Satellite telecom company Iridium Communications (NASDAQ: IRDM) reported its full-year 2017 results to mixed reviews. Though there were areas of the business that could have looked better, one key metric is all I really focus on in the report: subscriber growth.
The most important number
The satellite communications provider reported 2017 revenue growth of just 3%, the bottom end of its guidance for the year. However, recurring service revenue led the way with a 4.5% increase to $349.7 million. The underlying reason was that total billable subscribers increased by double digits.
For commercial voice, data, and Internet of Things (IoT) service, billable customers increased 13% to 869,000. Government billable subscribers were up 14% to 969,000. That is significant as these advances in its subscriber base are coming ahead of its NEXT satellite constellation going live in the next few months. While investors wait for that, a second tailwind has been providing growth for the company.
End-of-2017 Billable Subscribers
% Increase Over 2016
Commercial Voice and Data
Government Voice and Data
Chart by the author. Data source: Iridium Communications quarterly earnings.
Why subscribers are increasing
Much of 2017's subscriber growth can be chalked up to the IoT, the generic name for the movement to connect devices and equipment to the internet. Iridium's globe-spanning service makes it attractive to global companies looking to track fleets and payloads in remote areas . Iridium CEO Matt Desch had this to say about it:
A big bright spot for us in 2017 was IoT, which continues to benefit from our alignment with large growth oriented partners. I'm really pleased with the success we are having with heavy-equipment OEMs [original equipment manufacturers]. They increasingly rely upon us for dependable real-time connections as they improve the management of their global fleet, assets and vehicles. We also introduced Iridium Edge in 2017. This product is attracting new customers to Iridium and helping them to get to market faster with lower implementation costs. As a result, we are sitting on a healthy pipeline of demand for our IoT services and expect subscriber growth in 2018 to be in line with what we experienced in 2017.
One area of weakness in IoT, alluded to here, is lower average revenue per unit, or ARPU. As the IoT grows, Iridium has been realizing lower average revenue from those IoT subscriptions, and the 2017 rate decreased 7% as a result. That was more than offset by more subscribers, though, and management is optimistic that will happen again in 2018. Service revenue is expected to increase another 10% to 12% in the year ahead.
It won't be just the IoT propelling the business forward. That's because the aforementioned Iridium NEXT satellite constellation is nearly complete, and the CERTUS broadband internet and voice service it will support will launch for commercial use within the next few months. Iridium is already a prominent player in the maritime and aviation industries, but most of its customers use only voice and simple data plans.
Adding broadband internet service to the mix is one of the inputs management thinks will help drive at least 10% service growth this year. It was mentioned that internet for maritime and aviation was less than a 10th of service revenue last year, but broadband service will push that number to $100 million over the next few years.
That's another reason a growing subscriber base is so important. Iridium isn't just winning new customers, but deepening the relationship it has with existing ones by cross-selling other capabilities (like voice to its IoT customers and vice versa). With CERTUS nearly ready to go, that's one more offering that existing customers might be interested in buying from Iridium. Though revenue for 2017 was at the low end of guidance, that expanding client list was more than enough to keep me positive.
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Nicholas Rossolillo owns shares of Iridium Communications. His clients have positions in the companies mentioned. The Motley Fool recommends Iridium Communications. The Motley Fool has a disclosure policy .