Sunday, December 15, 2019

A Current AIM Small Cap Equity Holding: Iridium Communications (IRDM, $23.88): “Communication-Anywhere Life Takes You”

Iridium Communications (IRDM, $23.88): “Communication-Anywhere Life Takes You”
By: Kat Christian, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Iridium Communications Inc. (NAS:IRDM) is a data satellite and mobile voice communications network. The primary business lines that they operate in are Land Mobile, Maritime, Aviation, and Government. Their products are unique because they cover 100% of the earth’s surface, allowing their consumers to mobilize and monitor personnel, data, and assets anywhere on the planet.

• IRDM is in a place to begin acting, first and foremost, in the best interest of shareholders. This is due to a refinancing of a $1.8 billion French export bank facility. The company is ecstatic with the terms of this $1.45 billion term loan.

• While the company is happy with the terms of their new loan, they also have other events to look forward to. In 2020, they are introducing two new IoT devices that expand on their Iridium Edge that launched in 2019. First, the Iridium Edge Pro, which takes their previous version and adds a processor and development tools. Second, the Iridium Edge Solar device, which is the best-in-class device for tracking assets with no power, like shipping boxes or containers.

• Voice and data revenue rose 3% this quarter, driven by the increase in subscribers and average revenue per user (ARPU). Part of IRDM’s momentum is pulled from companies like Garmin who have a high demand for personal location and personal messaging devices.

Key points:

One of IRDM’s business lines is the government. Throughout 2019, Iridium has been awarded three major contracts by the U.S. Government. The first will generate up to $76 million in revenue and the second $54 million.

During mid-September, the U.S. Government renewed the contract with Iridium regarding their enhanced mobile satellite services. This is the third and final contract with the government of 2019. These services offer the U.S. Government devices that have unlimited airtime, secure voice encryption, global coverage, secure DoD gateway and Iridium Customer Care. A large use case of such devices is overseas for those answering a call of duty. The contract is a seven-year $738.5 million deal, which is rather unheard of for the satellite industry.

Government services generated $25.6 million in Q3 2019, a direct reflection of the contract with the government. We can now expect that IRDM’s relationship with the United States Department of Defense will be a large portion of the recurring revenue of the firm. In Q3, government subscribers jumped 16% year-over-year, reaching 131,000 users, a new record. As a reflection of the new contracts signed and new product lines to be released, they have changed their estimate for total revenue to wind up between $445 million and $450 million, rather than $440 million. Based on the contracts solidified with the government, we can expect revenues in the next years to be higher than previously anticipated.

What has the stock done lately?

Since announcing their success of solidifying the contract with the government in the quarterly earnings report on October 29, 2019, IRDM has decreased 6.65%, not responding well to the news. On December 3, 2018, the CEO, CFO, EVP-Sales & Marketing, EVP-Government Programs, Secretary & Chief Legal officer, and Vice President all surrendered shares (10,895) to the company, causing the stock price to increase ~3% and fall by 2% on December 4th, as the effect of this news left the market.

Past Year Performance:

IRDM has increased by 5.57% in value over the past year. IRDM has had periods over the past year in which stock price is 24% higher than it was one year ago. The stock began 2019 at $18.45 and quickly rose by April 1st, hitting $27.03. IRDM’s valuation implies a ~29% upside potential from its current share price.

Source: FactSet
My Takeaway:

The contract that IRDM made with the U.S. Government is a driving force for the success of the company, and is setting the stage for much more collaboration with the DoD in the future. This along with the new products that the company will launch in 2020 will be their major key to future growth and success. The company is hopeful after the refinancing of their debt that they will not be able to better cater to their investors.

Source: FactSet