IRIDIUM COMMUNICATIONS INC. You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed onFebruary 11, 2021 with theSecurities and Exchange Commission , or theSEC , as well as our condensed consolidated financial statements included in this Form 10-Q. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development or otherwise are not statements of historical fact. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "intend" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements. These risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. The important factors described under the caption "Risk Factors" in this report and in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 filed onFebruary 11, 2021 could cause actual results to differ materially from those indicated by forward-looking statements made herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Overview of Our Business We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We are the only commercial provider of communications services offering true global coverage, connecting people, organizations and assets to and from anywhere, in real time. Our unique L-band satellite network provides reliable communications services to regions of the world where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters. We provide voice and data communications services to businesses, theU.S. and foreign governments, non-governmental organizations and consumers via our upgraded satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks between satellites. This unique architecture minimizes the need for ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence. Our upgraded satellite constellation is compatible with all of our end-user equipment and supports more bandwidth and higher data speeds for our new products, including our Iridium Certus® broadband service. We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 110 service providers, approximately 280 value-added resellers, or VARs, and approximately 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific lines of business. AtSeptember 30, 2021 , we had approximately 1,690,000 billable subscribers worldwide, representing an increase of 18% from approximately 1,429,000 billable subscribers atSeptember 30, 2020 . We have a diverse customer base, with end users in the following lines of business: land mobile, maritime, aviation, Internet of Things, or IoT, hosted payloads and other data services and theU.S. government. We recognize revenue from both the provision of services and the sale of equipment. Over the past several years, service revenue, including revenue from hosting and data services, has represented an increasing proportion of our revenue, and we expect that trend to continue. Effects of the COVID-19 Pandemic on Our Business The COVID-19 pandemic and measures taken in response continue to affect countries, communities and markets around the world. Like many other businesses, we started to see a slowdown in the final weeks ofMarch 2020 as a result of the widespread economic shutdown. Our distributors have also experienced business and operational restrictions, which continue to limit their ability to visit customers, complete new installations, and close on new business opportunities, particularly internationally. The economic slowdown extended through 2020 and into 2021, although we have seen significant recovery in some markets, most notably IoT. Other markets, including aviation and maritime, and some international areas continue to suffer significant effects from reduced activity during the pandemic. Aviation, in particular, has started to see recovery but may take years to recover to pre-pandemic levels. In other industries, such as maritime, the effects are significant, but vary greatly by region and business 21 -------------------------------------------------------------------------------- model, and we expect that additional shutdowns and other restrictions will continue to impact our results of operations. The ultimate effects of the COVID-19 pandemic are difficult to assess or predict with certainty at this time but may include additional risks. For further information on the potential effects of the COVID-19 pandemic on our business, financial condition and results of operations, see "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission onFebruary 11, 2021 , as well as the "Risk Factors" section of this report below. Material Trends and Uncertainties Our industry and customer base have historically grown as a result of: •demand for remote and reliable mobile communications services; •a growing number of new products and services and related applications; •a broad wholesale distribution network with access to diverse and geographically dispersed niche markets; •increased demand for communications services by disaster and relief agencies, and emergency first responders; •improved data transmission speeds for mobile satellite service offerings; •regulatory mandates requiring the use of mobile satellite services; •a general reduction in prices of mobile satellite services and subscriber equipment; and •geographic market expansion through the ability to offer our services in additional countries. Nonetheless, we face a number of challenges and uncertainties in operating our business, including: •our ability to maintain the health, capacity, control and level of service of our satellites; •our ability to develop and launch new and innovative products and services; •changes in general economic, business and industry conditions, including the effects of currency exchange rates; •our reliance on a single primary commercial gateway and a primary satellite network operations center; •competition from other satellite service providers and, to a lesser extent, from the expansion of terrestrial-based cellular phone systems and related pricing pressures; •market acceptance of our products; •regulatory requirements in existing and new geographic markets; •rapid and significant technological changes in the telecommunications industry; •our ability to generate sufficient internal cash flows to repay our debt; •reliance on our wholesale distribution network to market and sell our products, services and applications effectively; •reliance on a global supply chain, including single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase component parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events, including the COVID-19 pandemic; and •reliance on a few significant customers, particularly agencies of theU.S. government, for a substantial portion of our revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable. 22 -------------------------------------------------------------------------------- Comparison of Our Results of Operations for the Three Months EndedSeptember 30, 2021 and 2020 Three Months Ended September 30, % of Total % of Total Change ($ in thousands) 2021 Revenue 2020 Revenue Dollars Percent Revenue: Services$ 127,774 78 %$ 116,914 77 %$ 10,860 9 % Subscriber equipment 26,898 17 % 25,120 17 % 1,778 7 % Engineering and support services 7,487 5 % 9,438 6 % (1,951) (21) % Total revenue 162,159 100 % 151,472 100 % 10,687 7 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 25,186 16 % 23,909 16 % 1,277 5 % Cost of subscriber equipment 15,544 10 % 15,429 10 % 115 1 % Research and development 2,815 2 % 3,116 2 % (301) (10) % Selling, general and administrative 25,897 16 % 20,631 14 % 5,266 26 % Depreciation and amortization 77,688 47 % 75,654 50 % 2,034 3 % Total operating expenses 147,130 91 % 138,739 92 % 8,391 6 % Operating income 15,029 9 % 12,733 8 % 2,296 18 % Other expense: Interest expense, net (17,614) (10) % (22,628) (15) % 5,014 (22) % Loss on extinguishment of debt (879) (1) % - - % (879) (100) % Other income (expense), net (81) - % 205 - % (286) (140) % Total other expense, net (18,574) (11) % (22,423) (15) % 3,849 (17) % Loss before income taxes (3,545) (2) % (9,690) (7) % 6,145 (63) % Income tax benefit 1,460 1 % 5,685 4 % (4,225) (74) % Net loss$ (2,085) (1) %$ (4,005) (3) %$ 1,920 23
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Revenue
Commercial Service Revenue
Three Months Ended September 30,
2021 2020 Change
Billable Billable Billable
Revenue Subscribers (1) ARPU (2) Revenue Subscribers (1) ARPU (2) Revenue Subscribers ARPU
(Revenue in millions and subscribers in thousands)Commercial services: Voice and data$ 45.7 372$ 41 $ 42.8 352$ 41 $ 2.9 20 $ - IoT data 30.0 1,156 8.93 25.4 924 9.48 4.6 232 (0.55) Broadband (3) 11.5 13.0 299 9.1 11.4 270 2.4 1.6 29 Hosted payload and other data 14.7 N/A 14.5 N/A 0.2 N/A Total commercial services$ 101.9 1,541$ 91.8 1,287$ 10.1 254 (1)Billable subscriber numbers shown are at the end of the respective period. (2)Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. (3)Commercial broadband service consists of Iridium OpenPort® and Iridium Certus broadband services. For the three months endedSeptember 30, 2021 , total commercial services revenue increased$10.1 million , or 11%, from the prior year period primarily as a result of increases in IoT, voice and data, and broadband revenue. These increases were driven primarily by increases in billable subscribers across all commercial service lines. Commercial IoT revenue increased$4.6 million , or 18%, for the three months endedSeptember 30, 2021 , compared to the same period of the prior year. The increase in IoT revenue was driven by a 25% increase in IoT billable subscribers due to continued strength in consumer personal communications devices, as well as the lifting of many mobility restrictions that had been imposed due to COVID-19. The subscriber increase effect on revenue was partially offset by a 6% reduction in IoT ARPU, primarily due to the increased proportion of personal communication subscribers using lower ARPU plans, countered in part by an increase in usage and ARPU by aviation subscribers due to increases in air travel from the prior year quarter. Commercial voice and data revenue increased$2.9 million , or 7%, for the three months endedSeptember 30, 2021 , compared to the same period of the prior year. This increase was primarily due to an increase in volume across all voice and data services. Commercial broadband revenue increased$2.4 million , or 26%, for the three months endedSeptember 30, 2021 , compared to the prior year period, driven by an increase in broadband billable subscribers and an increase in ARPU associated with the increase in the mix of subscribers utilizing higher ARPU Iridium Certus broadband plans. Hosted payload and other service revenue remained relatively flat for the three months endedSeptember 30, 2021 , compared to the prior year period, at$14.7 million . Government Service Revenue Three Months Ended September 30, 2021 2020 Change Billable Billable Billable Revenue Subscribers (1) Revenue Subscribers (1) Revenue Subscribers (Revenue in millions and subscribers in thousands) Government services$ 25.9 149$ 25.1 142$ 0.8 7
(1)Billable subscriber numbers shown are at the end of the respective period.
We provide airtime and airtime support toU.S. government and other authorized customers pursuant to our Enhanced Mobile Satellite Services contract, or the EMSS Contract. Under the terms of this agreement, which we entered into inSeptember 2019 , authorized customers utilize specified Iridium® airtime services provided through theU.S. government's dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. The annual rate under the EMSS Contract increased from$103.0 million to$106.0 million during the third quarter of 2021. 24 -------------------------------------------------------------------------------- Subscriber Equipment Revenue Subscriber equipment revenue increased by$1.8 million , or 7%, for the three months endedSeptember 30, 2021 compared to the prior year period, primarily due to an increase in the volume of handset sales, partially offset by a decrease in the volume of L-band transceiver device sales. Engineering and Support Service Revenue Three Months Ended September 30, 2021 2020 Change (Revenue in millions) Commercial engineering and support services $ 1.3$ 1.1 $ 0.2 Government engineering and support services 6.2 8.3 (2.1) Total engineering and support services $
7.5
Engineering and support service revenue decreased by$1.9 million or 20% for the three months endedSeptember 30, 2021 compared to the prior year period, primarily due to the episodic nature of contract work under certain government contracts. Operating Expenses Cost of Services (exclusive of depreciation and amortization) Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including contractors, software maintenance, product support services and cost of services for government and commercial engineering and support service revenue. Cost of services (exclusive of depreciation and amortization) increased by$1.3 million , or 5%, for the three months endedSeptember 30, 2021 from the prior year period, primarily as a result of higher maintenance, product support and satellite operation costs, partially offset by the decrease in work under certain government engineering contracts, as noted above. Cost of Subscriber Equipment Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs. Cost of subscriber equipment increased by$0.1 million , or 1%, for the three months endedSeptember 30, 2021 compared to the prior year period primarily due to an increase in volume of higher margin handsets, partially offset by a decrease in the volume of L-band transceiver device sales. Research and Development Research and development expenses decreased by$0.3 million , or 10%, for the three months endedSeptember 30, 2021 compared to the prior year period based on consistent spending on device-related features for our network. Selling, General and Administrative Selling, general and administrative expenses that are not directly attributable to the sale of services or products include sales and marketing costs, as well as employee-related expenses (such as salaries, wages, and benefits), legal, finance, information technology, facilities, billing and customer care expenses. Selling, general and administrative expenses increased by$5.3 million , or 26%, for the three months endedSeptember 30, 2021 compared to the prior year period, primarily due to higher management incentive costs incurred in the current year quarter as compared to the prior year quarter, which were adversely impacted by the COVID-19 pandemic. The increase was also partially due to higher legal and other professional fees, and stock appreciation rights expense in the current year quarter resulting from changes in our stock valuation between the respective reporting periods. Depreciation and Amortization Depreciation and amortization expense increased by$2.0 million , or 3%, for the three months endedSeptember 30, 2021 compared to the prior year period. The increase was primarily due to software enhancements related to our IridiumCertus service line that were placed into service duringJuly 2021 . Other Expense Interest Expense, Net Interest expense, net decreased$5.0 million , or 22%, for the three months endedSeptember 30, 2021 compared to the prior year period. The decrease resulted primarily from a decrease in the annual interest rate to LIBOR plus 2.5%, with a 0.75% LIBOR 25 -------------------------------------------------------------------------------- floor, from an annual interest rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor as a result of the repricing of our term loan with Deutsche Bank AG, or the Term Loan, inJanuary 2021 andJuly 2021 . The decrease in interest expense was offset in part by$1.3 million of third-party financing costs paid in the current year period in connection with the July repricing. Loss on Extinguishment of Debt Loss on extinguishment of debt was$0.9 million for the three months endedSeptember 30, 2021 . DuringJuly 2021 , we repriced our Term Loan, and wrote off unamortized debt issuance costs related to several lenders who did not participate in the repricing and whose portions of the Term Loan were replaced by new or existing lenders. There was no extinguishment of debt during the prior year period. Income Tax Benefit For the three months endedSeptember 30, 2021 , our income tax benefit was$1.5 million , compared to$5.7 million for the prior year period. The decrease in income tax benefit was primarily related to a decrease in loss before income taxes compared to the prior year, a lower discrete tax benefit associated with stock compensation as a result of a lower number of exercised stock options, and a discrete state tax expense associated with state apportionment changes. This was offset in part by an increased benefit related to a decrease in the valuation allowance for state net operating losses compared to the prior year. Net Loss Net loss was$2.1 million for the three months endedSeptember 30, 2021 , compared to$4.0 million for the prior year period. The change was primarily a result of a$5.0 million decrease in interest expense, net, and a$2.3 million increase in operating income offset by the$4.2 million decrease in the income tax benefit as described above. Comparison of Our Results of Operations for the Nine Months EndedSeptember 30, 2021 and 2020 Nine Months Ended September 30, % of Total % of Total Change ($ in thousands) 2021 Revenue 2020 Revenue Dollars Percent Revenue: Services$ 365,247 79 %$ 346,239 79 %$ 19,008 5 % Subscriber equipment 72,607 16 % 67,198 16 % 5,409 8 % Engineering and support services 20,759 5 % 23,495 5 % (2,736) (12) % Total revenue 458,613 100 % 436,932 100 % 21,681 5 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 71,784 16 % 69,021 16 % 2,763 4 % Cost of subscriber equipment 41,243 9 % 39,772 9 % 1,471 4 % Research and development 8,156 2 % 7,940 2 % 216 3 % Selling, general and administrative 72,524 16 % 62,556 14 % 9,968 16 % Depreciation and amortization 229,266 49 % 227,260 52 % 2,006 1 % Total operating expenses 422,973 92 % 406,549 93 % 16,424 4 % Operating income 35,640 8 % 30,383 7 % 5,257 17 % Other expense: Interest expense, net (58,013) (13) % (71,578) (16) % 13,565 (19) % Loss on extinguishment of debt (879) - % (30,209) (7) % 29,330 (97) % Other income (expense), net (225) - % 332 - % (557) (168) % Total other expense, net (59,117) (13) % (101,455) (23) % 42,338 (42) % Loss before income taxes (23,477) (5) % (71,072) (16) % 47,595 (67) % Income tax benefit 20,042 4 % 22,943 5 % (2,901) (13) % Net loss$ (3,435) (1) %$ (48,129) (11) %$ 44,694 (93) % 26
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Revenue
Commercial Service Revenue
Nine Months Ended September 30,
2021 2020 Change
Billable Billable Billable
Revenue Subscribers (1) ARPU (2) Revenue Subscribers (1) ARPU (2) Revenue Subscribers ARPU
(Revenue in millions and subscribers in thousands)Commercial services: Voice and data$ 130.4 372$ 40 $ 126.8 352$ 40 $ 3.6 20 $ - IoT data 82.0 1,156 8.60 71.8 924 9.25 10.2 232 (0.65) Broadband (3) 31.5 13.0 284 26.3 11.4 263 5.2 1.6 21 Hosted payload and other data 43.9 N/A 46.2 N/A (2.3) N/A Total commercial services$ 287.8 1,541$ 271.1 1,287$ 16.7 254 (1)Billable subscriber numbers shown are at the end of the respective period. (2)Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. (3)Commercial broadband service consists of Iridium OpenPort and Iridium Certus broadband services. For the nine months endedSeptember 30, 2021 , total commercial services revenue increased$16.7 million , or 6%, from the prior year period primarily as a result of increases in IoT, broadband, and voice and data revenue mainly driven by increases in billable subscribers. Commercial IoT revenue increased$10.2 million , or 14%, for the nine months endedSeptember 30, 2021 , compared to the prior year period. The increase in IoT revenue was driven by a 25% increase in IoT billable subscribers due to continued strength in personal communications devices, as well as the lifting of many mobility restrictions that had been imposed due to COVID-19. The subscriber increase effect on revenue was partially offset by a 7% reduction in IoT ARPU, primarily due to the increased proportion of personal communication subscribers using lower ARPU plans, countered in part by an increase in usage and ARPU by aviation subscribers due to increases in air travel from the prior year quarter. Commercial broadband revenue increased$5.2 million , or 20%, for the nine months endedSeptember 30, 2021 , compared to the prior year period, due primarily to the increase in broadband billable subscribers and an increase in ARPU associated with the increase in the mix of subscribers utilizing higher ARPU Iridium Certus broadband plans. Commercial voice and data revenue increased$3.6 million , or 3%, from the prior year period primarily due to an increase in volume across all voice and data services. These increases were offset in part by a decrease in hosted payload and other service revenue of$2.3 million , or 5%, for the nine months endedSeptember 30, 2021 , compared to the prior year period. This decrease was due to two non-recurring events, a data billing settlement that resulted in recognition of$1.3 million in the prior year period, plus the recognition of an additional$1.4 million of additional hosting data service revenue in the prior year due to an updated estimate of data service usage. Government Service Revenue Nine Months Ended September 30, 2021 2020 Change Billable Billable Billable Revenue Subscribers (1) Revenue Subscribers (1) Revenue Subscribers (Revenue in millions and subscribers in thousands) Government services$ 77.4 149$ 75.1 142$ 2.3 7 (1)Billable subscriber numbers shown are at the end of the respective period. We provide airtime and airtime support toU.S. government and other authorized customers pursuant to the EMSS Contract. Under the terms of this agreement, which we entered into inSeptember 2019 , authorized customers utilize specified Iridium airtime services provided through theU.S. government's dedicated gateway. The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services. The annual rate under the EMSS Contract increased from$103.0 million to$106.0 million during the third quarter of 2021 and from$100.0 million to$103.0 million during the third quarter of 2020. 27 -------------------------------------------------------------------------------- Subscriber Equipment Revenue Subscriber equipment revenue increased by$5.4 million , or 8%, for the nine months endedSeptember 30, 2021 compared to the prior year period, primarily due to an increase in the volume of handset and IoT device sales, partially offset by a decrease in the volume of L-band transceiver device sales. Engineering and Support Service Revenue Nine Months Ended September 30, 2021 2020 Change (Revenue in millions) Commercial engineering and support services $ 3.0$ 3.3 $ (0.3) Government engineering and support services 17.8 20.2 (2.4) Total engineering and support services $
20.8
Engineering and support service revenue decreased$2.7 million , or 12%, for the nine months endedSeptember 30, 2021 compared to the prior year period primarily due to the episodic nature of contract work under certain government projects. Operating Expenses Cost of Services (exclusive of depreciation and amortization) Cost of services (exclusive of depreciation and amortization) increased by$2.8 million , or 4%, for the nine months endedSeptember 30, 2021 from the prior year period, primarily as a result of higher maintenance, product support and network operation costs, partially offset by the decrease in work under certain government engineering contracts, as noted above. Cost of Subscriber Equipment Cost of subscriber equipment increased by$1.5 million , or 4%, for the nine months endedSeptember 30, 2021 compared to the prior year period primarily due to an increase in volume of higher margin handsets and an increase in IoT device sales, partially offset by a decrease in the volume of L-band transceiver device sales. Research and Development Research and development expenses increased by$0.2 million , or 3%, for the nine months endedSeptember 30, 2021 compared to the prior year period based on consistent spending on device-related features for our network. Selling, General and Administrative Selling, general and administrative expenses increased by$10.0 million , or 16%, for the nine months endedSeptember 30, 2021 compared to the prior year period, primarily due to higher management incentive costs incurred in the current year period as compared to the prior year period, which were adversely impacted by the COVID-19 pandemic. The increase was also partially due to higher stock appreciation rights expense in the current year resulting from changes in our stock valuation between the respective reporting periods. These increases in costs were offset in part by a decrease in legal fees and bad debt expense. Depreciation and Amortization Depreciation and amortization expense remained relatively flat as we completed the replacement of our first-generation satellites inFebruary 2019 . As the upgraded satellites are the largest proportion of our asset base, we anticipate depreciation and amortization expense to remain relatively consistent from quarter to quarter based on our anticipated capital expenditures. Other Expense Interest Expense, Net Interest expense, net decreased$13.6 million for the nine months endedSeptember 30, 2021 compared to the prior year period. The decrease resulted primarily from a decrease in the annual interest rate to LIBOR plus 2.5%, with a 0.75% LIBOR floor, from an annual interest rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor as a result of the repricing of our Term Loan inJanuary 2021 andJuly 2021 . The decrease in interest expense was offset in part by$4.9 million of third-party financing costs paid in the current year period in connection with the repricings. 28 -------------------------------------------------------------------------------- Loss on Extinguishment of Debt Loss on extinguishment of debt was$0.9 million for the nine months endedSeptember 30, 2021 compared to a$30.2 million loss on extinguishment of debt recorded for the nine months endedSeptember 30, 2020 . DuringJuly 2021 , we repriced our Term Loan and wrote off unamortized debt issuance costs related to several lenders who did not participate in the repricing and whose portions of the Term Loan were replaced by new or existing lenders. The loss on extinguishment of debt in 2020 resulted from the write off of unamortized debt issuance costs when we closed on an additional$200.0 million under our Term Loan inFebruary 2020 and used the proceeds, together with cash on hand, to prepay all of the indebtedness outstanding under our senior unsecured notes, including premiums for early prepayment. Income Tax Benefit For the nine months endedSeptember 30, 2021 , our income tax benefit was$20.0 million , compared to income tax benefit of$22.9 million for the prior year period. The decrease in income tax benefit was primarily related to a decrease in loss before income taxes compared to the prior year. This was offset in part by the discrete state tax benefit associated with state apportionment changes and a greater stock compensation tax deduction which resulted from an increase in the value of both stock options exercised and vested restricted stock units. Net Loss Net loss was$3.4 million for the nine months endedSeptember 30, 2021 , compared to$48.1 million for the prior year period. The change primarily resulted from the$29.3 million decrease in the loss on extinguishment of debt, the$13.6 million decrease in interest expense, net, as well as the$5.3 million increase in operating income. These changes were offset by the$2.9 million decrease in the income tax benefit as described above.
Liquidity and Capital Resources
InNovember 2019 , we issued our$1,450.0 million Term Loan with an accompanying$100.0 million revolving loan, or the Revolving Facility, or, collectively, the Credit Agreement. Both facilities are under a credit agreement with the lenders, or the Credit Agreement. InFebruary 2020 , we issued an additional$200.0 million under our Term Loan and used the proceeds and approximately$183.5 million of cash on hand to repay in full all of the indebtedness outstanding under our senior unsecured notes, including premiums for early repayment. In bothJanuary 2021 andJuly 2021 , we repriced all borrowings outstanding under our Term Loan. The Term Loan now bears interest at an annual rate of LIBOR plus 2.50%, with a 0.75% LIBOR floor. All other terms remain the same, including maturity inNovember 2026 . To reprice the Term Loan inJanuary 2021 andJuly 2021 , we incurred third-party financing costs of$3.6 million and$1.3 million , respectively. OnJuly 21, 2021 , we entered into an interest rate cap agreement, or the Cap, beginning inNovember 2021 . The Cap is intended to manage our exposure to interest rate movements on a portion of our Term Loan. The Cap provides the right to receive payment if one-month LIBOR exceeds the contractual rate of 1.5%. Beginning inDecember 2021 , we will pay a fixed monthly premium at an annual rate of 0.31% for the Cap. The Cap carried a notional amount of$1,000.0 million as ofSeptember 30, 2021 . As ofSeptember 30, 2021 , we reported an aggregate balance of$1,625.3 million in borrowings under the Term Loan, before$24.2 million of net deferred financing costs, for a net principal balance of$1,601.0 million outstanding in our condensed consolidated balance sheet. We have not drawn on our Revolving Facility. Our Term Loan contains no financial maintenance covenants. With respect to the Revolving Facility, we are required to maintain a consolidated first lien net leverage ratio of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn. The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default. We were in compliance with all covenants under the Credit Agreement as ofSeptember 30, 2021 . The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement. The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, or EBITDA, and unlimited exceptions based on achievement and maintenance of specified leverage ratios, for, among other things, incurring indebtedness and liens and making investments, restricted payments for dividends and share repurchases, and payments of subordinated indebtedness. The Credit Agreement also contains a mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement), which is phased out based on achievement and maintenance of specified leverage ratios. Our mandatory excess cash flow prepayment, as specified in the Credit Agreement, was calculated to be$12.7 million as of 29 --------------------------------------------------------------------------------December 31, 2020 . Lenders have the right to decline payment. As such, we paid$4.7 million to lenders who did not decline payment inMay 2021 . This amount counted towards our required quarterly principal payments throughSeptember 30, 2021 . The Credit Agreement permits repayment, prepayment, and repricing transactions. As ofSeptember 30, 2021 , our total cash and cash equivalents balance was$287.0 million , our marketable securities balance was$2.0 million , and we had$100.0 million of borrowing availability under our Revolving Facility. In addition to the Revolving Facility, our principal sources of liquidity are cash, cash equivalents and internally generated cash flows. Our principal liquidity requirements over the next twelve months are primarily principal and interest on the Term Loan, working capital and potential share repurchases under the share repurchase program described in Note 8 to the financial statements included in this report.
We believe our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months.
Cash Flows
The following table summarizes our cash flows:
Nine Months Ended September 30,
2021 2020 Change
(In thousands)
Cash provided by operating activities $ 213,137 $ 179,137 $ 34,000
Cash used in investing activities $ (23,744) $ (29,267) $ 5,523
Cash used in financing activities $
(139,731)
Cash Flows Provided by Operating Activities
Net cash provided by operating activities for the nine months endedSeptember 30, 2021 increased by$34.0 million from the prior year period. Net loss, as adjusted for non-cash activities, improved by$27.2 million over the prior year, primarily as a result of improved profitability. Net cash from operating activities also increased related to working capital changes of approximately$6.8 million . Working capital increased primarily as a result of a decrease in accrued expenses and other current liabilities, which decreased due to a decreased payout on management incentives due to the COVID-19 impact on 2020 results. Working capital also increased as a result of a decrease in the interest payable compared to the prior year. These increases were offset by net cash outflows resulting from the timing of customer collections and payments to vendors.
Cash Flows Used in Investing Activities
Net cash used in investing activities for the nine months endedSeptember 30, 2021 decreased by$5.5 million from the prior year period due primarily to maturities of marketable securities in the current year. Capital expenditures remained relatively flat between the periods. We continue to expect our capital expenditures to average approximately$40.0 million per year until 2029. Cash Flows Used in Financing Activities Net cash used in financing activities for the nine months endedSeptember 30, 2021 decreased by$48.7 million compared to the prior year period primarily due to lower net principal payments as we utilized our cash to pay down additional debt in the prior year. The combination of full repayment of the senior unsecured notes and additional borrowings under the Term Loan resulted in net payments of$189.7 million for the nine months endedSeptember 30, 2020 compared to net payments of$12.4 million for 2021. This decrease in cash outflows was partially offset by$125.1 million used in 2021 for the repurchase of our common stock. See Note 5 to our condensed consolidated financial statements included in this report for further discussion of our indebtedness and Note 8 for further information on our stock repurchase program.
Off-Balance Sheet Arrangements
We do not currently have, nor have we had in the last three years, any
relationships with unconsolidated entities or financial partnerships, such as
entities referred to as structured finance or special purpose entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
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--------------------------------------------------------------------------------Seasonality
Our results of operations have been subject to seasonal usage changes for commercial customers, and our results will be affected by similar seasonality going forward. March through October are typically the peak months for commercial voice services revenue and related subscriber equipment sales.U.S. government revenue and commercial IoT revenue have been less subject to seasonal usage changes. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of property and equipment, long-lived assets and other intangible assets, deferred financing costs, income taxes, stock-based compensation, and other estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed with theSEC onFebruary 11, 2021 . Recent Accounting Pronouncements Refer to Note 2 to our condensed consolidated financial statements for a full description of recent accounting pronouncements and recently adopted pronouncements. 31
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