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Why Is Iridium (IRDM) Up 12.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Iridium Communications (IRDM - Free Report) . Shares have added about 12.9% in that time frame, outperforming 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 Reports Narrower Q3 Loss, Ups 2020 Outlook

Iridium reported relatively healthy third-quarter 2020 results, with GAAP net loss narrowing year over year on higher revenues.

Net Loss

On a GAAP basis, net loss in the September quarter was $4 million or loss of 3 cents per share. The figure was narrower than net loss of $18 million or loss of 14 cents per share in the prior-year quarter. The year-over-year improvement was mainly driven by higher revenues and lower selling, general and administrative (SG&A) expenses. Decline in net interest expenses associated with the company’s refinancing of high-yield notes and credit facility in the year-ago quarter was also a contributing factor. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 12 cents.

Revenues

Quarterly revenues totaled $151.5 million compared with $144.8 million in the year-ago quarter. The 4.6% growth was mainly driven by strength in subscriber equipment sales and higher engineering and support service revenues, followed by a contractual step-up in hosted payload. The top line surpassed the consensus mark of $138 million.

Total service revenues inched up 0.9% to $116.9 million from $115.9 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 77.2% to total revenues in the third quarter. Subscriber equipment revenues improved 17.5% to $25.1 million from $21.4 million in the year-ago quarter due to robust demand in the reported quarter. Continued favorable trends related to the U.S. dollar exchange rate were also a vital factor. Engineering and support service revenues surged 24.9% to $9.4 million from $7.6 million in the prior-year quarter, mainly due to the episodic nature of contracted work with the U.S. government.

Other Details

Total operating expenses were $138.8 million compared with $136.8 million in the prior-year quarter. Operational EBITDA (OEBITDA) increased 5.6% to $93.4 million or 61.7% of revenues from $88.5 million or 61.1% of revenues in the third quarter of 2019.

During the quarter, the company registered 1,429,000 billable subscribers compared with 1,269,000 in the year-ago quarter. The year-over-year increase was backed by growth in commercial IoT customers, driven by rising activations of personal communications devices.

Cash Flow & Liquidity

During the first nine months of 2020, Iridium generated $179.1 million of net cash from operations compared with $142.5 million in the prior-year period. Capital expenditures were $10.6 million in the reported quarter compared with $10.2 million in the year-ago period. As of Sep 30, the company had $182.7 million in cash and equivalents with $1,459 million of net debt.

2020 Guidance Raised

Despite the macroeconomic headwinds caused by COVID-19 pandemic, Iridium has emerged as a strong player on the back of its resilient business model. The company has updated its outlook for 2020. With healthy demand trend of subscriber equipment, its revenues are expected to be either equal to or greater than 2019 level.

Iridium expects full-year 2020 total service revenues to grow nearly 3% compared with the prior guidance of 1-2% rise backed by stabilized IoT and voice business post COVID-19 crisis. It expects full-year 2020 OEBITDA to be nearly $355 million compared with prior guidance of $340 million. Net leverage is anticipated to be nearly 4x OEBITDA compared with the prior expectation of 4.3x OEBITDA at the end of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 22.5% due to these changes.

VGM Scores

At this time, Iridium has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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