Iridium Communications (NASDAQ:IRDM) was just getting started with its new satellite constellation when the pandemic began dominating headlines and adversely affecting earnings for many companies. But Iridium's third-quarter-2020 results show that subscriber and service revenue growth are coming back.

The earnings results show that Iridium has turned out to be a resilient communications network in 2020, and the company continues to make solid progress on the bottom line as well -- a rarity among satellite operators.

The results also illustrate why Iridium remains my personal largest bet on the space economy. 

Earth viewed from space with the European continent in focus.

Image source: Getty Images.

An enduring growth story in the making?

Iridium NEXT, the company's next-gen satellite constellation powering voice and broadband-level data across 100% of the globe, was only completed in early 2019. The first year in operation was a good one: The company added over 150,000 "Internet of Things" connections to its network in 2019, and it anticipated another strong year in 2020. But in keeping with the collective experience this year, plans got put on hold as many of Iridium's customers tapped the brakes back in March. 

Despite of all the disruption, Iridium still managed to grow its subscriber base during the worst of the economic lockdown in the spring and did so again over the summer months (Q3 2020).

Service Segment

Q3 2020 Billable Subscribers

Q2 2020 Billable Subscribers

Q3 2019 Billable Subscribers

YOY % Growth

Commercial

1.29 million

1.22 million

1.14 million

13%

Government

142,000

139,000

131,000

8%

Data source: Iridium Communications.

IoT connections are responsible for the increase in subscribers, although voice and broadband subscribers have stabilized and average revenue per user in broadband connections increased 7% year over year. All told, Iridium had a decent Q3 financially. Total service revenue increased 1% to $117 million, and, in a good sign for later growth in services, subscriber equipment sales increased 18% to $25.1 million. Total revenue (including engineering and support) increased by nearly 5% year-over-year to $151 million. 

Onward and upward on the bottom line

Iridium isn't out of the woods yet, but the business remaining stable even in the current global situation is a good sign. And as Iridium grows in scale, profits are increasing at an even faster pace. Operational EBITDA (earnings before interest, tax, depreciation, and amortization) increased by nearly 6% year over year to $93.4 million. The outlook for full-year operational EBITDA was also increased to $355 million -- up from an outlook for $340 million before, and an expected 7% increase over 2019. 

Total debt remains high at $1.62 billion (slightly offset by $183 million in cash and equivalents), but Iridium's bottom-line growth is moving in the right direction. Refinancing its loans in the last year helped reduce interest payments to $71.6 million through the first nine months of 2020, compared to $85.1 million in 2019. And free cash flow (revenue less cash operating and capital expenses) is $190 million, up from negative $18.8 million free cash flow over the trailing 12-month period a year ago.

At this juncture, Iridium trades for 20 times trailing 12-month free cash flow -- not exactly a bargain stock, and a metric that assumes this company will continue to grow its bottom line. But given subscribers are beginning to be added and customers are purchasing equipment again, there are indications Iridium's profits will continue to rise. And for a satellite operator, that's uncommon.

Up 300% over the last five years, it's been a great run for Iridium Communications stock, and it remains my top pick in the space economy for now -- although my position is a small one at less than 2% of my total portfolio value.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.