Why Is Iridium (IRDM) Up 2.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Iridium Communications (IRDM). Shares have added about 2.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Iridium due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Iridium Incurs Wider GAAP Loss in Q1, Revises View

Iridium reported unimpressive first-quarter 2020 results, with GAAP net loss widening year on year. Nevertheless, revenues increased on a year-over-year basis.

Net Loss

On a GAAP basis, net loss in the March quarter was $31.7 million or loss of 24 cents per share wider than a net loss of $18 million or loss of 18 cents per share in the prior-year quarter. The deterioration was primarily caused by a loss on debt extinguishment associated with the company’s refinancing of senior unsecured notes.

First-quarter adjusted loss per share came in at 6 cents, narrower than a loss of 18 cents in the prior-year quarter. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 16 cents.

Revenues

Quarterly revenues amounted to $145.3 million compared with $133.7 million in the year-ago quarter. The uptick can be attributed to increased total service revenues as well as higher subscriber equipment, and engineering and support service revenues. The top line surpassed the consensus mark of $141 million.

Total service revenues increased 8.4% to $116 million from $107 million in the year-ago quarter. This was primarily driven by growing subscriber base in the commercial and government service business. Markedly, service revenues contributed 80% to total revenues in the first quarter. Subscriber equipment revenues increased 6% to $22.3 million from $21 million in the year-ago quarter. Engineering and support service revenues rose 23.1% to $7 million, driven by higher volume of contracted work with the U.S. government.

Other Details

Total operating expenses were $133.5 million compared with $135.3 million in the prior-year quarter. This upside was primarily led by lower R&D and SG&A expenses. Operational EBITDA (OEBITDA) increased $14 million to $92.1 million, or 63.4% of revenues from $78 million, or 58.4% of revenues in the first quarter of 2019. The increase was driven by higher government service revenues and robust growth in commercial IoT.

During the quarter, the company registered 1,332,000 billable subscribers compared with 1,151,000 in the year-ago quarter. The year-over-year increase of 15.7% was backed by growth in commercial and government IoT customers.

Cash Flow & Liquidity

During the quarter, Iridium’s capital expenditures were $9.5 million compared with $34.6 million in the prior-year quarter. As of Mar 31, the company had $67.3 million in cash and equivalents with $1,582.7 million of net debt.

2020 Guidance Updated

Considering the COVID-19 pandemic, Iridium has revised outlook for 2020. Despite certain macroeconomic challenges, the company expects unspecified growth in total service revenues for full-year 2020. In fourth-quarter 2019, Iridium had expected that total service revenues for 2020 will grow 6-8% on broadband activations, government contracts and hosting revenues with robust IoT growth.

The company currently anticipates a decline in equipment revenues due to downfall in oil and gas markets coupled with supply chain disruptions against the prior guidance of increased equipment sales driven by product development. Iridium expects unspecified growth in OEBITDA for full-year 2020 compared with prior guidance of $355-$365 million. Net leverage is anticipated to be maximum 4.4x OEBITDA compared with the previous expectation of 4x OEBITDA at the end of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -7.5% due to these changes.

VGM Scores

Currently, Iridium has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Iridium has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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