By:
Kat Christian, AIM Student at Marquette University
Summary:
• 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
