In its latest financial results issued Nov. 1, Iridium reported a better-than-expected 6 percent rise in OEBITDA and a 3 percent gain for in-line service growth. However, the operator missed analysts’ subscriber growth forecasts due to slower-than-expected commercial voice and M2M activity. Iridium picked up 19,000 sequential net additions during the quarter – well below forecasts of 35,500 – and its commercial voice and M2M subscribers grew at about half its projected growth rate. The operator government voice customers also declined by 1,000, as expected.

   Overall, Iridium’s revenues declined 2 percent year-over-year to $100.4 million, representing a 3.8 percent miss relative to Raymond James Analyst Christ Quilty’s consensus.

“While its third quarter results were a tad sloppy, Iridium’s growth story remains fully intact, and we expect across-the-board product/service improvements in 2013 driven by new products such as Netted Iridium, a new M2M modem, an aero OpenPort and an updated five-year contract with the U.S. Department of Defense,” Quilty said in a Nov. 1 research note. “Importantly, Iridium delivered anticipated bottom-line results in the third quarter and remains on track to generate well in excess of $1.2 billion of EBITDA through the Iridium NEXT constellation launch phase.”

   Iridium Communications’ five-year contract with the Pentagon is for an update to a gateway that will work with the Iridium NEXT satellite constellation. The indefinite-delivery/indefinite-quantity contract was awarded by the U.S. Defense Information Systems Agency (DISA) and is potentially worth $47 million over one base year and four option years. Iridium NEXT is comprised of 66 low-Earth orbiting satellites and six in-orbit spares, which are scheduled to launch in 2015.

   “Iridium has worked with the Defense Department for several years to provide communications services for military installations and personnel stationed worldwide,” said Iridium Government Programs Executive Vice President Scott Scheimreif. “The company will provide hardware, software and integration services to update the gateway with the goal of making it compatible with the Iridium NEXT satellite constellation.”

   During the third quarter, Iridium’s overall service revenues grew 2.9 percent on a full-year guidance of between 8 percent and 11 percent growth, while its equipment revenues grew 1.8 percent year-over-year. Iridium’s low-margin engineering and service revenues declined 61 percent due to the timing of contract activity. OEBITDA grew 6 percent to $57.7 million, beating Quilty’s $55.9 million estimate by 3.2 percent.

   “OEBITDA margins improved 350 basis points to 57 percent, representing a new record for the company,” said Quilty. “Margins should continue to expand consistent with the growth of service revenues, migrating toward a steady state of 70 percent and 80 percent.”

   Iridium continues to battle a declining voice ARPU, which Quilty noted is down 8 percent year-over-year to $46. “The decline is due to lower usage on post-paid plans. Meanwhile, its commercial M2M broke an eight-quarter streak of approximately 50 percent subscriber growth by adding only added 11,000 subscribers against our estimate of 22,000. M2M ARPUs held flat at $18, and service revenues increased 32 percent from the same period last year.”

   Iridium government service revenues declined for the third consecutive quarter by 7 percent, due to the U.S. military deactivating handsets consistent with Afghanistan troop withdrawals.

Iridium CEO Matt Desch affirmed his company’s 2012 OEBITDA guidance between $205 million and 210 million, raised his service growth forecast by 6 percent and made no changes to its long-term growth forecast. Desch, however, also lowered Iridium’s subscriber growth forecast from a range of between 20 percent and 25 percent to 18 percent, citing a delayed partner M2M shipment.