Providers of wireless communications have to improve their service constantly, and implementing upgrades for ground-based networks that span millions of square miles takes a huge amount of capital investment. For Iridium Communications (NASDAQ: IRDM), the network enhancement process is even tougher, because satellite networks require risky launches and sophisticated technology to ensure successful integration of new satellites into the network and provide 100% coverage of the entire planet's surface.
Continue Reading Below
Coming into Thursday's second-quarter financial report, Iridium investors knew that recent launches had gone well, but they wanted to see what would happen with the communications company's immediate results. Iridium posted an unexpected rise in sales, and although profit was down from year-ago levels, investors seemed pleased with the progress that the company has made overall. Let's take a closer look at Iridium Communications and what it expects to see in the future.
Liftoff for Iridium
Iridium Communications' second-quarter results reflected how the company is keeping its business going using its existing capacity. Revenue climbed 2% to $111.6 million, which was better than the flat performance that most investors had been looking to see. GAAP net income attributable to common shareholders was down 9% to $24.8 million, but the $0.20 per share in earnings that number produced was better than the consensus forecast for $0.18 per share on the bottom line.
A closer look at the report reveals some more favorable trends. When you compare adjusted pre-tax operating earnings to the previous year's second quarter, Iridium managed to see growth of more than 5%. Higher depreciation expenses and costs related to the NEXT launches weighed on GAAP results, hiding in part the relative strength of Iridium's fundamental business.
Iridium also reported a nice gain in subscriber counts. The company ended the quarter with 913,000 total billable subscribers, up by 90,000 over a year ago and by 44,000 in just the past three months. The commercial service segment posted sharper sales gains of 5%, and a 20% jump in the number of machine-to-machine data subscribers drove the company's overall subscriber gains. Voice and data subscriber counts were up just slightly from year-ago levels, and average revenue per user was flat to down for the period.
Continue Reading Below
The government service segment also showed signs of success. Revenue was roughly flat, but subscriber counts climbed both in voice and data subscriptions and for data services.
CEO Matt Desch was happy with the way that the business is going. "Iridium continued to benefit from its long-term relationships with growth-oriented partners," Desch said, and "we expect strong demand for satellite [Internet of Things] services will drive momentum in our commercial business, especially as we introduce new solutions like Iridium Edge." The CEO also pointed to the growth in commercial data subscriptions as validating the company's business model.
Can Iridium keep improving?
Iridium continues to rely on the NEXT implementation going well. As Desch said, "Our second batch of Iridium NEXT satellites successfully launched in late June and are now completing validation testing." The third launch is expected at the end of September, subject to SpaceX scheduling.
Iridium saw no need to make changes to its guidance. The company still sees gains of 3% to 5% in service revenue this year, with operational pre-tax operating earnings of $255 million to $265 million. Based on completion of Iridium NEXT in 2018, the company expects between $440 million and $465 million in service revenue in 2019, and leverage levels should remain safely within key financial parameters.
Iridium shareholders weren't too surprised by the results, and after an opening rise, the stock fell back to roughly unchanged in the first half hour of trading following the announcement. As the Iridium NEXT implementation progresses, investors should get a better idea of what the company will look like going forward and how much growth potential it has in its future.
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 July 6, 2017