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Iridium Communications: Unparalleled NEXT Capabilities To Drive Cash Flows, Clean Balance Sheet And Return Capital To Shareholders

Jun. 01, 2020 11:51 AM ETIridium Communications Inc. (IRDM)
Alex Kivali profile picture
Alex Kivali


  • The strong IoT momentum is set to resume as social distancing measures ease - reacceleration in subscribers growth and rollout of Certus midband device.
  • The evolving financial profile and value of Aireon stake with prevailing long-term tailwinds to air traffic and tighter GADSS measures set for 2021.
  • Catalysts: 2H20 reopening of the global economy.


For the reasons mentioned in the summary, I issue an outperform rating and a $26.45 price target for Iridium Communications (NASDAQ: IRDM) derived from an average of the low-end estimate prices in Exhibit 8's football field range.

Financial Summary

1Q20 marked the first full year of Iridium NEXT service. Continued FY19 commercial momentum primarily stemmed from industry adoption of Certus broadband's unparalleled speeds/capabilities in addition to an Aireon contractual fee steps up. Q1 commercial services revenue was up 7% with commercial subscribers (~90% of total subscribers) up 12% YoY. This was partially offset by a COVID-19-led global slowdown in client demand particularly in aviation (less flight tracking), maritime (social distancing preventing the OpenPort terminal installation/activations) and oil and gas (lower oil consumption) verticals. Elsewhere, Iridium strengthened their US government relationship through 2019 EMSS and IDIQ contracts and saw trailing twelve government revenues (services and equipment/support services) and subscribers up 19% and 22% YoY, respectively.

In terms of margins, Q1's gross margins grew 2.5% YoY primarily from a discontinued in-orbit insurance policy while EBIT margins benefited from lower post-NEXT R&D and management comp/SAR expenses, partially offset by increased depreciation on the new constellation. Iridium's Q1 $145.3m revenue beat street estimates by $3.8m and the $0.01 EPS, excluding the $30m loss recognized for the early extinguishment of debt, beat street estimates by 12 cents.

4Q19 saw Iridium refinance their legacy BPIAE loan facility with a $1.45bn (LIBOR+3.75%) term loan providing shareholder-friendly terms accommodative to future buybacks, dividends and M&A activity. The firm immediately hedged a portion ($1bn) of this variable interest rate risk with a 1.565% fixed rate Swap and later extended the issuance by $200m in Q1 to address any near-term liquidity issues. Iridium's strong earnings and growing free cash flow (positive for the fourth consecutive quarter time on a trailing twelve basis) are supportive of the added debt with the 4.5x

This article was written by

Alex Kivali profile picture
Aspiring Equity Analyst with an interest in all sectors ripe for digital disruption.Feel free to reach out to me for any questions/inquiries regarding my articles.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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