Wednesday, October 21, 2020

A Small Cap Equity holding: Iridium Communications Inc. (NASDAQ: IRDM, $28.63): “A Communication Stock that Buzz Lightyear would Love” by: George Wong, AIM Student at Marquette University

Iridium Communications Inc. (NASDAQ: IRDM, $28.63): “A Communication Stock that Buzz Lightyear would Love”

By: George Wong, 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. (NASDAQ: IRDM) provides a unique global communication service through their L-band satellite network to the U.S. and foreign governments, businesses, and consumers.

• IRDM’s largest single customer for the year ended December 31, 2019 was the U.S. government which accounted for 22% of their total revenue. Their revenue is divided into 3 categories: services, subscriber equipment, and engineering and support services. 

• As of June 2020, IRDM had approximately 1,362,000 paying subscribers worldwide. This represents a 12% increase YoY.

• The company entered into a $1,450 million term loan credit agreement on November 4, 2019. This agreement restricts the company’s ability to engage in mergers among other things.

• The company has never paid a dividend throughout its history and if it wanted to it could not because of their current credit agreement. 

Key points:

IRDM remains a major player in the mobile satellite services industry and has done an excellent job maintaining their relationships with Governments across the world, specifically the United States’. One of the United States’ dedicated gateway’s is only compatible with IRDM’s satellite network. In 2019, they entered into a seven-year contract with the U.S. Government with a value of $735.8 billion. 

In February 2019, IRDM finished Iridium NEXT, which was a project that replaced their first-generation satellites with a new ones that offer higher data speeds. With the help of SpaceX, Iridium NEXT sent 75 satellites to space to support new services and ensure faster data speeds. Their constellations are very unique to the industry as they do not require ground infrastructure.

Management views IRDM’s commercial business as their source of long-term growth. Customers of IRDM view their services and technology as essential. This creates a high demand for their products and services. Additionally, the company emphasizes how it truly offers global coverage. By being able to connect with people and organize data anywhere in the world, IRDM is offering customers a service/product with great value.

As with almost all companies, COVID-19 has caused IRDM to significantly reduce their revenue and earnings outlook for FY2020. The pandemic has reduced sales and placed limitations on the company’s ability to install and fix products. Furthermore, one of their distributors went bankrupt. If more distributors happen to seek protection in bankruptcy, IRDM may see further revenue loss and/or a loss in Accounts Receivables.

What has the stock done lately?

IRDM’s stock price has increased about 20% since September 24, 2020, when it was trading near $24.00. The company is recovering nicely from the pandemic which caused a drop in their stock price. Its YTD low is $16.87. Pre-pandemic, the stock was being traded at an all-time high, $32.08. On October 20, 2020, the company has their 2020 Q3 earnings call.

Past Year Performance: IRDM was added to the AIM small cap portfolio in November of 2019 at a price of $23.80. Over the past 52 weeks, IRDM’s stock price has ranged from $16.87 to $32.08. In the past year, IRDM has grown their subscriber base, continuously saw revenue growth, and due to COVID-19, emphasized to customers the essential services and products they offer.

Source: FactSet

My Takeaway

IRDM, the McLean, Virginia, based company, is a solid stock with limited amounts of upside in the short-term. Even though their subscriber base is growing, a substantial portion of their revenue comes from the U.S. Government. Under the contracts with them, the U.S. can terminate them at any time for its convenience. If all of the contracts were terminated, IRDM would lose a customer that made up for 22% of their total revenue in 2019. Additionally, their $1,450 million loan agreement is significantly hurting the company’s financial flexibility.

 Source: FactSet