The broadband revolution has left people around the world much more connected, with comprehensive wireless networks covering huge swaths of the planet's land masses. Yet wireless networks still have not reached some areas, many of which might well never be economically feasible to serve through traditional wireless service. Iridium Communications (NASDAQ:IRDM) has worked to close that gap, with its satellite-based network allowing remote communications across the globe.
Coming into Thursday morning's fourth-quarter financial report, Iridium investors had relatively modest expectations for the company's results, as most of its major potential breakthroughs lie years in the future. Yet Iridium's results were stronger than many expected, and the satellite provider is taking steps toward finishing its next major upgrade. Let's look at how Iridium Communications did and what the latest results mean for the company's future.
Iridium flies higher
Iridium Communications reported growth in both revenue and net income during the fourth quarter, which came as a surprise to many investors who follow the stock. Total revenue of $100.5 million was slightly better than the $99.3 million consensus figure and represented about 2% growth from the year-ago quarter. More impressively, Iridium boosted its net income by nearly half over the year-ago quarter, and even with a big jump in shares outstanding, earnings came in at $0.19 per share, topping the estimate by $0.06 per share.
The commercial services segment provided the majority of Iridium's sales. Segment revenue was unchanged, but the business boasted a 4% jump in voice and data subscriber count to 354,000, and the number of machine-to-machine, or M2M, customers rose 19% to 325,000. The M2M niche has been a rapidly expanding part of Iridium's overall business, and it now makes up nearly half of the company's commercial subscriber base. Revenue per user fell 9%, but much of that came from a one-time item last year that didn't repeat in 2014's fourth quarter. In its other segments, Iridium saw a 12% sales gain in its government services division and an 8% boost in equipment, but a 10% drop in engineering and support weighed on overall growth as ongoing government projects involved more limited scope.
CEO Matt Desch saw 2014 as a year of ongoing progress for Iridium, saying in a press release that "we achieved many of our strategic objectives and exceeded our financial targets." In addition to its commercial M2M business, Desch also called out Iridium's maritime business, with sales of the company's OpenPort broadband service climbing 12%.
Keeping the long run in sight
Yet the real key for Iridium still lies years in the future. The company has worked hard on its Iridium NEXT program, which it sees as a transformative step forward in satellite communications. With plans for 66 low-Earth orbit satellites, Iridium expects to deliver greater bandwidth and higher data speeds, and to meet growing demands from its commercial and government customers. Iridium said it would delay its first planned launch from June to October, but still expects full deployment of the network in 2017. The real payoff will come in 2018, when Iridium expects total service revenue of between $420 million and $485 million, up roughly 40% to 60% from current levels.
For now, though, Iridium expects modest growth in its existing business. In its 2015 outlook, Iridium projected total service revenue to rise by 3% to 6%, while operating earnings should come in between $230 million and $240 million, 6% to 11% higher than 2014's full-year figure. The company, though, faces some headwinds, as Desch noted that "[w]e believe a strong dollar has softened handset sales in many places outside the U.S. in the last few months."
Iridium shareholders responded favorably to the report, sending shares about 3% higher in the first hour of pre-market trading following the announcement. Yet despite the short-term bump, Iridium investors truly need to look to the long term for the full measure of the company's potential success. As worldwide communication becomes more of a necessity, Iridium has a chance to build up its position as an integral part of the global network for voice and data communication in the years to come.
Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.