Satellite outfit Iridium Communications (NASDAQ:IRDM) had plenty of questions to answer headed into its second-quarter 2020 report. Demand for many communications and data connectivity services has been strong amid the pandemic, lockdown, and ensuing unemployment crisis, but Iridium's reliance on Internet of Things (IoT) connections left some doubts regarding how resilient it could be.

It turns out that the satcom company did better than many investors thought. It was a mixed bag of results to be sure, but shares were up over 5% following the Q2 report. And though revenue did notch a slight year-over-year decrease, another rise in billable subscribers was good news that a recovery could be right around the corner.

Earth at night as viewed from space. The European continent is in focus.

Image source: Getty Images.

A terrible year masking relative strength

Iridium reported a 2% decrease in year-over-year revenue to $140 million. Services revenue -- made off ongoing subscriptions to voice, data, and broadband delivered on Iridium's globe-spanning satellite network -- grew 2% and represented 81% of the grand total. As management said to expect at the onset of the year, sales of subscriber equipment fell 15% and engineering and support fell 21% and were the reason for the overall decline.  

Nevertheless, it's commercial and government service revenues that are the key driver here, and there was a big positive in the report. Though average revenue per unit for commercial IoT devices fell 22% from a year ago, an increase in billable subscribers both from a quarter ago and from 2019 levels still led to the increase in service fees collected in Q2.

Service Segment

Q2 2020 Billable Subscribers

Q1 2020 Billable Subscribers

Q2 2019 Billable Subscribers

YOY % Growth

Commercial

1.22 million

1.19 million

1.09 million

12%

Government

139,000

140,000

125,000

11%

Data source: Iridium Communications. YOY = year-over-year.  

Due to the rising subscriber total, Iridium put some guidance back in place as well. Full-year service revenue is expected to increase by 1% to 2% over 2019, although the smaller and more volatile equipment and engineering segments are likely to offset the modest service growth. But for a year like 2020, it could be far worse.  

More progress on the bottom line

Also of note was that Iridium continues to home in on unadjusted breakeven. Thanks to the refinancing of debts (which means lower interest payments) related to the deployment of its now up-and-running broadband-speed satellite constellation, net losses narrowed to $12.4 million compared with losses of $18.1 million last year. And when backing out non-cash expenses like depreciation, Iridium was actually in the black. Roughly $50 million in surplus cash was added to the balance sheet in Q2 alone, all of it from ongoing business operations.  

However, with total debt at nearly $1.65 billion, revenue stable for the moment but not growing, and shares trading close to all-time highs again, I'm tempering my expectations for Iridium the time being. I first bought this stock a few years ago and it's yielded me a nearly 300% gain. But with uncertainties remaining and top-line growth stalled out, for now, I'm holding off on adding to my position.

That doesn't mean Iridium is off my radar. On the contrary, for the wild space economy, this satcom remains one of the more viable space investment options out there. But at 6.6 times sales and 39 times trailing 12-month free cash flow, I see limited upside for the stock at the moment until more robust growth returns. If subscriber additions continue, perhaps 2021 will be when that happens.