IRIDIUM COMMUNICATIONS INC. MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS. (Form 10-Q)
You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed onFebruary 17, 2022 with theSecurities and Exchange Commission , or theSEC , 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. 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 endedDecember 31, 2021 , filed onFebruary 17, 2022 , 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 company
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 low-earth orbit (LEO), L-band network provides reliable, weather-resilient 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, theU.S. and foreign governments, non-governmental organizations and consumers via our 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. We sell our products and services to commercial end-users through a wholesale distribution network, encompassing approximately 110 service providers, approximately 290 value-added resellers, or VARs, and approximately 90 value-added manufacturers, or VAMs, which create and sell technology that uses the Iridium® network either 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 using our products and services to target specific lines of business. We expect that demand for our services will increase as more applications are developed and deployed that utilize our technology. AtSeptember 30, 2022 , we had approximately 1,973,000 billable subscribers worldwide, representing an increase of 17% from approximately 1,690,000 billable subscribers atSeptember 30, 2021 . 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 theU.S. government. 18
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Material trends and uncertainties
Our industry and our clientele have historically developed thanks to:
• demand for remote and reliable mobile communications services;
•a growing number of new products and services and associated applications;
•an extensive wholesale distribution network with access to diversified and geographically dispersed niche markets;
•increased demand for communication services by relief and relief organizations and emergency first responders;
•improving data transmission speeds for mobile satellite service offers;
•regulatory mandates requiring the use of mobile satellite services;
•a general fall in the prices of mobile satellite services and subscriber equipment; and
•the geographic expansion of the market thanks to the possibility of offering our services in other 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 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 business gateway and primary satellite network operations center;
•competition from other mobile satellite service providers and, to a lesser extent, the expansion of terrestrial cellular telephone systems and related pricing pressures;
•acceptance of our products by the market;
•regulatory requirements in existing and new geographic markets;
•challenges associated with global operations, including as a result of conflicts or affecting the markets in which we operate;
•rapid and significant technological changes in the telecommunications industry;
•our ability to generate sufficient internal cash flow to repay our debt;
•dependency on our wholesale distribution network to effectively market and sell our products, services and applications;
•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 theU.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. 19 -------------------------------------------------------------------------------- Comparison of Our Results of Operations for the Three Months EndedSeptember 30, 2022 and 2021 Three Months Ended September 30, % of Total % of Total Change ($ in thousands) 2022 Revenue 2021 Revenue Dollars Percent Revenue: Services$ 138,977 76 %$ 127,774 78 %$ 11,203 9 % Subscriber equipment 27,959 15 % 26,898 17 % 1,061 4 % Engineering and support services 17,124 9 % 7,487 5 % 9,637 129 % Total revenue 184,060 100 % 162,159 100 % 21,901 14 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 34,378 19 % 25,186 16 % 9,192 36 % Cost of subscriber equipment 18,406 10 % 15,544 10 % 2,862 18 % Research and development 4,865 3 % 2,815 2 % 2,050 73 % Selling, general and administrative 32,140 16 % 25,897 16 % 6,243 24 % Depreciation and amortization 76,397 42 % 77,688 47 % (1,291) (2) % Total operating expenses 166,186 90 % 147,130 91 % 19,056 13 % Operating income 17,874 10 % 15,029 9 % 2,845 19 % Other expense: Interest expense, net (17,632) (10) % (17,614) (10) % (18) - % Loss on extinguishment of debt - - % (879) (1) % 879 (100) % Other expense, net (146) - % (81) - % (65) 80 % Total other expense, net (17,778) (10) % (18,574) (11) % 796 (4) % Income (loss) before income taxes 96 - % (3,545) (2) % 3,641 (103) % Income tax benefit 2,053 1 % 1,460 1 % 593 41 % Net income (loss) $ 2,149 1 %$ (2,085) (1) %$ 4,234 (203) % 20
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Revenue
Commercial Service Revenue
Three months completed
2022 2021 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$ 50.3 401$ 42 $ 45.7 372$ 41 $ 4.6 29$ 1 IoT data 33.8 1,412 8.24 30.0 1,156 8.93 3.8 256 (0.69) Broadband (3) 13.6 14.7 315 11.5 13.0 299 2.1 1.7 16 Hosted payload and other data 14.8 N/A 14.7 N/A 0.1 N/A Total commercial services$ 112.5 1,828$ 101.9 1,541$ 10.6 287
(1)The 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 includes Iridium OpenPort® and Iridium Certus® broadband services.
For the three months endedSeptember 30, 2022 , total commercial services revenue increased$10.6 million , or 10%, from the prior year period primarily as a result of increases in voice and data, IoT and broadband. These increases were driven primarily by increases in billable subscribers across all commercial service lines. Commercial voice and data revenue increased$4.6 million , or 10%, for the three months endedSeptember 30, 2022 , compared to the same period of the prior year, primarily due to an increase in volume across all postpaid and prepaid voice and data services. Commercial IoT revenue increased$3.8 million , or 12%, for the three months endedSeptember 30, 2022 , compared to the same period of the prior year, driven by a 22% increase in IoT billable subscribers primarily due to continued strength in consumer personal communications devices. The effect on revenue of increased subscribers was partially offset by an 8% reduction in IoT ARPU, primarily due to the shifting mix of subscribers using lower ARPU plans, including the increased proportion of personal communications subscribers. Commercial broadband revenue increased$2.1 million , or 19%, for the three months endedSeptember 30, 2022 , compared to the prior year period, due to the increase in broadband billable subscribers and an increase in ARPU associated with the increase in the mix of subscribers utilizing higher ARPU Iridium Certus broadband plans. Hosted payload and other service revenue remained relatively flat compared to the prior year period. Government Service Revenue Three Months Ended September 30, 2022 2021 Change Billable Billable Billable Revenue Subscribers (1) Revenue Subscribers (1) Revenue Subscribers (Revenue in millions and subscribers in thousands) Government services$ 26.5 145$ 25.9 149$ 0.6 (4)
(1)The billable subscriber numbers shown are at the end of the respective period.
We provide airtime and airtime support toU.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 inSeptember 2019 , authorized customers utilize specified Iridium airtime services provided through theU.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, which caused the increase in revenue of$0.6 million compared to the prior year period. 21 --------------------------------------------------------------------------------
Revenue from subscriber equipment
Subscriber equipment revenue increased by$1.1 million , or 4%, for the three months endedSeptember 30, 2022 , compared to the prior year period, primarily due to an increase in the volume of IoT device sales.
Engineering and Support Services Revenue
Three Months Ended September 30,
2022 2021 Change
(In millions)
Commercial engineering and support services $ 1.8 $ 1.3 $ 0.5
Government engineering and support services 15.3 6.2 9.1
Total engineering and support services $ 17.1
Engineering and support service revenue increased by$9.6 million , or 129%, for the three months endedSeptember 30, 2022 , compared to the prior year period, primarily due to increased work under certain government contracts, primarily the contract awarded by theSpace Development Agency , or the SDA. Based on the SDA contract, we expect engineering and support service revenue, as well as associated expenses, to be higher than prior years for the remainder of 2022 and in coming years. Operating Expenses
Cost of services (excluding 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$9.2 million , or 36%, for the three months endedSeptember 30, 2022 from the prior year period, primarily as a result of the increase in work under certain government engineering contracts, as noted above.
Cost of subscriber equipment
The cost of subscriber equipment includes direct costs of equipment sold, which include manufacturing costs, overhead allocation and warranty costs.
Cost of subscriber equipment increased by$2.9 million , or 18%, for the three months endedSeptember 30, 2022 , compared to the prior year period primarily due to an increase in volume of IoT device sales, as noted above. The percentage increase of subscriber equipment costs exceeded the percentage increase in subscriber equipment revenue primarily due to an increase in inventory component costs. Research and Development Research and development expenses increased by$2.1 million , or 73%, for the three months endedSeptember 30, 2022 , compared to the prior year period based on increased spending on device-related features for our network.
Selling, general and administrative expenses
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$6.2 million , or 24%, for the three months endedSeptember 30, 2022 , compared to the prior year period, primarily due to higher management incentive, including equity compensation costs, and increased marketing and travel expenses incurred in the current year quarter as compared to the prior year quarter. We expect selling, general and administrative expense to increase by approximately 20% in 2022 primarily related to stock compensation costs.
Depreciation and amortization
Depreciation and amortization expense remained relatively flat compared to the
prior year period. We anticipate depreciation and amortization expense to remain
relatively consistent from quarter to quarter based on our anticipated capital
expenditures.
22
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Other expenses
Interest expense, net
Interest expense, net was relatively flat at$17.6 million for the three months endedSeptember 30, 2022 , compared to the prior year period. Interest expense increased based on the change in LIBOR, net of the hedging activity, offset by a decrease in third-party financing costs in connection with the repricings in 2021 that did not recur in 2022.
Loss on extinguishment of debt
Loss on extinguishment of debt was$0.9 million for the three months endedSeptember 30, 2021 . DuringJuly 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 current year period.
Income taxes
For the three months endedSeptember 30, 2022 , our income tax benefit was$2.1 million , compared to$1.5 million for the prior year period. The increase in income tax benefit is primarily related to the net impact of (i) pre-tax book income in the current period compared to pre-tax book loss in the prior year period, (ii) a discrete tax benefit associated with theU.S. provision-to-return adjustment in the current period compared to a discrete tax expense in the prior year period, and (iii) an increased stock compensation tax benefit.
Net profit (net loss)
The net income was
Comparison of Our Results of Operations for the Nine Months EndedSeptember 30, 2022 and 2021 Nine Months Ended September 30, % of Total % of Total Change ($ in thousands) 2022 Revenue 2021 Revenue Dollars Percent Revenue: Services$ 397,947 76 %$ 365,247 79 %$ 32,700 9 % Subscriber equipment 95,462 18 % 72,607 16 % 22,855 31 % Engineering and support services 33,789 6 % 20,759 5 % 13,030 63 % Total revenue 527,198 100 % 458,613 100 % 68,585 15 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 83,796 16 % 71,784 16 % 12,012 17 % Cost of subscriber equipment 60,382 11 % 41,243 9 % 19,139 46 % Research and development 10,470 2 % 8,156 2 % 2,314 28 % Selling, general and administrative 86,905 17 % 72,524 16 % 14,381 20 % Depreciation and amortization 227,739 43 % 229,266 49 % (1,527) (1) % Total operating expenses 469,292 89 % 422,973 92 % 46,319 11 % Operating income 57,906 11 % 35,640 8 % 22,266 62 % Other expense: Interest expense, net (46,989) (9) % (58,013) (13) % 11,024 (19) % Loss on extinguishment of debt - - % (879) - % 879 (100) % Other expense, net (374) - % (225) - % (149) 66 % Total other expense, net (47,363) (9) % (59,117) (13) % 11,754 (20) % Income (loss) before income taxes 10,543 2 % (23,477) (5) % 34,020 (145) % Income tax benefit (expense) (1,013) - % 20,042 4 % (21,055) (105) % Net income (loss) $ 9,530 2 %$ (3,435) (1) %$ 12,965 (377) % 23
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Revenue
Commercial Service Revenue
Nine Months Ended September 30,
2022 2021 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$ 143.6 401$ 41 $ 130.4 372$ 40 $ 13.2 29$ 1 IoT data 92.8 1,412 7.92 82.0 1,156 8.60 10.8 256 (0.68) Broadband (3) 37.2 14.7 297 31.5 13 284 5.7 1.7 13 Hosted payload and other data 44.8 N/A 43.9 N/A 0.9 N/A Total commercial services$ 318.4 1,828$ 287.8 1,541$ 30.6 287
(1)The 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 includes Iridium OpenPort and Iridium Certus broadband services.
For the nine months endedSeptember 30, 2022 , total commercial services revenue increased$30.6 million , or 11%, from the prior year period primarily as a result of increases in voice and data, IoT and broadband mainly driven by increases in billable subscribers. Commercial voice and data revenue increased$13.2 million , or 10%, from the prior year period primarily due to an increase in volume across all voice and data services. Commercial IoT revenue increased$10.8 million , or 13%, for the nine months endedSeptember 30, 2022 , compared to the prior year period, driven by a 22% increase in IoT billable subscribers primarily due to continued strength in personal communications devices. The subscriber increase effect on revenue was partially offset by a 8% reduction in IoT ARPU, primarily due to the shifting mix of subscribers using lower ARPU plans, including the increased proportion of personal communication subscribers. Commercial broadband revenue increased$5.7 million , or 18%, for the nine months endedSeptember 30, 2022 , compared to the prior year period, due to the increase in broadband billable subscribers and an increase in ARPU associated with the increase in the mix of subscribers utilizing higher ARPU Iridium Certus broadband plans. Government Service Revenue Nine Months Ended September 30, 2022 2021 Change Billable Billable Billable Revenue Subscribers (1) Revenue Subscribers (1) Revenue Subscribers (Revenue in millions and subscribers in thousands) Government services$ 79.5 145$ 77.4 149$ 2.1 (4)
(1)The billable subscriber numbers shown are at the end of the respective period.
We provide airtime and airtime support toU.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 inSeptember 2019 , authorized customers utilize specified Iridium airtime services provided through theU.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, which caused the increase of$2.1 million compared to the prior year period. 24 --------------------------------------------------------------------------------
Revenue from subscriber equipment
Subscriber equipment revenue increased by$22.9 million , or 31%, for the nine months endedSeptember 30, 2022 , compared to the prior year period, primarily due to an increase in the volume of all device sales.
Engineering and Support Services Revenue
Nine Months Ended September 30,
2022 2021 Change
(In millions)
Commercial engineering and support services $ 4.3 $ 3.0 $ 1.3
Government engineering and support services 29.5 17.8 11.7
Total engineering and support services $
33.8
Engineering and support service revenue increased$13.0 million , or 63%, for the nine months endedSeptember 30, 2022 compared to the prior year period primarily due to increased work under certain government projects, including the SDA contract noted above. Based on the SDA contract, we expect engineering and support service revenue, as well as associated expenses, to be generally higher than prior years for the remainder of 2022 and in coming years.
Functionnary costs
Cost of services (excluding depreciation and amortization)
Cost of services (exclusive of depreciation and amortization) increased by$12.0 million , or 17%, for the nine months endedSeptember 30, 2022 from the prior year period, primarily as a result of an increase in work under certain government engineering contracts, as noted above, and higher satellite operation costs. Cost of Subscriber Equipment Cost of subscriber equipment increased by$19.1 million , or 46%, for the nine months endedSeptember 30, 2022 compared to the prior year period primarily due to an increase in volume of all device sales, as noted above. The percentage increase of subscriber equipment costs exceeded the percentage increase in subscriber equipment revenue primarily due increased inventory component costs and a change in mix. Research and Development Research and development expenses increased by$2.3 million , or 28%, for the nine months endedSeptember 30, 2022 compared to the prior year period based on increased spending on device-related features for our network.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by$14.4 million , or 20%, for the nine months endedSeptember 30, 2022 compared to the prior year period, primarily due to higher management incentive, including equity compensation costs and increased marketing and travel expenses incurred in the current year period as compared to the prior year period. We expect selling, general and administrative expense to increase by approximately 20% in 2022 primarily related to stock compensation costs.
Depreciation and amortization
Depreciation and amortization expense remained relatively flat compared to the prior year period. 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$11.0 million for the nine months endedSeptember 30, 2022 compared to the prior year period. The decrease resulted primarily from decreases in the interest rate on our Term Loan as a result of the repricings inJanuary 2021 andJuly 2021 . As the repricing events occurred in 2021, third-party financing costs decreased$3.6 million in the current year.
Loss on extinguishment of debt
Loss on extinguishment of debt was$0.9 million for the nine months endedSeptember 30, 2021 . DuringJuly 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 current year period. 25 --------------------------------------------------------------------------------
Income taxes
For the nine months endedSeptember 30, 2022 , our income tax expense was$1.0 million , compared to income tax benefit of$20.0 million for the prior year period. The increase in income tax expense is primarily related to the net impact of (i) pre-tax book income in the current period compared to pre-tax book loss in the prior year period, (ii) the net impact of a discrete state tax benefit associated with a state apportionment change in the prior year period, (iii) a decreased stock compensation tax benefit, and (iv) a discrete tax benefit associated with theU.S. provision-to-return adjustment in the current period compared to a discrete tax expense in the prior year period.
Net profit (net loss)
The net income was
Cash and capital resources
InNovember 2019 andFebruary 2020 , we borrowed a total of$1,650.0 million in aggregate principal amount under a term loan with Deutsche Bank AG, or the Term Loan, with an accompanying$100.0 million revolving loan available to us, or the Revolving Facility. Both facilities are under a credit agreement with the lenders, or the Credit Agreement. As repriced to date, the Term Loan bears interest at an annual rate of LIBOR plus 2.50%, with a 0.75% LIBOR floor. All other terms of the Term Loan remain the same as before the repricings, including maturity inNovember 2026 . The interest rate on the Revolving Facility is LIBOR plus 3.75% with no LIBOR floor, and the Revolving Facility has a maturity date in November 2024. See Note 5 to our condensed consolidated financial statements included in this report for further discussion of the Term Loan and Revolving Facility. As ofSeptember 30, 2022 , we reported an aggregate balance of$1,608.8 million in borrowings under the Term Loan, before$19.8 million of net deferred financing costs, for a net principal balance of$1,589.0 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 ofSeptember 30, 2022 . 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 (as defined in the Credit Agreement), 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 permits repayment, prepayment, and repricing transactions. 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. As ofDecember 31, 2021 , our leverage ratio was below the specified level, and we were not required to make a mandatory prepayment with respect to 2021 cash flows. We entered into an interest rate cap agreement, or the Cap, that began inDecember 2021 . The Cap manages 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 1.5%. Under the Cap, we pay a fixed monthly premium at an annual rate of 0.31%. The Cap carried a notional amount of$1,000.0 million as ofSeptember 30, 2022 . The Cap is designed to mirror the terms of the Term Loan and to offset the cash flows being hedged. We designated the Cap as a cash flow hedge of the variability of the LIBOR-based interest payments on the Term Loan. The effective portion of the Cap's change in fair value will be recorded in accumulated other comprehensive income (loss) and will be reclassified into earnings during the period in which the hedged transaction affects earnings. See
Note 6 to our condensed consolidated financial statements included in this report for further discussion of the cap and our prior derivative financial instruments.
From
From
26 -------------------------------------------------------------------------------- investing activities during the nine months endedSeptember 30, 2022 , offset by internally generated cash flows. We also had$100.0 million of borrowing availability under our Revolving Facility. In addition to the Revolving Facility, our principal sources of liquidity are internally generated cash flows. Other than the purchase obligation noted above, our principal liquidity requirements over the next twelve months are primarily (i) required principal and interest on the Term Loan, which we expect to be$16.5 million and, based on the current interest rate, approximately$70.0 million , respectively, (ii) capital expenditures of approximately$75.0 million , depending on costs in connection with the potential launch of ground spare satellites, and (iii) working capital. In our discretion, we may also make share repurchases under the share repurchase program described in Note 8 to the financial statements included in this report, although we have no obligation to do so.
We estimate that our sources of liquidity will provide us with sufficient funds to meet our liquidity needs for at least the next 12 months.
Our significant long-term cash requirement is the repayment of the remaining principal amount under the term loan when it matures in 2026, which is expected to be
Cash Flows
The following table summarizes our cash flows:
Nine Months Ended September 30,
2022 2021 Change
(In thousands)
Cash provided by operating activities $ 254,458 $ 213,137 $ 41,321
Cash used in investing activities $ (94,756) $ (23,744) $ (71,012)
Cash used in financing activities $
(263,793)
Cash flow generated by operating activities
Net cash provided by operating activities for the nine months endedSeptember 30, 2022 increased$41.3 million from the prior year period. Net income (loss), as adjusted for non-cash activities, improved by$43.8 million over the prior year, as a result of improved profitability and an increase in non-cash activities. This was offset by a decrease in working capital of approximately$2.5 million . Cash flows from working capital decreased primarily related to an increase in raw material inventory as we experienced component shortages which are awaiting production. Working capital also decreased because of an increase in accounts receivable due to increased sales across all revenue types. These changes in working capital were offset by changes in deferred revenue related to timing of scheduled payments fromAireon and accounts payable related to the increase in work under certain government projects.
Cash flows used in investing activities
Net cash used in investing activities for the nine months endedSeptember 30, 2022 increased by$71.0 million as compared to the prior year period due to the$50.0 million investment inAireon (see Note 12 ) and increased capital expenditures. We continue to expect our capital expenditures to average approximately$40.0 million per year until 2029, exclusive of any costs we may incur to launch our ground spares.
Cash flows used in financing activities
Net cash used in financing activities for the nine months endedSeptember 30, 2022 increased by$124.1 million compared to the prior year period primarily due to an increase in cash used for the repurchases of our common stock in 2022 as compared to 2021 (see Note 8 ) .
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.
Significant 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 inthe United States , orU.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 27 -------------------------------------------------------------------------------- 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 and estimates from those described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC onFebruary 17, 2022 .
Recent accounting pronouncements
Refer to Note 2 of our condensed consolidated financial statements for a complete description of recent accounting pronouncements and recently adopted pronouncements.
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