Tom Fitzpatrick: Yes, we don’t think so.
Walter Piecyk: Lower, okay.
Tom Fitzpatrick: We think growth in — so it’s the most pronounced decrease in equipment revenues was in IoT. The channel clearly ordered to have safety stock, and we met that challenge and enjoyed those revenues. But if you look at the time series data, look at the five years prior to 2022 equipment revenues averaged under $90 million. They spiked $135 million in 2023 as this channel kind of stuffing occurred. We think our prospects in IoT, notwithstanding the material decline in equipment revenues in 2024 from 2023 and in 2023 from 2022 are as strong as they’ve ever been. So our IoT prospects are really good. And handset similarly, I mean, we were very clear in as we were enjoying record handset sales in 2023. We were clear that — excuse me, in 2022.
We were clear that our competitor was stocked out and we were getting the benefit of that. Well, they now have phones and we’re back to a normal kind of competitive dynamic and normal levels of sales. So we think this equipment issue is going to run its course here this year. It’s going to be a headwind in 2024 that will abate in 2025, and we’ll get back to kind of consistent with more longer-term trends. But we do not think that it is a leading indicator for softening in our service.
Walter Piecyk: It sounds like it’s going to take a couple of quarters at least, in order for some of this stuff to kick back in, in terms of a reacceleration, it’s not like one or two quarters. We’re looking at 2025 now in terms of a reacceleration of the growth.
Matt Desch: I don’t — I think you’re taking two things that happened and saying they’re correlated just because our —
Walter Piecyk: No, I’m not.
Matt Desch: Well, I’m not sure; I’m following what you’re doing. There’s not an acceleration, really. The growth rate, as we said is continuing to happen in 2024 in the same way it was in 2023. So I don’t know what this acceleration you’re talking about really is.
Tom Fitzpatrick: And to be clear, Walt —
Walter Piecyk: There isn’t any. Yes, go ahead.
Tom Fitzpatrick: Hey, to be clear Walt — to be clear Walt — we were very clear in the Investor Day in September that we were going to model and for purposes of arriving at our $3 billion in capacity for shareholder returns through 2030 we weren’t hanging our hat on elevated equipment revenues. We were very I thought clear that we saw equipment revenues coming down, and that doesn’t do a thing to our $3 billion in projected capacity in shareholder returns.
Walter Piecyk: Understood. One last question on margins. Is that — was that — I hadn’t done the exact math on this, but we do some math on trying to understand incremental gross margin in the fourth quarter on services specifically, and it looked like it dipped. Is that because that $2 million one-timer was basically a profitless or no gross profit revenue?
Tom Fitzpatrick: No, that was normal service revenue side.
Walter Piecyk: Okay.
Tom Fitzpatrick: I don’t think you make — I wouldn’t make much of that. I mean our operating leverage model remains very much intact.
Operator: Our next question comes from Edison Yu with Deutsche Bank. Please go ahead.
Edison Yu: Hey, thanks, and good morning. Just one follow-up on the D2D side. I know you’re not expecting material revenue contribution until later on, but do we have a sense on the operational timeline, as in when we could get more partners announced, when the first maybe test phones will be out there, just kind of get a sense on the operational ramp rather than just the revenue contribution?
Matt Desch: Well, we discussed during the announcement of Stardust that, that we would — the earliest that we’d be doing some testing would be 2025, and the earliest we would see implementation would be in 2026. And I said that we’re still early. Not really changing any views of that right now, but that kind of haven’t changed anything in the last couple of weeks since that time. So 2026 would be the absolute earliest you would see that in terms of announcements and everything, we’ll announce it when it makes sense to announce it. We don’t usually just announce things for marketing purposes. All the interest that we have will be more around what our partners want to say and that sort of thing. To us, it’s more about building the capability and getting it into operation.
Operator: Our next question comes from Chris Quilty with Quilty Space. Please go ahead.
Chris Quilty: Thank you. Tom, I hate to harp on the equipment issue, but just looking at the inventories, it looks like they were up about $20 million sequentially and more than 2x year-over-year. Was that a reflection of how quickly it turned down? And what have you done in terms of new order rate for product? And do you expect perhaps to have to do any discounting on a go-forward basis on that, or do you expect all the inventory to just clear in the natural course?
Tom Fitzpatrick: We expect it to clear in the natural course. We don’t expect any discounting. That was a conscious decision on our part to prevent a stock out. If you look at our ads in our voice and data business in 2022, those investments paid off handsomely for us. And we expect the inventory to move down, frankly, in 2024, and then down again in 2025.
Chris Quilty: Okay. Shifting back to the aviation service certification for safety services, I think, Matt, you said you expect that certification to come through this year, and I guess is that front half the year, back half the year, and do you expect it to have impact on the growth in that product line? And a secondary question to that is, I don’t know, have you ever done OEM installations or are these all aftermarket?
