Iridium Remains Confident in Its Long-Term Prospects

By Dan Caplinger Markets Fool.com

Upgrading a satellite communications system is a massive endeavor, and investors in satellite specialist Iridium Communications (NASDAQ: IRDM) have seen how the process can take years to play out. With challenges ranging from preparing satellites for deployment to getting them safely into orbit, the importance of the entire Iridium NEXT project has had investors on the edge of their seats for quite a while.

Continue Reading Below

Coming into Thursday's first-quarter financial report, Iridium investors expected operating results to be mixed, with sluggish sales growth and a slight drop in earnings per share. The company's actual numbers were better than that, but the fact that Iridium kept its long-term future outlook unchanged was even more encouraging for those who believe in the potential that NEXT has. Let's look more closely at Iridium Communications and what its latest results mean for investors going forward.

Image source: Iridium Communications.

Iridium keeps gaining altitude

Iridium Communications' first-quarter results continued to show the water-treading that the company has had to do as it awaits full implementation of Iridium NEXT. Total revenue rose just 0.2% to $104.4 million, which was slower than the roughly 1% growth rate that most investors were looking for from the satellite company. GAAP net income was up by a third to $37.9 million, producing earnings of $0.30 per share, easily topping the $0.20 consensus forecast.

Looking more closely at Iridium's numbers, however, shows one key aspect of the quarter's success. The company recognized a $14.2 million boost to operating income from a one-time gain on a transaction with Boeing (NYSE: BA), in which Iridium brought on more than 180 Boeing employees to give the satellite company more direct management over its network. Without that gain, Iridium would have seen operating income decline from year-ago levels.

Continue Reading Below

Still, Iridium reported relatively solid performance in its core business. Total billable subscribers were up 10% from a year ago to 869,000, with the company citing growth in its machine-to-machine data services business and its offerings to government customers. On the commercial side of the business, service revenue rose 3% on a 1% rise in voice and data subscriber counts. Commercial average revenue per user fell slightly, but data subscriptions continued to gain momentum with outpaced growth compared to traditional voice services. Meanwhile, government service revenue was flat from year-ago levels, but subscriber counts were up sharply on a 21% rise in machine-to-machine data subscriptions.

CEO Matt Desch expressed satisfaction with the company's performance. "Strong subscriber additions in commercial M2M helped to fuel Iridium's service revenue growth during the first quarter," Desch said, and the CEO believes that the satellite provider is in a good position to sustain growth going forward.

What's ahead for Iridium?

Most importantly, Iridium NEXT appears to be going well. In Desch's words, "Our first batch of Iridium NEXT satellites is now operational and working well for Iridium's global base of subscribers." The company expects its second SpaceX launch to happen in late June and remains hopeful about the timeline for full implementation.

As things continue to go well, Iridium kept its guidance roughly unchanged. Service revenue should rise by roughly 3% to 5% this year, and Iridium still expects operational pre-tax operating earnings of $255 million to $265 million. Long-range outlooks include calls for between $440 million and $465 million in service revenue in 2019, with acceptable levels of leverage between now and then.

Iridium investors didn't have a major reaction to the news immediately after the announcement, but that's not surprising because of the long-range nature of Iridium's current business prospects. Once Iridium NEXT has fully taken shape, investors will be in a better position to assess whether the efforts to which the satellite specialist has gone to upgrade its network will pay off with long-term growth in sales and profits.

10 stocks we like better than Iridium Communications
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Iridium Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017

Dan Caplinger owns shares of Boeing. The Motley Fool recommends Iridium Communications. The Motley Fool has a disclosure policy.