I don't think the full significance for QAD of the following...

I don't think the full significance for QAD of the following article was appreciated by the market at the time of its publication.

The two key points are:

1. Rapid growth of subscriber numbers and accelerating growth in the quarterly account figures for Iridium (of which Quadrant holds 10%); and

2. Iridium CEO Lloyd's stated aim to 'look to reward shareholders through 2005'.

In particular there is that tantalising quote from 'one well known industry lawyer' who says towards the end of the article:

“An IPO doesn’t surprise me at all. Iridium is doing very well, especially since the Gulf War. When Iridium was originally launched, and failed, it was a US$5bn business. When it emerged it was a US$50m business, and it has been going great ever since.”

The pricing of an IPO on the US equity markets would be anybody's guess. But any significant fraction of the initial US$5 BILLION figure, eclipses the $50 million book value of the business!!!



Article from “Satellite Finance” Issue 76 January 19, 2005
(Published by Thompson Stanley Publishing Ltd)


IRIDIUM HIRES MORGAN STANLEY

Iridium, the MSS operator, has hired Morgan Stanley to explore funding opportunities in the public debt and equity markets. The move comes on the back of a record year in 2004 which saw the company notch up 21% growth over a nine month period and gain 100,000 subscribers for the first time. Carmen Lloyd, Iridium CEO, said: “We’re continuing to grow by 2000-3000 subs per month, and this is sustainable in the medium term. When we came out of Chapter 11, our focus was on key verticals and then to digress. Now, we’re at the stage where we are using the constellation for data and voice applications which are being developed by OEMs and we have new products coming online all the time.”

On distribution, Lloyd was also upbeat: “We have around 90 partners, either value added manufacturers, VARs or service providers and we are comfortable with this size. Now the plan is to work on apps driven growth with applications being integrated into an IT system such as on a ship or plane. We have a couple of products that will roll out this year. We also continue to benefit from the lower cost of the data module as well as the voice handset.”


Fundamentals

Iridium’s revenue comes from two major sources. Wholesaling minutes to service providers such as Stratos and Xantic and also from hardware sales. The company does not break down the proportions for both streams.

The firm’s fourth quarter accounts are currently being finalised, but growth in the third quarter of 2004 was 27%, beating the nine-month average of 21% and suggesting accelerating growth. Lloyd’s view is that these growth rates are sustainable in the medium term and that in a few years, the company should start to throw off significant amounts of cash. “We’re cash flow positive now, with all our channels set up, satellites and gateway in place. In terms of capacity, utilisation is still at a very low rate and we have had two independent studies recently that suggest that our satellites will last until 2014. This way, we don’t need to start planning for the next constellation really for four or five years, by which time we’ll be generating enough cash to replace our satellites.”

The two independent studies on Iridium’s fleet health were carried out by Boeing, the satellites’ maker, and California-based Aerospace Corporation.


Diversions

Unlike other MSS players MSV and possibly Globalstar, which is said to be planning to file for a licence soon, Lloyd does not see ATC as a viable investment opportunity for Iridium. “The spectrum they [MSV] has is valuable, but probably more valuable for terrestrial applications. Whoever goes down this route will spend a lot of money and time. For us, focus is the key, and we see tremendous opportunities in aviation and maritime where we be concentrating our efforts, for example bringing PAD and cell phone use into smaller regional jets where a Swift 64 antenna is less viable.”

Lloyd claims that Iridium is the only pole to pole MSS provider, which is attractive given that a lot of planes travel polar routes, and says that Iridium solutions are now finding their way into smaller regional jets attracted by the smaller antenna (“the size of a hockey puck”), low usage and installation costs. One recent win was the regional airline, Aloha, which operates Boeing 737s and uses Iridium for real time data applications.


Finance plans

In terms of financing, from an operational perspective Lloyd says the company is very happy with the US$65.5m debt facility Bank of America put in place in December. This refinanced an earlier facility via Riggs. This year, however, Iridium will be looking at other finance options as it seeks to reward its shareholders. “Through 2005 we’ll be looking at opportunities in the public equity and debt markets as we seek to give some return to our shareholders, who have been with us for four years now and from whom we have not drawn any capital for eighteen months now [when the company became cash flow positive],” he said.

In terms of investment story, Lloyd is convinced the firm’s prospects are attractive: “I don’t have to be first to market. We have a real growth story for the next five to ten years. We’ll be throwing off cash but not at the same rate as the high dividend yielding equities such as PanAmSat and New Skies who only grow at single digit rates. We’ll be having 25% growth by comparison.”

In terms of timing, any offering will probably come after three or four quarters of solid growth. Should Q4 and the first half of this year match up to Q3 2004 levels, an offering can hence be expected some time in the second half of the year. On the prospects of Iridium visiting the equity capital markets, one well known industry lawyer said: “An IPO doesn’t surprise me at all. Iridium is doing very well, especially since the Gulf War. When Iridium was originally launched, and failed, it was a US$5bn business. When it emerged it was a US$50m business, and it has been going great ever since.”