Satellite communications specialist Iridium Communications (IRDM -4.82%) has aimed its offerings at business customers who need truly global access to wireless networks, with voice and data services that provide vital links to the rest of the world for its users. Yet some recent setbacks related to rocket company SpaceX have threatened to delay Iridium's key NEXT satellite upgrade program, and coming into Thursday's third-quarter financial report, Iridium investors weren't expecting more than flat performance on its bottom line. For its part, Iridium managed to grow its earnings slightly, and although it now believes the NEXT program might not be finished until 2018, it is still optimistic about its long-range plan. Let's look more closely at how Iridium Communications did and what's ahead for the company.

Image source: Iridium Communications.

Iridium climbs higher

Iridium Communications' third-quarter results were positive from most perspectives. Revenue climbed 6% to $112.8 million, which was slightly faster than the 5% growth rate that most investors were expecting to see. Net income climbed to $31.6 million, up 7% from the year-ago quarter. That produced earnings of $0.26 per share, which topped the consensus forecast among those following the stock by $0.02 per share.

Looking more closely at Iridium's numbers, the company showed fundamental strength. Subscriber counts climbed to 838,000, which was 57,000 higher than it had a year ago, accelerating the pace of its gains. The company said that government customers were a key source of new subscribers, as well as an increase in demand for machine-to-machine data services. Service revenue, which is the recurring money that comes in from Iridium's subscription services, climbed at an 8% pace, and it still represents more than three-quarters of the company's overall sales.

Yet a closer look at Iridium's different divisions reveals a lack of uniformity in its success. In the commercial service division, revenue gained by just 3%, and subscriber counts for its voice and data services package actually fell from year-ago levels. Machine-to-machine subscriber growth picked up the slack, and that business now brings in well over half of Iridium's revenue from the commercial side.

By contrast, the government service division once again saw much greater growth, with a 22% sales increase coming largely from its airtime services contract with the Defense Information Systems Agency. A 30% rise in machine-to-machine subscriptions helped lift overall counts to 82,000, up 13,000 from a year ago.

CEO Matt Desch was happy about how Iridium fared during the quarter. "Continued strength in commercial [machine-to-machine] demonstrates the power of our network and resilience of our business," Desch said, "even in the face of economic headwinds and industry pressures." The CEO pointed to increased adoption of Internet of Things technology as driving further gains in the business going forward.

What's ahead for Iridium?

Yet one worry that Iridium investors have concerns the NEXT satellite program implementation. A SpaceX launch incident in September has pushed back the timeline for launches, and Iridium says it has 10 satellites at Vandenburg Air Force Base ready to go. Desch said that SpaceX expects to return to launch mode later this year, and although the full deployment of the constellation is likely to fall back to 2018, Iridium still sees its next-generation satellites driving growth in several directions.

In its guidance, Iridium reflected that new reality. For the short term, the company boosted its guidance on service-related sales and pre-tax operating income, expecting service revenue growth of 5% to 6% on operational EBITDA of $250 million to $255 million. Those figures are at the upper end of Iridium's previous ranges. Meanwhile, Iridium took the long-range guidance it had provided for 2018 and moved it out to 2019, anticipating service revenue of $440 million to $465 million once NEXT is fully operational.

Iridium's immediate results are important, and the fact that it outpaced investor expectations is a positive sign of its potential success. Yet the key for Iridium is getting its NEXT network implemented, and unfortunate delays in that implementation will force investors to be even more patient. Iridium needs to move fast enough to avoid seeing advances in communications elsewhere render its new network obsolete, but the company is optimistic that it can overcome that potential obstacle and remain relevant for years to come.