Whitney Tilson, Managing Partner, T2 Partners.

1. An Overview of the Housing and Economic Crisis,
Why There Is More Pain to Come,
and Two Investment Ideas
By Whitney Tilson, Managing Partner
T2 Partners LLC and Tilson Mutual Funds
Value Investing Forum 2009
Mexico City
December 8, 2009
The latest version of this presentation is regularly updated at www.valueinvestingcongress.com

2. Background on the U.S. Housing Market

3. Private Label Mortgages (Those Securitized by
Wall St.) Are 15% of All Mortgages, But Account
for 28% of Nonperforming Mortgages
Approximately two-thirds of homes – 56 million – have mortgages, worth a total of $11 trillion
15% of the mortgages that were
sent to Wall Street account for 28%
Private Label of the nonperforming loans
Universe
$1.7T
Unsecuritized
$4.0T
Agency MBS
$5.2T
Source: Inside Mortgage Finance.
3

4. More Than 14% of Mortgages on 1-to-4 Family Homes
Were Delinquent or in Foreclosure as of Q3 2009
16%
14%
Percentage of Home Loans
12%
10%
8%
6%
4%
Source: National Delinquency Survey, Mortgage Bankers Association; T2 Partners estimates. Note: Delinquencies (30+ days) are seasonally adjusted.
4

5. All Types of Loans Are Seeing a Surge in
Delinquencies, Led by Subprime
45%
Alt A
Option ARM
40%
Jumbo
Subprime
35% Prime
Home Equity Lines of Credit
30%
Percent Noncurrent
25%
20%
15%
10%
5%
0%
Q 99
Q 99
Q 00
Q 00
Q 01
Q 01
Q 02
Q 02
Q 03
Q 03
Q 04
Q 04
Q 05
Q 05
Q 06
Q 06
Q 07
Q 07
Q 08
08
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
Q
Sources: Amherst Securities, LoanPerformance; National Delinquency Survey, Mortgage Bankers Association; FDIC Quarterly Banking Profile;
T2 Partners estimates. Note: Prime is seasonally adjusted. 5

6. The Mortgage Crisis is Shifting From One in
Which Defaults Are Driven by Resets to Borrowers
Losing Their Jobs and/or Going Underwater
60% ($250,000)
2006 Origination California Mortgages
Example:
Equity Relative to First Lien ($200,000)
First-lien (Right Axis Inverted)
50%
mortgages in
Cumulative Default (Left Axis) ($150,000)
California that
were originated in
Equity Relative To First Lien ($)
Cumulative Default %
2006 went from 40% ($100,000)
$165,000 of
equity to an ($50,000)
average negative 30%
equity of $0
$149,000 by
Sept. 2009. 20% $50,000
The cumulative
default rate $100,000
tracked this loss 10%
of equity, rising $150,000
from 1.0% to
48.5%. 0% $200,000
Jul-07
Nov-07
Jul-08
Nov-08
Jul-09
Jan-07
May-07
Jan-08
May-08
Jan-09
May-09
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Sources: Amherst Securities. 6

7. The Mortgage Meltdown Has Moved
Beyond Subprime to Five Other Areas
Prime Mortgage
Commercial Real Estate
Alt-A
Other Corporate
Commercial & Industrial
Subprime
Subprime is only a small
High-Yield / Leveraged Loans
part of the problem
Jumbo Prime
Home Equity
Credit Card
Auto
Option ARM
Construction & Development
Other Consumer
CDO/ CLO
$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
Amount Outstanding (Trillions)
Sources: Federal Reserve Flow of Funds Accounts of the United States, IMF Global Financial Stability Report October 2008, Goldman Sachs Global Economics
Paper No. 177, FDIC Quarterly Banking Profile, OFHEO, S&P Leverage Commentary & Data, T2 Partners estimates. 7

8. Delinquencies of Prime and Alt-A
Mortgages Are Soaring
Source: New York Times, 5/24/09.
8

9. Foreclosure Filings Have Increased
Dramatically
• 332,292 foreclosure filings during October were down 3% sequentially and up 19% year-over-year.
• 1.2% of all U.S. housing units (one in 84) received at least one foreclosure filing in the first half of this year.
400,000
350,000
300,000
Number of Foreclosures
250,000
200,000
150,000
100,000
50,000
0
Note: Foreclosure filings are defined as default notices, auction sale notices and bank repossessions.
Source: RealtyTrac.com U.S. Foreclosure Market Report. 9

10. The Delinquency and Foreclosure Problem
Has Spread Far Beyond the Bubble States
Source: LPS Applied Analytics, WSJ 10/22/09.
10

11. Two Waves of Losses Are Behind Us…
But Three Are Looming
Losses Mostly Behind Us
• Wave #1: Borrowers committing (or the victim of) fraud, as well as
speculators, who defaulted quickly. Timing: beginning in late 2006 (as
soon as home prices started to fall) into 2008. Mostly behind us.
• Wave #2: Mostly subprime borrowers who defaulted when their
mortgages reset due to payment shock. Timing: early 2007 (as two-
year teaser subprime loans written in early 2005 started to reset) to the
present. Now tapering off as low interest rates mitigate payment shock.
Losses Mostly Ahead of Us
• Wave #3: Prime loans (most of which are owned or guaranteed by the
GSEs) defaulting due to job loss and home price declines (i.e.,
underwater homeowners). Timing: started to surge in early 2008 to the
present.
• Wave #4: Jumbo prime, second lien and HELOCs (most of which are
on banks’ books) defaulting due to job loss and home price declines/
underwater homeowners. Timing: started to surge in early 2008 to the
present.
• Wave #5: Losses among loans outside of the housing sector, the
largest of which will be in the $3.5 trillion area of commercial real estate.
Timing: started to surge in early 2008 to the present.
11

12. Why Won’t the System Collapse Again?
Given that the three looming waves are much larger than the two that are mostly behind us, why
won’t they trigger a collapse of our financial system similar to what happened in late 2008?
Answer: Last year’s collapse was triggered in part by the magnitude of the losses, but also
because of the suddenness. Financial institutions can withstand even large losses if they trickle in over
time because they can offset losses each quarter with profits earned during the quarter – but this isn’t
possible if losses are sudden.
The suddenness of last year’s losses was due in part to rapidly rising defaults, especially among
subprime mortgages, but in fact, realized losses were still quite low. The real culprit was the fact that
most subprime loans had been securitized into RMBSs and CDOs, turning them into tradable debt
instruments.
According to GAAP accounting rules, traded instruments like stocks and bonds have to be marked
to market, and in only a few months in 2008, the market price for hundreds of billions of dollars of AAA-
rated RMBS and CDO securities went from close to 100 cents on the dollar to the 20-30 cent range
(even though the underlying pools of mortgages hadn’t yet realized much in the way of losses). This
required every institution holding these securities to immediately book enormous losses, which caused
many of them to collapse.
Why did Merrill Lynch, Citigroup, Lehman and Bear Stearns fall, but Wells Fargo didn’t? Because
Wells had almost nothing on its balance sheet that had to be marked to market.
Big mark to market losses are now behind us, so it’s unlikely that there will be any sudden shocks
to the system. Instead, hundreds of billions of dollars of additional losses from trillions of dollars of bad
loans will be realized over many, many years.
This is both good news and bad news: the good news is that while future losses will surely
bankrupt many banks, especially smaller ones exposed to commercial real estate, they likely won’t
threaten the system because banks are earning so much money currently that most should be able to
outrun their losses.
The bad news is that very high losses will plague our financial system for many years to come –
our best guess is current extremely high levels for another two years, and then slowly declining for three
more years before finally returning to normal levels in five years. This drip torture of high losses every
quarter, year after year, will likely keep banks extremely cautious in their lending, making robust
economic growth unlikely. 12

13. Current Status of the Housing Market

14. Existing Homes Sales Have Risen in Recent Months, Leading
to a Decline in Inventory – But Inventory Is Still Well Above
Historical Levels – And Shadow Inventory Lurks
Annualized Rate of Existing Home Sales Months Supply
7.5 12
11
7.0
10
6.5
9
3.6 million units, equal to 7.0 months
6.0 8 as of the end of October 2009
Millions
Months
5.5 7
6
5.0 6.1 million units as of the
end of October 2009 5
4.5
4
4.0 3
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Actual inventory levels are significantly higher due to “shadow inventory.” “As of July, mortgage companies
hadn't begun the foreclosure process on 1.2 million loans that were at least 90 days past due…An
additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the
lender hadn't yet acquired the property…Moreover, there were 217,000 loans where the borrower hadn't
made a payment in at least a year but the lender hadn't begun the foreclosure process. In other words, 17%
of home mortgages that are at least 12 months overdue aren't in foreclosure, up from 8% a year earlier.”
Source: NATIONAL ASSOCIATION OF REALTORS® Existing Home Sales data series; estimates prepared for The
Wall Street Journal by LPS Applied Analytics, WSJ, 9/23/09 14

15. Defaults Are Massively Outpacing
Liquidations, So the Inventory
Overhang Continues to Worsen
First time defaults
Liquidations
Note: This data is based on approximately 28 million loans. Total first-time defaults are running at 300,000/month.
Source: First American CoreLogic Loan-Level Servicing Data, Amherst Securities. 15

16. The Current “Housing Overhang” Is 7 Million Homes –
Which Doesn’t Include Any New Defaults, Which Are
Running at Approximately 300,000/Month!
Source: Mortgage Bankers Association, Loan Performance, Amherst Securities.
16

17. Outlook for Housing Prices

18. Home Prices Were in an Unprecedented
Freefall Until A Slight Bounce in Q209
220
S&P/Case-Shiller U.S. National Home Price Index
S&P/Case-Shiller 20-City Composite
OFHEO Purchase-Only Index
200
NAR Median Sales Price of Existing Homes
180
160
140
120
100
00
00
Q 01
Q 01
Q 02
Q 02
Q 03
Q 03
Q 04
Q 04
Q 05
Q 05
Q 06
Q 06
Q 07
Q 07
Q 08
Q 08
09
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
Q
Q
Q
Sources: Standard & Poor’s, OFHEO Purchase-Only Index, NATIONAL ASSOCIATION OF REALTORS® Existing Home Sales data series.
18

19. Home Prices Look Affordable Due to Price
Declines and Ultra-Low Interest Rates
800
CASE SHILLER USA (1975 = 100)
Modeled Home Prices - Interest Only
700 Modeled Home Prices - 30yr Fully Amortizing
600
500
Index Value
400
300
200
100
0
Date
S C Shill B fL b St ti ti Bl b A h tS iti
Source: Case-Shiller, Bureau of Labor Statistics, Amherst Securities.
19

20. Another Wave of Resetting Loans Is On the Horizon
The Last Wave Was Driven By Subprime Loans;
This Time, It Will be Option ARMs
Option ARM Alt A Prime Subprime
20
We are
Total Loan Balance ($Bil)
here
15
10
5
0
Source: Loan Performance, Amherst Securities.
20

21. Banks Are Selling Their REO, But
Foreclosures Have Plunged By More Than
Half, Ballooning the Inventory Pipeline
25%
Monthly Roll Rates
Non-Performing to Foreclosure
20%
REO to Liquidation
Monthly Roll Rates (%)
15%
10%
5%
Foreclosure to REO Inventory Pipeline
0% 1,400,000
1,200,000
90 Days & Foreclosure
1,000,000
Non Performing to Foreclosure Foreclosure to REO REO to Liquidation
800,000
600,000
400,000
REO
200,000
0
REO 90 Days PLUS Foreclosure
Source: Loan Performance, Amherst Securities.
21

22. One Third of All New Single Family Home
Sales Are Financed With FHA or VA Loans
Number of FHA Loans Insured
FHA/VA Share of New SF Home Sales
40%
35%
30%
25%
20%
15%
10%
5%
0%
19 1
19 1
19 1
19 1
19 1
19 1
19 1
19 1
19 1
19 1
19 1
20 1
20 1
20 1
20 1
20 1
20 1
20 1
20 1
20 1
20 1
1
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
19
Source: HUD/FHA, through August 31, 2009, NY Times, 10/8/09; Commerce Department through Q3 09.
22

23. FHA’s Loan Book Is a Rapidly Growing Disaster
17.9% of Loans Are in Some Stage of Default;
For 2007 Loans, It’s 32.4%
Source: HUD/FHA, through August 31, 2009, NY Times, 10/8/09.
23

24. Existing Home Sales Are Highly Seasonal
Source: National Association of Realtors.
24

25. Existing Home Sales Are Highly Seasonal
HPA Seasonality Coefficient -- Deviation From Mean
Source: National Association of Realtors.
25

26. Home Prices Increased Every Month
From May-September…
Sequential Home Prices March 2005-September 2009
2.0%
1.5%
1.0%
0.5% September 2009:
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
Source: S&P Case-Shiller 20-city index.
26

27. …But They Always Bounce in the Spring
and Summer!
Sequential Home Prices February 2000-September 2009
3.0%
2.0%
1.0%
0.0%
-1.0% Red circles represent April -
June each year
-2.0%
-3.0%
-4.0%
Source: S&P Case-Shiller 20-city index.
27

28. Current Economic Situation

29. There Have More Than 8 Million Jobs Lost So Far in This
Recession, Though the Monthly Rate of Losses Has Eased
in Recent Months to Only -11,000 in November
150,000 jobs/month are required to absorb
600
new entrants to the workforce and prevent
unemployment from rising
400
Change in Nonfarm Payroll Employment (000s)
200
0
-200
-400
-600
There have been job
-800
losses every month
since December 2007
-1000
Source: Bureau of Labor Statistics.
29

30. The Unemployment Rate Continues to Rise,
Reaching 10.0% in November, Though This is
Down from 10.2% in October
If part-time and discouraged workers are factored in, the unemployment rate would have been
17.2% in November. The labor force participation rate was 65.0%, the lowest in 22 years. Finally,
the average work week is 33.2 hours. While this is up from 33.0 hours in October, to return to
the average of 33.8 hours would be the equivalent of more than two million new jobs not created.
11%
10%
9%
Unemployment Rate
8%
7%
6%
5%
4%
3%
Source: Bureau of Labor Statistics. 30

31. Chronic Unemployment Is Skyrocketing
38.3%
Source: Labor Department, WSJ, 10/3/09. 31

32. 5.3% of All Jobs Have Disappeared, Worse
Than Any Recession Since the Great Depression
1948 1953 1958 1960 1969 1974 1980 1981 1990 2001 2007
-0.5%
-1.5%
-2.5%
-3.5%
-4.5%
2007-
-5.5%
0 6 12 18 24 30 36 42 48
Months after pre-recession peak
Source: Bureau of Labor Statistics.
32

33. Consumer Confidence Has Rebounded
Somewhat But Remains Low
160
140
120
Consumer Confidence Index
100
80
60
40
20
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: 1985=100. Source: The Conference Board (www.pollingreport.com/consumer.htm)
33

34. Mortgage Equity Withdrawals of Roughly $400
Billion Annually During the Peak Bubble Years
Fueled Unsustainable Consumer Spending
Source: www.calculatedriskblog.com/2009/05/mew-consumption-and-personal-saving.html.
34

35. Many Borrowers Used Cash from Refinancings
(Cash-Out Refis) and HELOCs to Buy New Cars
• As home prices have declined and other funding sources have dried up,
millions of consumers have maxed out on home equity debt.
• In hot markets like California and Florida, a significant percentage of all
consumers tapped into the value of their homes to help finance their new
cars, according to CNW Marketing Research.
• Clearly this dynamic does not bode well for HELOC recovery rates or new
car sales.
Source: New York Times 5/27/2008.
35

36. Total Consumer Credit Is Falling Sharply
Total Amount of Revolving and Nonrevolving Total Consumer Credit Outstanding
Consumer Credit Outstanding (Change From Year Earlier)
Down $119 billion or 4.6% from its peak in 7/08.
Down $12 billion in August, a 5.8% seasonally
adjusted annual rate, the seventh straight month
of declines, the longest stretch since 1991.
Source: Federal Reserve Board, WSJ, 10/9/09.
36

37. The U.S. Savings Rate Hit a 15-Year High of 6.9%
in May, but Fell to 3.0% in August
This is good news in the long run, but could be a severe economic headwind in
the short run, given that consumer spending is 2/3 of GDP
Peaked
Source: Paul Kedrosky’s blog, 6/26/09; http://paul.kedrosky.com/archives/2009/06/the_black_swan.html; www.bea.gov/newsreleases/national/pi/2009/pi0709.htm.
37

38. Household Liabilities as a Percentage of
Disposable Income Remains Very High
Peak: 138%
2000: 101%
1991: 90%
Peaked
Today: 122%
Source: U.S. Federal Reserve, WSJ, 10/13/09, 12/8/09.
38

39. Where We Are Finding Opportunities
Seven Months Ago, We Were Playing Offense; Now We’re Playing
Defense, As We Trim Our Longs, Add to Our Shorts and Shift
Our Longs Toward Large, Dominant, Cash-Rich Companies
• Blue-chips. The stocks of some of the greatest businesses, with strong balance sheets and dominant
competitive positions, are trading at their cheapest levels in years – due primarily to the overall market
decline and weak economic conditions rather than any company-specific issues. In this category, we’d
put Wal-Mart (which we own), Coca-Cola, McDonald’s, Altria, ExxonMobil, and Johnson & Johnson.
• Out of favor blue-chips. For somewhat more adventurous investors looking to buy great companies in the
most out-of-favor sectors such as financials, retailers and healthcare, we own Berkshire Hathaway, Wells
Fargo, American Express, Target and Pfizer. We also own Microsoft and Yahoo!. All are great
businesses, but their stocks have suffered mightily thanks to the economic downturn. We think they’re
good bets to rebound when things stabilize.
• Balance sheet plays. For investors who are comfortable with lower-quality businesses but want downside
protection, there are many companies trading near or even below net cash on the balance sheet.
Examples in our portfolio include digital media equipment company EchoStar Corp. and clothing retailer
dELiA*s. Berkshire is the best of both worlds: a premier company but also a balance sheet play.
• Turnarounds. There are countless companies that have gotten clobbered by the economic downturn and
are reporting dismal results – with stock prices to match. Investors in those that survive and return to
anything close to former levels of profitability will be well rewarded – but picking these stocks isn’t easy.
Among our holdings in this category are Wendy’s restaurants, Winn-Dixie supermarkets, Huntsman, a
specialty chemical maker, Crosstex, a pipeline company, and Resource America, a specialty finance
company.
• Special situations. This is somewhat of a catch-all category that, for us, includes Contango Oil & Gas, a
stock that’s declined due to an aborted attempt to sell the company and the sharp drop in the price of
natural gas.
• Mispriced options. Every once in a while we take a tiny position in a highly speculative situation – often
where the stock price is below $1 – in which there’s a real chance that the outcome is zero, but also a
decent chance, in our opinion, of making many multiples of our money. On an expected value basis,
therefore, a small portfolio of such investments is attractive. Our holdings include a number of stocks and
warrants of Special Purpose Acquisition Companies (SPACs), General Growth Properties, TravelCenters
of America, Ambassadors International, Borders Group and PhotoChannel Networks.
39

40. Investment Idea #1
Short the Homebuilders Via the
iShares Dow Jones US Home Construction ETF (ITB)

41. Housing Starts, Completions and Sales
Are At or Near All-Time Lows
2000
Starts
Completions
1800
New Homes Sold
Seasonally Adjusted Annual Rate (000s)
1600
1400
A slight
1200
rebound in
1000 starts and
sales in
800 recent
months
600
400
200
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Source: Commerce Department, data through 9/09.
41

42. Ja Median Age (months)
n-
9
2
4
6
8
10
12
14
Ja 0
n-
9
Ja 1
n-
9
Source: Census Bureau, through 8/09.
Ja 2
n-
9
Ja 3
n-
9
Ja 4
n-
9
Ja 5
n-
9
Ja 6
n-
9
Ja 7
n-
9
Ja 8
n-
9
Ja 9
n-
0
Ja 0
n-
0
Ja 1
n-
0
Ja 2
n-
0
Ja 3
n-
0
Ja 4
n-
0
Ja 5
n-
0
Ja 6
The Average New Home Has Been on the Market for 12.9 Months
n-
0
Ja 7
n-
0
There Is an Enormous Inventory Glut of New Homes
Ja 8
n-
09
42

43. Vacant Housing Stock Creates an
Enormous Inventory Overhang
1.1-1.5 million excess units, equal to
2-3 years of existing home sales
Source: Census Bureau
Source: Census Bureau, Moody’s Economy.com.
43

44. Nearly 6% of Homes Built This Decade
Are Vacant
Vacancy Rate By Date of Construction
5.9%
2.0%
March 2000 or earlier April 2000 to present
Source: Census Bureau
Source: Census Bureau, through Q4 2008.
44

45. Unlike Past Housing Downturns, New Home Sales
Have Fallen Far More Than Existing Home Sales
A slight
rebound
New homes from March-
sales fell 76% August
from the peak;
still down 69%
through August
Source: National Assoc. of Realtors (existing sales) and Census Bureau (new sales), both via Haver Analytics; chart from the New York Times, 6/27/09;
manually updated through 8/09. 45

46. Debt-to-Equity Ratio of
Major Homebuilders
1.97 6.76
2.0
1.5 1.40
0.99
1.0
0.59 0.64
0.53 0.55
0.48
0.5
0.26
0.17
0.00 0.00
0.0
-0.5
-11.98
NVR MDC TOL RYL MTH DHI LEN MHO PHM BHS KBH SPF BZH HOV
Source: Census Bureau
Source: Company filings.
46

47. Inventory-to-Equity Ratio of
Major Homebuilders
4.0 8.74
3.5 3.37
3.12
3.0
2.5
2.10
2.0 1.80 1.71
1.50 1.56 1.55 1.46
1.5 1.33
1.0
0.50
0.5 0.30
0.0
-0.5
NVR MDC TOL RYL MTH DHI LEN MHO PHM BHS KBH SPF BZH HOV
-12.89
Source: Census Bureau
Source: Company filings.
47

48. Price-to-Book Ratio of
Major Homebuilders
3.0
2.69
2.43
2.5
1.97
2.0
1.76
1.62
1.55
1.5 1.41 1.37
1.21 1.27
1.08
1.0
0.70
0.5 0.39
0.0
-0.5
NVR MDC TOL RYL MTH DHI LEN MHO PHM BHS KBH SPF BZH HOV
-3.09
Source: Census Bureau
Source: Company filings.
48

49. Investment Idea #2
Iridium (IRDM)

50. Overview
• Iridium is the world’s only communication provider with the ability to provide
real-time voice and data communications over 100% of the earth’s service by
virtue of the company’s 66-satellite low-earth orbit (LEO) constellation. In
addition, Iridium is one of the few satellite operators with the ability to provide
effective voice, machine-to-machine (M2M), and high-speed data services.
• One of two major players in Global Satellite Communications industry
• Single subscriber device works worldwide
• Motorola spent $5 billion launching satellites in late 1990s
• Filed for bankruptcy in 1999 with only 50,000 customers due to too much
debt and clunky phones that didn’t work inside buildings
50

51. Iridium Serves Many Different Markets
Source: Company presentation, 6/09.
51

52. A Highly Attractive Business
• Growing market share in a growing industry
• Huge barriers to entry
• US Department of Defense is an anchor customer (23% of
revenues in Q3 ‘09)
• Very high and rapidly expanding margins
• New products and applications
52

53. Iridium’s Market Share Has Grown Rapidly
Source: Company presentation, 9/08.
53

54. Iridium Has Shown Extraordinary Growth in
Subscribers
Up 16% YOY in Q3 ’09 to 359,000 subscribers
Source: Company filings.
54

55. Iridium Has Shown Extraordinary Growth in
Revenue and Operational EDITDA
In Q3 ’09, revenue declined 4% due to weak equipment sales,
but Operational EBITDA rose 28%.
Source: Company filings.
55

56. Subscriber Growth Has Been Driven by
Commercial and Machine-to-Machine
Source: Stifel Nicolaus, company filings.
56

57. Iridium’s Stock Has Tumbled Since It Began
Trading in Late September
Source: BigCharts.com.
57

58. Why Is Iridium Out of Favor?
• SPAC structure
– Many SPAC shareholders were just in it for the cash payout
upon consummation of a deal and are now selling
• Many warrant owners are shorting the stock
– Iridium tried to mitigate technical issues:
• Retired 30.5 million $7 warrants
• Issued 16 million new shares
• Repurchased15.9 million shares
• Large future funding requirement for Iridium NEXT
• Dismal record of early telecom satellite networks
• Prior bankruptcy
58

59. Iridium Came Public Via a SPAC
Transaction
• SPACs have very poor track records in general
• But Iridium was acquired by a SPAC (Special Purpose
Acquisition Company) controlled by Greenhill, a top
quality private equity sponsor
• The deal price was negotiated during the market
meltdown last fall (deal was announced 9/23/08), then the
price was reduced in April and warrant dilution was cut
back in July
59

60. Iridium NEXT
• Current satellite constellation will need to be replaced starting
in 2014
– Backwards compatible (existing customers will not need to
replace equipment)
– Improved capacity and data rates
• Total cost: $2.7 billion
– Satellites: $1.9 billion
– Launch: $0.6 billion
– Other: $0.2 billion
• Funding
– Internally generated cash flow
– Debt
– Equity
– Revenue offsets (hosted payloads)
60

61. Iridium’s Cap Ex Requirements Will Rise to
Fund Iridium Next, and Then Fall
Source: Stifel Nicolaus estimates.
61

62. Iridium Should Be Able to Fund Iridium NEXT From
Cash Flow, Hosted Payloads and Warrant Conversion
Source: Raymond James estimates.
62

63. Valuation
Share price (12/7/09): $7.97
Shares outstanding: 68.2 million
$7 warrants 13.5 million
$11.50 warrants 14.4 million
Market cap: $543 million
Less cash: $94 million
Enterprise value: $449 million
2009 EBITDA (E) $126-130 million
EV/EBITDA: 3.6x
63

64. Iridium’s Operational EBITDA is Projected
to Double in Only Three Years
Source: Raymond James estimates.
64

65. We Expect a Mid-20% IRR on This
Investment for Many Years to Come
Stock Price Based on EV/EBITDA Multiples
Multiple 2016 2017 2018
8 $25.36 $31.20 $37.77
9 $29.05 $35.22 $42.10
10 $32.74 $39.25 $46.43
IRR
Multiple 2016 2017 2018
8 21% 21% 24%
9 23% 23% 26%
10 26% 25% 28%
Source: T2 Partners estimates.
65

66. Drivers of Stock Price Appreciation
• Low current valuation multiple (40% discount to closest public comp,
Inmarsat)
• Rapid growth in earnings
• Removal of legacy SPAC investors
• Warrant holders finish hedging (shorting the stock)
• Removal of uncertainty overhang related to future capital
expenditures
66