Satellite communications have gotten little attention from the general public, as the widespread availability of conventional ground-based wireless networks has made satellite coverage unnecessary for most people. Yet Iridium Communications (NASDAQ:IRDM) sees opportunity in serving those areas that don't have conventional wireless coverage available, and with many key industries requiring connectivity in remote areas of the world, Iridium's growth strategy has become increasingly ambitious in recent years. In its first-quarter financial report Thursday morning, Iridium suffered some temporary setbacks, but its long-term vision for the industry remains intact, and the company is still on-course to reach its goals. Let's take a closer look at Iridium Communications and what its latest results say about its future.
Iridium hits an air pocket
Iridium Communications saw declines in its key financial figures that were somewhat unexpected among its shareholders. Revenue of $97 million was down 1% from the year-ago quarter, thwarting expectations for a modest 3% gain. Net income rose 27% to $21 million, but a big increase in outstanding share count meant that Iridium's earnings per share actually declined year-over-year, falling to $0.17 per share, a penny worse than analysts following the stock had expected.
A closer look at Iridium's different business units shows some favorable and unfavorable numbers. In Commercial Services, revenue was unchanged, with a roughly 4% rise in voice and data subscriber counts to 351,000 and an 18% jump in machine-to-machine data subscribers to 334,000. Average revenue per user fell in both segments, but data subscribers made up 49% of Iridium's total subscriber count, showing the transition that the company has made away from its historical reliance on voice.
Elsewhere, Iridium saw mixed results. Sales from its Government Services division rose 13%, with its contract with the Defense Department driving a substantial portion of the growth but with solid gains in both voice and data subscription counts. Equipment revenue suffered an 18% drop as sales of commercial handsets fell, but the Engineering & Support division saw sales rise 13% on expanded exposure to government projects.
CEO Matt Desch kept shareholders focused on the company's longer-term strategy. "We're excited that the Iridium NEXT era is rapidly approaching," Desch said, "with a flurry of satellite testing activity under way as we prepare for the first scheduled launch in October." Given the importance of the project as a way to expand the bandwidth and data speeds of its satellite-data services, Iridium hopes that its partnership with launch specialist SpaceX will have the same success that SpaceX has had with its launches thus far.
What to expect from Iridium
Iridium affirmed its guidance for 2015, with expectations of 3% to 6% growth in service revenue and operating earnings of $230 million to $240 million this year. It also affirmed its long-range outlook, with the company looking out as far as 2018 to produce average revenue growth rates of 8% to 12% annually.
Iridium also has high hopes for its Aireon joint venture. The venture is working on possibly deploying a space-based global aviation monitoring system in conjunction with air-traffic management officials in India and throughout the Mediterranean Sea region. With those agreements in place, Iridium hopes that Aireon will become the industry standard for air-traffic monitoring worldwide.
Still, Iridium faces challenges. Desch noted that "we see gains in our [machine-to-machine], maritime, and aviation businesses, but still expect our voice market to be pressured by a strong dollar." Moreover, the speed with which Iridium NEXT rolls out will be essential in the long run in determining how well it can make a transition among its customers from pure voice service to a more all-inclusive package that incorporates both voice and data services.
Iridium shares have risen toward all-time highs in the early part of 2015, as investors get more optimistic about the prospects for the satellite-communications specialist's long-term growth trajectory. Although some short-term hurdles remain for the company to clear, Iridium is looking forward to the next stage of its growth, and the next few years will clearly be an interesting time for the company and its shareholders.
Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Iridium Communications. 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.