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Iridium Aims To Reach Next Level

By Staff Writer | August 30, 2004

      Iridium Satellite LLC, a privately held mobile satellite communications company based in Bethesda, Md., is showing signs of taking an aggressive approach to growing its business under the leadership of Carmen Lloyd, who arrived nearly a year ago and who serves as its chairman and CEO.

      Lloyd, who retired as president and CEO of Stratos Global in September 2003, is marking the approach of his one-year anniversary with Iridium by boldly pointing to the future and discussing ways that the company’s shareholders ultimately might be able to gain a return on their investment. Those investors paid $25 million to acquire the Iridium assets, including a constellation of 66 in-orbit satellites, in December 2000. They finally were rewarded when the revamped company surpassed the 100,000-subscriber mark and achieved positive earnings before income taxes, depreciation and amortization (EBITDA) for the first time last month. The company also is adding between 2,000 and 3,000 new subscribers per month.

      “Iridium has moved forward,” Lloyd told Satellite News Senior Editor and Senior Analyst Paul Dykewicz during an exclusive interview last week.

      Lloyd is projecting that Iridium will achieve double-digit percentage annual revenue growth for the “foreseeable future.” That forward-looking estimate seems well within reach in light of the 17 percent revenue growth it notched for the first half of 2004, compared to the same period of 2003.

      Iridium has been helped by starting its new life virtually debt-free after emerging from Chapter 11 bankruptcy protection in December 2000 following a financial restructuring that wiped out billions of dollars in debt resulting from building and launching the global, mobile communications system. The existing in-orbit satellites are expected by management to last until 2014, and replacement spacecraft should be funded through internally generated cash flow, Lloyd said.

      The company’s new rapier-sharp focus on such vertical markets as maritime, aeronautical and government services also is a post-bankruptcy phenomenon. Those three sectors account for roughly 80 percent of Iridium’s annual revenues. In its early days, well-heeled consumers and business travelers were expected to be prime customers. There were almost immediate problems. Iridium service only could be tapped if the user was outdoors, due to line-of-sight issue, and it was priced at as much as $7 a minute.

      As a narrowband system, Iridium’s service is “ideally suited” for voice and data, Lloyd said. Such applications such as engine-control monitoring, and ship safety and alert systems allow the company to fill market needs that otherwise might not be addressed by other technologies, he explained. The company also is testing a next-generation handset that could be introduced in the near future to offer improved service. It would be the same size as the latest generation but it would contain new components that would reduce line-of-sight issues with the orbiting satellites that can cause dropped calls, thus hurting service quality.

      The company also has relied on an extended family of business partners that include 44 service providers, 17 value-added manufacturers and almost two dozen value-added resellers. Yet one more plus for Iridium is that many of its applications use equipment that is built into the ships and airplanes that subscribe to the service, Lloyd said. As a result, competitors face a big challenge in trying to lure away these customers.

      “Applications-driven customers are less likely to leave,” Lloyd said. Originally known as a voice service, Iridium now generates 20 percent of its annual revenue from data applications, he added.

      The service’s use by the U.S. Department of Defense also has grown since late 2000. At that time, the DoD agreed to a $36 million annual contract to obtain unlimited airtime for 20,000 U.S. forces. That agreement was a huge boost to Iridium, because fewer than 30,000 subscribers had been amassed by August 1999 when the company’s filed for bankruptcy.

      IPO Possibilities

      One method for Iridium’s investors to reap a reward for funding a restructuring of the company, after its previous ownership nearly chose to de-orbit the constellation to destroy it, would be to conduct an initial public stock offering (IPO). Another option ultimately could be to sell it to strategic players or partners. Investors also could be paid a dividend. “We will build a business that will provide our investor with a return on their investment,” Lloyd said. The challenge now is to take Iridium to the “next level,” he added.

      Part of that process will involve looking for new financing. Lloyd said such financial support would let him consider making a strategic acquisition if it helped the company and if it would not interfere with its existing distribution channels. His strategy also involves growing the company “organically.”

      To aid with those efforts, he recruited Richard Halka as CFO last April. Both executives had worked together in the past.

      “He brings another skill set that we didn’t have,” Lloyd said. “Iridium needed to act and behave like a public company.”

      Key goals for the company are to achieve financial stability, free cash flow and top-line growth, Lloyd said.

      By 2010, Iridium aims to position itself to start launching replacement satellites, and that process could take four or five years to complete on a gradual basis. That phased- in replacement of the existing constellation would cost “hundreds of millions” dollars, he estimated.

      An evaluation will be taken in 2009 about whether the current low-Earth-orbit (LEO) design is the best choice, Lloyd said. Medium-Earth-orbit (MEO) and even traditional GEO orbit satellites would be considered.

      (Carmen Lloyd, Iridium Satellite LLC, 301/571-6220)

      Iridium Satellite LLC Milestones

      • Emerged from bankruptcy court protection December 2000
      • Began catering to vertical markets in March 2001
      • March 2003 estimates say in-orbit satellites will last through 2014
      • Short messaging service introduced in August 2003
      • Gains access to 3.1 megahertz of additional spectrum in June 2004
      • Tops 100,000-subscriber mark in July 2004

      Source: Iridium Satellite LLC