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Dynamic quotes 
OFFON

IRIDIUM COMMUNICATIONS INC.

(IRDM)
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IRIDIUM COMMUNICATIONS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

10/19/2021 | 07:04am EST
You should read the following discussion along with our Annual Report on Form
10-K for the fiscal year ended December 31, 2020, filed on February 11, 2021
with the Securities and Exchange Commission, or the SEC, 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 ended December 31, 2020
filed on February 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, the U.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.
At September 30, 2021, we had approximately 1,690,000 billable subscribers
worldwide, representing an increase of 18% from approximately 1,429,000 billable
subscribers at September 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 the U.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 of March 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
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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 ended December 31, 2020, filed with the
Securities and Exchange Commission on February 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 the U.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
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Comparison of Our Results of Operations for the Three Months Ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 to U.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 in
September 2019, authorized customers utilize specified Iridium® airtime services
provided through the U.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
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Subscriber Equipment Revenue
Subscriber equipment revenue increased by $1.8 million, or 7%, for the three
months ended September 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 $ 9.4 $ (1.9)



Engineering and support service revenue decreased by $1.9 million or 20% for the
three months ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 30, 2021 compared to the prior year period. The
increase was primarily due to software enhancements related to our Iridium
Certus service line that were placed into service during July 2021.
Other Expense
Interest Expense, Net
Interest expense, net decreased $5.0 million, or 22%, for the three months ended
September 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, in January 2021 and July 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 ended
September 30, 2021. During July 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 ended September 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 ended September 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 Ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 to U.S. government and other authorized
customers pursuant to the EMSS Contract. Under the terms of this agreement,
which we entered into in September 2019, authorized customers utilize specified
Iridium airtime services provided through the U.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
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Subscriber Equipment Revenue
Subscriber equipment revenue increased by $5.4 million, or 8%, for the nine
months ended September 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 $ 23.5 $ (2.7)



Engineering and support service revenue decreased $2.7 million, or 12%, for the
nine months ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 in February 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 ended
September 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 in January 2021 and
July 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
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Loss on Extinguishment of Debt
Loss on extinguishment of debt was $0.9 million for the nine months ended
September 30, 2021 compared to a $30.2 million loss on extinguishment of debt
recorded for the nine months ended September 30, 2020. During July 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 in February 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 ended September 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 ended September 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


In November 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.

In February 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 both January 2021 and July 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 in November 2026. To reprice the Term Loan in January 2021 and July
2021, we incurred third-party financing costs of $3.6 million and $1.3 million,
respectively. On July 21, 2021, we entered into an interest rate cap agreement,
or the Cap, beginning in November 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 in December 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 of September 30, 2021.

As of September 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 of September 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
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December 31, 2020. Lenders have the right to decline payment. As such, we paid
$4.7 million to lenders who did not decline payment in May 2021. This amount
counted towards our required quarterly principal payments through September 30,
2021. The Credit Agreement permits repayment, prepayment, and repricing
transactions.

As of September 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) $ (188,480) $ 48,749

Cash Flows Provided by Operating Activities


Net cash provided by operating activities for the nine months ended
September 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 ended September 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 ended September 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 ended September 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.

                                       30
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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 in the
United States, or U.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 ended December 31, 2020, as filed with the SEC
on February 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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