Iridium Communications Inc. (IRDM) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Iridium First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr. Steve Kunszabo. Mr. Kunszabo, you may begin.

Good morning, and thanks for joining us. I'd like to welcome you to our first quarter 2014 earnings call. Joining me on the call this morning, our CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of our 2014 first quarter results, followed by Q&A. Before I turn things over to Matt, I'd like to caution all participants that our call this morning may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts and include statements about our future expectations, plans and prospects. Such forward-looking statements are based upon our current beliefs and expectations and are subject to risks, which could cause actual results to differ from 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'll 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 in the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, let me turn things over to Matt.

Thanks, Steve, and good morning, everyone. As you can see from our results, we're off to a very good start in 2014. We affirmed our 2014 and long-range outlooks across the board today and showed growth in our key financial and operating metrics. Total service revenue grew 7% with broad-based contributions from different sectors. And our equipment business is starting to rebound nicely from its decline in 2013, posting a 16% gain on the strength of higher overall unit sales. I think this is an encouraging start to the year and good progress as we head into the final year before our first Iridium NEXT launch. Tom and I spent a fair bit of time, during our fourth quarter earnings call late February, taking you through a step-by-step account of how we expect our cash flow will transform between now and 2018. It's a theme we'll come back to often as our story evolves, and I wanted to highlight the fundamental concepts again here as it's important for everyone to understand. To summarize, we believe the picture of Iridium in 2018 is characterized by materially higher operational EBITDA and capital costs that are a fraction of our current run rate. As these elements of our business model take shape, the result will be significantly more free cash flow than we generate today. If I dive in just a bit deeper, many of the factors that support our emerging financial profile have a high degree of certainty. First, once the Iridium NEXT program is behind us, our capital expenditure should fall dramatically and average less than $30 million annually, beginning in 2018 for approximately a decade. And when we evaluate our excellent prospects for growing operational EBITDA, the contractual service revenue profile of our 5-year agreement with the U.S. Department of Defense and the momentum in our Aireon business provide a pretty solid foundation. This is all before considering strong organic growth in the M2M market, the defensible position we demonstrate in our handset business, our opportunities as a value provider in the maritime and aviation segments and contributions from new products that are showing good early demand. What I've just described is the essence of how we create long-term value for our stakeholders, and it will serve to guide our actions as we enter a critical part of our history. Before I update you on strategic initiatives, including Iridium NEXT and Aireon, just a quick summary on the discussions we've been having with our credit facility lenders. We're in the final stages of accomplishing this important financial goal, and I can say today that we expect a resolution is imminent. As I shared last quarter, getting this process behind us will let us execute our operating plan during the most critical stage of our business model, will also provide the necessary clarity around our capital structure and funding profile during this important stretch. Tom will have more on this topic, as he always does, during his remarks. Now we can jump to outlining the developments and news around our major businesses and programs. We remain well positioned to have the Iridium NEXT system fully deployed in 2017 and are tracking right on budget with the capital program. The first flight hardware was recently delivered to the new satellite production facility at the Orbital Sciences factory in Arizona, and the flight qualification and testing of our new space vehicles continued to go well. We've also recently completed extensive upgrades to our ground infrastructure, ensuring it will be ready to communicate with the new satellites. The first launch date, which I mentioned on our last earnings call was moving out 1 quarter, has been tightened down by our whole project team, and we're now planning for June 2015 to send the first 2 satellites up on a Dnepr rocket, just a little more than 1 year away. Finally, we began working closely with device and terminal manufacturers to develop higher-speed broadband services that will become available as Iridium NEXT is launched. These products will offer enhanced voice quality and higher data speeds and are a step along the way to the new network's full capabilities. Our plan is to select new Iridium NEXT equipment suppliers in the aviation, land and maritime segments this year, leading to higher-speed service availability for customers in 2016 once the new network is about halfway done. Let me quickly add how pleased we are also with the SpaceX -- with SpaceX's performance as our primary launch service provider. In the last several months, they've had 2 successful satellite delivery missions for SCS 8 [ph] and Thaicom 6 and, of course, their third successful resupply mission a couple of weeks ago to the International Space Station. Their launch quality has been excellent, and they're really picking up their launch pace, giving us confidence that they'll be ready to start our primary launch campaign later next year on time. Our Aireon business also continues to hit both key financial and technical milestones. As many of you know, 4 leading air traffic control agencies have committed $270 million to fund the joint venture, providing access to the capital needed to develop an operational system. Aireon has also signed 5 data service agreements since the beginning of 2013 with NAV Canada and 4 European ANSPs. These contracts give us confidence that Aireon will become the standard for air traffic control over the North Atlantic corridor. And interest from the rest of the world is mounting as the benefits of this global air traffic management system become increasingly clear. These benefits include $6 billion to $8 billion in fuel savings in the initial targeted geographies, more efficient flight routing and management, reduced environmental impacts and enhanced public safety. And in cases like the recent Malaysian Airlines Flight 370 tragedy, the very important added value have been able to monitor aircraft anywhere in the world. Even in advance of Aerion, the aviation industry is looking for interim solutions to keep track of aircraft. Given our global coverage and low installation costs, we're seeing increased demand for current offerings, including basic tracking, enhanced air traffic control safety services and even triggered black box streaming. As we shared last quarter, these developments also solidify our view that the FAA, which remains fully engaged in the project, will make similar data services commitments as early as 2015, thus, enabling Aireon to fulfill its full promise, along with financial commitments to Iridium. So Aireon is reaching critical mass and represents over $600 million in potential value to Iridium when you tally up the proceeds from hosting fees, our data services contract and the redemption of a portion of our interest plan for 2018, without even counting Iridium's retained ownership of approximately 25%. For a joint venture, that anticipates generating tens of millions in annual operational EBITDA. Starting in 2018, we think our residual ownership stake will represent significant incremental value. Before I wrap up, let me spend just a few minutes on our newest strategic program, Iridium PRIME. This new enterprise is expected to deliver the world's first turnkey-hosted payload solution carrying third-party payloads on new satellites that will leverage the significant investment we're making in Iridium NEXT. With today's Iridium NEXT payload space fully allocated to Aireon and Harris, this endeavor allows us to extend the reach of our hosted payload business into the future. We plan to meet the growing demand for potential missions, which includes earth observations, space-based weather monitoring, tracking and other governmental missions, by offering flexibility around launch schedules, mission scope and key payload requirements, such as mass, power and size. With an estimated cost savings of 50% or more compared to stand-alone solutions, it's no surprise that our business model has gained a lot of attention since we announced it last September. We have a funnel of about 3 dozen potential customers being actively worked and are collaborating with space vehicle and mission system integrators to further develop technical specifications for the platform. Our goal is to launch the first Iridium PRIME satellite into our constellation during 2018. In closing, 2014 is shaping up to be a much better year than 2013, with balanced contributions throughout our business portfolio. Iridium NEXT is moving along as planned, with little more than a year before its first launch, and the likelihood of Aireon meeting its financial commitments to Iridium grows with each day. We're unique in transformational story with a clear path to creating long-term value for our stakeholders and are on the cusp of perhaps the most exciting time in our history. The best is still ahead of us, and I look forward to updating you again soon. With that, I'll turn it over to Tom for a more detailed financial review. Tom?

Thanks, Matt, and good morning, everyone. I'm going to jump right in and summarize our key financial metrics, then outline the 2014 long-range guidance we affirmed this morning and finish with a review of our capital structure and a progress update on discussions with our credit facility lenders. Iridium recorded first quarter total revenue of $98 million, which was up 10% from last year's comparable period. Total revenue benefited from a nice gain in the service component and a healthy contribution from our equipment business. Operational EBITDA came in at $51.6 million, an increase of 10% from the prior year quarter. Our operational EBITDA margin was 53% for the first quarter, unchanged from the year-ago period. From an operating viewpoint, we posted commercial service revenue of $57.4 million in the first quarter, representing 7% growth over last year. We added 8,000 net commercial customers during the quarter, with the entire gain coming from the M2M business, compared to 10,000 net subscriber additions in the year-ago quarter. Commercial M2M data subscribers now represent 46% billable commercial subscribers, an increase from 42% during the year-ago period. Let me pause here to briefly share an interesting statistic about our revenue composition that I believe defines where Iridium is headed over the next few years. For the first time in our history, more than 50% of our total service revenue was generated by data services during the quarter. This compares to just under 40% in late 2011 and broadly includes our M2M business, high-speed data applications on our maritime and aviation platforms and circuit-switched data usage in our legacy handset business. We've become a data company, and we believe we're well positioned to capture future growth in these critical market segments. Turning now to our government service business, which generated revenue of $16 million, yielding 16% year-over-year growth, driven by our fixed-price airtime services contract with the Department of Defense. We continue to work with our counterparts in the government to help them roll out Iridium services on a greater scale as they take advantage of their unprecedented access to our network and services. It's also worth noting that task orders are underway to strengthen the security posture at their dedicated gateway and make any final upgrades to ground infrastructure to ensure Iridium NEXT readiness. We expect this important effort will be completed in 2014. Focusing next on the equipment line, which generated revenue of $20.2 million, a 16% year-over-year increase, resulting from higher overall sales volumes. As we discussed in our last earnings call, we see equipment sales picking up, primarily due to higher unit shipments from new products, including Iridium GO! and M2M devices ramping up as order flow comes in from our Caterpillar contract. All in all, we expect that our equipment revenue in 2014 will be greater than it was in 2013, even assuming that our handset sales will be relatively flat during the year. Moving now to our 2014 and long-range financial guidance, which we affirmed across the board this morning. We continue to expect operational EBITDA between $205 million and $215 million for the full year 2014, which compares to $201 million in 2013. On the same basis, for the full year 2014, we forecast total service revenue growth between 2% and 4%. As for our long-range outlook, we continue to expect the compound annual growth rate for total service revenue between 8% and 12% between 2014 and 2018. We expect an operational EBITDA margin of approximately 60% in 2018, and we expect negligible cash taxes from 2014 to approximately 2020. As a reminder, when bridging from our 2013 results to our 2014 service revenue guidance, and then to our long-range service revenue profile, it's important to adjust for the approximately $6 million nonrecurring benefit for the last year's prepaid airtime policy change. Similarly, we expect materially lower warranty expenses in 2014, which will benefit operational EBITDA. After putting our financial profit into this framework, fundamental drivers of our revenue and cash flow growth through 2018 rest with a few areas: first, contractual service revenue commitments with our government customer; second, the anticipated financial contributions from Aireon, which we've described in great detail; third, legacy core telephony [ph] business that have proven itself to be highly defensible and grows in a low single-digit range; fourth, an increasing rate of growth in M2M as Caterpillar's contribution continues to ramp and is augmented by other heavy equipment OEM business; fifth, a recovery in our maritime business and an increasing rate of growth as Iridium OpenPort regains its footing; and finally, the benefit from new products, including Iridium GO!, Iridium Burst and commercial push-to-talk [ph] gaining momentum through this period. And finally, a review of our capital structure and liquidity position. As we ended the first quarter, we have drawn $1.1 billion from the Coface facility and had cash and marketable securities balance of approximately $255.2 million. Turning to the ongoing negotiations with our credit facility lenders. In short, we have agreed in principle to all the key terms, including the modification of certain financial covenants, and expect that the final result resolution is imminent. This will give us the needed flexibility to execute our operating plan during the heart of the Iridium NEXT construction and launch period while also fortifying our capital structure and funding profile. Again, we should have news on this very soon. In wrapping up my thoughts, the first quarter's performance was consistent with our outlook for the full year 2014, as described in the guidance we affirmed today. Iridium NEXT continues to hit important development milestones, with all the flight qualification and testing work that is ongoing. Now our Aireon business sees more interest each day from the world's air traffic management agencies. We look ahead with confidence as we embark on the early chapters of this transformational period in Iridium's history. With that, I'll turn things back to the operator for the Q&A portion of this morning's call.

[Operator Instructions] And our first question is from the line of James Breen from William Blair. James D. Breen - William Blair & Company L.L.C., Research Division: Just 2 questions. One, with Caterpillar, it seems like things there are growing a little accelerated a little bit there on the growth side. Can you just give us a little color on what you're doing for them? Is it because there's -- your devices are more equipment or they -- more services on existing piece of equipment? And then secondly, just on the maritime space. Some of the equipment issues you had last year, you fixed, and it seems like those are getting reinstalled, so you've shown [indiscernible] revenue from those customers. Just wondering sort of where you are in that path. And then you had some of the customers that weren't paying you while the device was broken. Have you seen pretty much all those guys come back to you now that the devices are back in place?

Okay. So on the first question about Caterpillar. Yes, Caterpillar, as we've described before, has been using telematics for quite a while as a -- in a, I guess, more limited way but made a strategic decision a couple of years ago to move to telematics for their whole product line across the board in a very big way and made a big corporate commitment to that. At the same time, they looked for their solution suppliers and had an active competition about 1.5 years ago, which Iridium won and became their primary service provider going forward. On that basis, there's a couple of different things we're doing for them. They were 2 essential contracts with them, the first for sort of higher speeds -- well, or higher-volume data requirements using our 9523 platform, and then a lower data requirement in what would be called more of a slap-and-track kind of tracking asset that we won this year. Between those 2, we expect this is going to be a significant rollout. The technical development is underway right now, primarily in integration at Caterpillar and with their technical partners and integration plans. And I think we'll start seeing that rollout later this year and into 2015. So it really hasn't affected our revenues yet. But it's certainly a driver of future M2M growth and also a bellwether for the M2M industry in general as Caterpillar is the largest player in that space, and I think everybody is taking note and we've been very busy talking to that whole heavy equipment OEM space as they're all looking to track their assets everywhere in the world.

So, Jim, just to clarify, Caterpillar is not in the equipment revenues in the quarter. We expect Caterpillar to affect equipment revenues in the second half of the year, and it's -- and there'll be not much in service revenue, that starts ramping in '15. So the equipment revenues come before the service revenues. That's how it will work.

As you can imagine, it gives us confidence as we look forward in the M2M space that we see the heavy equipment OEM group leaning our way. And I think we'll take advantage of that in the future. On your second question on... James D. Breen - William Blair & Company L.L.C., Research Division: Sorry, let me sort of follow up on that. So you're seeing -- you're definitely seeing some ramp there with Caterpillar. But really, the revenue from that isn't coming until probably later this year, and the beginning of next year, is that right?

Yes, you'll see the equipment revenue first in the second half of '14. And then you'll start seeing service revenue in '15 and ramping, increasing sequentially.

And on your second question about the maritime recovery, yes, we have fixed the problems that we had that generated all those warranty costs last year and some customer dissatisfaction. That has gone well. And we've shipped an awful lot of good product out in the marketplace. You mentioned that you thought that some customers weren't paying us while it wasn't working. That certainly isn't the -- wasn't ever true. We never suspended any payments or our customers continue to pay us. I think what we -- what you saw was our -- was a decline in ARPU as perhaps some heavier users didn't use our platform during the time and moved to other platforms during that window and are now -- we expect to -- are reconsidering us again. And we're going to see more usage and higher volume given the good competitive dynamics that we have in that industry as our partners and the customer base really want a successful Iridium to compete in the value segment of that market. So this -- we're in the middle of, I think, a turnaround on that business. It's certainly not going to have the costs associated with it going forward, and we expect to see continued activations. We're seeing less deactivations these days, which is a positive. And we think this is an important part of our growth in the future as high-speed services continue to go on, as you -- and as I mentioned today, too, as we start selecting even higher-speed partners that will bring even more applications to the market starting in 2016 and '17 with Iridium NEXT. We see a great future for our broadband business. James D. Breen - William Blair & Company L.L.C., Research Division: And then sort of the usage, it seems it would come back up, which sounds like it is now that the devices are back in place. And then just lastly, on just the sort of the core voice side. Any changes there fundamentally? Been fairly stable in terms of churn and pricing?

Yes, I think it's represented by stability really more than anything else right now. I think you can see that equipment is back up a little bit this year. We still see sort of services going forward on the handset business the way it has been sort of in the past. We're bringing new products to market here in the coming month or 2, in the second quarter with the Iridium GO!, which I think will be a positive. And then towards the latter part of this year, we'll finally have our commercial push-to-talk service fully available. And I think those things help even continue to support the -- some growth in that core. I would call even it almost personal communication services as opposed to a handset business.

And we take comfort as we take a look at the net adds that the competition is posting here in recent quarters. And think -- or very, very confident in our description of that business as being highly defensible because we're doing well. In terms of market share, we like the developments.

Our next question comes from the line of Andrew DeGasperi from Macquarie Capital.

Just sort of had a sort of big picture question on the sort of the interest from other industries on the M2M product post the Caterpillar deal. Is there any update there? And secondly, if you can maybe expand on your international opportunities on the M2M side and if there is any exposure to Russia to date?

Yes. So we really have a broad-based business in the satellite M2M space across a number of different market segments from oil and gas and mining to transportation to maritime and aviation applications. We -- and even consumer applications, which I think have really performed well over the last year or 2 as we've moved into personal trackers and that sort of thing. We have highlighted in the last couple of calls the heavy equipment OEM space, because of the -- frankly, the success we've had with the largest heavy equipment supplier, Caterpillar, and an increasing funnel we have really of activities across the board with a number of other heavy equipment OEM suppliers, who also -- are what I would call perfect -- well, they're perfect -- it's a perfect market segment for satellite M2M tracking. Heavy equipment of all different size, whether it'd be in oil and gas or mining or earthmoving or even agriculture or often out of cellphone range -- cell tower range, so while they might use that technology there within it, as they're building cities and golf courses and moving a lot of earth, they need a remote connection, and it's a perfect application for us. So I don't have an update in terms of additional contracts. We certainly have a lot of activity around that space, and we'll report to you as we develop that business here over the coming year. Internationally, I would say it is an international business. I see activity all over. Frankly, Russia has been a very strong market for us in the last year as we -- since we achieved license status a few years ago. That's been developing first on voice, but frankly, machine-to-machine, we think, is one of the bigger opportunities in Russia as Russian companies and Russian applications get sort of personalized for M2M services. We're not seeing any changes in that profile right now as a result of any of the activities that are going on or concerns. There are, obviously, everyone's monitoring the state of possible sanctions and things like that. But so far, those seem to be very targeted and more oriented towards military-type applications. So we don't see any really change in our profile as a result of that, particularly since remember, we are -- we have Russian partners, and we're a Russian business really within -- we perform business out of Russian -- through our Russian entity, Iridium Communications OO [ph], and provide services really locally on that basis. So we are not seeing any change really in that profile.

And lastly, what's the market opportunity for your Iridium PRIME with the third-party hosted payload solutions?

Well, I'm -- I think it's substantial. It's a unique solution that isn't really -- doesn't really exist in any other form or fashion. Hosted payloads for -- traditionally have always been done sort of opportunistically. If someone has a payload and someone is going to that part of space, then the 2 kind of marry up and -- with the -- with government funding or with government budgets being contracting, everyone realizes that just can't be as opportunistic any longer. People have to look more long-term at ways of reducing costs to get things into space. And there's been a lot of entrepreneurial activity lately in the payload space, particularly in like CubeSats and NanoSats and that sort of thing, is everyone is trying to get sensors and payloads and imaging devices and everything they can into space for different kinds of application. We're coming along, and I think that really, just the right time. Leveraging this $3 billion investment in Iridium NEXT such that additional satellites will be much lower cost and, without our payload on the satellites, will be a great platform for hosting the kinds of applications we really couldn't host on Iridium NEXT and with a lot more flexibility than we have with Iridium NEXT because we're launching -- we can't -- we weren't going to delay Iridium NEXT for a hosted payload. But Iridium PRIME payloads can be launched when the customer is ready and when the funding's ready. As I said in my remarks, we have -- really, it's over 3 dozen different applications being tracked, and those go from people who are really working with us closely and, I think, will lead to R&D and risk reduction efforts as their calls and our industry, leading to, I think, potential contracts, all the way to people expressing interest, who are currently trying to get into space in other ways and realize -- and we provide a platform that could work very well for their applications and allow them not to have to worry about ground systems and monitoring their payloads and finding ways of controlling their payloads from around the world. We can provide immediate global coverage in low earth orbits at the lowest possible costs for 15-plus years in the orbit, which is a really powerful value proposition. But it's still early days. I mean, we're only about 6 months into this now, maybe 8 months into it. And as I said, the interest is very high, and I hope to be able to talk more about this in the coming year.

Our next question comes from the line of Brian Ruttenbur from CRT Capital.

Couple of questions. Very good quarter, by the way. On the subscriber equipment growth, you talked about, I guess, Caterpillar is the main driver in the second half of the year. But if you look at the first quarter, do you expect a dip from first quarter? It seems like there's only positive momentum in the equipment side of the business from the $20 million levels. Is there something that would happen, seasonality or there would be a dip there or something that happened in the first quarter that was a onetime that would drop you from the $20 million level?

No, Brian. The first quarter was a good quarter, and kind of our characterization of equipment revenues for the full year 2014 is that we see them up versus the prior year. We think about handsets as kind of flat year-over-year. It may grow. That's only goodness to kind of our -- how we think about things. And we see that we have visibility to growth, driven by Iridium GO!, which is a new product that will ship in the second quarter, begin shipping in the second quarter, late second quarter, and Caterpillar shipments in the second half. So yes, equipment was a big hurt kind of on the business in '13 if you think about what happened year-over-year. That's not -- we don't see that happening in '14. We think it's going to be a help, not a hurt, like it was last year.

Okay. And then on the government side, you report $16 million, I believe, in the first quarter. Is there going to be any fluctuations in that contract? Is there going to be upsizing and when? And just help me with modeling, will it be just a flat $16 million going forward?

Yes, so the fourth quarter picks up, so the government contract, as stated, values in each year, commencing in October of '13. And so October of '14, you'll get the step up.

And how much would that be on a quarterly basis if you go from $16 million to what?

It goes 64, 72 and then three 88s. And you have to portion the 72 starts kicking in, in October '13.

Okay, very good.

But that's an October-to-October contract, so there's a little bit of -- you have to sort of model that because the step-up sort of occurs at the end of the year into the following year with the following part. But that's the base line contract. That's a fixed price contract. There's -- our goal is really, frankly, to find ways of utilizing that contract in ways that drive upside in services that we haven't really sold to them in the past or in equipment, which is really also independent of that contract.

So kind on a base case scenario, it would go this year, $16 million, $16 million, $16 million, $18 million, something along those lines unless there is upside?

Little bit less than $18 million, like $17.5 million.

Yes. I'm sorry, I was rounding. Okay, and then on the financing, can you talk a little bit about the range of terms and sizes that you're talking about?

No, the -- as we said, we think the amendment is imminent, and it'll be -- that'll be something that we disclose at the time, Brian.

Okay. And then last question on the FAA and Aireon. What do you think the timing will be? Will this be before you start launching in '15 that a decision will have to be made? Or could the decision be made as late as '18 from the FAA?

Well, there's a process that they're going through right now. It's a very defined internal process that they have to, say, call their investment decision process that leads to a plan, which could mean a decision and contract as early as near the end of 2015 if that is. And then we'd love to go faster, but that's a process that they're on. Clearly if they -- you can't count on anything, so it could be later than that. But we believe and we're encouraging them to move as early as possible because there's a lot of work to be done to prepare and be ready to use the service when it becomes fully operationally and online in 2018. I think there's a lot of value in the FAA's airspace to be utilized in that service on behalf of airlines and others across the Pacific and the Southern Atlantic Ocean, et cetera, in the 2018 timeframe. So our goal is to get them on contract in, say, 2015 or 2016. It can happen at any time, obviously, it might be later, but we're pretty confident that they'll eventually come along given that the rest of the world is really looking at Aireon really now as the standard for space-based ADS-B remote for -- over remote regions.

Our next question comes from the line of Chris Quilty from Raymond James. Chris Quilty - Raymond James & Associates, Inc., Research Division: A follow-up on the equipment revenue. I may have missed it, but did you an elaborate on what specific product areas most contributed to the upside in the first quarter?

We did not. I would just say it was a pretty decent trend across the board, Chris. And we have given kind of a pretty elaborate description of what we think about equipment for the full year, as I just took Brian through. Chris Quilty - Raymond James & Associates, Inc., Research Division: Okay. And also, first quarter of service revenues, it -- service revenue growth at 7% was above your full year forecast. Does that imply that you may see some upside on the service revenue? Or does that just reflect the seasonality in the business?

Not really seasonality, Chris. If you think about '13, we've got a negative comp coming in the fourth quarter, right? Because we had about $4.5 million of the $6 million in the prepaid effective the fourth quarter. So the 7% is strong because -- 7% is stronger than the full year because it doesn't have that negative comp. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. Also, on the Iridium PRIME effort, I think you had talked previously about that, that effort potentially contributing capital during your -- this phase of Iridium NEXT construction. Is that still a possibility? And would that be included in your amended credit agreement?

The funding profile, if you will, for Iridium PRIME is such that we really -- we're spending a little bit ourselves to engineers, the product and ready ourselves to be able to manufacture buses in the timeline that would support our -- say, our first launch in 2018. But the view is that most of the costs associated with the buses and payloads and launches would be paid for by our customers. Given that profile of that would be quite cost-effective for them, we believe that we can construct a profile for customers, in which their cash flows would essentially cover any cost. So it wouldn't be incremental to our current capital budgets or incremental to anything that we've talked about here in the Iridium NEXT capital profile.

And as to the amended credit agreement, Chris, we're not going to give any details of that when -- we'll file that when we sign it up. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. You had mentioned earlier, Matt, that you're bringing in new equipment vendors. And that's historically been a business that Iridium has funded. Can you give us a sense of how you're undertaking that effort in terms of is this an open bid process with multiple vendors, would you offer exclusivity, and how that might impact your long-term capital profile and R&D spending?

Yes. So the way we're managing this thing is that our intention is to make the core technology modules, which make up our Iridium NEXT broadband terminals, whether they be for maritime aviation or land applications. And we have created, really, a very flexible architecture, in which we have a very flexible antenna and control architecture that's now been fully documented and is ready to be released to selected equipment suppliers. All the major names in the industry you could imagine are interested in -- and we expect that there'll be a very busy process here over the summer as we evaluate proposals from those equipment suppliers to be based upon their investment in the equipment, the kinds of new applications they can bring on board, their cost profiles that they can bring for terminals, et cetera. And then we will select later on this year a limited number of suppliers that we would license, that we would offer -- I wouldn't say exclusivity, but it would be a limited number anyway of suppliers. So there would be a vibrant equipment community, and we expect that those announcements will then occur as those partners start to tell the industry of the innovative applications and terminals that they're going to bring to bear for the new market segments, that will be aligned and ready to be delivered to the industry in, say -- we hope in 2016 when we turn on the software on the satellites, on the new satellites that support higher-speed services. Some of those applications will be dual mode so that they can actually provide services on existing satellites and be able to then offer higher speeds on new satellites when they are overhead. Effect on our business? Well, I mean, I think we're going to continue to innovate for low cost and higher speeds in those core modules. But we're going to become more of a module supplier, and we're going to open up the industry to even more solutions, we think, for an Iridium NEXT as terminal suppliers come forward and develop solutions. But it's not going to be open quite like it is today. Those terminal suppliers will then make those products available, but our broader partner base of 300-plus partners will be able to then buy those terminals and integrate them into their broader applications, thereby even turbocharging, if you will, our business further. Chris Quilty - Raymond James & Associates, Inc., Research Division: Got you. And finally, with regard to the Russian situation and the recent export ban announced by the White House, do you anticipate any impact on your existing Russia business? And at what point do you start to come up with a backup game plan for the Dnepr?

So our view of this is -- and we have indications that there is not a broad-based export ban. In fact, there is support for a -- for not -- a realization that satellites being shipped to Russia to launch from a Russian launchpad is really not an export into Russia, but really, frankly, just an export through Russia into space. And any kind of export bans, at least envision we can see at this time, are quite limited to very specific equipment that would be used for very specific applications, which we don't think apply to the Iridium base. So we see business as usual right now for the Dnepr platform and our first launch. Remember Kosmotras, our supplier really, if you will, of the Dnepr rocket is Ukrainian, and we see the current activity that they're on in terms of developing our dispenser is business as usual as well and ongoing. So we think that, that first launch in June of next year will be on a Dnepr platform and don't see, right now, a lot of concern. But we're obviously monitoring the situation.

Our next question comes from the line of Jim McIlree from Chardan.

Are there any Aireon capital contributions scheduled for this year from any of your partners, excluding the FAA, if they come in?

So the FAA would not -- we don't envision the FAA as being a capital partner. The FAA would sign a contract with Aireon is the -- is what's envisioned. And yes, there are capital contributions from all of our partners, I believe, in 2014. And I don't know that we've disclosed them, but there are scheduled capital contributions.

Okay, great. And can you talk about the profile of the handset equipment margins versus the M2M equipment margins?

Yes. The handset equipment margins are higher than M2M. We think about M2M as always selling the equipment as a profit, but we'll take a lower profit margin on the equipment to drive activations and to drive service revenues, to make the Iridium connection more relevant. And so we don't want equipment pricing to be an impediment to that. Our history has been to drive down the cost of that device to make it more relevant and drive service revenues. And it's doing -- that strategy has proven very effective, so...

And I'm not really pleased this year as we -- as our equipment business and, as we've described, where our handset business is this year, we haven't had any significant reductions in price or anything on that. We continue to sell that, frankly, as a premium in the industry. I've noted my competitors are actually raising prices at this point for the most part. They realize that -- how hard to beat us really on the quality and coverage of our product. So they're going to have to try to make money somehow in some other way. But really, our continued stability really in that market and the defensibility of that market has not been due to price reductions or anything. It's due to the quality and reach of our service and the new products we're bringing to market.

Great, and my last one. Can you comment on the anticipated ARPU from Cat versus the current M2M ARPU?

No, I don't think that's appropriate. I mean, that's a confidential contract between them. But I would -- looking forward in terms of just long-term ARPUs in the M2M space, I have to say I'm very pleased that our ARPU is holding up very well. We model really more and more applications that don't need much data to possibly lower that ARPU. But as we've said may times, increased volume, even as ARPU lowers, will drive incremental revenues and bottom line growth because of the nature of our business. So overall, we like the profile of sort of M2M. We expect that ARPUs will decline over time, though we haven't -- we don't see them -- we didn't see them obviously in this quarter.

And, Jim, I would add to characterize us as not fussed by ARPU's decline over time. What we've said about Caterpillar is that Caterpillar and other heavy equipment OEMs will cause an acceleration in our rate of growth in the M2M space. And so we have -- there's really no cost to acquire, so we don't really think about ARPU. We think about pricing for bandwidth that is provided as our measure rather than ARPU as you think about sort of in the terrestrial space that have a much higher cost to acquire than we do.

Right. And I've noticed that you've said a couple of times during the call, other heavy equipment manufacturers, is this -- if my memory is correct, this is the first time you've been kind of hinting that there's more to come. It seems like it's relatively soon. Am I making it up...

No, Jim...

Or is there more to come soon?

Actually, we've said that when we announced Caterpillar. Matt called them the bellwether in that industry. They're the thought leader in telematics, and so they're kind of -- selection of Iridium as their satellite platform is noticed by their competitors who acknowledge and kind of understand their confidence in telematics.

I think if you can go back to, I think, the last quarter call, we've mentioned that we're in different stages with a number of different suppliers, all the way from trials -- technical trials, commercial discussions, a lot of different levels across the board. And I don't -- I think that characterizes it's a pretty busy space for us right now.

Our next question comes from the line of Greg Burns from Sidoti & Company. Gregory Burns - Sidoti & Company, LLC: What is the status of the Harris hosted payloads? Have they [indiscernible] yet?

Yes, I would say that's -- that has been engineered. I think we've talked in the past about a range of revenues that we're getting in terms of hosting fees and data service fees that sort of make up the Harris contract that we have, and those are coming to pass at this point. So we signed a frame contract with them a little bit over a year ago. They have gone off and found their customers -- their customers are applications or services that they've been working on. And that will be in the platform essentially, the hosted payloads space that we'll be launching with Iridium NEXT. And that will generate incremental hosting fees and service revenue fees to the Aireon core, the largest part of the hosting fees that we're really getting in Iridium NEXT. Gregory Burns - Sidoti & Company, LLC: Okay, and then 2 questions on the financing. You recently increased the -- or made some modifications to your shelf. Is there anything we should read into that, to how negotiations were going or have went with your lenders?

I can speak on maybe behalf of Tom and say, "No, you shouldn't read anything into anything right now." We'll really -- I think he picked the word carefully, imminent, And I think that -- I think you'll hear soon how all that plays out. Gregory Burns - Sidoti & Company, LLC: Okay. And then just lastly, on the remaining balance to the credit facility, I guess of the $700 million, how much cash proceeds to Iridium is there out of that remaining balance?

You mean -- are you saying as far as the Coface insurance premium and their capitalized interest? Is that what you're... Gregory Burns - Sidoti & Company, LLC: Right. Excluding all that, how much cash to Iridium for operations comes out of that $700 million balance?

But we don't call it cash to operations. Those -- that is cash to [indiscernible] space for production of Iridium NEXT. Gregory Burns - Sidoti & Company, LLC: That's right.

I will...

I would just say that's calculable from our public disclosures, but I don't have it off top of my head, Greg. You can calculate that in our public disclosures of capitalized interest and Coface premium, that are both kind of taken out of the facility as they're billed.

[Operator Instructions] Our next question comes from the line of Robert Hoffman from Princeton OPportunity.

If you could just give us a little color on how you're seeing the Iridium GO! rollout? Obviously, you're getting indications from your partners. And how do you plan for inventory in that space?

So we announced Iridium GO! in February at our partners' conference. And we're doing the final testing and development of it and expect it to be formally shipped in this quarter later on, as Tom said, in this quarter. We have had a lot of interest from our partner base. You'll see it being promoted even by them. They like the services that it offers, the quality of voice. They like the price points and have told us that they think -- in fact, in one that sticks out to me, he kept telling me it was a game changer in terms of what they thought -- their excitement really about selling the product in the marketplace. All that being said, we have preorders now, pretty solid order book that I'm pleased with the state of it, with still some weeks to shipments. We feel good about the kind of volumes, based upon our original expectations for the year, we think they'll be fully met. I think it's going to fit in our portfolio real well and complement really our other handsets products. We did select sort of a limited number of our partners to be the initial launch partners based upon sort of the order quantities that they took and the way that they were promoting the product. That will probably expand over time to a much broader base, though we still think that the appropriate model for that is to continue to go through our broad partner base through their channels out to the distribution, which seems quite eager for the product. So and there's also interest, by the way, that I think is growing right now in the DoD space and in other allied groups that see -- that want to move towards smartphone and iPad kind of applications or remote locations, and Iridium GO! is a perfect vehicle for that. So I'm not sure if that answers your question, but...

Yes, it does. I have a little follow-up there. When you sell to the partners, is that a sale or when they make and place an order? So is it a -- if a Cabela's for example, orders a thousand, and it's up to them to sell them? Or is it like a book where they could put it back to you?

Yes. So we don't book any revenue when someone just orders it. And when I say an order book, I didn't -- there hasn't been any revenues really flow through for Iridium GO! in the first quarter.

No, I understand that...

But we do -- when we ship a product, we recognize the revenue for the wholesale cost of that product. Our partners then put a margin on top of that to sell it in the marketplace, whether it's -- if they sell in a direct or they sell to additional channels, say, to distribution, like a Cabela's or someone else, who'd mark it up from there. And then of course, there is service revenue, whether it'd be postpaid-type service applied to it or prepaid packages, those are obviously applied appropriately as well.

And are -- is there -- are any of the partners focusing on the -- like the first responder market? It would seem to me that this is an ideal product for kind of backup for most first responders. I think as they normally use with their smartphones, but in the event that they don't work, that this would be a great backup.

There are few. We have seen interest in the first responder market in the product, and we think, just like in the -- in a public safety space in general, there will be demand. I would say, though, that I think a lot of them like the simplicity of a satellite phone instead. You can pick it up. It's charged. You pull it out of the trunk of the police car or whatever it might be, and you know it's going to work. And you don't have to worry about whether you've registered your iPhone application to that specific device or not. So I think it will be used in some cases, but I really do still think that it's really not -- that the -- a lot of our partners are telling us, they think that the satellite phones will still be probably the primary device for a lot of that demand.

We have reached the end of our question-and-answer session. I'd now like to turn the call over to the speakers for closing remarks.

It was a good first quarter, and we look forward to updating you soon. And we'll continue to keep you informed, but we'll see you in the second quarter call. Thank you.