The first quarter of 2019 was a monumental one for Iridium Communications (NASDAQ:IRDM). The satellite communications company began to roll out new services based on its new satellite constellation it completed last year, and resulting revenue and profits were off to a faster start than expected. It was good news for investors as Iridium navigates into new territory: getting new subscribers and connectivity services up and running to maximize the potential of its one-of-a-kind network.

An image of earth at night. The European continent is in focus, lit up by night lights.

Image source: Getty Images.

The headline numbers

Iridium continued the double-digit advance it set during 2018. In fact, total service revenue increased 19% in the first quarter, easily outpacing the company's full-year 2019 guidance for about an 8% rise. Though total revenue was tempered by a 19% decline in the small communications equipment segment, that was to be expected, as equipment sales are forecast to decline all year. The result was still a very healthy advance after the 17% top-line gain notched in 2018.

Metric

Q1 2019

Q1 2018

Change

Revenue

$134 million

$119 million

12%

Operating expenses

$135 million

$99.7 million

35%

Operational EBITDA

$78.0 million

$68.5 million

14%

Operational EBITDA margin

58.4%

57.5%

0.9 p.p.

YOY = year over year. P.p. = percentage point. Data source: Iridium Communications.

Total billable subscribers grew 16% year over year to 1.15 million. Average revenue per voice and data subscriber went up 10% and fell 10% for the average Internet of Things (IoT) subscriber -- although management said profit margins on new IoT subscriptions were very high, even though the revenue is lower than that for the established base. Data subscriptions played a big role in pushing operating profits and profit margins higher during the period.

Service

End of Q1 2019 Billable Subscribers

End of Q1 2018 Billable Subscribers

Change

Commercial Voice and Data

358,000

354,000

1%

Commercial IoT

678,000

538,000

26%

Government Voice and Data

53,000

53,000

0%

Government IoT

62,000

51,000

22%

Data source: Iridium Communications.

A new era in flight safety

Other capabilities of the NEXT satellite constellation include the Iridium subsidiary Aireon, a global air traffic surveillance system that went live in April. Data revenue from the service was $3.1 million, and management expects Aireon to reach about $1.9 million a month (or $5.7 million a quarter) by the end of the year -- about an 84% increase from current levels. CEO Matt Desch had this to say about the flight safety service:

"With Aireon system now fully operational, NAV Canada and UK NATS announced that they're using Aireon system over the North Atlantic for real-time air traffic control. These partners have said that improved visibility and control in the North Atlantic airspace will reduce overall flight safety risk by more than 75%. With about 1,400 flights per day in the busy North Atlantic corridor and growth of 60% expected by 2030, Aireon data improves visibility and enhances airspace flexibility and dynamic aircraft management to maintain safe operations as air traffic grows. It's not surprising that the first region to go live was the North Atlantic. The use of Aireon in that airspace is expected to yield cost savings of up to $300 per transatlantic flight plus a reduction in carbon dioxide emissions by two tons per flight as more optimal routes, speeds and altitudes are realized."

Other high points included the renegotiation of two contracts with the U.S. government -- both of which will equate to more revenue for Iridium but a lower cost per subscriber for the feds. Broadband internet services that cover 100% of the globe for the maritime industry and ground services are also online, and broadband for the aviation industry will go live later in the year.

In all, it was a solid report with much better-than-expected results. Nevertheless, management kept its full-year guidance unchanged. For now, it would seem it's a play-it-safe situation, but that could change if Iridium continues to deliver on its new globe-spanning communications and data capabilities.