenue – MSS is like terrestrial communications companies in the sense that they use a price tying
strategy where the bulk of their money through the use of their communications service. However, MSS companies
make money on the sale of their equipment, as where terrestrial communications companies nearly always lose money,
because of the limited number of alternatives customers have in the space.
4. Distribution Channel – Companies competing in this space must have strong partnerships VAR‟s and VAM‟s to
move products so they can capitalize on the recurring service revenue needed to get use out of products.
MANAGEMENT
Chief Executive Officer – Matthew J. Desch
Mr. Desch has over 30 years experience in telecommunications management and over 19 years in the global wireless
industry. Mr. Desch joined Iridium in 2006 and guided the company through their IPO in 2009. He has a Bachelor of
Science degree in Computer Science from The Ohio State University and an MBA from The University of Chicago.
For 2009 Mr. Desch‟s base salary was $675,000 with a target bonus equal to 90% of his salary.
Target bonus salaries of each employee are added together to establish the annual bonus pool target. To achieve the
target bonus the company establishes company-wide financial performance goals at the beginning of every year. When
the financial performance goals are verified at the end of the year, the achieved goals are expressed as a percentage
between 0% and 100% representing their „corporate target bonus factor‟. This corporate target bonus factor is then
multiplied by the annual bonus pool target to compute the total bonus pool for that year.
Overview of financial performance goals of Iridium for 2009:


An adjusted Operational EBITDA target of $133.9 million, weighted at 50% of bonus
pool
o Achievement below 92% of the target resulting in no funding of the bonus pool
Company-wide revenue target of $344.2 million, weighted at 20% of bonus pool
o Achievement below 95% of target resulting in no funding of the bonus pool
RECENT NEWS
First Iridium NEXT Hosted Payload Agreement Signed. February 3, 2011. Globe Newswire.
“Iridium Communications Inc. (Nasdaq:IRDM - News) today announced that Orbital Sciences Corporation
(NYSE:ORB - News), Dulles, Va., has signed an agreement with Iridium that reserves hosted payload capacity on
Iridium's next-generation satellite constellation, Iridium NEXT.”
Orbital will make several, non-refundable deposits to IRDM, totaling $10 Million in 2011. Iridium communications
thinks the agreement could be worth up to $100 million after taking into account the recurring data service and
hosting fees once Iridium NEXT is in space. Orbital will be acting as a subcontractor on Iridium NEXT helping to
integrate hosted payloads, including their own.
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Iridium CEO Matt Desch said, "Commercially hosted payloads on Iridium NEXT offer a significant opportunity to
government programs. To achieve the cost savings that commercial hosted payloads offer, it is imperative that
companies, and government and research organizations, make plans and design systems now -- in advance of our first
launches, which are scheduled for 2015”
PORTERS 5 FORCES
Barriers to Entry- High
Economies of Scale:
As the number of subscribers for telecommunications satellites usage increases the average cost decreases which
generates large economies of scale and serves to deter entries into the market. This force leads to firms to either come
in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost
disadvantage.
Product Differentiation:
Due to the differences in constellation design (LEO, GEO) firms offer different services qualities and slightly
different products. An example is Iridium‟s low earth orbit system also for no lag voice conversations while Inmarast‟s
GEO offers a more walkie-talkie effect. In addition, telecommunications VAR‟s offer high differentiation between
products as they innovate the telecommunications products to their needs.
Capital Requirements:
For a potential firm to enter the satellite telecommunications industry, a substantial amount of expenditures would
have to take place. Iridium estimates that a new competitor would have to spend roughly $5 billion to build their own
constellation, gateway system and setup the necessary contracts with companies such as Boeing. This competitor
would need large financial resources and be willing to make significant risks as the capital would be unrecoverable.
Switching Costs:
For a VAR to switch between the firms in the telecommunications satellite industry they would incur large costs to
redesign their products to be compatible with new firms technology. If a new firm was to enter the market they must
offer a major improvement in cost or performance in order for the VAR‟s to switch from an incumbent.
Threat of Substitutes - Low
The products produced by the telecommunication satellite industry have little threat of substitutes due to the cost
inefficiencies of terrestrial systems being placed in remote locations. The industry does not compete directly with
terrestrial systems and offer a number of products that any other industry is able to compete with. The industry has a
relatively inelastic demand as many of the products are essential to company‟s day-to-day operations.
Degree of Rivalry - Moderate
Relatively small numbers of firms compete in the telecommunication satellite industry and of the few in the industry
three make up the majority of the market share. Due to the high industry growth firms are competing less on taking
customers and more on finding new target markets. Firms compete on quality and product offerings rather than price
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because of the differentiated products. The high exit cost keeps companies competing in the business even though a
firm may be earning low returns on investment.
Bargaining Power of Buyers - Low
The industry is not concentrated and purchasers do not make large volume exchanges relative to sellers. The products
companies purchase do not represent a significant portion of the buyer‟s costs or purchases, which makes them much
less price sensitive. As previously mentioned, the high cost of switching deters buyers from changing providers,
reducing price pressure risk. In addition, the differentiated products offer few substitute to buyers, not allowing
buyers to dictate price. The industry‟s product is also very important to the quality of the buyer‟s products. With the
quality of the buyers products greatly affected by the industry‟s product buyers are generally less prices sensitive.
Bargaining Power of Suppliers – Moderate
The industry is dominated by a few companies and is more concentrated than the industries that sell them equipment
allowing them to have more influence on the price. There are relatively few substitute products and raw materials for
the purchases made by the telecommunications industry. This can allow the suppliers to exert more pressure on price
due to the dependence on the products they supply. The supplier‟s products are also greatly important input in the
telecommunications business giving buyers less sensitivity to price.
S.W.O.T. ANALYSIS
Strengths
 Operates the only satellite system known to man with 100% Earth coverage
 Inter-linked satellite architecture allows for minimal latency
 Strong relationship with Boeing creates
 Industry specific solutions
 Distribution network of VAR‟s and VAM‟s
 Coface credit facility in France allows for ideal satellite financing situation
Weaknesses
 Large capital expenditures required every 15 years to update satellite system
 Dependence on debt to finance satellite constellation
Opportunities
 Growing market with very few and known competitors
 Ability to serve companies China, Russia and Indium
 Expansion of product offering with the launch of Iridium NEXT
Threats
 Tightening of US Budget could decrease revenue from the DoD
 Unforeseen difficulties launching Iridium NEXT within the economic, political and legal environment
 Loss of market share with improved technology and coverage of terrestrial systems
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COMPARABLE ANALYSIS
Doing a comparable analysis for Iridium is very difficult because they operate in a small industry with very unique
characteristics. They have four direct competitors, three of which are publicly traded and two of which are profitable.
The difficulty in comparing companies in this space is a result of high capital expenditures required to compete. Each
company builds new constellations every 15 years or so but develop them on different schedules. These
constellations require all of the companies to take out debt and hold more cash in order to create and deploy them.
Given that fact, companies enterprise value will vary greatly year-to-year, making companies multiples incomparable,
leading to the belief that the comparables analysis should be weighted 0%. For illustrative purposes, a comparables
analysis was performed, consisting of two direct competitors of Iridium and another company who operate satellites
for more general purposes. All companies were weighted equally.
The multiples that were chosen to value IRDM were EV/Revenue, EV/Gross Profit and EV/ EBITDA. No cash
flow multiples were used because of the year to year variance in those numbers as a result of high capital expenditures.
EV/EBITDA was weighted 50% with the other two multiples weighted at 25%. This was done because the ability to
expand margins yields close to as much growth to cash flow as does the actual revenue growth.
ORBCOMM Inc. (ORBC) – 33.33%
Orbcomm operate a satellite system
consisting of 29 LEO satellites as well as a
ground based station. ORBC operates
“two-way communications system that enables its customers and end-users, including businesses and government
agencies to track, monitor, control, and communicate with fixed and mobile assets located worldwide.” Yahoo! Finance.
Their main customers include Caterpillar, Komatsu, Hitachi, Volvo and the US Coast Guard.
Reasons for comparability to IRDM:
1. Similar dependence to VARS
2. High exposure to the growing M2M communication business
3. Use of LEO satellite system
4. Similar number of billable subscribers, 515,000 vs. 415,000
Inmarsat PLC (ISAT) – 33.33%
Inmarsat is satellite communications provider for use
on land, in air, and at sea. Their offices are located in
London, England and are only traded on the London
Stock Exchange (LSE). Financial information was
pulled from FactSet and values are represented in
British pounds. They do not have ADR‟s so
accounting may be different because of the different
governing body they report to. Inmarsat uses a GEO earth orbital constellation consisting of 11 different satellites.
This company sells their services through distribution channels much the same Iridium does, which allows them to
create specialized industry solutions for their customers. Inmarsat is the leader in the MSS industry but also derives its
revenue from “technical support to other operators, the provision of conference facilities and leasing surplus office
space to external organizations” Google Finance
12
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Reasons for comparability to IRDM:
1. Only larger company in the MSS market than IRDM
2. Ability to serve customers in a variety of business segments
3. Earth coverage that comes close to rivaling Iridium
Hughes Communication (HUGH) -33.33%
Hughes Communications “is a provider of broadband
satellite network services and systems to the enterprise
market. It is also the satellite Internet access provider to
North American consumers and small and medium sized
businesses, such as small office and home office users. In
addition, the Company provides managed services to
large enterprises that combine the use of satellite and
terrestrial alternatives. The Company operates in four business segments: the North America Broadband segment, the
International VSAT segment, the Telecom Systems segment and the Corporate and other segment” Google Finance
This company was chosen because it is the closest company to Iridium who it doesn‟t directly compete against. The
Company‟s satellites are more focused on providing broadband access to individual located terrestrials and require a
less expansive satellite network as a result. They face a much larger breadth of competition which includes AT&T,
Verizon, Sprint, British Telecomm and many others. They do not directly compete with Iridium, but do indirectly as
they provide services to ground stations for two of Iridium‟s MSS competitors: Thuraya and Globalstar.
Reasons for comparability to IRDM:
1. General similarity as a provider of communications services
2. Use of satellite system to provide services to customers
3. Profitable hardware sales
Data for Globalstar Inc (GSAT), a direct competitor in the MSS industry to Iridium, and was considered for the
comparable analysis. They were not weighted in the analysis because they have been very unprofitable in recently and
are in the midst of replacing 24 of the 48 satellites in their system.
DISCOUNTED CASH FLOW ANALYSIS
Due to the cyclical nature of Iridium Communications and having to launch a new satellite constellation every 15-20
years, a DCF must include the full cycle of operations. To do this, a fifteen year DCF was made and the averages of
the cyclical line items over that period of time were taken in the terminal year.
Revenue
To project out revenue, IRDM‟s revenue was broken into services and equipment revenue. Service revenue was then
further separated into Commercial and government which were then broken further into voice, M2M, consulting and
other revenues. The most significant portion of IRDM‟s revenue comes from the recurring service revenue found in
the voice and M2M sections of government and commercial. To project these numbers out we reconfigured the
13
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equation given to solve for ARPU (Average Revenue Per User) to solve for section revenue. The original equation
for ARPU and equation solved for revenue are shown below.
(
(
)
(
)
)
The one fundamental thing to note is that the equation looks at the average number subscribers for a given period.
This is done because companies who begin using IRDM services throughout a given time period should not be
looked at as though they are producing revenue for the entire period. The result of this will be shown as the increase
in revenue for a segment will not always equal the subscriber increase holding all else constant.
The prices of IRDM‟s services are expected to decline going forward to encourage wider use of their services. For
this reason ARPU was projected to decline at 2% going out for the next five years plus for both voice and M2M
services in the Commercial and Government markets.
M2M
Out until 2015 M2M is expected to grow at an18% CAGR and have revenue growth at 14%. Commercial services
were projected to grow subscribers at the 18% clip with only 2% decreases in ARPU because of their premium market
position. Based off that projection, Government subscribers should increase around 15% for the next few years. The
combination of growth in both areas lead to roughly 15% total M2M growth for the next few years which is very
reasonable considering the market growth. Growth is then projected to stay fairly high out until 2020 because of the
release of Iridium NEXT before trending down.
Government
Government revenue is projected grow between 6% and 8% through 2015. With this knowledge, Engineering and
Support revenue growth was set at 7% for that time period because it should stay in line with the overall segment
growth. Since M2M revenue growth for Government was projected in relation to total M2M growth, Voice could
then be solved for. The subscriber growth was set to be 8%, keeping total revenue growth in line with segment
projected growth. Government Voice and engineering revenue was then forecasted to decline to 3% fairly quickly
because of the potential saturation of that market.
Commercial
With the projection of M2M data service already made, we are left to forecast commercial voice revenue. Commercial
subscribers will grow at a much faster rate than that of government users going into the future. The subscriber base is
supposed to grow upwards of 15% year-over-year out until 2015 according to management. M2M data is at the
higher end of that that clip so voice subscribers will be slightly below that and easing over time. After decent growth
for the next few years voice growth will trend down to 3% because limited extendibility of the product when
compared to M2M. Other revenue was projected to grow at 3% each year because there is no information regarding
what it is composed of and relative insignificant proportion of Iridium‟s total revenue.
14
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Subscriber Equipment
Iridium has announced that they believe there will be a 15% to 30% decrease in subscriber equipment revenue in
2011. This is the result of the cyclical nature of their product sales. Users buy products one year and use them for the
next few. Based on historical data available, it is safe to assume Iridium sees revenue shifts in this area because of this
fact. Using these facts equipment revenue was projected to run in a four year cycle, consisting of three years of
growth, followed by a year of decline. The CAGR for the cycle is projected to be 5% or roughly half the growth of
subscriber use because lowering of prices to build a larger recurring revenue stream
Hosted Payloads
Revenue in this area will come about as part of the launch of Iridium NEXT with companies paying Iridium to take a
device of theirs to space with the launch of the satellite constellation. There is expected revenue of $200 to $300
million from the launch alone. The revenue from this account is spread out in proportion to the number of satellites
Iridium is expected to launch each year. Recurring revenue from hosted payloads will ensue shortly thereafter. The
company strongly believes they will have a better than 60% OEBITDA margin after 2016 so we set recurring revenue
at 4% of total revenue to make up the difference between our model and company projections for the future.
Cost of Service
Costs related to Iridium‟s services include: network engineering, software engineering, support, and staff. The
marginal cost of each additional subscriber is extremely low, which will lead to dramatic margin expansion in the years
to come. Over the past few years, the cost of service has grown roughly half the rate of service revenue. Because of
this fact, costs of service were projected to grow at half the rate of service revenue for each year. As time goes on,
cost of service growth becomes equal to that of service revenue growth in the model. This makes sense because there
will reach a point at which margins in this area can no longer be expanded.
Cost of Equipment
This was projected out as a percent of subscriber equipment revenue. Iridium is expected to lower its price point to
expand its customer base, to more fully capitalize on recurring service revenue. As a result, cost of equipment is
projected to increase steadily as a percent of revenue moving forward. This price movement will model that of
terrestrial wireless carriers as the business becomes adopted more generally.
Selling General & Administrative Expense
SG&A expenses generally include sales and marketing costs as well as legal, finance, information technology, facilities,
billing and customer care expense. It was projected based on historical averages as very little data was given on the
future of the line item. It is expected that it will decrease marginally each year because Iridium has little additional
costs associated with increased subscribers. SG&A was projected to be 12% of revenue in the terminal year.
Working Capital
To project out cash and cash equivalents, Iridium NEXT cash payments, debt payments and interest payments were
added during the year plus an additional amount of cash to insure sufficient liquidity. The terminal year for cash and
cash equivalents was based off the amount of capital expenditures paid with cash, debt payments and interest
payments plus the additional cash for liquidity purposes. The current portion of Long-Term Debt is based off of the
15
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University of Oregon Investment Group
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next year‟s debt payments. Other line items were projected based of historical averages and maintaining a current
ratio roughly between 1 -1.5. In the terminal year a current ratio of 1.14 was assumed, this is based of company
guidance and sector averages in the long run.
Capital Expenditures
As seen above, Iridium‟s management has outlined the estimates of capital expenditures for Iridium NEXT. These
expenditure estimates were used for projections. In addition, the remaining capital expenditures were based on the
current property, plant and equipments historical costs and estimated useful life. The percent growth was projected
using historical averages, company guidance and best estimates. These two capital expenditures were then add
together to get the total capital expenditures for the year. The terminal year capital expenditure adds the sum of the
Iridium NEXT expenditures divided by fifteen year useful life to get the average capital expenditure for new Satellite
constellations. By adding the average expenditure per year for new constellation the terminal year is assuming Iridium
will continue to the industry cycle.
Depreciation
The underlying assumption of the depreciation model is that the satellites are not depreciable until the point of
launch. Due to Iridium‟s management not giving
any indication as to when the 9 satellite spare on
earth will start to deprecate, it was assumed to be on
the last launch date 2017. It is also assumed that
Iridium will use a Modified Accelerated Cost
Recovery System (MACRS) to depreciation the
assets for tax purposes. This MACRS system allows
for the greatest amount of depreciation in every
useful life year. To get the depreciable percentage
amount, the IRS depreciation rate chart was used for
the 15- year period. The totals from the stagger
launched deprecation table were used as the
deprecation for the year. Since in the terminal year
Iridium NEXT depreciation is at its midpoint
percentage it accurately reflects what deprecation
will look like going into perpetuity.
Long-Term Debt
As previously stated, the coupon is the 4.96% on the fixed rate tranche for $1.5 billion and a LIBOR +1.95% for the
remaining $.3 billion. Iridium can draw down on the debt over the next five years when building Iridium NEXT and
Iridium will not begin repaying the funds until 2017, including interest expense. The long-term debt takeouts were
projected as a percent of capital expenditures during the year and of the total amount of debt to be taken out. Iridium
stated that the principal repayments starting in 2017 were to be staggered until 2020 and then reach a recurring level
until fully paid off in 2024.
16
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Interest Expense
To obtain the weighted average interest used during the period we took a average 5 year LIBOR average +1.95% and
got a 3.0% average. Then we weighted the $1.5 billion fixed tranche of 4.96% and the 4.95% $.3 billion floating as
their percent of the total debt to get a weighted average interest rate of 4.958%. The interest expense was stated to not
begin until the principal amounts were being repaid. To get the interest expense accumulated during the year, we took
the debt payments for the year and divided them equal between the quarters and took the weighted average quarterly
interest rate based on the debt outstanding during the quarters. The terminal year took an average of the interest
expense paid during the 15-year cycle to get the expected interest expense going into perpetuity.
Unlevered Beta
Calculating a beta proved to a very difficult task as Iridium Communications has been trading publicly for about 16
months. The first regression ran was a weekly regression of prices from October 1, 2009 to the present against the
S&P 500, yielding a beta of 0.796, but had a very high standard deviation. The betas of the two most comparable
companies to Iridium, Inmarsat and Orbcomm were .71 and .54 respectively for the same time period. It did not
make sense why Orbcomm‟s beta would be lower than both ISAT and IRDM because it is a smaller, growing player
in the MSS industry. A 4-year monthly regression was then performed for Inmarsat and Orbcomm yielding Betas of
.51 and 1.17 respectively, which made more sense in comparison to Iridium.
Still unsure of the correct beta, a daily regression and every third day regression of Iridium‟s returns since October 1st,
2009 were performed, yielding betas of .812 and .803. The beta chosen to use is the .796 as it reflects the beta of
unlevered Iridium, which it has mostly been for the 66 weeks the regression was ran for. The beta is altered year by
year based on the debt to equity ratio.
A beta below 1 is very reasonable for an unlevered state of this company because it is a secular growth company that
will not be hurt by a downturn in the economy as the overall market will be. The reasons for this include the
following:
1. Iridium provides mission critical services to companies under regulatory pressure
2. They operate in an industry with high barriers to entry and known competitors
3. Iridium is the second largest player in an industry which businesses have no substitute for
4. The company derives the majority of revenue from recurring services with high switching costs because the devices
used to access the network are specific to Iridium‟s.
Weighted Average Cost of Capital
Due to the changing capital structure of Iridium over the next fifteen years, a single W.A.C.C calculation will not
suffice to properly discount the company‟s cash flows. To take into account the changing capital structure a W.A.C.C
had to be computed for every year based on the fair value of equity and debt during that year. To begin this process
there had to be an assumption made about the percent equity and percent debt in the terminal year and going into
perpetuity. Based off company guidance, comparable companies in the sector and the benefits of debt for tax-shield
purposes, 90% equity and 10% debt values were assumed going into perpetuity. Due to the difficultly of predicting
17
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these percent‟s, conservative numbers were chosen. Any higher proportion of debt would result in a higher implied
price.
A beta was then computed based of the leverage assumed going forward. The Hamada equation used is shown
below.
βL = βU[1 + (1 − T)φ]
βL and βU are the levered and unlevered betas, respectively, T the tax rate and φ the leverage, defined here as the ratio
of debt, D, to equity, E, of the firm. After computing the beta, and Return on Equity in the terminal year, the
terminal W.A.C.C year was then calculated to find the terminal value and take it back to the discounted value in 2025.
The long- term debt was then subtracted based of the 10% debt valuation to get the implied equity value for year
2025. Then to get the 2024 fair valued percent equity and debt, the 2025 equity value had to be discounted using the
Return on Equity assumed in 2025 to find the discounted fair value of equity in 2024 . “This is reasonable because the
Return on Equity is exactly what the equity should return over the year”, as stated by Professor Larry Dann at the
University of Oregon. The average debt was then calculated over the period from 2023 to 2024 because leverage
should not be at one point in time but rather the average of the year. This new percent equity and debt was then
assumed as the value during 2024. The beta was again calculated based of the new leverage then the Return on Equity
and W.A.C.C. The same procedure was then repeated over and over again to get the implied fair value of equity
during every year. As described by Larry Dann, “the process resembles a spiral that does not interconnect due to the
compounding nature of the assumptions”.
To make the process easier to understand, a discount factor for every year was calculated and is seen line item below
the DCF model. The discount factor is the W.A.C.C‟s for each year preceding the current. These free cash flows were
then summed up and added to the PV of terminal value. This number then gave the implied equity value because the
there is no debt on their books now and the debt taken out in the future will go toward going to fund capital
expenditures.
Due to the risky nature found in small cap stocks a 1% premium was placed on the Return on Equity. The purpose
of this can be shown in research by Eugene Fama and Ken French. The basis for their research is the fact that small
cap stocks have historically had greater returns and higher variance than large cap stocks and therefore require a
higher rate of return to equity holders. This premium should be placed on the return on equity and not the WACC
because the company is only required to repay the promised amount to debtors and no more.
To see the difference that this new Weighted Average Cost Capital makes standard assumption calculations were
made as well.
18
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RECOMMENDATION
Iridium communications is a well positioned company in the growing mobile satellite communications services
industry with their blend of commercial and government revenue. The company has and will continue to have limited
competition because of the high barriers to entry of the industry and long lead time required to enter the industry.
Iridium‟s investment in their constellation will prove to be a wise decision that furthers their competitive advantage in
developing the highest quality communication devices on the market.
The biggest short term catalyst for Iridium communications is the release of hosted payload partners for the launch of
Iridium NEXT. The majority of them will be announced over the next two years. As these agreements are
announced and the launch of Iridium NEXT comes closer, the stock price should see significant appreciation. The
implied prices arrived at below only glimpse into what the stock could grow to over a long-term time horizon.
The implied prices for the DCF Analysis and Comparable analysis are $10.59 and $15.82 respectively. With
weightings of 100% for DCF and 0% for Comparables an implied price of $11.59 was arrived at leading to an
undervaluation of 30.13%. After months of intensive analysis we are recommending a BUY of Iridium
Communications for all portfolios.
Price
Weighting
DCF Implied Price
10.59
100.00%
Comparable Implied Price
15.82
0.00%
Target Price
10.59
100%
Current Price
8.14
Undervalued
30.10%
19
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APPENDIX 1 – COMPARABLE ANALYSIS
The University of Oregon Investment Group
33.33%
33.33%
33.33%
100.00%
($ in thousands, except per share data and ISAT in British Pounds)
IRDM
ISAT
ORBC
HUGH
Weighted Average
Stock Characteristics
Min
Max
Avg.
Median
Current Price
1.4
59.93
15.9
7.1
8.14
7.13
3.08
59.93
23
50 Day Moving Avg.
2.8
48.16
16.5
7.5
8.310
6.64
2.81
48.16
19
200 Day Moving Avg.
2.4
34.00
13.0
7.9
8.980
6.77
2.41
34
14
Beta
0.540
1.270
0.829
0.753
0.796
0.710
0.540
1.270
0.84
Size
ST Debt (MRQ)
132,600
27,740
132,600
6,100
46,233
LT Debt (MRQ)
766,700
421,364
625,501
766,700
1,417
713,200
493,772
Cash and Cash Equiv.
29,568
222,500
110,451
104,636
104,636
138,100
29,568
222,500
130,056
Diluted Share Count
21,830
406,610
166,517
74,040
74,040
406,610
42,604
21,830
157,015
Market Cap
131,220
2,899,129 1,065,887
602,686
602,686 2,899,129
131,220.32
1,308,271.90
1,446,207
Enterprise Value
103,069
3,660,329 1,404,539
956,177
498,050 3,660,329
103,069
1,805,072
1,856,157
Profitability Margins
Gross Margin
-94.12%
74.74%
29.71%
57.09%
57.09%
75%
73%
37.69%
61.86%
EBITDA Margin
-26.42%
68.06%
29.73%
39.7%
39.66%
51%
68%
16.58%
45.13%
Net Margin
-116.60%
17.91%
-15.66%
2.71%
2.71%
16.9%
18%
0.81%
11.86%
Credit Metrics
Interest Expense (LTM)
0 107,592.40
35,257.7
5,380
0%
107,592
193
63,123
56969
Debt/Equity (MRQ)
0.0%
161.2%
49.6%
31%
0%
31%
1%
55%
29.0%
Debt/EBITDA (LTM)
-3518.8%
423.7%
-568.9%
6%
0%
245%
6%
424%
224.7%
EBITDA/Interest Expense (LTM)
(3.30)
127.68
26.10
2.69
0%
341%
12768%
269%
45
Operating Results
Revenue (LTM)
36,204.0 1,024,083.0 437,527.0
336,232.0
336,232
723821
36,204
1024083
594703
Gross Profit (LTM)
(63,339.0)
540,960.0 216,410.0
191,951.0
191951
540960
26480
385998
317813
EBITDA (LTM)
(17,776.0)
367,420.0 135,478.6
133,343.0
133343
367420
24642
169764
187275
Valuation
EV/Revenue
1.48
5.06
2.85
1.76
3.22
EV/Gross Profit
2.59
6.77
3.89
4.68
5.11
EV/EBITDA
3.74
9.96
4.18
10.63
8.26
Metric
EV/Revenue
EV/Gross Profit
EV/EBITDA
Price Target
Current Price
Undervalued
Implied Price
16.05
14.67
16.29
Weight
25%
25%
50%
15.82
8.14
94.4%
20
Iridium Communications
University of Oregon Investment Group
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APPENDIX 2 – DISCOUNTED CASH FLOWS ANALYSIS
The University of Oregon Investment Group
($ in thousands)
2008A
Total Company Revenue
% Growth
Operating Expenses
Cost of Subscriber Equipment Sales
% Revenue
Cost of Services
% Revenue
Research and Development
% Revenue
Depreciation and Amortization
% Revenue
Depreciation IRDM Next
% Revenue
Selling, General and Administrative
% Revenue
Transaction Costs
% Revenue
Total Operating Expenses
% Revenue
Operating Income (EBIT)
Operating Margin
Non-Operating Items
Change in Fair Value of Warrants (income)
% Revenue
Interest Income (Expense)
% Revenue
Other (Expense) Income
% Revenue
Pre-tax Income
% Revenue
Income Tax (Benefit) Expense
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
% Revenue
Add Back: Interest Expense*(1-Tax Rate)
% Revenue
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Net Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Unlevered Free Cash Flows
Discount Factor
2009A
2010Q1
2010Q2
2010Q3
2010Q4E
2010A+E
2011 E
2012 E
2013 E
2014 E
2015 E
2016 E
2017 E
2018 E
2019 E
2020 E
2021 E
2022 E
2023 E
2024 E
2025 E
320,944
23.01%
318,940
-0.62%
81,700
84,000
94,500
94,976
355,176
11.36%
369,459
4.02%
406,886
10.13%
449,579
10.49%
489,025
8.77%
634,893
29.83%
693,882
9.29%
666,609
-3.93%
686,503
2.98%
725,795
5.72%
768,769
5.92%
812,492
5.69%
852,112
4.88%
881,263
3.42%
908,744
3.12%
936,525
3.06%
67,570
21.05%
69,882
21.77%
32,774
10.21%
12,535
3.91%
51,922
16.28%
77,943
24.44%
23,406
7.34%
32,363
10.15%
23,145
28.33%
20,361
24.92%
4,265
5.22%
22,511
27.55%
11,711
13.94%
19,021
22.64%
8,132
9.68%
22,449
26.73%
14,798
15.66%
17,613
18.64%
2,311
2.45%
22,657
23.98%
12,000
12.635%
17,613
18.54%
4,749
5%
22,794
24%
61,654
17.359%
74,608
21.01%
19,457
5.48%
90,411
25.46%
46,950
12.71%
74,608
20.19%
22,168
6.00%
14,778
4.00%
51,096
12.56%
79,628
19.57%
24,413
6.00%
15,462
3.80%
57,664
12.83%
83,867
18.65%
26,975
6.00%
16,185
3.60%
60,425
12.36%
88,117
18.02%
29,341
6.00%
16,627
3.40%
55,105
17.17%
7,959
2.48%
245,825
76.59%
75,119
23.41%
61,534
19.29%
18,641
5.84%
265,809
83.34%
53,131
16.66%
15,930
19.50%
16,703
19.88%
16,312
17.26%
14,721
15.50%
-
55,419
15.00%
-
58,999
14.50%
-
64,290
14.30%
-
68,463
14.00%
-
62,413
8.99%
96,962
13.97%
34,694
5.00%
13,878
2.00%
192,365
27.72%
94,368
13.60%
-
69,163
10.38%
101,716
15.26%
26,664
4.00%
13,332
2.00%
256,046
38.41%
89,326
13.40%
-
71,065
10.35%
106,728
15.55%
27,460
4.00%
10,298
1.50%
247,091
35.99%
90,618
13.20%
-
70,152
9.67%
112,208
15.46%
29,032
4.00%
7,258
1.00%
222,448
30.65%
94,353
13.00%
-
73,303
9.54%
117,943
15.34%
30,751
4.00%
7,688
1.00%
200,127
26.03%
98,402
12.80%
-
78,068
9.61%
123,744
15.23%
32,500
4.00%
8,125
1.00%
183,908
22.64%
103,999
12.80%
-
80,751
9.48%
129,608
15.21%
34,084
4.00%
8,521
1.00%
177,209
20.80%
102,253
12.00%
-
80,235
9.10%
135,591
15.39%
35,251
4.00%
8,813
1.00%
176,247
20.00%
105,752
12.00%
-
83,774
9.22%
140,834
15.50%
36,350
4.00%
9,087
1.00%
176,247
19.39%
109,049
12.00%
-
87,454
9.34%
145,037
15.49%
37,461
4.00%
9,365
1.00%
176,280
18.82%
112,383
12.00%
-
86,212
105.52%
(4,512)
-5.52%
78,016
92.88%
5,984
7.12%
73,691
77.98%
20,809
22.02%
71,877
75.68%
85,494
90.02%
63,666
17.93%
309,796
87.22%
45,380
12.78%
58,444
9.21%
92,490
14.57%
31,745
5.00%
20,317
3.20%
66,333
10.45%
87,615
13.80%
-
213,922
57.90%
155,537
42.10%
229,597
56.43%
177,290
43.57%
248,980
55.38%
200,598
44.62%
262,974
53.78%
226,051
46.22%
356,943
56.22%
277,950
43.78%
494,680
71.29%
199,202
28.71%
556,247
83.44%
110,362
16.56%
553,260
80.59%
133,243
19.41%
535,451
73.77%
190,345
26.23%
528,214
68.71%
240,555
31.29%
530,344
65.27%
282,149
34.73%
532,427
62.48%
319,685
37.52%
541,887
61.49%
339,375
38.51%
555,342
61.11%
353,402
38.89%
567,979
60.65%
368,545
39.35%
34,117
10.70%
(13,184)
-4.13%
(1,973)
-0.62%
7,803
2.45%
(1,321)
-16.93%
9,124.00
2.86%
32,363
10.15%
15,416
4.83%
56,903
17.84%
221056
62.24%
69,910
21.92%
151,146
106
0.13%
117
0.14%
(4,523)
-5.54%
(2,930)
64.78%
(1,593.00)
-1.95%
22,511
27.55%
(37)
-0.05%
20,881
25.56%
210381
59.23%
81,348
99.57%
129,033
228
0.27%
(22)
-0.03%
6,234
7.42%
2,964
47.55%
3,270.00
3.89%
22,449
26.73%
(120)
-0.14%
25,599
30.48%
190203
53.55%
88,211
105.01%
101,992
81
0.09%
(6)
-0.01%
20,896
22.11%
10,225
48.93%
10,671.00
11.29%
22,657
23.98%
(41)
-0.04%
33,287
35.22%
179980
50.67%
159,230
168.50%
20,750
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
(86,845)
-13.03%
-
(80,682)
-11.75%
-
(71,269)
-9.82%
-
(58,831)
-7.65%
-
(45,384)
-5.59%
-
(31,937)
-3.75%
-
(18,490)
-2.10%
-
0.00%
-
(21,858)
-2.33%
-
2,777
3.40%
(27,041)
45,433
54.09%
86,049
91.06%
38,621
149,324
157.22%
155,537
42.10%
54,438
35.00%
101,099
27.36%
14,778
4.00%
0.00%
115,877
31.36%
252510
71.09%
168,104
45.50%
84,406
23.76%
25,035
328,924
89.03%
177,290
43.57%
62,051
35.00%
115,238
28.32%
15,462
3.80%
0.00%
130,700
32.12%
207684
58.47%
193,271
47.50%
14,413
4.06%
(69,993)
459,306
112.88%
200,598
44.62%
70,209
35.00%
130,389
29.00%
16,185
3.60%
0.00%
146,574
32.60%
233279
65.68%
213,550
47.50%
19,729
5.55%
5,316
459,725
102.26%
226,051
46.22%
79,118
35.00%
146,933
30.05%
16,627
3.40%
0.00%
163,560
33.45%
241852
68.09%
233,509
47.75%
8,343
2.35%
(11,387)
515,159
105.34%
277,950
43.78%
97,282
35.00%
180,667
28.46%
86,649
13.65%
0.00%
267,317
42.10%
466026
131.21%
303,161
47.75%
162,865
45.85%
154,522
535,574
84.36%
199,202
28.71%
69,721
35.00%
129,481
18.66%
206,243
29.72%
0.00%
335,725
48.38%
501920
141.32%
413,055
59.53%
88,864
25.02%
(74,000)
320,922
46.25%
23,517
3.53%
8,231
35.00%
15,286
2.29%
269,378
40.41%
56,449
8.47%
341,113
51.17%
400976
112.89%
434,615
65.20%
(33,639)
-9.47%
(122,503)
161,282
24.19%
52,561
7.66%
18,397
35.00%
34,165
4.98%
257,388
37.49%
52,443
7.64%
343,996
50.11%
468230
131.83%
508,724
74.10%
(40,494)
-11.40%
(6,855)
11,654
1.70%
119,076
16.41%
41,676
35.00%
77,399
10.66%
229,706
31.65%
46,325
6.38%
353,430
48.70%
506101
142.49%
570,591
78.62%
(64,490)
-18.16%
(23,996)
12,011
1.65%
181,725
23.64%
63,604
35.00%
118,121
15.36%
207,815
27.03%
38,240
4.97%
364,175
47.37%
508872
143.27%
588,317
76.53%
(79,445)
-22.37%
(14,956)
12,379
1.61%
236,765
29.14%
82,868
35.00%
153,897
18.94%
192,033
23.64%
29,499
3.63%
375,430
46.21%
505541
142.34%
606,353
74.63%
(100,812)
-28.38%
(21,367)
12,759
1.57%
287,748
33.77%
100,712
35.00%
187,037
21.95%
185,730
21.80%
20,759
2.44%
393,525
46.18%
501355
141.16%
622,696
73.08%
(121,341)
-34.16%
(20,529)
13,150
1.54%
320,886
36.41%
112,310
35.00%
208,576
23.67%
185,060
21.00%
12,018
1.36%
405,654
46.03%
489943
137.94%
625,908
71.02%
(135,965)
-38.28%
(14,624)
13,554
1.54%
353,402
38.89%
123,691
35.00%
229,711
25.28%
185,334
20.39%
0.00%
415,046
45.67%
409473
115.29%
363,498
40.00%
45,976
12.94%
181,941
13,969
1.54%
346,688
37.02%
121,341
35.00%
225,347
24.06%
185,645
19.82%
14,207
1.52%
425,200
45.40%
533841
150.30%
475,054
50.73%
58,787
16.55%
12,811
185,645
19.82%
(52,762.36)
(109,580)
88,803
302,334
339,198
365,415
366,752
384,038
400,904
406,724
219,136
226,743
48,620
152,266
156,954
155,107
142,536
136,377
129,809
119,814
(21,094)
-6.57%
(146)
-0.05%
0.00%
96,359.00
30.02%
12,535
3.91%
21,094
6.57%
129,988.00
40.50%
143
0.04%
12,899
4.02%
(12,756.00)
12,756
0.00%
117,232.00
(163,902)
7,351
2.30%
39,950
12.53%
173,503.97
18,103.67
7,207.40
0.00%
85,494
29,923
35.00%
55,571.10
58.51%
22,794
0.00%
78,365
82.51%
217031
61.11%
157,660
166.00%
59,371
0.00%
89
0.03%
45,291
12.75%
40,182
35.00%
5,109
1.44%
90,411
25.46%
0.00%
95,520
26.89%
217031
61.11%
157,660
44.39%
59,371
16.72%
38,621
283,583
79.84%
(226,684)
(238,082)
(258,613)
(318,467)
(340,212)
(422,779)
(108,275)
(197,502)
(196,796)
(223,052)
(219,737)
(251,445)
98.81%
82.96%
76.10%
70.04%
64.59%
59.47%
54.75%
50.36%
46.27%
42.45%
38.86%
35.51%
32.38%
29.46%
58,596
55,140
26.74%
24.32%
21
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 3 – REVENUE MODEL
The University of Oregon Investment Group
($ in thousands)
Revenues:
Government Services
Voice
% Revenue
% Growth
Subscribers
% Growth
ARPU
% Growth
M2M Data
% Revenue
% Growth
Subscribers
% Growth
ARPU
% Growth
Engineering and Support
% Revenue
% Growth
Total Government Services Revenue
% Revenue
% Growth
Commercial Services
Voice
% Revenue
% Growth
Subscribers
% Growth
ARPU
% Growth
M2M Data
% Revenue
% Growth
Subscribers
% Growth
ARPU
% Growth
Other
% Revenue
% Growth
Total Commercial Services Revenue
% Revenue
% Growth
Hosted Payloads Launch
Recurring Hosted Payloads
% Revenue
% Growth
Subscriber Equipment Revenue
% Revenue
% Growth
Total Revenue
2008A
2009A
2010Q1
52,200
16.26%
7.41%
29.40
-4.23%
145.00
5.84%
300
0.09%
200.00%
1.90
90%
16.00
-36.00%
15,300
4.77%
68.13%
67,800
21.13%
17.30%
53,000
16.62%
1.53%
29.40
0.00%
150.23
3.60%
800
0.25%
166.67%
4.10
116%
22.22
38.89%
21,400
6.71%
39.87%
75,200
23.58%
10.91%
13,500
16.52%
121,200
37.76%
143,100
44.87%
18.07%
238.40
9.56%
52.30
0.31%
16500
5%
46.02%
96.90
36.48%
16.38
-9.01%
600
0.19%
-14.29%
160,200
50.2%
20.27%
217.60
28.15%
52.14
0.27%
11300
4%
105.45%
71.00
117.13%
18.00
-14.29%
700
0.22%
133,200
41.5%
31.62%
119,944
37.37%
17.71%
320,944
83,540
26.19%
-30.35%
318,940
2010Q2
13,900
16.55%
2010Q3
15,000
15.87%
2010Q4E
16,470
17.34%
30.20
31.80
35.20
38.00
151.01
149.46
149.25
150.00
300
0.37%
300
0.36%
400
0.42%
432
0.46%
4.50
5.70
6.30
6.80
23.26
19.61
22.22
22.00
5,200
6.36%
4,000
4.76%
4,100
4.34%
4,000
4.21%
19,000
23.26%
18,200
21.67%
19,500
20.63%
20,902
22.01%
36,600
44.80%
38,800
46.19%
41,500
43.92%
42,799
45.06%
247.60
262.40
0.06
50.72
270.30
0.03
51.94
278.41
50.21
4100
5%
76.20
6000
7%
5800
6%
100.90
0.21
20.98
52.00
6675
7%
15.79
83.40
0.09
25.06
110.99
200
0.24%
700
0.83%
600
0.63%
600
0.63%
40,900
50.1%
45,500
54.2%
47,900
50.7%
50,074
52.7%
21.00
21,800
26.68%
20,300
24.17%
27,100
28.68%
24,000
25.27%
81,700
84,000
94,500
94,976
2010A+E
2011 E
2012 E
2013 E
2014 E
2015 E
2016 E
2017 E
2018 E
2019 E
2020 E
2021 E
2022 E
2023 E
2024 E
2025 E
58,870
16.57%
11%
38.00
0.29
145.57
(0.03)
1432
0.40%
79%
6.80
0.66
21.90
(0.01)
17,300
4.87%
-19.16%
77,602
21.85%
3.19%
67,656
18.31%
14.92%
41.04
0.08
142.66
-2%
1883
0.51%
31%
7.82
0.15
21.46
-2%
18,511
5.01%
0.07
88,050
23.83%
13%
71,607
17.60%
5.84%
44.32
0.08
139.81
-2%
2122
0.52%
13%
8.99
0.15
21.03
-2%
19,807
4.87%
0.07
93,536
22.99%
6.2%
75,789
16.86%
5.84%
47.87
0.08
137.01
-2%
2391
0.53%
13%
10.34
0.15
20.61
-2%
21,193
4.71%
0.07
99,374
22.10%
6.2%
80,215
16.40%
5.84%
51.70
0.08
134.27
-2%
2695
0.55%
13%
11.89
0.15
20.20
-2%
22,677
4.64%
0.07
105,587
21.59%
6.3%
84,900
13.37%
5.84%
55.83
0.08
131.59
-2%
3037
0.48%
13%
13.68
0.15
19.80
-2%
24,264
3.82%
0.07
112,201
17.67%
6.3%
89,882
12.95%
5.87%
59.74
0.07
129.61
-1.50%
3375
0.49%
11%
15.32
0.12
19.40
-2%
25,720
3.71%
0.06
118,977
17.15%
6%
94,752
14.21%
5.42%
63.33
0.06
128.32
-1.00%
3705
0.56%
10%
17.16
0.12
19.01
-2%
27,006
4.05%
0.05
125,463
18.82%
5%
99,450
14.49%
4.96%
66.49
0.05
127.68
-0.50%
4087
0.60%
10%
19.22
0.12
18.73
-1.50%
28,086
4.09%
0.04
131,623
19.17%
5%
103,913
14.32%
4.49%
69.15
0.04
127.68
0%
4489
0.62%
10%
21.14
0.10
18.54
-1.00%
28,929
3.99%
0.03
137,331
18.92%
4%
107,540
13.99%
3.49%
71.23
0.03
127.68
0%
4913
0.64%
9%
23.25
0.10
18.45
-0.50%
29,797
3.88%
0.03
142,250
18.50%
4%
110,766
13.63%
3.00%
73.37
0.03
127.68
0%
5404
0.67%
10%
25.58
0.10
18.45
0%
30,691
3.78%
0.03
146,861
18.08%
3%
114,089
13.39%
3.00%
75.57
0.03
127.68
0%
5860
0.69%
8%
27.37
0.07
18.45
0%
31,611
3.71%
0.03
151,560
17.79%
3%
117,512
13.33%
3.00%
77.83
0.03
127.68
0%
6209
0.70%
6%
28.73
0.05
18.45
0%
32,560
3.69%
0.03
156,281
17.73%
3%
121,037
13.32%
3.00%
80.17
0.03
127.68
0%
6456
0.71%
4%
29.60
0.03
18.45
0%
33,536
3.69%
0.03
161,030
17.72%
3%
124,668
13.31%
3.00%
82.57
0.03
127.68
0%
6650
0.71%
3%
30.48
0.03
18.45
0%
34,543
3.69%
0.03
165,861
17.71%
3%
159,699
44.96%
11.60%
278.41
0.17
51.50
(0.02)
22575
6%
36.82%
110.99
0.15
18.10
10.50%
2,100
0.59%
214.29%
184,374
51.9%
15.09%
181,268
49.06%
14%
320.17
15%
50.47
-2%
25748
7%
14%
130.97
18%
17.74
-2%
2,163
0.59%
3%
209,179
56.6%
13.45%
203,339
49.97%
12%
364.99
14%
49.46
-2%
29776
7%
16%
154.54
18%
17.38
-2%
2,228
0.55%
3%
235,342
57.8%
12.51%
226,108
50.29%
11%
412.44
13%
48.47
-2%
34432
8%
16%
182.36
18%
17.03
-2%
2,295
0.51%
3%
262,836
58.5%
11.68%
250,392
51.20%
11%
466.06
13%
47.50
-2%
39818
8%
16%
215.18
18%
16.69
-2%
2,364
0.48%
3%
292,574
59.8%
11.31%
275,983
43.47%
10%
521.99
12%
46.55
-2%
46045
7%
16%
253.92
18%
16.36
-2%
2,434
0.38%
3%
324,462
51.1%
10.90%
111,000
301,592
43.46%
9%
574.19
10%
45.86
-1.50%
52514
8%
14%
292.01
15%
16.03
-2%
2,508
0.36%
3%
356,613
51.4%
9.91%
111,000
14,828
2.14%
326,870
49.03%
8%
625.86
9%
45.40
-1.00%
59734
9%
14%
341.65
17%
15.71
-2%
2,583
0.39%
3%
389,186
58.4%
9.13%
28,000
22,250
3.34%
352,810
51.39%
8%
675.93
8%
45.17
-0.50%
68206
10%
14%
392.89
15%
15.48
-1.50%
2,660
0.39%
3%
423,676
61.7%
8.86%
379,203
52.25%
7%
723.25
7%
45.17
0%
76569
11%
12%
440.04
12%
15.32
-1.00%
2,740
0.38%
3%
458,512
63.2%
8.22%
405,747
52.78%
7%
773.88
7%
45.17
0%
84098
11%
10%
484.05
10%
15.17
-1.00%
2,822
0.37%
3%
492,668
64.1%
7.45%
432,052
53.18%
6%
820.31
6%
45.17
0%
90711
11%
8%
522.77
8%
15.02
-1.00%
2,907
0.36%
3%
525,670
64.7%
6.70%
457,976
53.75%
6%
869.53
6%
45.17
0%
96522
11%
6%
559.36
7%
14.87
-1.00%
2,994
0.35%
3%
557,491
65.4%
6.05%
478,384
54.28%
4%
895.61
3%
45.17
0%
101769
12%
5%
587.33
5%
14.79
-0.5%
3,084
0.35%
3%
583,237
66.2%
4.62%
492,736
54.22%
3%
922.48
3%
45.17
0%
105804
12%
4%
610.82
4%
14.72
-0.5%
3,176
0.35%
3%
601,717
66.2%
3.17%
507,518
54.19%
3%
950.16
3%
45.17
0%
109497
12%
3%
629.15
3%
14.72
0%
3,272
0.35%
3%
620,287
66.2%
3.09%
27,460
4.00%
28,284
3.90%
29,132
3.79%
30,006
3.69%
30,906
3.63%
31,834
3.61%
32,789
3.61%
33,772
3.61%
92,463
13.33%
6%
693,882
101,710
15.26%
10%
666,609
103,744
15.11%
2%
686,503
101,669
14.01%
-2%
725,795
104,719
13.62%
3%
768,769
109,955
13.53%
5%
812,492
112,154
13.16%
2%
852,112
109,911
12.47%
-2%
881,263
113,208
12.46%
3%
908,744
116,605
12.45%
3%
936,525
93,200
26.24%
11.56%
355,176
72,230
19.55%
-22.50%
369,459
78,008
19.17%
8%
406,886
87,369
19.43%
12%
449,579
90,864
18.58%
4%
489,025
87,230
13.74%
-4%
634,893
22
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 4 – COST OF REVENUE
The University of Oregon Investment Group
2010Q4E
2010A+E
2011 E
2012 E
2013 E
2014 E
2015 E
2016 E
equipment cost of revenue
67,570
51,922
23,145
11,711
14,798
12,000
61,654
46,950
51,096
57,664
60,425
58,444
62,413
69,163
71,065
70,152
73,303
78,068
80,751
80,235
83,774
% of Equipment Revenue
2008A
56.33%
2009A
62.15%
106.17%
2010Q1
2010Q2
57.69%
2010Q3
54.61%
50.00%
66.15%
65.00%
65.50%
66.00%
66.50%
67.00%
67.50%
68.00%
68.50%
69.00%
70.00%
71.00%
72.00%
73.00%
74.00%
cost of services
69,882
77,943
20,361
19,021
17,613
17,613
74,608
79,628
83,867
88,117
92,490
96,962
Service Gross Margin
34.77%
33.11%
33.99%
29.86%
26.13%
24.82%
28.48%
26.79%
25.50%
24.33%
23.23%
22.21%
Cost of Revenue Growth
9.853%
11.535%
Cost of Incremental Revenue
Service Revenue Growth
% Growth
201,000
26.42%
235,400
17.11%
59,900
63,700
67,400
70,976
261,976
11.29%
2017 E
101,716
21.39%
2018 E
106,728
2019 E
112,208
20.74%
2020 E
117,943
20.21%
123,744
19.79%
2021 E
2022 E
129,608
19.49%
19.27%
135,591
19.12%
2023 E
140,834
19.04%
2024 E
2025 E
145,037
19.02%
87,454
75.00%
149,486
19.02%
6.7%
5.3%
5.1%
5.0%
4.8%
4.9%
4.9%
5.1%
5.1%
4.9%
4.7%
4.6%
3.9%
3.0%
3.1%
50.0%
50.0%
50.0%
50.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
297,229
13.46%
328,878
10.65%
362,209
10.13%
398,161
9.93%
436,664
9.67%
475,591
8.91%
514,649
8.21%
555,299
7.90%
595,843
7.30%
634,918
6.56%
672,531
5.92%
709,052
5.43%
739,518
4.30%
762,747
3.14%
786,148
3.07%
APPENDIX 5 – WORKING CAPITAL
The University of Oregon Investment Group
($ in thousands)
Net Revenues
Current Assets
Cash and Cash Equivalents
% Revenue
Net Accounts Receivable
% Revenue
Inventory
% Revenue
Deferred Tax Assets
% Revenue
Prepaid Expenses
% Revenue
Total Current Assets
% Revenue
2008A
320,944
129
0.04%
0.00%
0.00%
0.0%
14
0.00%
143
0.04%
Current Liabilities
Accounts Payable
% Revenue
Accrued Expenses
1611
% Revenue
0.50%
Accrued Compensation and Employee benefits
% Revenue
Deferred Revenue
% Revenue
Deferred Acquisition Consideration
% Revenue
Current Portion of Long-Term Debt
% Revenue
Deferred Underwrite Commissions
11288
% Revenue
3.52%
Total Current Liabilities
12,899
% Revenue
4.02%
2009A
318,940
2010Q1
81,700
2010Q2
84,000
2010Q3
94,500
2010Q4E
94,976
2010A+E
355,176
2011 E
369,459
2012 E
406,886
2013 E
449,579
147,178
46.15%
41,189
12.91%
25,656
8.04%
2,600
0.8%
4,433
1.39%
221,056
69.31%
145,653
178.28%
45,358
55.52%
11,630
14.24%
2,608
3.2%
5,132
6.28%
210,381
257.50%
120,743
143.74%
46,729
55.63%
10,493
12.49%
3,419
4.1%
8,819
10.50%
190,203
226.43%
104,636
110.73%
54,391
57.56%
12,167
12.88%
3,527
3.7%
5,259
5.57%
179,980
190.46%
142,000
149.51%
55,086
58.00%
11,872
12.50%
3,324
3.5%
4,749
5.00%
217,031
228.51%
142,000
39.98%
55,086
15.51%
11,872
3.34%
3,324
0.9%
4,749
1.34%
217,031
61.11%
174,000
47.10%
58,744
15.90%
14,778
4%
0%
4,988
1.35%
252,510
68.35%
120,000
29.49%
61,847
15.20%
20,344
5%
0%
5,493
1.35%
207,684
51.04%
131,000
29.14%
69,235
15.40%
26,975
6%
0%
6,069
1.35%
233,279
51.89%
7,865
2.47%
30,893.0
9.69%
6,489
2.03%
20,027
6.28%
4,636
1.45%
6,198
7.59%
52,555.0
64.33%
6,550
7.80%
57,100.0
67.98%
66,922
70.82%
65,732.0
69.56%
67,433
71.00%
63,634
67.00%
-
67,433
18.99%
63,634
17.92%
22,595
27.66%
24,561
29.24%
26,576
28.12%
26,593
28.00%
-
26,593
7.49%
-
70,197.24
19%
62,808.06
17%
7,389
2.00%
27,709.44
7.5%
81,377.27
20%
73,239.54
18%
8,138
2.00%
30,516.47
7.5%
89,915.72
20%
80,924.15
18%
8,992
2.00%
33,718.40
7.5%
-
-
2014 E
489,025
135,000
27.61%
75,799
15.50%
24,451
5%
0%
6,602
1.35%
241,852
49.46%
2015 E
634,893
340,000
53.55%
98,408
15.50%
19,047
3%
0%
8,571
1.35%
466,026
73.40%
2016E
693,882
357,245
51.48%
107,552
15.50%
27,755
4%
0%
9,367
1.35%
501,920
72.33%
2017 E
666,609
255,322
38.30%
103,324
15.50%
33,330
5%
0%
8,999
1.35%
400,976
60.15%
2018E
686,503
318,229
46.36%
106,408
15.50%
34,325
5%
0%
9,268
1.35%
468,230
68.21%
2019 E
725,795
362,031
49.88%
112,498
15.50%
21,774
3%
0%
9,798
1.35%
506,101
69.73%
2020 E
768,769
348,584
45.34%
119,159
15.50%
30,751
4%
0%
10,378
1.35%
508,872
66.19%
2021 E
812,492
336,137
41.37%
125,936
15.50%
32,500
4%
0%
10,969
1.35%
505,541
62.22%
2022E
852,112
323,690
37.99%
132,077
15.50%
34,084
4%
0%
11,504
1.35%
501,355
58.84%
2023 E
881,263
306,200
34.75%
136,596
15.50%
35,251
4%
0%
11,897
1.35%
489,943
55.60%
0.00%
81,348
99.57%
0.00%
88,211
105.01%
0.00%
159,230
168.50%
157,660
166.00%
157,660
44.39%
168,104
45.50%
193,271
47.50%
213,550
47.50%
220,000
24.21%
140,855
15.50%
36,350
4%
0%
12,268
1.35%
409,473
45.06%
2025 E
936,525
338,576
36.15%
145,161
15.50%
37,461
4%
0%
12,643
1.35%
533,841
57.00%
97,804.96 126,978.64 138,776.49 126,655.63 123,570.58 123,385.22 130,690.73 138,123.72 144,859.08 141,002.06 145,399.00 149,843.96
20%
20%
20%
19%
18%
17%
17%
17%
17%
16%
16%
16%
88,024.47 114,280.77 117,960.02
99,991.29 102,975.48 108,869.31 115,315.35 121,873.87 127,816.84 132,189.43 136,311.57 140,478.71
18%
18%
17%
15%
15%
15%
15%
15%
15%
15%
15%
15%
9,780
12,698
13,878
13,332
13,730
14,516
15,375
16,250
17,042
17,625
18,175
18,730
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
37,899.42
49,204.22
52,041.18
49,995.64
51,487.74
52,620.17
55,735.75
58,905.71
61,778.14
63,891.56
63,612.06
65,556.73
7.75%
7.75%
7.50%
7.50%
7.50%
7.25%
7.25%
7.25%
7.25%
7.25%
7.00%
7.00%
90,400.00 144,640.00 216,960.00 271,200.00 271,200.00 271,200.00 271,200.00 271,200.00
13.03%
21.70%
31.60%
37.37%
35.28%
33.38%
31.83%
30.77%
0.00%
69,910
21.92%
2024 E
908,744
233,509
47.75%
303,161
47.75%
413,055
59.53%
434,615
65.20%
508,724
74.10%
570,590.6
78.62%
588,317.2
76.53%
606,353.2
74.63%
622,696.3
73.08%
625,908.3
71.02%
0.00%
100,444.44
10.73%
363,497.5
40.00%
475,054.3
50.73%
23
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 6 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
The University of Oregon Investment Group
($ in thousands)
% Equity
% Debt
WACC
Beta
Return On Equity
Return On Equity + 1% Small Cap Premium
Terminal Growth Rate
Tax Rate
Risk-Free Rate
Unlevered Beta
Market Risk Premium
Cost of Debt
Diluted Shares Outstanding
Implied Price
Current Price
Undervalued
($ in thousands)
Terminal Value
Discounted Value of Cash During The Year
Free Cash Flow Accumulated During Year
Firm Value
LT Debt
Equity Value
PV of Equity
Average Debt
2010Q4E
92.77%
7.23%
10.052%
0.836
9.58%
10.58%
2011 E
77.84%
22.16%
9.536%
0.943
10.33%
11.33%
2012 E
62.70%
37.30%
9.013%
1.104
11.46%
12.46%
2013 E
52.17%
47.83%
8.649%
1.270
12.62%
13.62%
2014 E
46.12%
53.88%
8.440%
1.401
13.53%
14.53%
2015 E
50.71%
49.29%
8.598%
1.299
12.82%
13.82%
2016 E
51.54%
48.46%
8.627%
1.282
12.71%
13.71%
2017 E
53.99%
46.01%
8.712%
1.237
12.39%
13.39%
2018 E
57.75%
42.25%
8.842%
1.174
11.95%
12.95%
2019 E
62.67%
37.33%
9.012%
1.104
11.46%
12.46%
2020 E
68.63%
31.37%
9.218%
1.033
10.96%
11.96%
2021 E
75.13%
24.87%
9.442%
0.967
10.50%
11.50%
2022 E
81.81%
18.19%
9.673%
0.911
10.11%
11.11%
2023 E
88.80%
11.20%
9.915%
0.861
9.76%
10.76%
2024 E
96.11%
3.89%
10.168%
0.817
9.45%
10.45%
2025 E
90.00%
10.00%
9.956%
0.853
9.70%
10.70%
2011 E
2012 E
2013 E
2014 E
2015 E
2016 E
2017 E
2018 E
2019 E
2020 E
2021 E
2022 E
2023 E
2024 E
2,732,786
(340,212)
2,392,574
1,388,000
1,004,574
1,015,113
1186000
3,386,205
(422,779)
2,963,426
1,808,000
1,155,426
1,644,019
1598000
3,588,562
88,803
3,677,366
1,808,000
1,869,366
1,923,076
1808000
3,569,879
339,198
3,909,077
1,572,960
2,336,117
2,249,278
1645280
3,520,110
365,415
3,885,525
1,356,000
2,529,525
2,458,552
1464480
3,470,583
366,752
3,837,335
1,084,800
2,752,535
2,669,836
1220400
3,406,456
384,038
3,790,493
813,600
2,976,893
2,867,238
949200
3,327,202
400,904
3,728,107
542,400
3,185,707
3,049,745
678000
3,242,332
406,724
3,649,055
271,200
3,377,855
3,226,670
406800
3,344,675
219,136
3,563,810
3,563,810
3,351,099
135600
2025 E
3,458,004
3,458,004
226,743
3,684,747
493,764
3,190,983
3%
35.0%
3.73%
0.796
7.00%
4.96%
74,040
10.5923
8.1400
30.13%
2010Q4E
1,002,526 1,341,382 1,727,910 2,202,112
(108,275) (238,082) (258,613) (318,467)
894,251 1,103,300 1,469,297 1,883,645
110,000
318,000
624,000
984,000
784,251
785,300
845,297
899,645
705,361
751,667
791,788
877,100
55000
214000
471000
804000
3,595,820
302,334
3,898,155
1,717,600
2,180,555
2,068,253
1762800
246882
24
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 7 – GROUP STANDARD ASSUMPTIONS (FOR ILLUSTRATIVE PURPOSES ONLY)
The University of Oregon Investment Group
Tax Rate
Risk-Free Rate
Beta
Market Risk Premium
% Equity
% Debt
Cost of Debt
Return on Equity
WACC
35.0%
3.73%
0.796
7.00%
100%
0%
4.96%
9.30%
9.30%
Terminal Growth Rate
Terminal Value
PV of Terminal Value
Sum of PV Free Cash Flows
Firm Value
LT Debt
Cash
Equity Value
Diluted Share Count
Implied Price
Current Price
Undervalued
3%
3,705,896
976,049
(67,276)
908773
0
908,773
74040
12.3
8.14
33.68%
25
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 8 – CAPITAL EXPENDITURES
The University of Oregon Investment Group
($ in thousands)
Total Revenue
Iridium NEXT
% of Revenue
Terrestrial System
% of Growth
Equipment
% of Growth
Gateway System
% of Growth
Internally Developed Software and Purchased Software
% of Growth
Building/Leasehold Improvements
% of Growth
Total Capital Expenditures excluding NEXT
Total Capital Expenditures
% Revenue
2010A+E
355,176
275,000
793
3449.67
513.6
1,043
2784
8,583
283,583
79.84%
2011 E
2012 E
2013 E
2014 E
2015 E
2016E
2017 E
369,459
320,000
406,886
450,000
449,579
450,000
489,025
505,000
634,893
525,000
693,882
310,000
666,609
150,000
816
3%
3,553
3%
539
5%
1,147
10%
2868
3%
8,924
328,924
89.03%
841
3%
3,660
3%
566
5%
1,285
12%
2954
3%
9,306
459,306
112.88%
866
3%
3,770
3%
595
5%
1,452
13%
3042
3%
9,725
459,725
102.26%
892
3%
3,883
3%
624
5%
1,626
12%
3134
3%
10,159
515,159
105.34%
919
3%
3,999
3%
655
5%
1,773
9%
3228
3%
10,574
535,574
84.36%
946
3%
4,119
3%
688
5%
1,844
4%
3325
3%
10,922
320,922
46.25%
975
3%
4,243
3%
723
5%
1,917
4%
3424
3%
11,282
161,282
24.19%
2018E
2019 E
686,503
1,004
3%
4,370
3%
759
5%
1,994
4%
3527
3%
11,654
11,654
1.70%
2020 E
725,795
1,034
3%
4,501
3%
789
4%
2,054
3%
3633
3%
12,011
12,011
1.65%
768,769
1,065
3%
4,636
3%
821
4%
2,115
3%
3742
3%
12,379
12,379
1.61%
2021 E
812,492
1,097
3%
4,775
3%
854
4%
2,179
3%
3854
3%
12,759
12,759
1.57%
2022E
2023 E
852,112
881,263
1,130
3%
4,918
3%
888
4%
2,244
3%
3970
3%
13,150
13,150
1.54%
1,164
3%
5,066
3%
923
4%
2,312
3%
4089
3%
13,554
13,554
1.54%
2024E
2025 E
908,744
936,525
171,247
1,199
3%
5,218
3%
960
4%
2,381
3%
4212
3%
13,969
13,969
1.54%
1,235
3%
5,374
3%
999
4%
2,452
3%
4338
3%
14,398
185,645
19.82%
APPENDIX 9 – DEPRECIATION SCHEDULE
Iridium Next Depreciable Launch 2015
Accumulated Deprecation Launch 2015
MACRS Deprecation Expense Launch 2015
MACRS Deprecation 15 -year Percent
2015 E
1,326,653
66,333
66,332.67
5.00%
Iridium Next Depreciable Launch 2016
Accumulated Deprecation Launch 2016
MACRS Deprecation Expense Launch 2016
MACRS Deprecation 15 -year Percent
2016E
1,326,653
192,365
126,032
9.50%
2017 E
1,326,653
305,794
113,429
8.55%
2018E
1,326,653
407,946
102,152
7.70%
2019 E
1,326,653
499,883
91,937.08
6.93%
2020 E
1,326,653
582,534
82,650.51
6.23%
2021 E
1,326,653
660,806
78,272.55
5.90%
2022E
1,326,653
739,079
78,272.55
5.90%
2023 E
1,326,653
817,484
78,405.22
5.91%
2024E
1,326,653
895,756
78,272.55
5.90%
2025 E
1,326,653
974,162
78,405.22
5.91%
1,326,667
66,333
66,333
5.00%
1,326,667
192,367
126,033
9.50%
1,326,667
305,797
113,430
8.55%
1,326,667
407,950
102,153
7.70%
1,326,667
499,888
91,938
6.93%
1,326,667
582,539
82,651
6.23%
1,326,667
660,813
78,273
5.90%
1,326,667
739,086
78,273
5.90%
1,326,667
817,492
78,406
5.91%
1,326,667
895,765
78,273
5.90%
331,667
16,583
16,583
5.00%
331,667
48,092
31,508
9.50%
331,667
76,449
28,357
8.55%
331,667
101,987
25,538
7.70%
331,667
124,972
22,984
6.93%
331,667
145,635
20,663
6.23%
331,667
165,203
19,568
5.90%
331,667
184,771
19,568
5.90%
331,667
204,373
19,601
5.91%
256,046
247,091
222,448
200,127
183,908
177,209
176,247
176,247
176,280
Iridium Next Depreciable Launch 2017
Accumulated Deprecation Launch 2017
MACRS Deprecation Expense Launch 2017
MACRS Deprecation 15 -year Percent
Total Deprecation Expense
66,332.67
192,365
26
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 10 – DEBT HOLDINGS
The University of Oregon Investment Group
($ in thousands)
Total Revenue
Iridium NEXT
2010Q1
2010Q2
2010Q3
81,700
2,777
84,000
45,433
94,500
86,049
Coface Debt Takeout
% of Capital Expenditure
Long Term Debt Outstanding
Weighted Average Interest Rate
Interest Expense from Long Term Debt
Long Term Debt Payments
% of Total 1.8 million Debt
Current Portion of Long Term Debt
2010Q4E 2010A+E
2011 E
2012 E
2013 E
2014 E
2015 E
94,976
140,741
355,176
275,000
369,459
320,000
406,886
450,000
449,579
450,000
489,025
505,000
634,893
525,000
110,000
110,000
40%
110,000
208,000
65%
318,000
306,000
68%
624,000
360,000
80%
984,000
404,000
80%
1,388,000
420,000
80%
1,808,000
110,000
2016E
693,882
310,000
1,808,000
90,400
2017 E
2018E
2019 E
2020 E
2021 E
2022E
2023 E
2024 E
2025 E
666,609
150,000
686,503
725,795
768,769
812,492
852,112
881,263
908,744
936,525
1,717,600
4.96%
86,845
90,400
5%
144,640
1,572,960
4.96%
80,682
144,640
8%
216,960
1,356,000
4.96%
71,269
216,960
12%
271,200
1,084,800
4.96%
58,831
271,200
15%
271,200
813,600
4.96%
45,384
271,200
15%
271,200
542,400
4.96%
31,937
271,200
15%
271,200
271,200
4.96%
18,490
271,200
15%
271,200
4.96%
271,200
15%
0
APPENDIX 11 – INTEREST EXPENSE
The University of Oregon Investment Group
2016E
Q1
Q2
Q3
Q4
2017 E
Q1
Q2
Q3
Q4
2018E
Q1
Q2
Q3
Q4
2019 E
Q1
Q2
Q3
Q4
2020 E
Long Term Debt Outstanding
1,808,000 1,785,400 1,762,800 1,740,200 1,717,600 1,717,600 1,681,440 1,645,280 1,609,120 1,572,960 1,572,960 1,518,720 1,464,480 1,410,240 1,356,000 1,356,000 1,288,200 1,220,400 1,152,600 1,084,800 1,084,800
Weighted Average Interest Rate
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
4.96%
Interest Expense from Long Term Debt
22,132
21,851
21,571
21,291
86,845
20,843
20,395
19,946
19,498
80,682
18,826
18,153
17,481
16,809
71,269
15,968
15,128
14,287
13,447
58,831
Long Term Debt Payments
22,600
22,600
22,600
22,600
90,400
36,160
36,160
36,160
36,160
144,640
54,240
54,240
54,240
54,240
216,960
67,800
67,800
67,800
67,800
271,200
% of Total 1.8 million Debt
1.25%
1.25%
1.25%
1.25%
2.00%
2.00%
2.00%
2.00%
3.00%
3.00%
3.00%
3.00%
3.75%
3.75%
3.75%
3.75%
Q1
Q2
Q3
Q4
Long Term Debt Outstanding
1,017,000
949,200
881,400
813,600
Weighted Average Interest Rate
4.96%
4.96%
4.96%
4.96%
Interest Expense from Long Term Debt 12,606.56 11,766.13 10,925.69 10,085.25
Long Term Debt Payments
67,800
67,800
67,800
67,800
% of Total 1.8 million Debt
3.75%
3.75%
3.75%
3.75%
2021 E
Q1
Q2
Q3
Q4
813,600
745,800
678,000
610,200
542,400
4.96%
4.96%
4.96%
4.96%
4.96%
45,384
9,245
8,404
7,564
6,724
271,200
67,800
67,800
67,800
67,800
3.75%
3.75%
3.75%
3.75%
2022E
Q1
Q2
Q3
Q4
542,400
474,600
406,800
339,000
271,200
4.96%
4.96%
4.96%
4.96%
4.96%
31,937
5,883
5,043
4,202
3,362
271,200
67,800
67,800
67,800
67,800
3.75%
3.75%
3.75%
3.75%
2023 E
Q1
Q2
Q3
Q4
271,200
203,400
135,600
67,800
4.96%
4.96%
4.96%
4.96%
4.96%
18,490
2,521
1,681
840
271,200
67,800
67,800
67,800
67,800
3.75%
3.75%
3.75%
3.75%
2024 E
4.96%
271,200
27
Iridium Communications
University of Oregon Investment Group
http://uoig.uoregon.edu
APPENDIX 12 – BETA SENSITIVITY ANALYSIS
The University of Oregon Investment Group
Beta
1.296
1.171
1.046
0.921
0.796
0.671
0.546
0.421
0.296
St. Deviation
2.00
1.50
1.00
0.50
0.00
-0.50
-1.00
-1.50
-2.00
0% Premium
Implied Price
Under (Over) Valued
3.65
-55.16%
5.41
-33.54%
7.64
-6.14%
1.48
-81.82%
14.18
74.20%
19.14
135.14%
26.04
219.90%
36.17
344.35%
52.34
543.00%
1% Premium
Implied Price
Under (Over) Valued
2.55
-68.67%
3.92
-51.84%
5.65
-30.59%
7.82
-3.93%
10.59
30.10%
14.18
74.20%
18.96
132.92%
25.56
214.00%
35.19
332.31%
2% Premium
Implied Price
Under (Over) Valued
1.78
-78.13%
2.84
-65.11%
4.19
-48.53%
5.88
-27.76%
8.00
-1.72%
10.70
31.45%
14.18
74.20%
18.79
130.84%
25.13
208.77%
APPENDIX 13 – SOURCES













www.sec.gov
www.finance.yahoo.com
www.google.com/finance
Fact Set
IBIS World
Iridium Communications Website
Iridium Communications Investor Relations
Ari Siegel
Larry Dann
Ro Gutierrez
Reuters
www.seekingalpha.com
Porter‟s Competitive Strategy
28