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[Satellite TODAY Insider 08-03-12] MSS operator Iridium surprised some analysts with its latest financial results after reporting several consecutive quarters of growth. Iridium’s overall service revenue growth in the second quarter of 2012 was slower than the market expected due to a slight decline in its government business.
Iridium’s government service revenues dropped 3 percent in the second quarter compared to same period last year, with its core government revenues declining 3.4 percent, according to its latest results issued Aug. 2. The drop-off reflected a 4 percent year-over-year decline in voice revenues despite an 18 percent increase in M2M revenues. The operator’s government voice and data subscriber rates were flat compared to the previous quarters, but Iridium ARPUs dropped 14 percent due to mix and usage patterns. Iridium’s business model has been known to focus on ARPUs as a key metric.
Raymond James Analyst Chris Quilty said that he expects continued growth in Iridium’s M2M business, but also predicts a likely decline in Iridium’s voice subscribers and ARPUs through the balance of the year until the company lands a new Netted Iridium contract next year.
“While disappointed with the company’s lower 2012 guidance, we take some comfort from the fact that the weakness appears to be primarily near-term and government related, and does not reflect a material impact to the company’s longer-term growth forecast,” Quilty said in an Aug. 2 research note. “We remain bullish on the Iridium story and believe any weakness in the stock this morning would represent a buying opportunity.”
The second quarter did provide Iridium with some positive news. Iridium’s 7 percent OEBITDA growth was generally in line with analysts’ forecasts. The company also grew its overall revenues 1 percent from the same period in 2011 to $97.3 million. Its service revenues grew 5.1 percent year-over-year, while its equipment revenue grew 9 percent from the same period in 2011.
While Iridium’s commercial service revenues grew 8 percent during the quarter, the growth rate was the company’s slowest since becoming a publicly traded entity. The primary reason for the shortfall was declining ARPUs in its voice service. Iridium CEO Matt Desch, however, highlighted that his company was reporting its seventh consecutive quarter of 50 percent or better M2M subscriber growth, adding a company-record 19,000 subs in the quarter.
Desch lowered Iridium’s midpoint 2012 EBITDA guidance by 3.5 percent to a range between $205 million and 210 million, due primarily to a slower anticipated service growth rate in both government and commercial sectors. The lower expectation for service revenue growth in 2012 also resulted in Iridium lowering its projected long-term growth rate. Iridium’s management, however, reaffirmed company’s long-term subscriber growth forecast of 20 percent to 25 percent.
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