Shares of satellite telecom Iridium Communications (NASDAQ:IRDM) fell slightly after the company reported mixed results from the second quarter of 2018. Satellite communications stocks, Iridium included, have been on a tear this year as new satellite deployments are leading to new business. While profitability proved elusive in this report, Iridium did deliver on a key growth metric that should pay off soon.

First, a few numbers...

Total revenue increased 21% year over year to $134.9 million, driven primarily by a 15% rise in billable subscribers to Iridium's satellite-powered global communications network. Equipment sales increased 37% from the year prior.

Despite the jump in revenue, a net loss of $0.06 per share was reported. Iridium chalked that up to higher depreciation expense on the company's new NEXT satellite constellation and a one-time charge due to a state tax change made during the quarter. On an adjusted basis, Iridium said its operational profit rose 20% from a year ago to $78.7 million.

This report was pushed back a week as Iridium was busy with launch No. 7 of its NEXT satellite constellation via SpaceX during the originally scheduled release. The eighth and final launch will be complete within the next few months, enabling Iridium's next-gen globe-spanning broadband network CERTUS. It's been several years in the works, but this new service and the possibilities it opens up are driving Iridium's results right now.

A satellite image of Earth. The sun is rising on the horizon, and the European continent at night is at the center of the shot.

Image source: Getty Images.

Subscriber growth is key

Total subscribers topped 1 million this quarter for Iridium. It's a big landmark for the company, but the accelerating growth in this area is more important. Here's a breakdown of where those subscribers are coming from:

Service

End-of-Quarter Billable Subscribers

Year-Over-Year % Increase

Quarter-Over-Quarter % Increase

Commercial voice and data

364,000

1%

3%

Commercial IoT

576,000

25%

7%

Government voice and data

54,000

13%

2%

Government IoT

53,000

20%

4%

Chart by author. Data source: Iridium Communications' quarterly earnings.

Voice and data services have been slowly churning higher, but the boom in the Internet of Things (IoT) has been the real reason for Iridium's surge in subscribers. Billions of devices around the globe are getting hooked up to the internet, and Iridium's data network is reaping benefits. Services like asset and payload tracking and remote fleet monitoring have caused the sharp increase in connections, both in the commercial and government space.

While the IoT looks like it will be the primary driver for some time to come, voice and data services could soon get a bump when CERTUS goes live later this year. CERTUS is primarily responsible for the previously mentioned jump in equipment sales. Iridium also got some big news a few months ago when it won initial approval to start adapting its network for use by the Global Maritime Distress and Safety System. It will take a few years to get up and running, but there is plenty of room for Iridium to expand in the years ahead.

That seems to be what management thinks, too. Total service revenue growth is now expected to be 12% to 14% for 2018, up from previous guidance of 10% to 12%. Service revenue guidance for 2019 is now expected to be $440 million. Two quarters into 2018, service revenue is $193.7 million, so on an annualized basis, Iridium's expected service revenue will be about 13% higher next year.

The second quarter wasn't a perfect one for Iridium with a net loss, but that's not too concerning given the NEXT satellite launches. At the end of the day, increasing subscriber count is good news and should equate to profits for owners of this stock in short order.

Nicholas Rossolillo and his clients own shares of Iridium Communications. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.