Iridium (IRDM) Down 29.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Iridium Communications (IRDM). Shares have lost about 29.4% in that time frame, underperforming the S&P 500.

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

Iridium Incurs Wider Loss in Q4, Revenues Rise Y/Y

Iridium reported tepid fourth-quarter 2019 results wherein net loss widened but revenues increased on a year-over-year basis.

Net Loss

On a GAAP basis, net loss in the December quarter was $107.9 million or loss of 82 cents per share compared with a net loss of $7.6 million or loss of 9 cents per share in the prior-year quarter. The deterioration was primarily due to depreciation and amortization charges related to the completion of the Iridium NEXT program, debt extinguishment costs associated with the company’s refinancing, and higher interest expense. In 2019, net loss was $162 million or loss of $1.33 per share compared with a net loss of $13.4 million or loss of 22 cents per share in 2018.

Fourth-quarter adjusted loss per share came in at 15 cents compared with loss of 9 cents in the year-earlier quarter. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 18 cents.

Revenues

Quarterly revenues were $138.9 million compared with $132.2 million in the year-ago quarter. The rise was led by higher total service revenues and engineering and support service revenues. The top line matched the consensus estimate.

Total service revenues jumped 5.8% to $113.6 million from $107.3 million in the year-ago quarter. This was primarily driven by growing subscriber base in the commercial and government service business. Subscriber equipment revenues declined 15% to $17.1 million from $20.1 million in the year-ago period. Engineering and support service revenues witnessed substantial increase of 72.7% to $8.3 million, driven by rise in activity with the U.S. government.

In 2019 revenues increased 7.2% to $560.4 million from $523 million on the back of higher service revenues, and engineering and support service revenues.

Other Details

Total operating expenses were $138.9 million compared with $132.3 million in the prior-year quarter. This was primarily due to higher depreciation and amortization charges. Operational EBITDA (OEBITDA) increased $4.7 million to $80.1 million, or 57.7% of revenues from $75.5 million, or 57.1% of revenues in the fourth quarter of 2018. The increase was driven by higher government service revenues combined with robust growth in commercial IoT.

During fourth-quarter 2019, the company registered 1,300,000 billable subscribers compared with 1,121,000 in the year-ago quarter. The year-over-year increase of 16% was backed by growth in commercial IoT and government customers.

Cash Flow & Liquidity

In 2019, Iridium’s capital expenditures were $117.8 million compared with $391.4 million in 2018. As of Dec 31, 2019, the company had $223.6 million in cash and equivalents with $1,586.4 million of net debt compared with the respective tallies of $273.4 million and $1,579.6 million a year ago.

2020 Guidance

Iridium has provided outlook for 2020. Total service revenues are estimated to grow 6-8% on the back of broadband activations, government contracts and hosting revenues with robust IoT growth. Equipment sales are likely to increase driven by product development. Revenues from hosted payloads are expected to be nearly $47 million with OEBITDA in the range of $355-$365 million. Net leverage is anticipated to be nearly 4x OEBITDA at the end of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -32.14% due to these changes.

VGM Scores

Currently, Iridium has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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.