Global telecommunications company Iridium Communications (IRDM 1.40%) turned in another solid business report card for the second quarter of 2017, but Wall Street has reacted negatively thus far. Here's what's up.
Addressing the elephant in the room
Iridium posted revenue of $111.6 million and earnings per share of $0.20 during the quarter that ended in June. That's an increase of 2.2% for the top line but a decrease of 9.1% on the bottom line. While both numbers keep the company on track to meet 2017 guidance, investors perhaps wanted stronger numbers to justify what was a better-than-20% one-year run in the stock price prior to the report.
Data by YCharts.
The growth in revenue was driven by a 4% increase in service revenues – recurring fees that come from a growing number of telecom subscribers – and right in the middle of 2017 expectation for 3% to 5% service revenue growth. Total billable subscriptions were 913,000 compared with 823,000 a year ago and 869,000 at the end of the first quarter.
Those are great numbers and indicate that Iridium's revenue will continue on an uphill slope. As for the falling earnings, much of that can be chalked up to higher depreciation and other operating expenses as the company realizes costs associated with the launch of its new satellite constellation. Nevertheless, it was still a beat on analyst expectations for $0.18 a share.
Iridium helps companies and organizations communicate in hard-to-reach places. Image source: Iridium Communications.
An eye on the prize
About those satellites. Iridium is in the midst of updating its old constellation with a new one dubbed NEXT. Once fully deployed, they will power the company's next-generation global voice service and broadband service called Certus, which is due out in early 2018.
The new-and-improved satellites and the faster data speeds they make possible are also opening up Internet of Things services for the company. Many of the new subscribers are utilizing Iridium's 100% coverage of the globe to track assets and to enable machine-to-machine communications.
Speaking to progress on new satellite deployment, CEO Matthew Desch had this to say:
Satellite replacement continues to go smoother and faster than we've expected. With the recent launch of another 10 Iridium NEXT satellites on June 25, 30% of our 66 new operational satellites are now in orbit. Of the 10 satellites we just launched, 5 are operational and carrying live traffic through our global network and that's a few weeks ahead of schedule. So that brings the total number of completely operational Iridium NEXT satellites carrying traffic to 13 today.
The third batch of satellites is scheduled for launch Sept. 30 from Vandenberg Air Force Base via one of SpaceX's Falcon 9 rockets. That will bring the new constellation close to the halfway mark, with all launches expected to be complete by the middle of 2018.
What's next for Iridium
At this point, this company is all about the launch of those new satellites. Betting on new subscribers hinging on the rollout of NEXT satellite-based new services, Iridium has been saying it sees service revenues increasing at least 30% by 2019. That guidance was reaffirmed on the latest report.
|
Metric |
Full-Year 2019 Guidance |
Full-Year 2016 Results |
First-Half 2017 Results |
|---|---|---|---|
|
Service revenues (excluding equipment sales) |
$440 million to $465 million |
$334.8 million |
$168.4 million |
|
Operating EBITDA profit margin |
60% |
59% |
60% |
EBITDA = earnings before interest, taxes, depreciation, and amortization. Chart by author. Data source: Iridium quarterly earnings.
There is ample time between now and 2019 for that outlook to change, but the company is making good progress toward that goal. The pullback in share prices (again) makes this one worth a look.
