Chris Quilty: I was going to say, even before the NB-IoT, when — so it’s been a more than 10-year trend of declining ARPUs here, which has been good because it’s the growth of the personal communication stuff. At what point does the growth of the midband, which should be higher ARPU, turn you into positive territories, is that like a couple years out or five years out?
Matthew Desch: Yeah, I don’t know. I mean, probably a year or two at least before it really makes a major impact because the new 9604 (ph), which comes out late this year, starts getting into devices that would hit the IoT line. And then some of this midband is hitting more of the voice and data line, which is a positive there. So it takes time for these new technologies to get into products and start ramping, that’s usually a couple year kind of cycle. And fortunately, the midband stuff started a year or two ago. And so we’re going to start, I think, seeing more growth as we get into this year and next year. But again, I mean, since we don’t have really costs associated with it, I think the ARPU argument as we made the point is not like the argument made in the terrestrial wireless world, where CapEx sort of followed every subscriber, so ARPU declines had concerns.
We more of focus on how much resources are being utilized by the customer. And these low ARPU personal communication subscribers are using almost no usage on our network, so that’s a fantastic use of our service.
Thomas Fitzpatrick: So I would just amplify Chris that Matt’s point about the relative significance of ARPU, I think what investors should take note of is take a look at this IoT business. It grew the last two years by 13%. We’re saying here it’s a much bigger business than it was two years ago, and you see accelerating growth. We’re guiding mid-teens. I think that’s the real takeaway on IoT.
Chris Quilty: Maritime, so last quarter, you became the — probably, the very last company in the maritime service market to feel the Starlink impact. I think you said it was limited to those vessels that used a sort of Certus only terminal, which was fairly limited number of vessels. Is that playing out as you thought? And the second part of the question is, as Starlink starts to penetrate the vast number of vessels that have no connectivity, do you have some kind of a definitive strategy to pull along with them as the backup? You’ve already established yourself as a backup to VSAT. And when I say VSAT, I’m talking about the traditional Geo VSAT. Technically, Starlink is a VSAT, but they’re different o do you think that those new users who historically haven’t had connectivity are just not inclined to have a backup system, regardless of whether Starlink is blotchy or whatnot in its performance.
Matthew Desch: Yeah. Great questions. To the first part, it’s absolutely played out exactly the way we thought it would play out over the same time frame. And as is kind of, I think, will play out over the next couple of quarters, and we’ll get back to growth in ’25, as we expected there. To the latter part, we’ve now talked to every one of our partners, all the people who are deploying both Starlink and VSAT solutions and they all are absolutely, both committed and convinced it’s the right strategy that Iridium be the backup, be a companion to Starlink, because Starlink still is, despite all, it’s a great product, which I think, by the way, is expanding the market a bit too, but to the extent it’s on existing fleets. Fleet owners understand the limitations of where it can’t operate.
It’s restricted to operate. It still has the same limitations around rain, fade and that sort of things, as VSAT solutions do, and it can’t be used in many ports. And a solution, particularly one as cost-effective as ours, that works 100% on the planet. And before long, we’ll actually have a GMDSS and LRIT and SSAS function all embedded in the same companion terminal is a — is the best way to provide a high quality service to a fleet. And so that is, we’re convinced that’s the long-term approach of that market and will do very well as a result of that.
Chris Quilty: Got you. Government question. You were one of, I forget, how many now sort of mid-teens number of companies that were awarded contracts under the P-LEO, which was like a $900 million IDIQ. I think you’re one of like only three companies that actually operates at P-LEO and the only one that does it in comms. Have you seen any activity on that contract vehicle, because I haven’t seen any specific announcements?
Matthew Desch: Yeah. There hasn’t been — there’s been a lot of activity around it. A lot of the other players want to partner with us and work together with us to provide an advantage, especially if they’re a commodity supplier of sort of P-LEO services. And — but I haven’t seen any big awards under that. Right now that are kind of hitting our bottom line. There still is a lot of talk and activity around that would expect to see some more activity over time. I mean, I think, as you said, we’re very well positioned for business, but it’s still sort of an early, early times for that, I think.
Chris Quilty: Got you. And final DoD question in the last several weeks here now, the DoD and Space Force have come out with their commercial space strategies. And of the 13 mission areas they identified, GPS was one of the few that was identified as military only. And yet, earlier this week, this Space Force came out, and announced that, they want to use a quick start program on resilient GPS. So sort this out for me, or maybe the Pentagon needs to sort out its strategy here. How does that impact Satelles? I think you’re primarily government today. Do you think there is incremental growth opportunities or large programs on the government side, or is most of your focus commercial?
Matthew Desch: We believe we’re well positioned there. The government is deploying lots of different technologies and has additional science projects well out in the future. Our expectations is, we’ll continue to be part of that and we’ll play across a number of different sectors, especially as we get into other critical infrastructure and other places as well. I would say, the longer term bigger opportunities, as we talk about the $100 million is probably in the commercial side, globally on the commercial, that’s the bigger area. That’s probably the more — the area that we focused on in terms of potential growth. We think both civilian and governmental and critical infrastructure all over the world need this technology. And this is the easiest technology to deploy. It doesn’t need ground infrastructure. It’s not subject to the same issues on the ground that would cause the original problems anyway. So yeah, I mean, I would say commercial is the bigger opportunity.
Chris Quilty: Great. Thank you.
Matthew Desch: Thank you.
Operator: Thank you. And our next question today comes from Hamed Khorsand with BWS Financial. Please go ahead.
Hamed Khorsand: Hey, good morning. So, first off, could you just talk about what’s the cost component that your partner would be seeing? Are you increasing your costs? Are they seeing some sort of benefit because there’s more clarity due to this contract?
Matthew Desch: The costs associated — so this is all around service revenue, sort of pricing, and sort of creating more clarity on a quarter-by-quarter basis as to what they would be paying for the collected service that they have, which includes growing subscribers and everything. Instead of charging them on an incremental subscriber basis or on usage, we would supply sort of an overall pool of service on a quarter-by-quarter basis. So it’s a win for them, and that there’s clarity on the amount that they really have to pay. As they implement new products and get into the market and expand their market share, they kind of have a better idea about their cost structure. On our side, obviously, it’s the same thing for us. We have more visibility on exactly what’s going to happen and aren’t as worried about exactly how many subscribers are added in that quarter or etc.
And we’re able to do that because it’s a big partner. And they’ve been in market — been in service with us a long time, and we have a lot of visibility to how they’re using the network.
Hamed Khorsand: And then could you just provide a little bit more details of what you mean by normalization in the equipment revenue and where inventory stands in the channel, as far as you’re concerned?
Thomas Fitzpatrick: Yeah. I mean, for many years, we supplied about the same amount of equipment. Obviously, our equipment was, as we move from bigger devices to smaller devices, it was more equipment. But overall, the revenue was roughly about the same. During the pandemic that spiked, I mean, it really went up. Our business was doing fine as well. But a lot of other companies, well, some other companies had some really supply chain issues, and we were able to manage through that better than anyone else. But a lot of our partners, certainly, maybe all of our partners, really were quite nervous about the fact that we couldn’t supply on a three day notice like we had been before. And in some cases, it was taking three months or six months for us to be able to fill orders.
So they all started ordering more to try to get in the front of the line and to be sure that they had enough. So that their businesses, which were continuing to grow even during the pandemic. As you saw, we did very well during that timeframe that they wouldn’t be in any way constrained. Well, they’re not as constrained anymore. They don’t have the same concerns. They’re able to deliver on a very short notice now. We’ve worked through all that. And so they had been stockpiling, I think, a number of chips or modules or whatever that they had been ordering to us. And they don’t need to do that as much. It doesn’t. I know that there was a little bit of a — well, that growing equipment revenues must mean accelerated service revenue growth, but I don’t think we ever really suggested that during that timeframe.
As you saw, we consistently grew at or a little bit above the service levels we’re growing right now, but continue to grow exactly the way we’re growing and that equipment was feeding that. So normalizing means we’re going to get back to sort of the same level. So we’re kind of — it looks like a headwind on the overall revenue line, but it really doesn’t mean anything in terms of our long-term potential or growth. Does that make sense?
Hamed Khorsand: Yeah. Great. Thank you.
Operator: Thank you. And our final question today comes from Louie DiPalma with William Blair. Please go ahead.
Louie DiPalma: Matt, Tom, and Ken, good morning.
Matthew Desch: Hey, Louie.
Thomas Fitzpatrick: Hey, Louie.
Louie DiPalma: As it relates to revenue synergies with Satelles, why is Satelles’ revenue only $5 million today? And that — were they previously not utilizing your vast distribution network and now that they’re part of your team that they have access to your 500-plus channel partners and whatnot? And I think if Satelles were standalone, were — would its revenue in 2030 be significantly below $100 million?
Thomas Fitzpatrick: So the $5 million you quote, Louie, think of that as wholesale. That’s what they paid us in 2023 for the signal essentially, right?
Louie DiPalma: Okay.
Thomas Fitzpatrick: And so — okay. And so, they then turn around and mark that up to their customers. So their revenue is a markup on that five, which was their wholesale payments to us. Think of the hundred that we quote in 2030 as us stepping into their shoes as the retail provider and providing the turnkey service, which includes our signal, but they’re kind of proprietary service.
