IRIDIUM SAYS IT HAS REACHED CASH FLOW BREAK-EVEN
More than 3 years after declaring bankruptcy, Iridium announced the company finally had reached cash flow break- even. The company’s new CEO, Carmen Lloyd (see separate item, this issue), said the milestone was nice because there was no requirement for additional capital: “As we continue to grow, we have a positive cash flow to allow us to repay investors, pay down debt, or reinvest in the company.”
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Cash flow break-even is “an encouraging sign that they're making progress,” Coudert Bros. analyst Timothy Logue said. TelAstra Pres. Roger Rusch called the news “pretty remarkable,” but said it was premature to look at Iridium as indicative of how other MSS companies would fare. The company’s biggest boost probably comes from the war in Iraq, Rusch said: “They have a fixed contract with the government, but also as a result of the war in that part of the world, there are other people who are using the phones. Whenever there’s a war, there’s always a surge in MSS users.”
Lloyd said one of the company’s key markets was govt. services: “Whether it’s the conflict in Iraq or the September 11 disaster, we're anywhere that traditional cellphone or land systems are broken down or not operating.” While the company has built up a subscriber base of nongovt. users, he said, it also benefited from contracts with the Dept. of Defense (DoD). The govt. agency first awarded the company a $72 million contract in Dec. 2000 for 20,000 phones (CD Dec 8/00 p5), but later added a contract for equipment to use at the Pentagon and Ground Zero in N.Y.C. after Sept. 11 (CD Feb 28/02 p4). Iridium also has focused on the maritime, oil and gas markets and to those involved in humanitarian efforts around the world.
Expansion within those niche markets is one of the ways the company plans to grow, Lloyd said, but growth will be considered cautiously: “Iridium is not a huge company yet. We have to be very focused and obviously try not to spread our resources too thin.” It also will look to expand its subscriber base outside the U.S.: “Geographically, there will be lots of opportunity to grow. We'll look at global expansion in some countries where we're not participating today, and in those countries, we would look for partners who know the market and customers.”
Some satellite analysts said it was unlikely the company would be able to generate enough capital on its own to begin replacing satellites in its 66-satellite system. “The true test of Iridium will come when they have to raise capital to replace their satellites [and] maintain service as the satellites start reaching the end of their life,” an industry official said: “The question is whether the capital markets will come up with the money to build replacement satellites.” While it may be possible to maneuver satellites around and even use fewer birds, he said, that could be only a “patchwork system that will only hold up for so long.” Rusch said that type of solution also would increase delay for users. Iridium announced in 2001 that its in-orbit satellites would last until 2010.