Krause Fund Research

Spring 2019

Communications Recommendation: HOLD

Analysts

Xin Yie Ng Shifei Li xinyie-ng@uiowa.edu shifei-li@uiowa.edu Robert Medlicott Jeremy Friedman robert-medlicott@uiowa.edu jeremy-friedman@uiowa.edu

Liam Mclaughlin liam-mclaughlin@uiowa.edu

Company Overview

Iridium offers voice and data communication to government and

non-government agencies. Iridium stands alone in offering

global coverage. Iridium’s commercial business caters to energy,

aviation, maritime, utilities, construction, and transportation

companies. Iridium revenue can be broken down into service

revenue, which consists of commercial voice and data services,

commercial IoT data services, hosted payload and government

services, and engineering and support and subscriber equipment.

Iridium recently launched their Iridium NEXT satellite network,

allowing for higher data speeds and new products, including

Iridium Certus and the Aireon global air traffic system. Iridium

has high capital costs every decade due to their new satellite

networks. By leveraging their uniquely fixed cost infrastructure,

Iridium hopes to increase service revenues in the near future.

Stock Performance Highlights 52-week High $28.24 52-week Low $11.50 Beta Value 2.13 Average Daily Volume 1.15 M

Share Highlights Market Capitalization $ 3.09 B Shares Outstanding 113.24 M Book Value per share $14.14 EPS ($.0.21)

Company Performance Highlights ROA -0.60% ROE -1.50% Sales $5.55 B

Financial Ratios Current Ratio 1.50 Debt to Equity 122%

Iridium Communications Inc. (NASDAQ: IRDM)

April 11, 2019

Current Price $28

Target Price $23 - $29

Iridium Investment Highlights

Investment Positives:

• The satellite telecommunications industry has been growing

as our world’s online presence increases. While competition

within the industry is high and will only rise as new market

segments are created, Iridium is ahead of their peers, given

their high caliber technology, powerful partnerships, and

implementation of new business segments.

• The company completed a 12-year project, Iridium NEXT,

to replace their outdated satellite fleet with a faster, globe-

spanning constellation. We expect Iridium to have 20%

growth in subscribers with 13% total revenue growth in

2019. This would allow Iridium to pay its outstanding debts,

reducing the debt-to-equity ratio to 22% by 2023.

• Iridium recently partnered with Amazon to bring Amazon

Web Service (AWS) anywhere in the world. Iridium is the

only satellite company with an Amazon contract. Given

both Amazon’s market share and customer base, Iridium

will see dramatic increases in their IoT network subscribers. Investment Negatives:

• Finishing Iridium NEXT has massively increased net PPE.

This will negatively impact the ROIC. Even with the sharp

growth in revenue, we predict that 2019 ROIC will be a

mere 3.16%, and economic profit will be driven into the

negative for the next few years.

• There are some significant risks concerning government

contracts and debt structure. Iridium’s contract with the U.S.

government ends in 2019 and is subject to termination.

While our model assumes it will be extended, Iridium’s

revenue could take a substantial hit if it isn’t. On top of that,

Iridium took a massive debt to finance the new satellite

network. If they are unable to make payments, Iridium could

see a default and many of its business obligations may halt.

One Year Stock Performance 1

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Economic Analysis:

U.S. Real Gross Domestic Product (GDP): The U.S. Real Gross Domestic Product (GDP) is one of the

main indicators of how the economy is doing as a whole.

GDP, which is the inflation-adjusted value of all the finished

goods and services in the country over the year, is usually

described as the size of the economy. GDP has seen varied

increases each year since the effects of the 2008 market

crash. This growth is expected to continue in the coming

years, although it has begun to slow down. 2018 GDP was

recorded at 2.9% for the year, up from 2.3% in 2017 and

1.6% in 2016. 2

Figure 1: Real GDP Growth 2

Given the positive trend we believe GDP will see another

increase of around 2.3%. The lower growth rate accounts for

effects from the U.S. Trade War with China and the high

FED Funds rates. This growth will prove beneficial to the

entire economy. Iridium especially will profit, as the

company provides communication services to other

businesses benefitting from the rising GDP. As businesses

grow economically, they expand and communication

services become increasingly vital for their continued

success. Thus, their gains translate to the gains of companies

such as Iridium.

Inflation:

Figure 2: Inflation Rates 3

Inflation follows the price increases for goods and services.

A 2% benchmark is used to describe a healthy inflation rate

and for the last few years inflation has stuck right around that

benchmark with 2016, 2017, and 2018 reporting inflation

rates of 2.1%, 2.1%, and 1.9% respectively.3 The consumer

and producer price indexes are both key indicators of where

inflation is going. CPI was last measured at 1.9% keeping up

with the healthy rate. We have seen some decrease in the PPI

from 200.4 to 194.1 over the course of the last few months of

2018, which could lead to a small potential decrease in U.S.

inflation.4

We are predicting inflation to fall to around 1.5% given the

producer price index numbers and the FED’s intentions to

not raise rates over the next coming years. With inflation

beginning to slow, we could see an increase in consumer

spending as prices will be lower. This is good news for

almost any company and Iridium is no exception. Given

Iridium’s new release of the Iridium NEXT satellite system,

it is expected that their sales of manufactured goods will

increase sharply over the next few years. Lower inflation

means lower manufacturing costs, which leads to a higher

profit.

Interest Rates:

Figure 3: Effective Federal Funds Rate 5

Interest rates have been a hot topic of discussion lately as the

Federal Reserve rose rates for most of the 2018 fiscal year.

By the end of 2017, rates were sitting around 1.5% and have

since risen all the way to almost 2.5% in the past year.

Higher interest rates are not a positive for satellite companies

like Iridium because of the amount of the amount of money

that must be borrowed to finance satellite construction and

launchings.

The good news is that the Federal Reserve has decided not

raise rates for, at least, the remainder of 2019. Their target

for interest rates sits around 2.25-2.5%.6 This will certainly

benefit Iridium, who has a substantial amount of debt from

the financing of their 12-year Iridium NEXT satellite project.

However, with the need to substitute LIBOR by 2021, the

new rate may prove different from current levels.7 Should it

be higher, that would further increase Iridium’s interest

expense, though the uncertainty may alternatively result in a

decreasing interest rate.

Exchange Rates: The U.S. Dollar has strengthened over foreign currency in

the past year, but we are forecasting a weakening in the

coming years, due to the high trade deficit and the FED’s

2

decision not to hike up interest rates any further for the time

being. 8 Although Iridium receives over half of its revenue

from the United States, we are expecting their foreign

revenues to increase over the coming years because of their

new satellite network. This new network will be the first to

cover every part of the globe, which means that foreign

countries with less exposure will now be turning to Iridium

for IoT services. This means that stronger foreign currencies

will be very beneficial to Iridium as we expect their foreign

revenues to see an increase in the coming years.

Figure 4: US Dollar Index - Price Index 9

Government Spending: The U.S. government had been seeing decreases in their

defense budget for the past few years, but the recently signed

FY 2019 budget sees a requested $716 billion in defense

spending, which is up from the previous years. One of

Iridium’s main revenue sources has been a lucrative contract

with the U.S. government, which had Iridium providing

“services to meet communications needs of the US

Department of Defense and Federal partners” (Nyirady).

With this contract set to expire in 2019, failure to renew

would significantly hurt Iridium’s revenues moving forward.

That being said, recent increases in government defense

spending and Iridium’s powerful new satellite network show

very promising signs for the renewal of this contract, which

would put to bed a very large risk factor for the business

moving forward. With the upcoming 2020 presidential

election, there is the possibility that the government’s

priorities may shift but provided the contract can be renewed

by its expiration this year, there should be few issues in the

immediate future.

Market Outlook: Iridium is part of the satellite telecommunications market and

as of right now this market is expected to continue with its

recent increases. The increases here are a result of

exponentially growing technologies, continually increasing

demand for both telecommunications and faster bandwidth

speeds. Revenues for this market sector are forecasted as

growing over the next 5 years, which makes it a great time to

invest here. On top of an increase in revenues, the increased

capacity of these satellite networks will allow for lower

prices to be set in order to compete with competition. The

Iridium NEXT satellite network promises huge increases in

speed and bandwidth, which will only set the company

further ahead of its peers.

Industry Analysis: Industry Outlook:

The Telecommunications industry is a competitive group

competing on metrics such as broadband and coverage. New

entrants into the industry are rare considering how much

capital is required to enter the industry. Capital market

factors such as interest rates impact the threat of new entrants

greatly 10. The growing threat of substitutes in the

telecommunications industry comes from alternative carriers

such as iridium. Iridium operates in a very small sector of the

Telecommunications sector, that being the satellite

telecommunication providers.

Iridium is a part of the telecommunications industry, more

specifically the alternative carrier satellite communications

subsector. Iridium’s main competitors are other alternative

carriers as well as other satellite communication companies.

Satellite Telecommunication Providers: In order to enter the Satellite Telecommunications industry,

having a large amount of capital is a must. The initial cost to

build and launch satellites can be upwards to $320 million

dollars 16,23. The overall operating costs of maintaining

satellites is low compared with the initial outlay. The level of

technological advancement with-in the industry is very high.

There are several different classifications of satellites based

off their elevation. These include Low Earth, Medium Earth,

and Geostationary Earth Orbit satellites. Iridium operates a

fleet of 66 Low Earth Orbiting satellites (LEO)1. Iridium

separates itself from its competition through its interlinked

satellite structure 1. The interlinked satellite structure makes

it possible for iridium to route communication between

satellites, this creates a need for less ground stations.

Companies like ORBCOMM and Global Star use a “Bent

Pipe” structure, meaning a ground station is needed in the

same regions as their satellite groups.

The Satellite Telecommunications industry is regulated by

the Federal Communications Commission (FCC)10. All

participants within the industry must meet the FCC’s

Financial, legal and technical qualifications. The FCC issues

license agreements to companies that last for 15 years 10.

Revenue volatility within the industry is low due to revenue

being very contract based. Satellite companies often lock

their customers into long term contracts. When contracts are

up companies discount prices greatly to lock in these long-

term contracts with customers 10. Revenue volatility is

usually only high during years when major contracts need to

be renewed within the industry.

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Alternative opportunities for revenue growth within the next

5 years will keep the industry stable and growing. Broadband

coverage within rural areas is still relatively low, creating an

opportunity for expansion. An increase in demand for

connectedness in industries such as finance, energy, mining

and aeronautics will continue to drive revenue. A growing

external competitor is likely to hit the industry, that

being submarine fiber optic cables. One report estimates

fiber optic cable industry to grow at an annual rate of 11.18%

through 2025.

Competitors: Most of the industry market share is made up of three

companies: EchoStar Corp, Intelsat and SES S.A (SES). The

remaining 60% of the market share is made up of various

other companies, including Iridium 10. EchoStar is the former

parent company and current partner of DISH network. The

company offers broadband network and video satellite

solutions for DISH network. Intelsat is one of the largest

fixed satellite service companies in the world. Intelsat serves

media, internet service providers and telecommunications

companies. SES is a global satellite operator that has

satellites on every continent offering its services to

telecommunication, media and government institutions. The

company earns an estimated 22.9% of its revenue in the US.

Figure 5: IbisWorld 10

Competitive Comparison:

Based off Iridium’s target market, products and market share,

Iridium’s direct and most comparable competitors are

ORBCOMM, GlobalStar and Inmarsat. The competitors

compete over a similar market but differ in the strength of

broadband, satellite elevation, satellite structure as well as

product costs. Like Iridium ORBCOMM, GlobalStar and

Inmarsat are all mobile satellite service providers. Iridium,

ORBCOMM, and GlobalStar also each have a constellation

of Low Earth Orbit (LEO) satellites 1. LEO satellites are

closer to earth offering less transmission delays and latency

than other satellites. Iridium differentiates itself from these

competitors through its interlinked mesh satellite structure 1.

This structure requires less ground station than a traditional

“bent pipe” structure. Iridium leads its competitors in the

industry in terms of revenue per subscriber. Iridium has also

added 152,000 subscribers from last year compared to

GlobalStar who added only 33,000 subscribers. Iridium,

compared with the mobile satellite companies is one of the

larger earners in terms of revenue and market cap. Market

capital breaks down for the group as $601 M, $560 M, and

$3,090 M, for GlobalStar, ORBCOMM and Iridium.

Figure 6: Company 10-k 1 11 12 13

Satellite companies require large amounts of capital in order

to improve and maintain their services. The chart above

compares capital expenditures as a % of sales between the

four companies over a three-year time horizon. Iridium

stands out in the comparison holding capital expenditures at

94%, 89% and 75% of sales over a three-year period. The

second largest company Inmarsat holds CapEx at 34% of

sales. We believe this ratio to be high for Iridium as the

result of the Iridium NEXT launch that has been in the works

over the past three years. We forecast CapEx as a percentage

of sales to decrease in the coming years for Iridium. We

interpret this high ratio as being a positive for Iridium, it

shows the company is investing in itself and future growth.

Figure 7: NetAdvantage stock screener 31

Porter’s 5 Forces:

Threat of New Entrants Competition in the satellite communications industry is

deemed as average. The satellite industry is a very niche

market and new entrants are rare. Looking at overall

market share three competitors make up around 42% of

it, that being SES SA, Intelsat and EchoStar. One of the

largest factors the satellite companies compete over are

long term contracts. Acquiring a long-term contract with

say the US government can secure revenues for decades.

Another force that drives competition is capital

structure. In order for these companies to take on capital

intensive projects there is a need for liquidity and cash

on hand. The ability to upgrade satellites is imperative in

order to survive within the industry. The likelihood of

new entrants is relatively low within the industry due to

the cost of setting up a satellite network as well as the

licenses required.

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Threat of Competitors

One threat within the industry is the company OneWeb. The

company plans to launch 650 satellites into orbit over the

next five years 15. OneWeb has a mission to provide satellite

internet broadband to the entire globe. Other companies like

Space X could in the foreseeable future enter into the satellite

internet market. Iridium’s CEO Matt Desch described the

threat of OneWeb as being very little since OneWeb’s

satellites will be using a different Ka-Band frequency and as

a result they will be used for a different purpose 15. OneWeb

will definitely be a competitor in its own market in the

satellite industry.

Supplier Bargaining Power

Supplier power within the industry is relatively low

considering supplier costs are usually only high when a

company is building out its satellite fleet. The increase in

privately run rocket exploration companies has significantly

decreased the cost to launch satellites. The single unit cost of

a launch by the united states Air Force is budgeted out to be

$422 million 16. Space X offers basic commercial launches

with its falcon 9 rocket for $65 million. Companies like

Space X are taking away from the Air Force’s monopoly on

the industry and driving prices down. Power of suppliers is

relatively high in regards to rockets, but prices are being

driven down.

Buyer Bargaining Power

The bargaining power of customers in this industry is very

high especially if they are willing to take on long term

contracts. The US government makes up 20% of Iridium’s

revenue, for that reason it’s imperative Iridium continues to

renew this contract. The US government has the bargaining

power in this situation to drive down the price. Consumer

growth in the industry has come from the rural communities.

Individuals who live in remote areas require satellite voice

and data. There is also a market for outdoor enthusiasts who

require the voice communication.

Threat of Substitutes

Threat of substitutes is low within the industry due to each

company’s unique products and network offerings. One

threat to the industry that has been around for a long time are

fiber optic cables. Fiber optic cables are a cheaper option to

launching satellites 14. Satellite telecommunication

companies also compete with all the other telecommunication

sub sectors such as TV providers, wireless companies, ISPs

etc.

Company Analysis:

Overview: Iridium Communications Inc is a mobile satellite company

based out of McLean, Virginia. It is the first and only satellite

company to boast complete global coverage in thanks to their

Iridium NEXT satellite system. Iridium NEXT is the

company’s brand-new satellite network consisting of 66 Low

Earth Orbiting (LEO), interconnected satellites. The

company uses this system to bring voice and data

communication and Internet of Things (IoT) data to

industries such as, maritime, aviation, government/ military,

emergency/ humanitarian services, mining, forestry, oil and

gas, heavy equipment, transportation and utilities 1. Iridium

recognizes revenues in both commercial and government

markets, which is then broken down into voice and data, IoT

data, and hosted payload. On top of this, the company

generates significant service revenues in terms of maintaining

their products for their consumers. The recent development

and launching of their new Iridium NEXT satellite network

puts the company in an extremely covetable spot, with the

potential future drawbacks being properly and actively

mitigated by Iridium.

Products: Being a satellite communications company, Iridium is

focused on two big components for their business; mobile

voice, and data communications. To go along with these

services, the company offers an array of equipment pieces,

which range from satellite handsets, data modems, and even

IridiumGO, which is a small device that creates hotspots

enabling access to the Iridium network1. These equipment

pieces are used by businesses and other consumers that are

subscribed into the Iridium satellite network. The more

subscribers the company gets, the more Iridium products will

need to be purchased.

One of the company’s main products moving forward will be

Iridium Certus, which is their new multi-service platform that

is made possible by their new satellite network18. Given the

quality of the new Iridium NEXT satellites, Certus is

promising to be one of the fastest and longest reaching

wireless communications platforms on the market.

Another product segment of the business that shows strong

promise is a company called Aireon. Aireon was founded by

Iridium to help finance their satellite development, but now

that the satellites are up and running, the companies have

something big planned. Each of the 66 Iridium NEXT

satellites have had an Automatic Dependent Surveillance -

Broadcast (ADS-B) payload attached to them20. This is big

news as now the company can track airplanes anywhere on

the globe19.

Competition: As our society continues to demand faster and better

connectivity in all aspects of life, the telecommunications

market has experienced significant competition 10. We fully

expect this to continue moving forward, but we believe

Iridium has set itself up above its competition mainly due to

its new Iridium NEXT satellite network. One of the key areas

of competition within this market is the ability to adapt to the

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constantly changing technologies of our time. With Iridium’s

new network, they have done just that, and set themselves

ahead by having the best satellite technology out of all other

companies in this industry 18.

The satellite telecommunications sector is extremely capital

intensive as companies within the sector need a lot of money

to fund the development and launches of their own satellites 10. In order to reach these high levels of capital, companies in

this sector usually take large portions of debt, making the

ability to generate enough cash to pay back all their debt a

significant competitive factor.

Figure 8: IBIS World10

Iridium is no exception here as they carry huge amounts of

debt from their new satellite network. Although, the company

has stated that an inability to repay their debts on time is a

significant risk1, we believe that this problem will be solved

due to their other company Aireon. Aireon has a big chunk of

money that they are indebted to Iridium for, due to the

addition of the ADS-B payloads that were installed into the

new Iridium satellites20. The good news here is that Aireon

was recently approved for a $200 million loan that they will

be using a good portion of to pay back Iridium. When these

funds come through, we expect the significant risk on

Iridium’s debt to lessen up quite a bit.

Some peers that Iridium is in direct competition with are

companies like Globalstar Inc, Orbcomm Inc, and Inmarsat

Plc1. The latter is currently a dominant player in the maritime

markets24. We believe Iridium will begin to take business

away from Inmarsat with the implementation of their new

Iridium Certus product. Certus, the multi-service network

platform powered by Iridium NEXT will be mainly focused

on the maritime markets as it will be able to track ships at

any point over any body of water18.

Another key competitor for Iridium is the satellite company

Intelsat. This company also boasts itself as one of the leading

world providers of satellite telecommunications with their 50

orbiting satellites as having some of the top technologies. As

of April 7th, 2019, the company reported an issue with one of

their key satellites, the Intelsat 29e21. This issue led to a

service outage that affected many of their maritime

customers. Not only is the company expected to take

substantial financial loss from this, but they could potentially

see a drop in their maritime customer base. Once again, this

is great news for Iridium as their new Certus platform is

heavily targeting the maritime markets. As of now, Intelsat

still has not resolved this issue 21.

Lastly, we wanted to mention that we recognize our repeated

reliance on the new Iridium NEXT satellite network for

driving so much growth and beating out competitors, but that

is because we believe this new network has not been

appreciated for just how helpful it is going to be. Iridium’s

previous satellite fleet had many issues and there were a lot

of failures during their tenure, but this new network, while

still in early stages, has repeatedly operated without a hitch.

Also, given its faster speeds and literally being the only

network to cover the entire planet Earth, the advantage

Iridium now has over its competitors is extremely substantial 18.

Catalysts for Growth: One very important factor that is signaling high growth for

Iridium is its recent partnership with Amazon Web Services

(AWS). The two companies have entered into a mutually

beneficial agreement to have Iridium run the cloud service

for AWS17. Amazon, who currently dominates the cloud

infrastructure industry, is a huge market competitor to have

in your corner. Iridium is sitting around 600,000 current

subscribers to their network. Now that they will be the sole

satellite company tied to Amazon, we are expecting to see

their customer base increase dramatically. Iridium CEO,

Matthew Desch, has even stated that this new partnership

could, “easily expand to tens of millions new devices” being

subscribed to the Iridium network 17.

Figure 9: Seeking Alpha 17

Another key factor leading to growth is Iridium’s new

satellite network. For a lot of satellite companies, the main

issue they face is that once they finally setup and orbit their

new satellites, they have trouble when it comes to marketing

them and securing business deals. This does not appear to be

the case for Iridium as they have been steadily scoring these

types of deals17. On top of their lucrative partnership with

Amazon, Iridium also secured a contract with The Ocean

Cleanup. Ocean Cleanup is a technology company focusing

its efforts on the largest cleanup of our world's oceans to

date. Iridium NEXT will be providing Ocean Cleanup with

all the satellite communications needed in order to keep up

with their system of plastic collectors throughout the oceans 25. Not only does this bring in more revenue for Iridium, but

6

it also has the added benefit of positive/green exposure,

which could help continue to draw in new customers.

Growth for Iridium is also likely to come from the reach of

its new satellite network. Being the only network that can

cover the entire globe means that they will be bringing

internet services to vast amounts of new areas. It turns out,

that even in this day and age of constant connectivity, the

terrestrial satellite networks are only covering around 20% of

our planet17. Being able to now cover everything means that

the other 80% will now be able to access these signals and

that is all going to be from Iridium, so we can expect large

growth in the coming years from the new areas.

Iridium will also most likely see company growth

specifically in the maritime shipping markets. Powered by

the new satellite network, the company’s new multi-service

platform, Iridium Certus, is taking direct aim at the maritime

industry. Certus will allow for Iridium to take a lot of

business away from the dominant maritime satellite

companies like Inmarsat. The maritime industry has not had

many options to choose from when it comes to satellite

communications and tracking of their ships and therefore

have been forced into long-term contracts that aren’t always

beneficial to them 26. With Iridium NEXT’s ability to cover

any area of the Earth, tracking ships deep out in the oceans

will be no problem, which we see as a huge advantage for

Iridium to become a dominant player in maritime and

generate growth.

The last key area where we believe Iridium will see potential

for growth is in the air traffic surveillance company, Aireon.

Aireon was founded by Iridium in 2011 as a means to help

finance the high costs of satellite development. Each of the

66 orbiting satellites in Iridium NEXT are equipped with

Automatic Dependent Surveillance Broadcast (ADS-B)

payloads19. The addition of these payloads will allow Aireon

to utilize Iridium NEXT to become the first surveillance

company capable of tracking planes in real time anywhere

across the Earth. Given the recent issues with airplane

tracking and especially the missing Malaysia Airlines flight,

we believe that Aireon is entering into a market that

desperately needs it and will experience great success27. This

becomes a huge strength for Iridium as Aireon is indebted to

them for $200 million for the addition of the ADS-B

payloads. Aireon was recently approved for a $200 million

loan and given that they see success and reach a certain

customer base, the company plans to pay off this debt to

Iridium by 202120. Iridium will then be able to use this

capital to bring down their high portions of debt, ultimately

putting to rest a huge risk factor for the company. As we

stated earlier, being able to pay off debts for satellite

companies is a huge competitive indicator and Iridium is

looking to have this covered for the future.

Key Positives & Negatives: While we do recognize the great potential for Iridium moving

forward there are still a few issues that need to be dealt with

first. The first issue we recognized is that being a satellite

company really puts a lot of emphasis on a company’s

infrastructure. In Iridium’s case, their new satellite network,

Iridium NEXT, will be the primary driver of growth for the

company, allowing them to enter and hopefully dominate

many new market segments. While there have not been any

issues with the satellites so far, we do not want to fully look

over the fact that if Iridium experiences any problems with

their satellites in the future, that could drastically hurt their

business since so much of it is residing on them. The

company does have a total of 9 spare satellites in case issues

do arise28, but the financial impact of replacing a damaged

satellite, as well as the possibility of losing customers due to

the issues will significantly weaken the company.

Another negative aspect that we would like to shed light on is

the incredibly high amounts of debt that Iridium has taken

on1. This is a very common theme for companies in this

sector, but that does not mean it should be overlooked. Now

Iridium has set things up so that they should receive $200

million from Aireon in the coming years, but that is only if

Aireon sees success as a business20. We currently believe that

Aireon will meet its goals and therefore be able to pay back

Iridium, but the uncertainty of business can always shake

things up. Iridium took out over $350 million more in debt

last year just to avoid depending on the Aireon payments20.

This shows that even they aren’t completely certain on their

abilities to pay back their debts in enough time.

Iridium 5Y Long Term Debt:

Figure 10: YCharts29

The last real possible negative that Iridium may experience is

the termination of their contract with the United States

Government. For past years, the U.S. government has been

Iridium’s leading customer accounting for between 20-24%

of their revenues1. The contract ends in 2019 and it will be a

vital sign for their business to be able to renew it. If Iridium

loses the U.S. government contract their revenues will take

dramatic hit, opening the gates for a lot more problems

ahead22.

In terms of future positives for this company, we recognize a

few of them. The main one being the advanced nature of the

Iridium NEXT satellite network. This new group of 66

interconnected satellites will allow for the company to be the

first ever to provide satellite coverage anywhere on the

planet18. Being able to keep up with the constantly improving

technologies of our world is a must for companies in this

industry and with Iridium NEXT, Iridium is now leading the

way in this regard. As more and more companies begin to see

the capabilities of this network, Iridium will continue to grow

and gain more customers.

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It is because of the strength of Iridium NEXT that Iridium

has been able to secure another huge positive for the

business. Due to their increased global reach, the company

secured a partnership with Amazon’s cloud computing

network, Amazon Web Services (AWS). According to CEO

Matthew Desch, Iridium will be “the first and only satellite

provider now connected to” AWS making this an extremely

important deal17. Amazon’s massive customer base will only

bring in more subscribers to the Iridium Network leading us

to believe in huge growth being imminent for the company.

Lastly, we wanted to make mention of the fact that Iridium

NEXT will be opening Iridium to new markets and business

segments that are currently unknown at this point. Being the

first satellite company to offer global coverage means that

there will be several uses for the satellite network that

otherwise were not possible up until this point. As of now,

this is a very general statement, but we wanted to address the

world of possibilities that this new cutting-edge satellite

network can bring to Iridium.

Valuation Analysis:

Revenue Decomposition: Iridium’s revenues are broken down into a few categories.

The most general breakdown is between their commercial

and government services. Commercial services are then

broken down into commercial voice and data, commercial

IoT data and hosted payload and other data services. On top

of commercial services Iridium generates revenues also from

government services, subscriber equipment, and engineering

and support service revenue.

Commercial Services

Voice and Data:

This revenue segment focuses on providing handset services

to areas which are out of reach and aiding in public safety

and disaster relief by providing land mobile service. In terms

of Maritime, the company revenue comes primarily from

shipboard data terminals including the Iridium Pilot, which

uses the Iridium OpenPort service. The service provided

includes higher-speed low cost data services to aid in vessel

management and asset tracking, and to monitor ship

activities, which include its safety. In terms of aviation, the

Iridium technology is used for plane related communications

such as air traffic control and aviation passenger

communications such as in flight wi-fi. We are not expecting

a growth rate as high as the IoT data service segment because

this segment has had relatively stable revenue growth

throughout the years. We foresee the revenue segment to

grow at 15% for the upcoming year, with the benefits from

the Iridium NEXT satellite system in place, and slowly

decrease it towards the CV year.

IoT Data Service:

The segment of this revenue comes mainly from IoT services

used in heavy equipment monitoring, fleet management,

fixed-asset monitoring, asset tracking, resource management,

scientific data monitoring, personal tracking devices and

location-based services. The service provided helps

companies to monitor the machine efficiency and from there,

companies can better determine cost efficiencies 1. We

forecast for the growth in this segment to be the highest, due

to the recent addition of Iridium’s satellite to the Amazon

Web Service (AWS) network. As stated in the explanations

above this boasts a huge potential growth for Iridium because

of its existing large customer database. The growth is

expected to be at 25% for the upcoming year, with a peaking

growth rate of 35% in 2020 as the market outlook for the

satellite communications sector continue to growth due to the

growing importance of connectivity around the world. The

growth rate then starts to slow down as the company is

slowly stabilizing into the steady state years.

Hosted Payload and Other Data Services:

Revenues generated here are on a contractual basis as long as

the Iridium NEXT constellation is still working 1. The

company charges its customers fees to host payload capacity

and data servicing fees. Under this segment, the company

also provides Satellite Time and Location services which aids

in providing an accurate GPS position. Other data services

include providing research and development services to help

its customer develop technologies that are compatible with

the current constellation system1. We foresee this segment to

be growing in line with the IoT data,

reaping benefits from the Iridium NEXT satellite system.

Revenue is expected to grow at 15% for the next 2 years, and

slow down towards the end of the projected years.

Government Service Revenue Iridium is one of the major providers for satellite

communications for the United States Department of Defense

(DoD). The U.S armed forces use Iridium’s service for

primary communications and backup communications

solutions. The products are also used in military vehicles

such as ships and aircrafts to enable tracking. We predict the

government revenues to remain constant, and for Iridium to

continue securing government contracts, with a revenue of

$88 million annually, as they are currently in discussion with

the U.S government on a new EMSS contract 1.

Subscriber Equipment Revenue The subscriber equipment revenue is projected to grow at

a range of 10% in the upcoming years as Iridium continues to

market the potential of its satellite system. We expect the

increase for demand in services to drive the subscriber

equipment portion of the revenue. For instance, a company

that wishes to access the Amazon Web Services through

Iridium’s satellite, would have to purchase an Iridium modem

8

to do so, and that is what we are looking at, to drive sales.

Growth slows down in the last few years of forecast.

Engineering and Support Service Revenue This portion of the revenue is based off contract-based work,

and it has been declining in the past few years due to the

decrease in contracted work1. We do not predict a huge

growth in this segment either because the focus is mainly on

the commercial side of the business. The support services

would only come in when the users already have Iridium

equipment installed and require support when anything goes

wrong. Hence, we kept it at an 8% growth and slowly

decrease it as we approach the CV year.

Weighted Average Cost of Capital (WACC): We used a variable WACC structure to estimate the cost of

capital for Iridium. The decision to use that framework was

based on our assumption that Iridium would be paying off a

huge amount of debt in the upcoming years, which would

significantly affect their capital structure. The WACC used

for calculations in the forecast year is based on the varying

forward WACC.

Cost of Equity The cost of equity was calculated using CAPM. The risk

premium was multiplied by the beta and then added to the

10-year treasury rate. The risk premium came to about

4.69%, which is the level of returns investors would

generally expect. The company beta was also relevered to

account for a different debt structure, in 2023. The beta was

also projected to be on a decline with the industry already

being in a steady state, and we are not expecting much

fluctuation for Iridium as they stabilize in the final years. The

forecasted cost of equity ended up as 7.03% as of 2023.

Cost of Debt The cost of debt was based on the yield (7.62%) for Iridium’s

senior secured notes maturing in 2023. It was then multiplied

with (1- marginal tax rate) in order to get the after- tax cost of

debt of 5.62%. The marginal tax rate of 26.31% was used in

this calculation.

Weightage The weights were decided based on the proportion of equity

or debt to the total value of equity and debt owned by the

company. The value of equity was calculated based on the

market value of equity, by multiplying the number of

outstanding shares with the current share price. The value of

debts included long term debt and the present value of

operating leases. The weight of equity was 67.57% while the

weight of debt was 32.43%. The weights were constant in the

first few years, because Iridium’s big pay down to the credit

facility occurs in 2022, and hence the prediction of lesser

debts in 2023 going forward. The calculation is based on our

assumption that Iridium will pay off the notes outstanding by

the date agreed upon (10/15/2022).

Interest Income (Expense): Interest income was calculated based on the outstanding

debts they have and the cash in the company. Interest on the

long-term debt was calculated based on the 7.62% pre-tax

cost of debt, while the interest on cash was calculated based

on the risk-free rate of 2.50%. We added in interest for cash

with the conservative assumption that the company is

reinvesting the cash to get returns at the risk-free rate. The

forecast for the interest expense in terms of the long-term

debt changes in 2023, accounting for a significant removal of

debt from the company. Interest expense was forecasted to be

on a decline as the company gradually pays off its debt.

CapEx: Capital expenditure for Iridium for the past 7 years have been

relatively high, around $400 million, but we forecasted a

sudden drop to $96 million, and a subsequent decrease for the

following few years with the launch of their new Iridium

NEXT satellite system. We took into consideration that the

company would focus their efforts on utilizing the network

connection, to market their services more than anything else.

Long-Term Debt: Iridium has been making good progress so far to pay off their

notes outstanding with help from their subsidiary company

Aireon. Iridium collects equity interest and hosting fees from

Aireon, which helps them fund their debt repayment. It is

stated explicitly that any amount collected from Aireon

would go to the repayment of the outstanding debts with the

Credit Facility. Hence, we have forecasted the long-term debt

to be on a relatively steady decline up till 2022 where the

payment would occur. The graph below shows the scheduled

repayments found on the Iridium 10K, and we can see a

steady increase in payments up till 2022 where the largest

amount is paid off in October, and the company projects the

repayments to fall back to normal levels again. That signifies

the company’s commitment to paying back the debts, and we

believe that Iridium will be able to do so.

Figure 11: Iridium 10K1

Cost of Goods Sold: The cost of service and subscriber equipment was forecasted

as a percentage of total revenue. We expect the cost to be on

a gradual increase with fluctuations in between, with the

foreseeable increase in cost of services due to the

9

subscription of in-orbit insurance for the Iridium NEXT

satellites. The cost of subscriber equipment was increased as

a result of an increase in demand for subscriber equipment, in

which the company incurs costs for manufacturing the

equipment, allocating the overhead and the cost for providing

warranty. These are the factors that we project to continue

into the near future that come with the installation of the

Iridium NEXT satellites. The cost of goods sold is projected

to maintain at levels between 15-16% even going into the CV

years.

Valuation Models:

DCF vs EP DCF and EP model is what we used for our sensitivity

analysis target price, we believe this to give us the most

accurate result. For Iridium, prices using DCF and EP

approach do not match, and this is because we are using a

variable WACC. The model uses the assumption for the CV

growth rate to be 2.50%. The NOPLAT in the CV year is

discounted back to the present value using a different WACC

for the different years, which takes into account the

potentially different capital structure. Free cash flows from

the other years are discounted back to the present value and

added to the CV year present value to get a value of

operating assets of $4,285,576 in thousands. The value of

non-operating assets is then added while the value of non-

operating liabilities is subtracted, to get the value of equity.

The intrinsic value of a share is determined by dividing the

value of equity by the total number of shares outstanding,

which brings us to an intrinsic value of $24.84. When

adjusted for the months before the fiscal year end, the

intrinsic value is calculated to be $25.56.

DDM Our dividend discount model is based on our forecasted

theoretical dividend that Iridium can afford to pay in the CV

year (2023). The company has explicitly stated in its 10K that

it does not anticipate paying any dividend in the near future.

This DDM model gives us a target price of $11.06 with

partial year adjustments. We are considering this model

irrelevant because Iridium doesn’t pay dividends.

Relative Valuation Iridium is in a niche market so there are not many

comparable companies. We identified Inmarsat as a major

competitor, but we have excluded it from our list because it is

not on the US stock exchange and its stock price makes it an

extreme outlier. This model does not provide an accurate

result. Even after excluding outliers, other stats for our

comparable companies are still dispersive, so the average

does not make perfect sense.

Sensitivity Analysis

Beta vs. Risk Premium: Beta and Risk Premium are both factors that go into the

company’s WACC, which is used to discount all our free

cash flow assumptions. We have a different Beta for each

year because we think that Iridium will be able to pay off

their debt in the following years, and this will lower Iridium’s

Debt-to-Equity ratio. According to the test, Beta has much

less effect on the stock price than risk premium. Iridium can

be especially sensitive to a change in cost of equity because

the weight of equity reaches 82% in 2023.

Capital Expenditure vs. R&D: As a satellite company, Iridium has a huge amount of money

invested for the company’s development each year. We want

to include a sensitivity test of the CapEx and R&D expenses

because they often depend on when the company wants to

launch its next big project, and there is no information to

increase our forecast accuracy.

CV Growth of NOPLAT vs. CV ROIC: Continuing values (CV) are the rates we forecasted for each

year beyond 2023, a small change in CV may have great

impact on the intrinsic value because it accounts for an

infinite number of years. By changing the CV for NOPLAT

and ROIC, our target price can range from $23 to $32.

Changes in CV ROIC have a greater impact on our intrinsic

value when the growth rate for NOPLAT is high.

10

Revenue Growth vs. COGS (as % of sales): We see different factors that can contribute to Iridium’s

revenue growth. For example, its partnership with

Amazon and the potential success of Aireon. However,

we are not certain on the magnitude of such events. By

varying the revenue growth and COGS, we get a range

between $24and $27.

Marginal Tax Rate vs. Risk Free Rate: It was very hard to get a marginal tax rate assumption

for Iridium because the tax paid ranged from 31% to

89% of their income before taxes for the past 7 years. It

also has a big tax benefit that almost doubled its net

income in 2017 because of the Tax Act. We want to

consider this fluctuation as well as changes in the risk-

free rate since they both influence our cost of debt

assumptions.

11

Important Disclaimer

This report was created by students enrolled in the Security

Analysis (6F:112) class at the University of Iowa. The report

was originally created to offer an internal investment

recommendation for the University of Iowa Krause Fund and

its advisory board. The report also provides potential

employers and other interested parties an example of the

students’ skills, knowledge and abilities. Members of the

Krause Fund are not registered investment advisors, brokers

or officially licensed financial professionals. The investment

advice contained in this report does not represent an offer or

solicitation to buy or sell any of the securities mentioned.

Unless otherwise noted, facts and figures included in this

report are from publicly available sources. This report is not

a complete compilation of data, and its accuracy is not

guaranteed. From time to time, the University of Iowa, its

faculty, staff, students, or the Krause Fund may hold a

financial interest in the companies mentioned in this report.

12

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13

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Iridium Key Assumptions of Valuation Model

Ticker Symbol IRDM BetaCurrent Share Price $27.84) 25.20 1.37 1.47 1.57 1.67 1.77 1.87 1.97Current Model Date 4/16/2019

Risk

Pre

miu

m

4.24% 28.18 28.19 28.19 28.20 28.21 28.21 28.22FY End (month/day) Dec. 31 4.39% 27.13 27.14 27.14 27.15 27.15 27.16 27.16

4.54% 26.13 26.14 26.14 26.15 26.15 26.16 26.16Pre-Tax Cost of Debt 7.62% 4.69% 25.19 25.19 25.20 25.20 25.20 25.21 25.21Beta 1.67 4.84% 24.29 24.29 24.29 24.30 24.30 24.30 24.30Risk-Free Rate 2.50% 4.99% 23.43 23.43 23.43 23.44 23.44 23.44 23.44Equity Risk Premium 4.69% sales/inventory 5.14% 22.61 22.61 22.62 22.62 22.62 22.62 22.62CV Growth of NOPLAT 2.5%CV Growth of EPS 5.00%Current Dividend Yield Marginal Tax RateMarginal Tax Rate 26.31% 25.20 20.31% 22.31% 24.31% 26.31% 28.31% 30.31% 32.31%Effective Tax Rate 35.40%

Risk

Fre

e Ra

te

2.20% 25.54 25.94 26.35 26.76 27.18 27.62 28.06WACC 7.29% 2.30% 25.04 25.42 25.82 26.22 26.64 27.06 27.48Instrinsic Value 25.20 2.40% 24.54 24.92 25.31 25.70 26.10 26.51 26.93CV ROIC 9.34% 2.50% 24.07 24.43 24.81 25.19 25.59 25.98 26.39

2.60% 23.60 23.96 24.33 24.70 25.08 25.47 25.87Revenue Growth 7% 2.70% 23.14 23.50 23.85 24.22 24.59 24.97 25.36COGS (% of Sales) 15.0% 2.80% 22.70 23.04 23.39 23.75 24.11 24.48 24.86Capex 36,000R&D 4.20%Long-term Debt (% of non cash asset)15% CV Growth of NOPLAT

25.20 2.20% 2.30% 2.40% 2.50% 3.00% 3.50% 4.00%

CV R

OIC

7.84% 23.04 23.08 23.12 23.16 23.40 23.71 24.108.34% 23.67 23.75 23.84 23.92 24.42 25.05 25.858.84% 24.23 24.35 24.47 24.60 25.32 26.23 27.419.34% 24.73 24.88 25.04 25.20 26.13 27.29 28.809.84% 25.18 25.36 25.55 25.75 26.85 28.25 30.05

10.34% 25.59 25.80 26.01 26.24 27.51 29.11 31.1710.84% 25.96 26.19 26.43 26.68 28.10 29.89 32.20

Revenue Growth25.20 6.10% 6.40% 6.70% 7.00% 7.30% 7.60% 7.90%

COGS

(% o

f Sal

es)

13.50% 26.78 26.84 26.91 26.97 27.04 27.10 27.1714.00% 26.19 26.25 26.32 26.38 26.44 26.51 26.5714.50% 25.60 25.66 25.73 25.79 25.85 25.92 25.9815.00% 25.01 25.07 25.14 25.20 25.26 25.33 25.3915.50% 24.42 24.48 24.55 24.61 24.67 24.73 24.8016.00% 23.83 23.90 23.96 24.02 24.08 24.14 24.2016.50% 23.25 23.31 23.37 23.43 23.49 23.55 23.61

Capex25.20 6,000 16,000 26,000 36,000 46,000 56,000 66,000

R&D

2.70% 28.62 28.07 27.52 26.97 26.42 25.87 25.323.20% 28.03 27.48 26.93 26.38 25.83 25.28 24.733.70% 27.44 26.89 26.34 25.79 25.24 24.69 24.144.20% 26.85 26.30 25.75 25.20 24.65 24.10 23.554.70% 26.26 25.71 25.16 24.61 24.06 23.51 22.965.20% 25.67 25.12 24.57 24.02 23.47 22.92 22.375.70% 25.08 24.53 23.98 23.43 22.88 22.33 21.78

IridiumRevenue Decomposition (in thousands USD)

Fiscal Years Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023ECommercial Voice and Data 177,700 177,700 193,200 222,180 255,507 273,392 292,530 313,007 IoT Data 65,500 74,100 85,100 106,375 143,606 179,508 215,409 230,488 Hosted Payload and Other Data Services 3,600 9,900 40,400 46,460 53,429 57,169 61,171 65,453Service revenue 246,800 261,700 318,700 375,015 452,542 510,069 569,110 608,948Government Service revenue 88,000 88,000 88,000 88,000 88,000 88,000 88,000 88,000Total service revenue 334,800 349,700 406,700 463,015 540,542 598,069 657,110 696,948Subscriber equipment 74,211 77,119 97,848 107,633 117,320 127,879 132,994 136,983Engineering and support services 24,607 21,192 18,403 19,875 21,465 22,753 23,891 24,846Total Revenue 433,618 448,011 522,951 590,523 679,327 748,701 813,995 858,778

By Country:USA 52% 51% 53%Canada 10% 10% 9%UK 11% 10% 10%Other Countries 27% 29% 28%Total 100% 100% 100%

Iridium Income Statement (in thousands USD)

Fiscal Years Ending Dec. 31 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023ERevenue:Services 273,491 292,092 309,424 317,022 334,822 349,735 406,757 463,015 540,542 598,069 657,110 696,948Subscriber equipment 93,866 73,303 78,152 73,615 74,211 77,119 97,848 107,633 117,320 127,879 132,994 136,983Engineering and support services 16,163 17,254 20,981 20,741 24,607 21,192 18,403 19,875 21,465 22,753 23,891 24,846Total revenue 383,520 382,649 408,557 411,378 433,640 448,046 523,008 590,523 679,327 748,701 813,995 858,778Operating expenses:Cost of services 60,937 59,346 62,085 60,306 64,958 80,396 86,016 93,303 105,296 119,792 130,239 128,817Cost of subscriber equipment 53,285 52,062 54,569 40,807 44,286 44,445 56,857 62,005 66,574 74,870 87,097 90,172Research and development 15,525 11,149 17,587 16,144 16,079 15,247 22,429 18,897 23,097 29,948 34,188 36,069Selling, general and administrative 67,589 75,218 78,636 81,445 82,552 84,405 97,846 110,428 125,676 137,761 148,961 156,298Depreciation 68,100 74,180 62,769 47,586 44,319 114,797 212,339 187,161 182,100 173,988 166,326 159,090Amortization 13,010 800 10,000 4,248 5,075 7,469 5,868 1,609 1,609 1,609 1,609 1,609Impairment of goodwill 0 0 0 87,039 0 0 0 0 0 0 0 0Total operating expenses 278,446 272,755 285,646 337,575 257,269 346,759 481,355 473,402 504,351 537,968 568,421 572,054

Gain on Boeing transaction - - 14,189 - - - - - -Operating income 105,074 109,894 122,911 73,803 176,371 115,476 41,653 117,121 174,976 210,733 245,574 286,724Other income (expense):Interest income, net 1,072 2,276 3,640 3,069 2,934 4,328 (62,441) (19,915) (22,930) (19,879) (17,355) 4,230Undrawn credit facility fees (10,232) (7,708) (5,825) (3,289) (1,346) (25) 0 0 0 0 0 0Other income (expense), net (896) 6,003 (4,274) (468) 206 (207) 139 0 0 0 0 0Total other income (expense) (10,056) 571 (6,459) (688) 1,794 4,096 (62,302) (19,915) (22,930) (19,879) (17,355) 4,230Income before income taxes 95,018 110,465 116,452 73,115 178,165 119,572 (20,649) 97,206 152,046 190,855 228,219 290,955Income tax benefit (expense) 30,387 47,948 41,463 65,992 67,133 (114,284) 7,265 25,575 40,003 50,214 60,044 76,550Net income 64,631 62,517 74,989 7,123 111,032 233,856 (13,384) 71,631 112,043 140,641 168,175 214,405

Basic EPS ($ 0.85) ($ 0.72) ($ 0.71) ($ 0.09) ($ 1.00) ($ 2.23) -$0.22 0.63 0.98 1.21 1.43 1.81Shares Outstanding 74,239 76,909 88,080 95,097 95,879 98,203 112,200 113,502 114,804 116,106 117,408 118,710Dividends per share 0 0 0 0 0 0 0

IridiumBalance Sheet (in thousands USD)

Fiscal Years Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023EAssetsCurrent assets:Cash and cash equivalents 371,167 285,873 273,352 152,701 274,810 375,798 169,287 590,509Marketable securities 39,328 11,753 0 0 0 0 0 0Accounts receivable, net 57,373 68,031 71,210 80,935 93,747 103,695 113,145 120,229Deferred income tax asset 0 0 0 0 0 0 0 0Income tax receivable 0 0 0 0 0 0 0 0Inventory 18,204 20,068 27,538 35,663 41,026 45,216 49,159 51,863Prepaid expenses and other current assets 30,698 25,347 18,284 22,548 19,700 36,686 28,490 34,351Total current assets 516,770 411,072 390,384 291,847 429,284 561,395 360,081 796,952Property and equipment, gross 3,235,182 3,642,995 3,824,318 3,920,318 3,956,318 3,992,318 4,028,318 4,064,318Accumulated Depreciation 422,098 432,833 453,463 640,624 822,724 996,712 1,163,038 1,322,128 Property and equipment, net 2,813,084 3,210,162 3,370,855 3,279,694 3,133,594 2,995,606 2,865,280 2,742,190Restricted cash 113,139 102,384 191,935 196,791 201,770 206,875 212,108 217,475Other assets 10,836 8,414 12,557 11,597 13,341 14,703 15,985 16,865Intangible assets, net 45,796 50,019 48,540 46,931 45,322 43,713 42,104 40,495Deferred financing cost 0 0 0 0 0 0 0 0Goodwill 0 0 0 0 0 0 0 0Total assets 3,499,625 3,782,051 4,014,271 3,826,860 3,823,311 3,822,292 3,495,559 3,813,977

Liabilities and stockholders' equityCurrent liabilities:Short-term credit facility 0 85,500 126,000 68,641 81,611 90,601 108,855 111,903Accounts payable 11,131 43,100 12,869 28,366 32,631 35,964 39,100 41,251Accrued expenses and other current liabilities 23,840 32,215 56,990 48,376 44,156 59,896 83,027 85,878Interest payable 14,136 15,021 29,431 14,064 12,344 10,197 4,949 4,836Deferred revenue 34,087 38,390 37,429 53,573 59,101 66,634 72,446 77,290Total current liabilities 83,194 214,226 262,719 213,019 229,844 263,292 308,377 321,158Accrued operations and maintenance expense 13,138 0 0 0 0 0 0 0Long-term credit facility, net 1,657,145 1,618,055 1,478,739 1,217,079 1,004,019 745,113 467,125 450,899Long term senior unsecured notes, net 0 0 350,998 350,998 350,998 350,998 0 0Deferred income tax liabilities, net 361,656 246,170 241,422 268,683 311,325 364,850 428,854 510,452Deferred revenue, net of current portion 36,417 47,612 74,656 88,578 115,486 134,766 148,961 164,027Other long-term liabilities 4,317 59,519 4,160 4,500 4,800 5,000 5,000 5,000Total liabilities 2,155,867 2,185,582 2,412,694 2,142,858 2,016,472 1,864,019 1,358,317 1,451,536Stockholders' equity:Common Stock and APIC 1,060,407 1,081,471 1,108,662 1,119,456 1,130,250 1,141,044 1,151,838 1,162,632Retained earnings 288,797 518,794 501,712 573,343 685,386 826,026 994,201 1,208,606Accumulated other comprehensive loss net of tax (5,446) (3,796) (8,797) (8,797) (8,797) (8,797) (8,797) (8,797)Total stockholders' equity 1,343,758 1,596,469 1,601,577 1,684,002 1,806,839 1,958,273 2,137,242 2,362,441Total liabilities and stockholders' equity 3,499,625 3,782,051 4,014,271 3,826,860 3,823,311 3,822,292 3,495,559 3,813,977

Iridium Cash Flow Statement (in thousands USD)

Fiscal Years Ending Dec. 31 2016 2017 2018Cash flows from operating activities:Net income 111,032 233,856 (13,384)Adjustments to Reconcile net income to cash from operating activities:Deferred income taxes 63,808 (115,812) (8,334)Depreciation and amortization 49,394 122,266 218,207Loss on extinguishment of debt and Thales 7,292Impairment of goodwill 0 0Stock-based compensation (net of amounts capitalized) 13,708 15,958 14,490Excess tax benefit from stock-based compensation 0 0 0Gain from contract liability write-off 0 (14,189) 0Provision for doubtful accounts 703 (277) 198Provision for obsolete inventory 1,053 361 343Amortization of premiums on marketable securities 888 124 (709)Amortization of deferred financing fees 10,145Non-cash foreign currency losses, net 166 (163) 342Changes in operating assets and liabilities:Accounts receivable (6,037) (10,343) (12,783)Inventory 9,029 (1,946) (7,579)Prepaid expenses and other current assets (16,613) 2,875 5,705Other assets (2,128) 2,823 (1,417)Accounts payable 3,209 896 (732)Accrued expenses and other current liabilities (6,416) 8,166 37,797Deferred revenue 4,115 15,129 13,530Accrued satellite and network operation expense, net of current portion (1,045) 0 -Other long-term liabilities 333 (103) 598Net cash flows from operating activities 225,199 259,621 263,709Cash flows from investing activities:Capital expenditures (405,687) (400,107) (391,390)Purchases of marketable securities (19,865) (7,013) (235,528)investment I equity method affiliate 0Sales and maturities of marketable securities 183,192 34,440 248,006Net cash flows from investing activities -242,360 -372,680 -378,912Cash flows from financing activities:Borrowings under the Credit Facility 251,498 22,207 0Repayments on the Credit Facility, including extinguishments (80,359)Borrowings under the senior unsecured notes 360,000Repayment of the Thales Alenia Space bills of exchange (59,936)Payment of deferred financing fees (11,806) (3,852) (21,239)Proceeds from exercise of stock options 549 4,235 12,445Tax payment upon settlement of stock awards (627) (1,865) (1,981)Excess tax benefits from stock-based compensation 0 0 0Change in restricted cash- credit facility 0proceeds from exercise warrants Dividends paid series A (1,750) (7,000)Dividends paid series B (2,109) (8,427)Proceeds from the issuance of preferred stock Proceeds from the issuance of common stock Net cash provided by financing activities 224,178 16,866 193,503Effect of exchange rate changes on cash and cash equivalents 512 144 (1,270)Net increase (decrease) in cash and cash equivalents 207,529 (96,049) 77,030Cash, cash equivalents, and restricted cash, beginning of period 276,777 484,306 388,257Cash, cash equivalents, and restricted cash, end of period 484,306 388,257 465,287

IridiumCash Flow Statement Forecasts (in thousands USD)

Fiscal Years Ending Dec. 31 2019E 2020E 2021E 2022E 2023ENet income 71,631 112,043 140,641 168,175 214,405Adjustments to reconcile net income to cash from operating activities:Add: Depreciation & amortization 188,770 183,709 175,597 167,935 160,699Allowance for doubtful accounts 0 0 0 0 0Change in deferred taxes 27,261 42,641 53,525 64,004 81,598Changes (increases or decreases) in working capital accounts:Change in receivables (use gross AR if forecasting allowance above)

(9,725) (12,812) (9,948) (9,450) (7,084)Change in Inventories (8,125) (5,363) (4,190) (3,943) (2,705)Change in prepaid expenses and other current assets (4,264) 2,847 (16,986) 8,197 (5,861)Change in accounts payable 15,497 4,266 3,332 3,136 2,151Change in accrued compensation and other liabilities (65,633) 9,050 24,930 41,386 5,898Change in interest payable (15,367) (1,719) (2,147) (5,248) (113)Change in deferred revenue 30,066 32,436 26,813 20,006 19,910Net cash flows from operating activities 230,111 367,097 391,567 454,197 468,899

Investing activities(Increase) decrease in short term investments 0 0 0 0 0(Increase) decrease in long-term investments (4,856) (4,979) (5,105) (5,234) (5,366)Capital expenditures (change in gross PPE) (96,000) (36,000) (36,000) (36,000) (36,000)Capitalization of intangible assets (change in intangibles)

0 0 0 0 0Business Acquisitions (change in goodwill) 0 0 0 0 0(Increase) decrease in other assets 960 (1,744) (1,362) (1,282) (879)Net cash flows from investing activities (99,896) (42,723) (42,467) (42,516) (42,246)

Financing ActivitiesProceeds from issuance (payment) of notes payable and S-T debt

0 0 0 0 0Changes in current portion of long-term debt 0 0 0 0 0Proceeds from issuance (payment of long-term debt) (261,660) (213,059) (258,907) (628,986) (16,226)Payment of dividends 0 0 0 0 0Proceeds from issuance of common stock (ESOP exercises)

10,794 10,794 10,794 10,794 10,794Repurchases of common stock 0 0 0 0 0Changes in accumulated other comprehensive income 0 0 0 0 0Net cash flows from financing activities (250,866) (202,265) (248,113) (618,192) (5,431)

Change in Cash (120,651) 122,109 100,988 (206,511) 421,221Cash at the beginning of the Year 273,352 152,701 274,810 375,798 169,287Cash at the end of the year 152,701 274,810 375,798 169,287 590,509

Iridium Common Size Income Statement

Fiscal Years Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023ERevenue:Services 77.21% 78.06% 77.77% 78.41% 79.57% 79.88% 80.73% 81.16%Subscriber equipment 17.11% 17.21% 18.71% 18.23% 17.27% 17.08% 16.34% 15.95%Engineering and support services 5.67% 4.73% 3.52% 3.37% 3.16% 3.04% 2.94% 2.89%Total revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Operating expenses:Cost of services 14.98% 17.94% 16.45% 15.80% 15.50% 16.00% 16.00% 15.00%Cost of subscriber equipment 10.21% 9.92% 10.87% 10.50% 9.80% 10.00% 10.70% 10.50%Research and development 3.71% 3.40% 4.29% 3.20% 3.40% 4.00% 4.20% 4.20%Selling, general and administrative 19.04% 18.84% 18.71% 18.70% 18.50% 18.40% 18.30% 18.20%Depreciation 10.22% 25.62% 40.60% 31.69% 26.81% 23.24% 20.43% 18.53%Impairment of goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total operating expenses 59.33% 77.39% 92.04% 80.17% 74.24% 71.85% 69.83% 66.61%

Gain on Boeing transaction 3.17% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Operating income 40.67% 25.77% 7.96% 19.83% 25.76% 28.15% 30.17% 33.39%Other income (expense):Interest income, net 0.68% 0.97% -11.94% -3.37% -3.38% -2.66% -2.13% 0.49%Undrawn credit facility fees -0.31% -0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other income (expense), net 0.05% -0.05% 0.03% 0.00% 0.00% 0.00% 0.00% 0.00%Total other income (expense) 0.41% 0.91% -11.91% -3.37% -3.38% -2.66% -2.13% 0.49%Income before income taxes 41.09% 26.69% -3.95% 16.46% 22.38% 25.49% 28.04% 33.88%Income tax benefit (expense) 15.48% -25.51% 1.39% 4.33% 5.89% 6.71% 7.38% 8.91%Net income 25.60% 52.19% -2.56% 12.13% 16.49% 18.78% 20.66% 24.97%

Iridium Common Size Balance Sheet

Fiscal Years Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023EAssetsCurrent assets:Cash and cash equivalents 85.59% 63.80% 52.27% 25.86% 40.45% 50.19% 20.80% 68.76%Marketable securities 9.07% 2.62% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Accounts receivable, net 13.23% 15.18% 13.62% 13.71% 13.80% 13.85% 13.90% 14.00%Deferred income tax asset 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Income tax receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Inventory 4.20% 4.48% 5.27% 6.04% 6.04% 6.04% 6.04% 6.04%Prepaid expenses and other current assets 7.08% 5.66% 3.50% 3.82% 2.90% 4.90% 3.50% 4.00%Total current assets 119.17% 91.75% 74.64% 49.42% 63.19% 74.98% 44.24% 92.80% Property and equipment, net 648.71% 716.48% 644.51% 555.39% 461.28% 400.11% 352.00% 319.31%Restricted cash 26.09% 22.85% 36.70% 33.32% 29.70% 27.63% 26.06% 25.32%Other assets 2.50% 1.88% 2.40% 1.96% 1.96% 1.96% 1.96% 1.96%Intangible assets, net 10.56% 11.16% 9.28% 7.95% 6.67% 5.84% 5.17% 4.72%Deferred financing cost 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total assets 807.03% 844.12% 767.54% 648.05% 562.81% 510.52% 429.43% 444.12%

Liabilities and stockholders' equityCurrent liabilities:Short-term credit facility 0.00% 19.08% 24.09% 11.62% 12.01% 12.10% 13.37% 13.03%Accounts payable 2.57% 9.62% 2.46% 4.80% 4.80% 4.80% 4.80% 4.80%Accrued expenses and other current liabilities 5.50% 7.19% 10.90% 8.19% 6.50% 8.00% 10.20% 10.00%Interest payable 3.26% 3.35% 5.63% 2.38% 1.82% 1.36% 0.61% 0.56%Deferred revenue 7.86% 8.57% 7.16% 9.07% 8.70% 8.90% 8.90% 9.00%Total current liabilities 19.19% 47.81% 50.23% 36.07% 33.83% 35.17% 37.88% 37.40%Accrued operations and maintenance expense 3.03% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Long-term credit facility, net 382.15% 361.14% 282.74% 206.10% 147.80% 99.52% 57.39% 52.50%Long term senior unsecured notes, net 0.00% 0.00% 67.11% 59.44% 51.67% 46.88% 0.00% 0.00%Deferred income tax liabilities, net 83.40% 54.94% 46.16% 45.50% 45.83% 48.73% 52.69% 59.44%Deferred revenue, net of current portion 8.40% 10.63% 14.27% 15.00% 17.00% 18.00% 18.30% 19.10%Other long-term liabilities 1.00% 13.28% 0.80% 0.76% 0.71% 0.67% 0.61% 0.58%Total liabilities 497.16% 487.80% 461.31% 362.87% 296.83% 248.97% 166.87% 169.02%Stockholders' equity:Common Stock and APIC 244.54% 241.37% 211.98% 189.57% 166.38% 152.40% 141.50% 135.38%Retained earnings 66.60% 115.79% 95.93% 97.09% 100.89% 110.33% 122.14% 140.74%Accumulated other comprehensive loss net of tax -1.26% -0.85% -1.68% -1.49% -1.29% -1.17% -1.08% -1.02%Total stockholders' equity 309.88% 356.32% 306.22% 285.17% 265.97% 261.56% 262.56% 275.09%Total liabilities and stockholders' equity 807.03% 844.12% 767.54% 648.05% 562.81% 510.52% 429.43% 444.12%

Iridium Value Driver Estimation (in thousands USD)

Fiscal Years Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023CVRevenue 433,640 448,046 523,008 590,523 679,327 748,701 813,995 858,778Cost of services (excluding DP) 64,958 80,396 86,016 93,303 105,296 119,792 130,239 128,817Cost of subscriber equipment 44,286 44,445 56,857 62,005 66,574 74,870 87,097 90,172Research and development 16,079 15,247 22,429 18,897 23,097 29,948 34,188 36,069Selling, general and administrative 82,552 84,405 97,846 110,428 125,676 137,761 148,961 156,298*Depreciation and amortization 44,319 114,797 212,339 188,770 183,709 175,597 167,935 160,699Implied interest on Operating Leases 1,767 1,680 1,543 1,286 1,353 1,416 1,476 1,532EBITA 183,213 110,436 49,064 118,406 176,329 212,149 247,050 288,257Adjusted TaxesMarginal Tax Rate 40.78% 39.83% 32.07% 26.31% 26.31% 26.31% 26.31% 26.31%Total income tax provision 67,133 (114,284) 7,265 25,575 40,003 50,214 60,044 76,550Tax on Total other income (expense) 84 (82) 45 0 0 0 0 0Tax on Gain on Boeing transaction 5,651Tax on Impairment of goodwillTax on Interest Income 1,196 1,724 (20,024) (5,240) (6,033) (5,230) (4,566) 1,113Tax on undrawn credit facility fees (549) (10) 0 0 0 0 0 0Tax shield on Implied interest on Operating Leases

720 669 495 338 356 373 388 403Total Adjusted Taxes 65,849 (122,401) 26,839 30,476 45,680 55,071 64,222 75,034Plus changes in deferred taxes 64,824 (115,486) (4,748) 27,261 42,641 53,525 64,004 81,598NOPLAT 182,188 117,351 17,477 115,192 173,290 210,603 246,832 294,821

Normal Cash 195,712 202,214 236,046 266,518 306,597 337,907 367,376 387,588AR 57,373 68,031 71,210 80,935 93,747 103,695 113,145 120,229Inventory 18,204 20,068 27,538 35,663 41,026 45,216 49,159 51,863Income tax receivable 0 0 0 0 0 0 0 0Prepaid expenses and other current assets 30,698 25,347 18,284 22,548 19,700 36,686 28,490 34,351Operating Current Assets (CA) 301,987 315,660 353,078 405,663 461,071 523,504 558,170 594,031

AP 11,131 43,100 12,869 28,366 32,631 35,964 39,100 41,251Accrued Expenses & Other CL 23,840 32,215 32,215 48,376 44,156 59,896 83,027 85,878Deferred Revenue 34,087 38,390 37,429 53,573 59,101 66,634 72,446 77,290Operating Current Liabilities (CL) 69,058 113,705 82,513 130,315 135,889 162,494 194,573 204,419

Net Operating Working Capital 232,929 201,955 270,565 275,349 325,182 361,010 363,597 389,612Net PPE 2,813,084 3,210,162 3,370,855 3,279,694 3,133,594 2,995,606 2,865,280 2,742,190

3,046,013 3,412,117 3,641,420 3,555,043 3,458,776 3,356,617 3,228,877 3,131,802Plus: Other operating assetsNet Intangible Assets 45,796 50,019 48,540 46,931 45,322 43,713 42,104 40,495Capitalized PV of Operating Leases 23,186 22,049 20,246 21,429 22,546 23,601 24,597 25,538Other operating assets 10,836 8,414 12,557 11,597 13,341 14,703 15,985 16,865Total Net Other 79,818 80,482 81,343 79,957 81,209 82,017 82,687 82,898

Less: Other operating liabilitiesLT Deferred Revenue 36,417 47,612 74,656 88,578 115,486 134,766 148,961 164,027Other long-term liabilities 4,317 59,519 4,160 4,500 4,800 5,000 5,000 5,000Invested Capital 3,085,097 3,385,469 3,643,948 3,541,921 3,419,699 3,298,867 3,157,603 3,045,674

Invested Capital 3,085,097 3,385,469 3,643,948 3,541,921 3,419,699 3,298,867 3,157,603 3,045,674NOPLAT 182,188 117,351 17,477 115,192 173,290 210,603 246,832 294,821ROIC 6.87% 3.80% 0.52% 3.16% 4.89% 6.16% 7.48% 9.34%

Change in IC 431,234 300,371 258,479 (102,027) (122,222) (120,831) (141,265) (111,929)

FCF (249,047) (183,021) (241,002) 217,218 295,512 331,434 388,097 406,750

EP (51,405) (154,199) (280,512) (168,594) (98,057) (46,680) 2,083 64,613

Iridium Weighted Average Cost of Capital (WACC) Estimation

Cost of CapitalRisk Free Rate 2.50%Risk Premium 4.69%Beta 1.67Cost of Equity 10.33%

Pre Tax Cost of Debt 7.62% *bloomberg YTM IRDM corporate bond 4/15/23Marginal Tax Rate 26.31%After Tax Cost of Debt 5.62%

Weight of CapitalTotal Shares Outstanding 112,200 in thousands Long Term Debt 1,478,739 in thousandsShare Price 27.84 each PV of Operating Leases 20,246 in thousandsValue of Equity 3,123,648 in thousands Value of Debt 1,498,985 in thousands

Weight of Equity 67.57% Weight of Debt 32.43%

Weighted cost of equity 6.98%Weighted cost of Debt 1.82%

Implied Weighted Average Cost of Capital 7.79% 7.66% 7.52% 7.42% 7.29%year 0 WACC 8.80%

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Risk Free 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%Risk Premium 4.69% 4.69% 4.69% 4.69% 4.69% 4.69%Beta 1.67 1.35 1.27 1.18 1.09 0.97 0.87 Unlevered Beta (Y3)Cost of Equity 10.33% 8.83% 8.46% 8.03% 7.62% 7.03%

Pre-Tax Cost of Debt 7.62% 7.62% 7.62% 7.62% 7.62% 7.62%Tax Rate 26% 26% 26% 26% 26% 26%After-Tax Cost of Debt 5.62% 5.62% 5.62% 5.62% 5.62% 5.62%

MV Weight of Equity 68% 68% 68% 68% 75% 82%MV Weight of Debt 32% 32% 32% 32% 25% 18%

Forward WACC 8.80% 7.79% 7.53% 7.25% 7.11% 6.78%

Discount Factor 1.08 1.16 1.24 1.33 1.42

1 2 3 4 5

Iridium Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models (in thousands USD)

Key Inputs: CV Growth 2.50% CV ROIC 9.34% WACC 7.79% 7.66% 7.52% 7.42% Cost of Equity 10.33%

Fiscal Years Ending Dec. 31 2019E 2020E 2021E 2022E 2023E CV

DCF ModelNOPLAT 115,192 173,290 210,603 246,832 294,821CapEx (102,027) (122,222) (120,831) (141,265) (111,929)FCF 217,218 295,512 331,434 388,097 406,750CV 4,388,563FCF to discount 217,218 295,512 331,434 388,097 4,388,563Discount Factor 1.078 1.160 1.248 1.340 1.340Present Value (CF) 201,524 254,652 265,623 289,552 3,274,226Total PV 4,285,576

Plus Value of Non Operating Assets Excess Cash Non- Marketable Securities 0Marketable Securities 0Value of Non-Operating Assets 0

Less: Value of Non- Operating LiabilitiesLong term debt 1,478,739 in thousandsPv of Operating Leases 20,246Value of Non Operating Liabilities 1,498,985

Value of Equity 2,786,591Shares Outstanding 112,200Instrinsic Value of Stock 24.84Partial Year Adjustment Value 25.56

Fiscal Years Ending 2019E 2020E 2021E 2022E 2023E CV

EP ModelEconomic Profit (168,594) (98,057) (46,680) 2,083 64,613Continuing Value 1,285,678 54,717Cash Flow to Discount (168,594) (98,057) (46,680) 2,083 1,285,678Discount Factor 1.078 1.160 1.248 1.340 1.340PV (156,413) (84,499) (37,411) 1,554 959,220Total PV 682,452Value of Operating Assets 4,326,400

Plus Value of Non Operating AssetsExcess CashNon-Marketable Securities 0Marketable Securities 0Value of Non-Operating Assets 0

Less: Value of Non- Operating LiabilitiesLong-term debt 1,478,739Pv of Operating Leases 20,246Value of Non Operating Liabilities 1,498,985

Value of Equity 2,827,415Shares Outstanding 112,200Instrinsic Value of Stock 25.20Partial Year Adjustment Value 25.93

Iridium Dividend Discount Model (DDM) or Fundamental P/E Valuation Model (in USD)

Fiscal Years Ending 2019E 2020E 2021E 2022E 2023CV

EPS ($ 0.63) ($ 0.98) ($ 1.21) ($ 1.43) ($ 1.81)

Key Assumptions CV growth 5.00% CV ROE 9.08% Cost of Equity 10.33%

Future Cash Flows P/E Multiple (CV Year) 8.42 EPS (CV Year) ($ 1.81) Future Stock Price ($ 15.21) Dividends Per Share ($ -  ) ($ -  ) ($ -  ) ($ -  ) ($ -  ) Future Cash Flows ($ -  ) ($ -  ) ($ -  ) ($ 15.21) ($ -  )

Discounted Cash Flows ($ 10.75)

Intrinsic Value ($ 10.75) Partial Year Adjustments ($ 11.06)

Iridium Relative Valuation Models (in USD)

EPS EPS S/Share S/ShareTicker Company Price 2019E 2020E P/E 19 P/E 20 Price 2019E 2020E P/S 19 P/S 20I Intelsat $17.54) ($1.70) ($2.18) ( (10.32) ( (8.05) $17.54 15.20 ( 15.00) ( 1.15) 1.17ETL.PAk Eutelsat Communications $15.53) $1.34) $1.42) ( 11.59) ( 10.94) $15.53 5.90 ( 5.90) ( 2.63) 2.63ORBC Orbcomm $6.70) ($0.18) ($0.04) ( (37.22) ( (167.50) $6.75 3.60 ( 3.90) ( 1.88) 1.73

Average ( (11.98) ( (54.87) ( 1.89) 1.84

IRDM Iridium $27.84) $0.63) $0.98) ( 44.1) ( 28.5) $27.84 4.80 ( 5.20) ( 5.80) 5.35

Implied Relative Value: P/E (EPS18) ($ (7.56) P/E (EPS19) ($ (53.55) P/S 19 ($ 52.54) P/S 20 ($ 8.85)

Iridium Key Management Ratios

Fiscal Years Ending 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Liquidity RatiosCurrent ratio Current Assets / Current Liabilities ($ 6.21) ($ 1.92) ($ 1.49) ($ 1.37) ($ 1.87) ($ 2.13) ($ 1.17) ($ 2.48) quick ratio [Current Assets - Inventory] / Current Liabilities ($ 5.99) ($ 1.83) ($ 1.38) ($ 1.20) ($ 1.69) ($ 1.96) ($ 1.01) ($ 2.32) cash ratio Cash / Liabilities ($ 4.46) ($ 1.33) ($ 1.04) ($ 0.72) ($ 1.20) ($ 1.43) ($ 0.55) ($ 1.84)

Activity or Asset-Management RatiosReceivable turnover Total Revenue / Average Receivables 7.95 7.15 7.51 7.76 7.78 7.58 7.51 7.36Inventory turnover (COGS + Dep. + Amort.) / Average Invenory 4.74 6.52 6.00 4.91 4.48 4.51 4.61 4.34Invested capital turnover Total Revenue / Average Stockholder's Equity 0.34 0.30 0.33 0.36 0.39 0.40 0.40 0.38Asset Turnover Total Revenue / Average Total Assets 0.13 0.12 0.13 0.15 0.18 0.20 0.22 0.23

Financial Leverage RatiosDebt Ratio Total Liabilities / Total Assets 0.62 0.58 0.60 0.56 0.53 0.49 0.39 0.38D/E Ratio Total Liabilities / Total Shareholder's Equity 1.60 1.37 1.51 1.27 1.12 0.95 0.64 0.61

Profitability RatiosProfit Margin (Revenue - COGS) / Total Revenue 74.81% 72.14% 72.68% 73.70% 74.70% 74.00% 73.30% 74.50%Return On Assets Net Income / Total Assets 3.17% 6.18% -0.33% 1.87% 2.93% 3.68% 4.81% 5.62%Return on Equity Net Income / Shareholder's Equity 8.26% 14.65% -0.84% 4.25% 6.20% 7.18% 7.87% 9.08%

Payout Policy RatiosNo dividend payout

Present Value of Operating Lease Obligations (2018) Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)*I've been looking at the year prior 10-k (2016)

Operating Operating Operating Operating Operating Operating OperatingFiscal Years Ending Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending 0.0439 Leases Fiscal Years Ending 0.0439 Leases Fiscal Years Ending 27.1532448254558 Leases Fiscal Years Ending Leases2018 3741 2017 3589 2016 3236 2015 3051 2014 2702 2013 2948 2012 34272019 3692 2018 3554 2017 3437 2016 2782 2015 2867 2014 2282 2013 30102020 3734 2019 3644 2018 3524 2017 2890 2016 2291 2015 2072 2014 22842021 3827 2020 3734 2019 3614 2018 2972 2017 2239 2016 1466 2015 20732022 3402 2021 3827 2020 3705 2019 3055 2018 2302 2017 1330 2016 1466Thereafter 8849 Thereafter 12251 Thereafter 15940 Thereafter 6814 Thereafter 7402 Thereafter 3354 Thereafter 4684Total Minimum Payments 27245 Total Minimum Payments 30599 Total Minimum Payments 33456 Total Minimum Payments 21564 Total Minimum Payments 19803 Total Minimum Payments 13452 Total Minimum Payments 16944Less: Interest 6999 Less: Interest 8550 Less: Interest 10270 Less: Interest 5481 Less: Interest 5314 Less: Interest 3022 Less: Interest 3980PV of Minimum Payments 20246 PV of Minimum Payments 22049 PV of Minimum Payments 23186 PV of Minimum Payments 16083 PV of Minimum Payments 14489 PV of Minimum Payments 10430 PV of Minimum Payments 12964

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62% Pre-Tax Cost of Debt 7.62%Number Years Implied by Year 6 Payment 2.6 Number Years Implied by Year 6 Payment 3.2 Number Years Implied by Year 6 Payment 4.3 Number Years Implied by Year 6 Payment 2.2 Number Years Implied by Year 6 Payment 3.2 Number Years Implied by Year 6 Payment 2.5 Number Years Implied by Year 6 Payment 3.2

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 3741 3476.1 1 3589 3334.9 1 3236 3006.9 1 3051 2835.0 1 2702 2510.7 1 2948 2739.3 1 3427 3184.42 3692 3187.7 2 3554 3068.5 2 3437 2967.5 2 2782 2402.0 2 2867 2475.4 2 2282 1970.3 2 3010 2598.83 3734 2995.7 3 3644 2923.5 3 3524 2827.2 3 2890 2318.6 3 2291 1838.0 3 2072 1662.3 3 2284 1832.44 3827 2852.9 4 3734 2783.6 4 3614 2694.1 4 2972 2215.5 4 2239 1669.1 4 1466 1092.9 4 2073 1545.45 3402 2356.5 5 3827 2650.9 5 3705 2566.4 5 3055 2116.1 5 2302 1594.6 5 1330 921.3 5 1466 1015.56 & beyond 3402 5377.3 6 & beyond 3827 7288.1 6 & beyond 3705 9123.8 6 & beyond 3055 4195.8 6 & beyond 2302 4401.2 6 & beyond 1330 2043.9 6 & beyond 1466 2787.1PV of Minimum Payments 20246.2 PV of Minimum Payments 22049.5 PV of Minimum Payments 23185.9 PV of Minimum Payments 16083.0 PV of Minimum Payments 14488.9 PV of Minimum Payments 10429.9 PV of Minimum Payments 12963.5

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 5,703Average Time to Maturity (years): 4.38Expected Annual Number of Options Exercised: 1,302

Current Average Strike Price: ($ 8.29) Cost of Equity: 10.33%Current Stock Price: $27.84)

2019E 2020E 2021E 2022E 2023EIncrease in Shares Outstanding: 1,302 1,302 1,302 1,302 1,302Average Strike Price: ($ 8.29) ($ 8.29) ($ 8.29) ($ 8.29) ($ 8.29) Increase in Common Stock Account: ( 10,794) ( 10,794) ( 10,794) ( 10,794) ( 10,794) (Assumes common stock and additional paid in capital are combined into one account).

Change in Treasury Stock 0 0 0 0 0Expected Price of Repurchased Shares: ($ 27.84) ($ 30.72) ($ 33.89) ($ 37.39) ($ 41.25) Number of Shares Repurchased: ( -  ) ( -  ) ( -  ) ( -  ) ( -  )

Shares Outstanding (beginning of the year) 112,200 113,502 114,804 116,106 117,408Plus: Shares Issued Through ESOP 1,302 1,302 1,302 1,302 1,302Less: Shares Repurchased in Treasury ( -  ) ( -  ) ( -  ) ( -  ) ( -  ) Shares Outstanding (end of the year) 113,502 114,804 116,106 117,408 118,710

VALUATION OF OPTIONS GRANTED IN ESOPNOTES:

Ticker Symbol IRDM Enter the ticker symbol and the spreadsheet will download the current stock price.Current Stock Price $27.84) The stock price is retrieved automatically from the web, or you may link to your assumption page.Risk Free Rate 2.50% Current risk-free rate you assume in your model.Current Dividend Yield Current annualized dividend yield of the stock.Annualized St. Dev. of Stock Returns 39.53% Current annualized standard deviation of returns (volatility) on the stock.

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 5,703 8.29 4.38 ($ 20.67) ($ 117,888) Enter the number of options, prices, and remaining life for each range provided in the notes to the annual report (10K).Total 5,703 ($ 8.29) 4.38 ($ 20.67) ($ 117,888) The value of all options granted under the ESOP as of the end of the most recent fiscal year.

You may need to scale this number up or down by 1,000 or 1,000,000 to put on the same scale as your valuation.Subtract this amount from your value of operating assets to arrive at the value of equity.