Iridium Communications Inc. (IRDM) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Iridium First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call will being recorded. I would now like to introduce your host for today's conference Mr. Steve Kunszabo, Head of Investor Relations. Please go ahead.

Good morning and thanks for joining us. I'd like to welcome you to our First Quarter 2015 Earnings Call. Joining me on the call this morning are CEO, Matt Desch; and our CFO, Tom Fitzpatrick. Today's call will begin with a discussion of the 2015 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. Good morning, everyone. I'll start by highlighting that based on our first quarter performance and the view for the rest of the year, we have affirmed our 2015 and long range financial guidance. For the quarter, which is a typically slow one for us, total service revenue grew 3% with key contributions coming from our U.S. Government and commercial M2M lines of business. As we expected, equipment revenue was down in the first quarter, owing largely to the ongoing impact of a strong dollar in our international markets. Specifically our voice market continues to see this currency pressure reducing handset sales and related usage. Tom will have more on these trends later on in his comments. I'll be brief today as we just hosted a very comprehensive Analyst Day in mid March, which many of you attended or listened to on the webcast. If you didn't attend or have not had the opportunity to review the presentation on our Investor Relations website, I encourage you to do so. It's a most comprehensive update we've given about our business since our last Analyst Day in 2010 and we also had the opportunity to showcase Iridium's Executive Leadership Team. I would like to thank the investment community again for attending and making it a great day and that the strong survey results we received was an indication of the success I think was a time well spent by all. Most importantly, we were able to emphasize that our investment case is about the long term. Specifically the financial transformation we should see through 2018 and the great potential for the company beyond that. It's pretty straightforward when you break it down into its key components. We expect that significantly higher operational EBITDA combined with materially lower CapEx will generate significant free cash flow and ultimately long-term value creation for our stakeholders. Furthermore this investment cases were rooted in five growth pillars that lift our service revenue in coming years and you've heard a lot about these too. Let me remind you of these pillars. Number one, the U.S. Government is a backbone of our profile with its $400 million five-year fixed price airtime contract. Number two, our lucrative hosted payload business namely, the financial contributions from Aireon and Harris. Number three, new products including Iridium GO! and commercial push-to-talk. Number four, M2M, which is the fastest growing business in our portfolio and now represents nearly half of our subscribers and over 25% of our commercial service revenue and number five, our newest engine of future growth, Iridium Certus broadband. We and our world-class partners will bring new faster user terminals to market in the coming years to take advantage of Iridium NEXT enhanced capabilities. Taking all those together, that we're poised to transform our cash flow profile and be a much different and even more valuable enterprise over the next three years. With that just a few quick thoughts on the status of our network, developments in our Iridium NEXT program, recent news of our Aireon joint venture and an update on our major lines of business. The first topic is the ongoing health and resilience of our current network. I am happy to again report that it's performing at the top level and we've had no satellite losses thus far in 2015 or in the last eight months. It continues to provide 100% global coverage, excellent performance statistics and the user experience is getting ever better as we make improvements and add new software to the network to provide additional services. It's been the foundation of our success and will continue to be so until Iridium NEXT program is finished. In regard to Iridium NEXT, our capital budget is unchanged at approximately $3 billion and we've spent about half of that through the first quarter of 2015. The overall schedule remains on track for network completion in 2017. We continue to target our first plan launch in October of this year. As many of you observed during the facilities tour portion of our Analyst Day last month, the Orbital Sciences factory, where the satellites are being built in Arizona is humming with activity. The first two satellites that will be launched at Dnepr rocket are being built and tested there and the factory is steadily gearing up for high rate production, which will allow them to manufacture three to four satellites per month as our launch pace speeds up in 2016. Our partners also continue to produce key flight components in quantity including the Aireon payloads, on-board processor, Main Mission Antenna and spacecraft bus to support the move to high rate production. In addition, I can report that we recently successfully performed the first traffic load test on the new satellites, which is just one in a series on ongoing testing and validation steps as we get closer to launching the new satellites. As we're getting our satellites into orbit, SpaceX, our primary launch services provider, continues to build on its perfect record. They're now 18-for-18 with their Falcon 9 platform dating back to 2010 with their latest satellite delivery mission just a few days ago. This was their fourth successful launch this year, showing they're really picking up the pace against a busy manifest. On the Dnepr platform, which again is launching just our first two satellites, production is now complete for the qualification dispenser. The dispenser of the assembly that holds the satellites during rocket launch and releases them into orbit. Dispenser qualification testing is on track for completion in June 2015, Our Aireon joint venture also continues to build momentum. It recently signed agreements to collaborate on the potential deployment of space based global aviation monitoring with the Air Traffic Management Agency of India as well as the BLUE MED Functional Airspace Block, a cooperative of ANSPs that control air space in the Mediterranean. These agreements similar to the ones announced earlier in the year with Singapore's air traffic management agency and ASECNA of Central Africa lay the groundwork for future data service contracts and expand the planned deployment of Aireon service in Asia and Europe. Ultimately, Aireon is working to secure strategic flight quarters around the globe that will drive significant operational benefits and fuel savings for the airlines. Moving now to a quick update on our major lines of business; in our legacy telephony business, despite pressure on both equipment sales and usage from a challenging foreign exchange environment and reduced activity in the energy sector on lower oil prices, we're incentivizing customers with new offers and tailored rate plans to meet our sales targets. In the first quarter and the full year, at least in the early going, are coming off pretty much where we thought and we still believe the commercial voice sector is a low single digit grower for Iridium over the long term. Aiding that growth profile will be new products including our commercial push-to-talk solution. This service will be more widely available during the second quarter and will be seen as the first revenue start to flow from a robust customer funnel. As affordable product, build on our Iridium Extreme as a dual purpose handset, we see many attractive used cases for this solution. From remote work teams in the forestry industry to first responders and government agencies coordinating their efforts in the wake of a natural disaster. Overall we expect it will add to our commercial service and equipment revenue in 2015 and beyond. In M2M, we continue to drive solid performance in our traditional vertical markets by expanding our partner base and reducing hardware cost, while also developing opportunities in the utilities, automotive and enterprise trucking sectors. The heavy equipment OEM space is still a major target area for us and we've been successful over the last two years bringing new business on Board. We have a strong funnel and expect that we will be announcing new customer wins in 2015. As for our broadband platforms in aviation and maritime, we continue to see nice gains. In the Commercial Aviation segment, our subscribers grew about 20% year-over-year in the first quarter and we've experienced particularly strong adoption among Chinese Airlines as they look to use our service to meet the national mandate for satellite voice communications in the cockpit. We're leveraging our size, weight and cost advantages when selling to this market with a strong focus on aircraft operation and communications and flight safety applications. On the maritime side, we increased Iridium open port service revenue versus last year with solid data usage on ships and vessels driving growth. The competitive landscape remains favorable for us to build market share as the value player and we'll seek to capitalize on this momentum by optimizing our pricing, aggressively pursuing new fleet wins and driving data usage across the network. Finally, as you heard on our last earnings call and in detail during the Analyst Day, we plan to expand our broadband footprint from here. With the recent announcement of Iridium Certus broadband, we partner with five world-class manufacturers to develop faster user terminals for the aviation maritime and land sectors that will take advantage of Iridium NEXT enhanced capabilities. The industry is hungry for the reliable low latency and high speed service that Iridium NEXT will provide and our partners have development underway and to that end we expect to deliver our core technology, the prototype transceivers for their terminals during the second quarter. In closing, there is a high level of activity at Iridium these days. 2015 is shaping up to be another exciting year. We're working hard to meet our first launch date this year and complete Iridium NEXT in 2017. Our commercial lines of business are in attack mode despite some challenging external factors and we continue to strengthen our service revenue profile with new products and services. Most importantly, our investment thesis and our view to the financial transformation that should occur in 2018 are solidly intact. So with that, I'll turn it over to Tom for a more detailed financial review. Tom?

Thanks Matt and good morning, everyone. I’ll get started by outlining our key financial metrics for the first quarter and then recap the 2015 and long rage guidance we affirm today. I’ll close by linking our first quarter's results to our annual outlook and briefly reviewing our liquidity position and balance sheet. Iridium recorded first quarter total revenue of $97 million, which was down 1% from last year's comparable quarter. Service revenue grew 3%, but this was offset by an 18% decline in equipment revenue. As we noted when discussing our 2015 forecast for the first time back in February, the pronounced increase in the strength of the U.S. dollar has reduced commercial handset sales. Operational EBITDA came in at $52.5 million, an increase of 2% from the prior year period. Our operational EBITDA margin was 54% for the first quarter, up from 53% in the year ago period. From an operating viewpoint, we reported commercial service revenue of $57.4 million in the first quarter, which was unchanged versus last year. We added 6,000 net commercial customers during the quarter, with all of the net customer gain coming from our M2M business. Commercial M2M data subscribers now represent 49% of billable commercial subscribers, an increase from 46% during the year-ago period. It’s important to note that while our commercial voice and data subscribers increased 4% year-over-year, this was offset by a 7% ARPU decline, which resulted in service revenue being flat. ARPU was negatively impacted by the Russian Ruble's devaluation effect on our legacy telephony business, which we previously described and by lower air time usage, due in part to weakness in the oil and gas sector. These impacts were somewhat muted by continued growth in our Iridium OpenPort maritime product. Our commercial M2M ARPU, which declined from $16 to $16 year-over-year fully reflects the pressure we expected from a change in the usage profile of a native customer that we highlighted last quarter. This high ARPU subscriber used our service to attract aviation and ground assets in conflict areas and has now materially reduced its usage as his activity has wound down. I would emphasize that even including this roughly $3 million headwind, we expect double-digit subscriber and revenue gains for our M2M business in 2015. Turning now to our Government service business, which reported revenue of $18 million, yielding 13% year-over-year growth, driven by our fixed price airtime services contract with the Department of Defense. Government voice and data subscribers again grew at a rapid clip, posting 13% year-over-year growth. In addition, we reached a record 63,000 total U.S. government customers during the first quarter. Looking ahead, as we continue to increase our value to our largest customer, we believe that future services and enhanced capabilities could provide revenue upside as early as 2016. Notably, we see promising business development opportunities in three areas. First Iridium Certus broadband as in our commercial markets will meet the demand for greater bandwidth required by the defense community. Secondly, the potential integration of Iridium service into the government's tactical software defined radios significantly expands our addressable market. And third, a solution that's called STL, which allows us to provide secured time and location services through a strategic partner. This product should be important to civil and government agencies as it augments and validates GPS signals in challenged environments. All of this activity bodes well for the future contract renewals and their growing partnership with us a mission critical communications provider. Our focus next and equipment revenue, which was $16.5 million for the first quarter, it declined 18% year-over-year, primarily due to lower commercial handset sales. As we discussed last quarter, the pronounced increase in the strength in the U.S. dollar continues to impact demand for our handset products and services. This effect will be partially offset by shipments of new products, specifically Iridium Go! and commercial push-to-talk. While we don’t expect our equipment revenue to grow in 2015 channel checks with our partners tell us that we see material improvements in our equipment revenues in the next three quarters. Moving now to our 2015 and long range financial outlook, which we affirmed across the Board this morning. To link our first quarter results to an annual trend and provide some additional color for this year's financial target I would ask you consider the following key elements. Our service revenue growth is skewed to the second half of 2015 as the final step-up in our U.S. Government airtime contract occurs early in the fourth quarter and we also expect materially lower warranty expenses in 2015 related to our Iridium Pilot Maritime product, which should lift operational EBITDA. Finally a review of our balance sheet and liquidity position. As of the end of first quarter we had drawn approximately $1.3 billion from Coface facility and had a cash and marketable securities balance of $488.2 million. In regard to our CapEx profile, you will note that our expenditures in the first quarter were down sequentially from the end of 2014. This is consistent with our expectation for the timing of milestone payment to Thales Alenia space related to Iridium NEXT and the revised first launch date in October. You should see a significant ramp in our capital expenditures in the second and third quarters of 2015 as we move closure to the initial launch date. To wrap up my thoughts a very busy 2015 is underway. Iridium NEXT is on track to complete full deployment in 2017 and Aireon continues to add potential customers to its roster. Our U.S. Government customer is engaged with us on several new initiatives and notwithstanding the macroeconomic headwinds we're seeing in our handset business, we generally expect solid growth across the rest of our commercial product portfolio. We look forward to updating you again in July. With that I’ll turn things back to the operator for the Q&A portion of this morning’s call.

Thank you. [Operator Instructions] Our first question comes from James Breen with William Blair. Your line is open.

Thanks for taking the question. Tom can you just talk one more time a little bit more color on the FX impact in the quarter, whether is on the equipment side or whether it came in also in the services side and sort of how it comes into each of those different elements? And then secondly, on the M&M business Royalty Caterpillar, can you guys update us where you're now on that and when you see that ramping sort of to full speed? Thanks.

Jim sure, the FX impacts are sort of multiple. There is a discreet impact that affects our service revenue and in fact play in the ARPU reduction and that’s the devaluation of the Russian Ruble. So that is driving -- we estimate there is about 600,000 of impact in the quarter from simply what the same Russian usage that had been denominated in U.S. dollars, which is now denominated in Russian Rubles because we stared selling in Russia. So that’s a discrete impact from the devaluation of the Russian Rubel and you see that in our service revenues and the ARPU weakness. It's less -- we could be less precise in terms of the general impact on handset sales owing to the run in the U.S. dollar versus all major currencies, but we sell in U.S. dollars and so the handsets have become more expensive and so the pressure there and the weakness in handsets we trace to the run in the dollar, though we can't be as precise in that estimation as we can with regard to the Ruble devaluation impact. And as to Caterpillar, you can elaborate mapping. We see Caterpillar ramping through the course of the year and will benefit us in the following quarters.

Yeah, Cat is actually starting to ramp products today. So it's hitting both the equipment line and service line probably not so much in the M2M side because they're really focused on the initial side being the high volume product in the voice and data sector, but the M2M part of it really kind of rolls later this year. But overall, they’re really ramping up and going commercial and going live and decided to see that all that development is coming to fruition.

And just in terms of future opportunities in that space obviously they are one of the larger OEMs. In terms of the total market that’s available to you, where are we today in terms of those players really rolling out this type of service?

Yeah, literally every quarter we're tasking to more players. I think the taxable weather in that market and everybody wants to talk to us about that since they are interested and what they’re doing and we’ve not got for couple others already, I’d say we’re talking to everybody in the top tier of that market around the world right now. Many of them are in different stages of whether their trailing or testing or negotiations or being close to other things. So obviously we didn't announce anything today, but a lot of things are really in the mill right now and I think you'll see things as the year processes other announcements that we will be making in that area.

Great, thanks.

Thank you. Our next question comes from Jim McIlree from Chardan Capital. Your line is open.

Thank you and good morning. The FX impact that you cited as well as the lower demand from the oil and gas industry. Those headwinds seems to me are going to continue throughout the year. So does that suggest that the guidance or the results should be at the lower end of the guidance or that there is, less optimism about reaching the higher end of the guidance?

The Ruble effect right, to the extent that the Ruble is devalued it affects '15, it doesn't recur into '16 right. So we’re at the level where we are and so the comp versus '14 will be in effect throughout the quarters of this year, but not into'16. If you just look at the quarter in terms of where we come out in the guidance the commercial revenues were flat year-over-year and we still put up 3% growth. So what we noted in the quarter is particular weakness in January and February and improvement in March and so to the extent that we see continued improvement in the spring and summer months, which are traditionally our strongest months it pushes you further into up from the 3% we posted in the first quarter, which had two notably weak months in it. If you also consider the fourth quarter has the benefit of the increase in the U.S. Government contract, so the fourth quarter will grow 20% in terms of government revenues over '14 whereas the first quarter only grew 12.5% because didn’t have the benefit of the contractual uplift. Secondly, we see Caterpillar ramping throughout the year and commercial push-to-talk affecting the back half of the year. So we’ll evaluate where we fall on the range, as we grow though the spring and summer months and see the relative weakness or relative performance there.

Okay. And so you mentioned two offsets, Cat and push-to-talk, are there also offsets from aviation or airtime that are notable that would overcome that you saw in the first quarter?

Yes, but I would say it's fundamentally, the picture of the first quarter is two months of particular weakness January and February one month of much improved performance in March. The extent to which March recurs in April, May, June, July and pushes you north of flat commercial service revenue. So that’s kind of the fundamental difference between the first quarter and the succeeding quarters is the degree to which the improvement we saw in March continues to recur and that’s augmented by the three other things that I noted. The government increase, Caterpillar and push-to-talk

Okay. Very good. That’s helpful. Thank you.

Thank you. Our next question comes from Greg Burns with Sidoti & Company. Your line is open.

When we think about the longer term I guess service revenue opportunity from Aireon, I think you put out a number out there, you continue to sign for make progress in signing additional ANFPs globally. How should we think -- is there upside to that number you put out like what is baked into the kind of long-term service revenue potential of Aireon? Does it consider winning these recent deals you talked about or is there some upside if you get more global penetration then you had previously expected.

So the upside is in our 25% remainder interest in Aireon once we pay down for Aireon's acquisition of Iridium's stock in we estimate 2018. We'll still have 25% of that business into the extent that Aireon outperforms will be at 25% owner. The revenues that we site in 2018 of $14 million in hosting fees and approximately $20 million in data, that's contractual Greg and so to the extent Aireon outperforms that and there is benefit and we get our share of that, if you will as an equity owner to the tune of 25%.

Okay. And what was the warrantee expense this quarter and where does that flow through the P&L?

It's in cost of sales and we'll get back to you with the exact number in the quarter. Let's slip that up and we'll come back to you Greg.

Okay, okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from Chris Quilty with Raymond James. Your line is open.

Thanks, Matt. Just wanted to follow-up on the pricing plans you mentioned for the hand-held voice business. Are these temporary plans or one time plans that will have a transitional impact or are these longer term adjustments to your pricing model?

Well, we're considering them in both categories. Their incentive plans that we think will help to held this year and there is some -- we’re constantly reviewing how we position ourselves not to just against others but, how people value our programs. For example we -- the Go! product, we’ve just found a lot of interest in sort of All You Can Eat plan, which was a little bit of a surprise and realize people want simplicity really in terms of their usage. And so we’re considering how that plays out in other products and also have to tailor that product for each of the individual markets as it goes out. So no it's more fine-tuning of more than anything else and that’s kind of figured into our overall projection as to what we're doing, but I suggest we’re not going stay fixed forever in terms of exactly how we position our products.

Okay. And with reference to Go! what have you seen in terms of trends for hardware shipments there?

We’re going to come up on our first year anniversary I think in a couple of more months here and everything and maybe we'll kind of report out more at time. But it's been a solid product for us. It continues to ramp out there. There is a lot of awards for it, a lot of interest. I’d say, we've realized I think one of the things we were just talking about yesterday is how much we need to localize it. We need to spend more time in providing help in Asia markets and those sort of things to help that product ramp out there but, we’re still very please with it. Its continuing to drive, I think new customers to our business and I think its positioned very well.

Okay. And on the open port maritime side last several quarters, you’ve mentioned specifically 20% order of magnitude growth, I think you said growth in this quarter, is it fair to assume that that slowed down from the initial ramp or difficult year-over-year comps or just seasonal timing.

I think it was a little bit inside of 20%, but still solid growth Chris.

Okay. The secured time and allocation, I think that’s what use to call the IGPS service, can you give us a little bit more detail in terms of who the types of partners are there who the customers for the service is and how that gets billed through what line item and maybe what kind of order of magnitude it might have this year?

Yes we called that out and it’s nice of you to pick that out. STL used to tell us Time and Location is what we actually used to call Boeing Time and Locations, so it’s not exactly IGPS but it sort of come out of that same invention out of Boeing. It got license to one of our value-added resellers and sort of an exclusive basis and they’ve been now really talking throughout those civil and governmental customers and I’ve been really pleased how much interest there is. It’s quite unique, it would take me a long time to explain it in enough detail for everyone on the call, but sort of simplify it it's a technology that allows through a broadcast to our high powered channels in our satellite system. Information to a small chip that validates where that user is kind of can’t be spoofed very easily in terms of validating GPS information or providing sort of GPS like information, location information inside buildings where GPS doesn’t exist and if you think about the kinds of things you can do about that when you can trust that a user is in a specific place that can be Cyber type applications, it can have -- it’s an anti-spoofing kind of applications, it can and I’ve really been pleased to see both government and civil people come forward and suggest the kinds of applications they see happening there. And that would flow to primarily through service revenue to us as we provided that signal and by regions, we price it by the regions so if they turn that signal on over the U.S. or over Europe or over Asia wherever it is, then we get paid. I don’t expect a lot of revenues this year but we see a nice ramp up in '16, '17, and '18 as that business develops and think there could -- and I really, what I really like about that, I think it’s the absolutely perfect kind of application for the Iridium Network. Again a very unique service that only, you could only do through a lower orbiting inter-satellite linked system that provides a powerful capability that can’t be replicated elsewhere and provide solid service revenue growth as it ramps up. So I would say it was one of the hot topics of the Iridium Partner Conference this year and continues to be a hot topic both in starting on the government business area, but also in the commercial business area as well.

And final question M2M subs down just modestly year-over-year, Q1 seasonally weak, but should we still expect a ramp in that and are you seeing any impact from the price cuts you instituted last year?

Well so M2M subs were up 18% year-over-year in the quarter, Chris and so I mean the M2M any softness in M2M in the year is owing to the NATO customer we described. So it was a really high ARPU customer. So it didn’t really impacts subs that much. We still posted pretty robust M2M subscribed growth at 18%, but our revenue was pressured because that customer has changed their usage profile and that's out of the revenue number. So we’re actually pleased with the M2M kind of pace.

In the funnel and the other -- and the new business that we’re seeing and how that might ramp up.

Okay. I was referring to the net adds understand the impact on the ARPU whether some of those NATO subscribers that were actually coming off in the first quarter that impacted the net adds?

.:

Great, thank you.

Thank you. Our next question comes from Andrew Spinola with Wells Fargo. Your line is open.

Thanks. I wanted to ask on the M2M business, is there any FX impact on that or is that an entirely U.S. dollar business?

There is not M2M to any material degree in Russia. So there is no Ruble effect.

Thought we do we see a growing funnel in Russia for as M2M opportunities emerge and get built, they take time to emerge in that new market area. But I wouldn’t say that really overall the FX impacts M2M to the extent it does say a competitive handset sale for the most part, when you get built into a solution over time, it really depends more upon the business case for that customer and how fast they decide to ramp whether it’s being put, it’s more than affected by the -- maybe the market segments that they’re in whether commercial fishing might be down or something or oil and gas pipeline monitoring or tracking applications and that sort of things. But that's real harder to track as far as FX.

And it’s also 10 times cheaper than a handset. So effective dollar running is less pronounced, it’s a smaller ticket item.

That makes sense. And then to real high level Matt, you mentioned that your long-term view of the voice, commercial voice business is low single digit growth and I was just curious if you will be willing to give us sort of your view on that market and how you get to growth longer term, is it market growth, is it share growth pricing. How do you view all of those different variables in that business?

Well, we’ve had a solid position in that space. Obviously we were the first there and I would say that it's still the most highly regarded solution in that space, but we’ve expected that the growth would come from new products like Iridium GO! and commercial push-to-talk in that space. And those are really still in their very early days and those will help offset really to the extent that there is any slowdown what I would call a traditional satellite phone usage and then long, long term, I think there is an Iridium Certus effect that will come into what I would call their traditional voice and data space or at least portable communication space as we find higher speed services and other things to make it easier for people to use their smartphones and laptops around the world. But maybe in the long-term where we said that that is sort of a foundation for our business and really these countervailing forces will create a low single digit growth. That's sort of how we view that.

Makes sense. Thank you very much.

Thank you. We have a follow-up question from Chris Quilty from Raymond James. Your line is open.

Yes real quick on the oil and gas exposure, do you have any idea what percent of either your voice or M2M or just collectively your exposure is to that segment?

Not with precision, what we observed Chris was when we look at the LACT of offshore oil rigs operate around the globe, we noticed a pronounced decrease in usage in the first quarter in those LACT like 30% decrease in the usage in those LACT. And so in our legacy telephony business, it has been characterized by net additions that generate increased access revenue and that’s a plus and we’ve had sort of a chronic decrease in usage over time and we model that and how we think about the low single digit growth is, growth in access offset by moderate declines in usage to net out to a low single digit grower. And we think that is the prospect for that element of our business as we look out into 2018 and we’re confident in that. What we saw in the first quarter was kind of a step down in usage that made us scratch our heads and say what is that and as we interrogated it, we saw hey these oil and gas LACTs are really down acutely and that’s kind of piling on what is as I call it a chronic decline in usage in our legacy business and that’s how we characterize it.

Thank you.

Thank you. I would now like to turn the call back to Matt Desch, CEO for closing remarks.

Thanks everybody for joining us. Obviously this is going to be an interesting year as we ramp towards first launch and looking forward to telling you how the business progress in a few months here. So thanks all for joining us and we will talk to you soon.