orbc-8k_20191030.htm
false 0001361983 0001361983 2019-10-30 2019-10-30

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 30, 2019

 

ORBCOMM Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

001-33118

41-2118289

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

Identification No.)

395 W. Passaic Street

Rochelle Park, New Jersey 07662

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (703433-6300

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

ORBC

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 


 

Item 2.02.

Results of Operations and Financial Condition.

On October 30, 2019, ORBCOMM Inc. (“ORBCOMM” or the “Company”) released its earnings for the third quarter 2019 and is furnishing a copy of the earnings release to the Securities and Exchange Commission under Item 2.02 of this Current Report on Form 8-K. The press release is attached herewith as Exhibit 99 and is incorporated herein by reference. In addition, the Company will discuss its financial results during a webcast and teleconference call Wednesday, October 30, 2019 at 8:30 a.m. (ET). To access the webcast and teleconference call, go to the Company’s website at www.orbcomm.com.

The information contained in Exhibit 99 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

ORBCOMM publicly reports its financial information in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). To facilitate external analysis of the Company’s operating performance, ORBCOMM also presents financial information that are considered “non-GAAP financial measures” under Regulation G and related reporting requirements promulgated by the U.S. Securities and Exchange Commission. Non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, Net Income or other measures of financial performance prepared in accordance with GAAP and may be different than those presented by other companies. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are not performance measures calculated in accordance with GAAP and are therefore considered non-GAAP measures.

 

The Company’s outlook for 2019 and 2020 includes non-GAAP measures, such as Adjusted EBITDA Margin, which exclude charges or credits not indicative of core operations, which may include but not be limited to stock-based compensation expense, acquisition-related and integration costs, impairment loss, and other significant items that currently cannot be predicted. The exact amount of these charges or credits are not currently determinable, but may be significant. Accordingly, the Company is unable to provide equivalent reconciliations from GAAP to non-GAAP for these forward-looking non-GAAP financial measures.

 

EBITDA is defined as earnings attributable to ORBCOMM Inc. before interest income (expense), provision for income taxes, depreciation and amortization, and loss on debt extinguishment. ORBCOMM believes EBITDA is useful to its management and investors in evaluating operating performance because it is one of the primary measures used to evaluate the economic productivity of the Company’s operations, including its ability to obtain and maintain its customers, its ability to operate its business effectively, the efficiency of its employees and the profitability associated with their performance. It also helps ORBCOMM’s management and investors to meaningfully evaluate and compare the results of the Company’s operations from period to period on a consistent basis by removing the impact of its financing transactions and the depreciation and amortization impact of capital investments from its operating results. In addition, ORBCOMM management uses EBITDA in presentations to its board of directors to enable it to have the same measurement of operating performance used by management and for planning purposes, including the preparation of the annual operating budget.

 

The Company also believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, noncontrolling interests, impairment loss, and acquisition-related and integration costs, is useful to investors to evaluate the Company’s core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the Condensed Consolidated Statements of Operations. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Total Revenues.

 

Non-GAAP Service Gross Margin is defined as Non-GAAP Service gross profit divided by Service Revenue. Non-GAAP Service gross profit is defined as Service Revenue, minus costs of services (including depreciation and amortization expense) plus depreciation and amortization expense. Non-GAAP Product Gross Margin is defined as Non-GAAP Product gross profit divided by Product Sales. Non-GAAP Product gross profit is defined as Product Sales, minus cost of product (including depreciation and amortization expense) plus depreciation and amortization expense. The Company believes that Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are useful to evaluate and compare the results of the Company’s operations from period to period on a consistent basis by removing the depreciation and amortization impact of capital investments from its operating results.  

Item 9.01.Financial Statements and Exhibits.

(d) Exhibits.

99

Press Release of the Company dated October 30, 2019.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

2

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

ORBCOMM Inc.

 

 

 

 

By

/s/ Constantine Milcos

 

Name:

Constantine Milcos

 

Title:

Executive Vice President and Chief Financial

 

 

Officer

 

 

Date: October 30, 2019

 

3

 

orbc-ex99_45.htm

Exhibit 99

 

 

 

ORBCOMM ANNOUNCES THIRD QUARTER 2019 RESULTS

 

GAAP Product Gross Margin Increases 690 Basis Points Over Prior Year

GAAP Service Gross Margin 58.6%, Non-GAAP Service Gross Margin Record 69%

Cash Flow from Operations of $10 Million

 

Rochelle Park, NJ, October 30, 2019 – ORBCOMM Inc. (NASDAQ: ORBC), a global provider of Machine-to-Machine (M2M) and Internet of Things (IoT) solutions, today announced financial results for the third quarter ended September 30, 2019.

The following financial highlights are in thousands of dollars and unaudited.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Recurring Service Revenues

$

39,161

 

 

$

37,192

 

 

$

115,196

 

 

$

111,010

 

Other Service Revenues

 

1,389

 

 

 

1,281

 

 

 

4,099

 

 

 

3,930

 

Total Service Revenues

 

40,550

 

 

 

38,473

 

 

 

119,295

 

 

 

114,940

 

Product Sales

 

28,643

 

 

 

32,569

 

 

 

83,036

 

 

 

94,863

 

Total Revenues

 

69,193

 

 

 

71,042

 

 

 

202,331

 

 

 

209,803

 

Net Loss Attributable to ORBCOMM Inc.

Common Stockholders

 

(4,025

)

 

 

(3,295

)

 

 

(15,934

)

 

 

(20,614

)

Basic EPS

 

(0.05

)

 

 

(0.04

)

 

 

(0.20

)

 

 

(0.27

)

EBITDA (1,3)

 

15,128

 

 

 

14,612

 

 

 

39,872

 

 

 

33,110

 

Adjusted EBITDA (2,3)

$

16,939

 

 

$

17,392

 

 

$

46,242

 

 

$

40,568

 

 

(1) EBITDA is defined as earnings attributable to ORBCOMM Inc. before interest income (expense), provision for income taxes, depreciation and amortization, and loss on debt extinguishment.

(2) Adjusted EBITDA is defined as EBITDA, adjusted for stock-based compensation expense, noncontrolling interests, impairment loss, non-capitalized satellite launch and in-orbit insurance, and acquisition-related and integration costs.

(3) EBITDA and Adjusted EBITDA are non-GAAP financial measures used by the Company to measure operating performance and the quality of earnings. A table presenting EBITDA and Adjusted EBITDA, reconciled to GAAP Net Income (Loss), is among other financial tables at the end of this release.

 

“In the third quarter we continued to ship greater quantities of the new cost-reduced, feature-rich products and made great progress in significantly raising Product Margin and Service Margin, increasing cash flow from operations,” said Marc Eisenberg, ORBCOMM’s Chief Executive Officer. “We have several high-profile opportunities across our markets that are starting to fall in line, and I’m confident that we’ll be able to build on this momentum, setting the stage for a strong start to 2020.”

 

Financial Results

 

Revenues

 

1

 


 

Total Revenues for the third quarter of 2019 were $69.2 million compared to $71.0 million in the prior year period. Product Sales were $28.6 million in the third quarter of 2019 compared to $32.6 million in the third quarter of 2018. The prior year period included $4.4 million of hardware shipments to large customers, JB Hunt and Savi on behalf of the Defense Logistics Agency, that did not recur in the third quarter this year

 

Service Revenues were $40.5 million in the third quarter of 2019, up $2.1 million or 5.4% compared to the same period last year. Recurring Service Revenues increased to $39.2 million in the third quarter, up 5.3% compared to $37.2 million in the prior year quarter, as the Company grew its subscriber base. As of September 30, 2019, total billable subscriber communicators (including units under the AT&T container contract expiring at the end of 2019) grew to approximately 2.6 million, an increase of 12% compared to the 2.3 million in the prior year. Other Service Revenues, which are comprised of installation services, professional services and software licenses, were $1.4 million in the quarter.

 

 

Gross Margin (4,5,6)

 

GAAP Service Gross Margin, inclusive of depreciation and amortization expense, was 58.6% in the third quarter of 2019 compared to 55.7% in the prior year period. Non-GAAP Service Gross Margin, excluding depreciation and amortization expense, was 69.0% in the third quarter of 2019 compared to 66.8% in the prior year period. The year-over-year increase was predominantly due to recurring service revenue growth and reduced costs, and to a lesser degree the acceleration of deferred revenue associated with the AT&T container contract expiring at the end of 2019.

 

GAAP Product Gross Margin, inclusive of depreciation and amortization expense, was 28.9% in the third quarter of 2019 compared to 22.0% in the prior year period. Non-GAAP Product Gross Margin was 31.4% in the third quarter of 2019 compared to 24.2% in the same period last year. The year-over-year improvements were primarily due to a better mix of higher-margin products shipped in greater volumes this quarter compared to the same quarter in 2018.

 

Operating Expenses

 

Operating Expenses for the third quarter of 2019 were $34.7 million compared to $31.1 million for the same period in 2018. The increase in Operating Expenses was primarily due to a prior period benefit from an earn-out adjustment and an increase in Depreciation and Amortization in 2019.

 

Net Income (Loss) and Earnings Per Share

 

Net Loss Attributable to ORBCOMM Inc. Common Stockholders for the third quarter of 2019 was $4.0 million, or $0.05 per share, compared to a Net Loss of $3.3 million, or $0.04 per share in the third quarter of 2018.

 

 

 

EBITDA and Adjusted EBITDA (3)

 

EBITDA for the third quarter of 2019 was $15.1 million compared to $14.6 million in the prior year period.

 


 

 

Adjusted EBITDA for the third quarter of 2019 was $16.9 million, a year-over-year decrease of $0.5 million compared to $17.4 million in the prior year period. The decrease was due largely to a prior year earn-out net benefit of approximately $2.5 million. The Company’s Adjusted EBITDA Margin in the third quarter was 24.5%. The Adjusted EBITDA performance was primarily driven by higher service and product gross profits.

 

Balance Sheet & Cash Flow

 

As of September 30, 2019, Cash and Cash Equivalents totaled $50.9 million. For the third quarter of 2019, Cash Flow from Operations totaled $9.9 million. Capital Expenditures were $5.7 million, and Financing Activities were $7.9 million, principally related to the Company stock buy-back program.

 

Outlook (7)

 

For the fourth quarter of 2019, the Company expects Total Revenues to be between $68 million and $72 million, below previous expectations due largely to the slowdown in the North American transportation market and a number of opportunities moving to a subscription model, which recognizes revenue over the term of the contract. The Company anticipates Adjusted EBITDA Margin of approximately 24% for the fourth quarter of 2019.

 

For the full year 2020, we are providing preliminary guidance as we finalize our budgeting process. The Company expects 10% to 15% Product Revenue growth over the prior year. This projection is based on significant hardware tailwinds, including as much as a $13 million year-over-year increase on our large container contract, opportunities totaling nearly 100,000 units that we anticipate finalizing shortly, and replacement hardware deployments due to the 3G cellular network sunset. Starting in the fourth quarter of  2019, we anticipate that we will be selling as much as 10% of our deployments through a subscription model, which recognizes revenue over the term of the contract; otherwise, the Product Revenue guidance would be higher. We anticipate Recurring Service Revenue to grow at low single digits to start 2020 over the prior year due to the expiration of the AT&T container contract, approaching high single digit growth in the second half of the year as we execute on our deployments and start to recognize our subscription revenues from these deployments. Other Service Revenues are expected to be flat. We expect Adjusted EBITDA margin to be in the 24% to 26% range. Additional details regarding our outlook will be provided on the Q3 2019 earnings call.

 

(4) Non-GAAP Service Gross Margin is defined as Non-GAAP Service gross profit divided by Service Revenue. Non-GAAP Service gross profit is defined as Service Revenue, minus costs of services (including depreciation and amortization expense) plus depreciation and amortization expense.

(5) Non-GAAP Product Gross Margin is defined as Non-GAAP Product gross profit divided by Product Sales. Non-GAAP Product gross profit is defined as Product Sales, minus cost of product (including depreciation and amortization expense) plus depreciation and amortization expense.

(6) Non-GAAP Service gross margin and Non-GAAP Product gross margin are non-GAAP financial measures used by the Company to measure operating performance and the quality of earnings. A table presenting Non-GAAP Service gross margin and Non-GAAP Product gross margin, reconciled to GAAP Service gross margin and GAAP Product gross margin respectively, is among other financial tables at the end of this release

(7) The Company’s outlook for 2019 and 2020 includes non-GAAP measures, such as Adjusted EBITDA and Adjusted EBITDA Margin, which exclude charges or credits not indicative of core operations, which may include but not be limited to stock-based compensation expense, acquisition-related and integration costs, impairment loss, and other significant items that currently cannot be predicted. The exact amount of these charges or credits are not currently determinable but may be significant. Accordingly, the Company is unable to provide equivalent reconciliations from GAAP to non-GAAP for these financial measures.

 

 

Investment Community Conference Call

 

 


 

ORBCOMM will host a conference call and webcast for the investment community this morning at 8:30 AM ET. Senior management will review the results, discuss ORBCOMM’s business, and address questions.  To access the call, U.S. participants should dial 1-877-270-2148 at least ten minutes prior to the start of the call. International participants should dial 1-412-902-6510. To hear a live web simulcast or to listen to the archived webcast following completion of the call, please Click Here or visit the Company’s investor relations website at http://investors.orbcomm.com and then select “News & Events” to access the link to the webcast. To listen to a replay of the conference call, please dial 1-877-344-7529 or 1-412-317-0088 for International callers using access code 10133362. The audio replay will be available from approximately 11:30 AM ET on October 30, 2019 through November 13, 2019.

 

About ORBCOMM Inc.

 

ORBCOMM (Nasdaq: ORBC) is a global leader and innovator in the industrial Internet of Things industry, providing solutions that connect businesses to their assets to deliver increased visibility and operational efficiency. The company offers a broad set of asset monitoring and control solutions, including seamless satellite and cellular connectivity, unique hardware and powerful applications, all backed by end-to-end customer support, from installation to deployment to customer care. ORBCOMM has a diverse customer base including premier OEMs, solutions customers and channel partners spanning transportation, supply chain, warehousing and inventory, heavy equipment, maritime, natural resources, and government. For more information, visit www.orbcomm.com.

 

Forward-Looking Statements

 

Certain statements discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to our plans, estimates, objectives and expectations for future events, as well as projections, business trends, and other statements that are not historical facts. Such forward-looking statements are subject to known and unknown risks and uncertainties, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include but are not limited to: demand for and market acceptance of our products and services and our ability to successfully implement our business plan; our dependence on our subsidiary companies (Market Channel Affiliates (“MCAs”)) and third-party product and service developers and providers, distributors and resellers (Market Channel Partners (“MCPs”)) to develop, market and sell our products and services, especially in markets outside the United States; substantial losses we have incurred and may continue to incur; substantial competition in the telecommunications, Automatic Identification Service (“AIS”) data and industrial Internet of Things (“IoT”) industries; the inability to effect suitable investments, alliances and acquisitions or the inability to successfully integrate acquired businesses; defects, errors or other insufficiencies in our products or services; failure to meet minimum service level commitments to certain of our customers; our dependence on significant customers for a substantial portion of our revenues, including key customers such as JB Hunt Transport Services, Inc., Caterpillar Inc., Komatsu Ltd., Carrier Transicold and Satlink S.L.; our ability to expand our business outside the United States and risks related to the economic, political and other conditions in foreign countries where we do business; fluctuations in foreign currency exchange rates; unanticipated domestic or foreign tax or fee liabilities; the possibility we will be required to collect certain taxes in jurisdictions where we have not historically done so; economic, political and other conditions; extreme events such as a man-made or natural disaster, earthquakes, severe

 


 

weather or other climate change-related events; our dependence on a limited number of manufacturers for many of our products and services; interruptions, discontinuations, slowdown or loss of the supply of subscriber communicators from our vendor Sanmina Corporation; legal proceedings; our reliance on intellectual property; increased regulatory restrictions; lack of in-orbit or other insurance for our ORBCOMM Generation 1 or ORBCOMM Generation 2 satellites; our reliance on third-party wireless network service providers to deliver existing and developing services in certain areas of our business; significant interruptions, discontinuation or loss of services provided by Inmarsat plc; failure to maintain proper and effective internal controls; inaccurate estimates in accounting or incorrect financial assumptions; significant operating risks related to our satellites due to various types of potential anomalies and potential impacts of space debris or other spacecraft;  the failure of our systems or reductions in levels of service due to technological malfunctions or deficiencies or other events outside of our control; difficulty upgrading or replacing aging hardware and software we use in operating our gateway earth stations and our customers’ subscriber communicators; technical or other difficulties with our gateway earth stations; security risks related to our networks and data processing systems and those of our third-party service providers; liabilities or additional costs as a result of laws, governmental regulations and evolving views of personal privacy rights; failure of our information technology systems; cybersecurity risks; the level of our indebtedness and the terms of our $250 million 8.0% senior secured note indenture and our revolving credit agreement, under which we may borrow up to $25 million, that could restrict our business activities or our ability to execute our strategic objectives or adversely affect our financial performance; and the other risks described in our filings with the Securities and Exchange Commission (“SEC”). For more detail on these and other risks, please see our Annual Report on Form 10-K for the year ended December 31, 2018, and other documents we file with the SEC. We undertake no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law.

 

 

Contacts

Investor Inquiries:

Media Inquiries:

Aly Bonilla

Michelle Ferris

Vice President, Investor Relations

Director, Corporate Communications

ORBCOMM Inc.

ORBCOMM Inc.

703-433-6360

703-433-6516

bonilla.aly@orbcomm.com

ferris.michelle@orbcomm.com


 


 

ORBCOMM Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

Quarters Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenues

 

$

40,550

 

 

$

38,473

 

 

$

119,295

 

 

$

114,940

 

Product sales

 

 

28,643

 

 

 

32,569

 

 

 

83,036

 

 

 

94,863

 

Total revenues

 

 

69,193

 

 

 

71,042

 

 

 

202,331

 

 

 

209,803

 

Cost of revenues, exclusive of depreciation and amortization

   shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

12,568

 

 

 

12,764

 

 

 

39,123

 

 

 

40,704

 

Cost of product sales

 

 

19,640

 

 

 

24,679

 

 

 

58,275

 

 

 

73,363

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

18,211

 

 

 

14,823

 

 

 

52,842

 

 

 

51,352

 

Product development

 

 

3,686

 

 

 

3,816

 

 

 

11,385

 

 

 

9,671

 

Depreciation and amortization

 

 

12,794

 

 

 

12,081

 

 

 

37,998

 

 

 

36,146

 

Acquisition-related and integration costs

 

 

4

 

 

 

395

 

 

 

693

 

 

 

1,495

 

Income (loss) from operations

 

 

2,290

 

 

 

2,484

 

 

 

2,015

 

 

 

(2,928

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

444

 

 

 

648

 

 

 

1,408

 

 

 

1,576

 

Other income (expense)

 

 

188

 

 

 

120

 

 

 

130

 

 

 

108

 

Interest expense

 

 

(5,287

)

 

 

(5,232

)

 

 

(15,850

)

 

 

(15,733

)

Total other expense

 

 

(4,655

)

 

 

(4,464

)

 

 

(14,312

)

 

 

(14,049

)

Loss before income taxes

 

 

(2,365

)

 

 

(1,980

)

 

 

(12,297

)

 

 

(16,977

)

Income taxes

 

 

1,504

 

 

 

1,242

 

 

 

3,354

 

 

 

3,410

 

Net loss

 

 

(3,869

)

 

 

(3,222

)

 

 

(15,651

)

 

 

(20,387

)

Less: Net income attributable to noncontrolling

   interests

 

 

144

 

 

 

73

 

 

 

271

 

 

 

216

 

Net loss attributable to ORBCOMM Inc.

 

$

(4,013

)

 

$

(3,295

)

 

$

(15,922

)

 

$

(20,603

)

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(4,025

)

 

$

(3,295

)

 

$

(15,934

)

 

$

(20,614

)

Per share information-basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.05

)

 

$

(0.04

)

 

$

(0.20

)

 

$

(0.27

)

Per share information-diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.05

)

 

$

(0.04

)

 

$

(0.20

)

 

$

(0.27

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

79,695

 

 

 

78,649

 

 

 

79,591

 

 

 

77,158

 

Diluted

 

 

79,695

 

 

 

78,649

 

 

 

79,591

 

 

 

77,158

 


 


 

ORBCOMM Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value and share data)

 

 

September 30,

 

 

 

 

 

 

2019

 

 

December 31,

 

 

(Unaudited)

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

50,904

 

 

$

53,766

 

Accounts receivable, net of allowance for doubtful accounts of $4,334

   and $4,072, respectively

 

61,563

 

 

 

57,665

 

Inventories

 

38,224

 

 

 

34,300

 

Prepaid expenses and other current assets

 

19,314

 

 

 

15,553

 

Total current assets

 

170,005

 

 

 

161,284

 

Satellite network and other equipment, net

 

149,769

 

 

 

160,070

 

Goodwill

 

166,129

 

 

 

166,129

 

Intangible assets, net

 

76,529

 

 

 

86,264

 

Other assets

 

25,153

 

 

 

12,603

 

Deferred income taxes

 

127

 

 

 

109

 

Total assets

$

587,712

 

 

$

586,459

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

17,395

 

 

$

15,527

 

Accrued liabilities

 

41,754

 

 

 

35,735

 

Current portion of deferred revenue

 

2,308

 

 

 

5,954

 

Total current liabilities

 

61,457

 

 

 

57,216

 

Note payable - related party

 

1,241

 

 

 

1,298

 

Notes payable, net of unamortized deferred issuance costs

 

246,489

 

 

 

245,907

 

Deferred revenue, net of current portion

 

8,771

 

 

 

5,471

 

Deferred tax liabilities

 

15,012

 

 

 

16,109

 

Other liabilities

 

14,162

 

 

 

2,600

 

Total liabilities

 

347,132

 

 

 

328,601

 

Commitments and contingencies

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

ORBCOMM Inc. stockholders' equity

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, par value $0.001; 1,000,000 shares authorized;

   40,624 and 39,442 shares issued and outstanding at September 30, 2019 and

   December 31, 2018, respectively

 

406

 

 

 

394

 

Common stock, par value $0.001; 250,000,000 shares authorized; 78,286,252 and

   79,008,243 shares issued at September 30, 2019 and December 31, 2018, respectively

 

78

 

 

 

79

 

Additional paid-in capital

 

448,833

 

 

 

449,343

 

Accumulated other comprehensive loss

 

(1,132

)

 

 

(381

)

Accumulated deficit

 

(208,441

)

 

 

(192,507

)

Less treasury stock, at cost; 98,276 and 29,990 shares at September 30, 2019 and

   December 31, 2018, respectively

 

(433

)

 

 

(96

)

Total ORBCOMM Inc. stockholders' equity

 

239,311

 

 

 

256,832

 

Noncontrolling interests

 

1,269

 

 

 

1,026

 

Total equity

 

240,580

 

 

 

257,858

 

Total liabilities and equity

$

587,712

 

 

$

586,459

 

 

 


 

ORBCOMM Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,651

)

 

$

(20,387

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Change in allowance for doubtful accounts

 

 

1,766

 

 

 

2,995

 

Change in the fair value of acquisition-related contingent consideration

 

 

(2,063

)

 

 

(5,494

)

Amortization and write-off of deferred financing fees

 

 

582

 

 

 

582

 

Depreciation and amortization

 

 

37,998

 

 

 

36,146

 

Stock-based compensation

 

 

5,406

 

 

 

5,747

 

Foreign exchange (gain) loss

 

 

(194

)

 

 

64

 

Deferred income taxes

 

 

(1,097

)

 

 

(1,847

)

Other

 

 

1,971

 

 

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,972

)

 

 

(14,490

)

Inventories

 

 

(3,973

)

 

 

5,554

 

Prepaid expenses and other assets

 

 

(3,338

)

 

 

601

 

Accounts payable and accrued liabilities

 

 

6,960

 

 

 

(11,493

)

Deferred revenue

 

 

(348

)

 

 

1,687

 

Other liabilities

 

 

(1,246

)

 

 

(595

)

Net cash provided by (used in) operating activities

 

 

20,801

 

 

 

(930

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(16,234

)

 

 

(17,163

)

Other

 

 

 

 

 

650

 

Net cash used in investing activities

 

 

(16,234

)

 

 

(16,513

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of underwriters’ discounts and

   commissions and offering costs of $1,705

 

 

 

 

 

27,967

 

Payments under revolving credit facility

 

 

 

 

 

(14,000

)

Proceeds under revolving credit facility

 

 

 

 

 

14,000

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

604

 

 

 

668

 

Purchases of common stock under share repurchase program

 

 

(7,875

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(7,271

)

 

 

28,635

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(158

)

 

 

(128

)

Net (decrease) increase in cash and cash equivalents

 

 

(2,862

)

 

 

11,064

 

Beginning of period

 

 

53,766

 

 

 

34,830

 

End of period

 

$

50,904

 

 

$

45,894

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

10,000

 

 

$

10,036

 

Income taxes

 

$

2,439

 

 

$

3,221

 

 

 

 

 

 

 

 

 


 


 

The following table reconciles Net Loss Attributable to ORBCOMM Inc. to EBITDA and Adjusted EBITDA for the periods shown:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

(In thousands)

2019

 

 

2018

 

 

2019

 

 

2018

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

$

(4,013

)

 

$

(3,295

)

 

$

(15,922

)

 

$

(20,603

)

Income tax expense

 

1,504

 

 

 

1,242

 

 

 

3,354

 

 

 

3,410

 

Interest income

 

(444

)

 

 

(648

)

 

 

(1,408

)

 

 

(1,576

)

Interest expense

 

5,287

 

 

 

5,232

 

 

 

15,850

 

 

 

15,733

 

Depreciation and amortization

 

12,794

 

 

 

12,081

 

 

 

37,998

 

 

 

36,146

 

EBITDA

$

15,128

 

 

$

14,612

 

 

$

39,872

 

 

$

33,110

 

Adjustments to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

1,663

 

 

 

2,312

 

 

 

5,406

 

 

 

5,747

 

Noncontrolling interests

 

144

 

 

 

73

 

 

 

271

 

 

 

216

 

Acquisition-related and integration costs

 

4

 

 

 

395

 

 

 

693

 

 

 

1,495

 

Adjusted EBITDA

$

16,939

 

 

$

17,392

 

 

$

46,242

 

 

$

40,568

 

 

The following tables reconcile GAAP Service Gross Margin to Non-GAAP Service Gross Margin and GAAP Product Gross Margin to Non-GAAP Product Gross Margin for the periods shown:

 

 

 

Quarters Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(In thousands, except margin data)

 

 

 

 

 

 

Service revenues

 

$

40,550

 

 

$

38,473

 

 

$

119,295

 

 

$

114,940

 

Minus - Cost of services, including depreciation and

   amortization expense

 

 

16,804

 

 

 

17,059

 

 

 

51,858

 

 

 

53,576

 

GAAP Service gross profit

 

$

23,746

 

 

$

21,414

 

 

$

67,437

 

 

$

61,364

 

Plus - Depreciation and amortization expense

 

 

4,236

 

 

 

4,295

 

 

 

12,735

 

 

 

12,872

 

Non-GAAP Service gross profit

 

$

27,982

 

 

$

25,709

 

 

$

80,172

 

 

$

74,236

 

GAAP Service Gross Margin

 

 

58.6

%

 

 

55.7

%

 

 

56.5

%

 

 

53.4

%

Non-GAAP Service Gross Margin

 

 

69.0

%

 

 

66.8

%

 

 

67.2

%

 

 

64.6

%

 

 

 

Quarters Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(In thousands, except margin data)

 

 

 

 

 

 

Product sales

 

$

28,643

 

 

$

32,569

 

 

$

83,036

 

 

$

94,863

 

Minus - Cost of product sales, including depreciation

   and amortization expense

 

 

20,352

 

 

 

25,414

 

 

 

60,385

 

 

 

75,887

 

GAAP Product gross profit

 

$

8,291

 

 

$

7,155

 

 

$

22,651

 

 

$

18,976

 

Plus - Depreciation and amortization expense

 

 

712

 

 

 

735

 

 

 

2,110

 

 

 

2,524

 

Non-GAAP Product gross profit

 

$

9,003

 

 

$

7,890

 

 

$

24,761

 

 

$

21,500

 

GAAP Product Gross Margin

 

 

28.9

%

 

 

22.0

%

 

 

27.3

%

 

 

20.0

%

Non-GAAP Product Gross Margin

 

 

31.4

%

 

 

24.2

%

 

 

29.8

%

 

 

22.7

%

 

ORBCOMM publicly reports its financial information in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). To facilitate external analysis of the Company’s operating performance, ORBCOMM also presents financial information that are considered “non-GAAP financial measures” under Regulation G and related reporting requirements promulgated by the U.S. Securities and Exchange Commission. Non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, Net Income (Loss) or other measures of financial performance prepared in

 


 

accordance with GAAP and may be different than those presented by other companies. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are not performance measures calculated in accordance with GAAP and are therefore considered non-GAAP measures. Reconciliation tables are presented above.

 

The Company’s outlook for 2019 and 2020 includes non-GAAP measures, such as Adjusted EBITDA and Adjusted EBITDA Margin, which exclude charges or credits not indicative of core operations, which may include but not be limited to stock-based compensation expense, acquisition-related and integration costs, impairment loss, and other significant items that currently cannot be predicted. The exact amount of these charges or credits are not currently determinable, but may be significant. Accordingly, the Company is unable to provide equivalent reconciliations from GAAP to non-GAAP for these financial measures.

 

EBITDA is defined as earnings attributable to ORBCOMM Inc. before interest income (expense), provision for income taxes, depreciation and amortization, and loss on debt extinguishment. ORBCOMM believes EBITDA is useful to its management and investors in evaluating operating performance because it is one of the primary measures used to evaluate the economic productivity of the Company’s operations, including its ability to obtain and maintain its customers, its ability to operate its business effectively, the efficiency of its employees and the profitability associated with their performance. It also helps ORBCOMM’s management and investors to meaningfully evaluate and compare the results of the Company’s operations from period to period on a consistent basis by removing the impact of its financing transactions and the depreciation and amortization impact of capital investments from its operating results. In addition, ORBCOMM management uses EBITDA in presentations to its board of directors to enable it to have the same measurement of operating performance used by management and for planning purposes, including the preparation of the annual operating budget.

 

The Company also believes that Adjusted EBITDA, defined as EBITDA adjusted for stock-based compensation expense, noncontrolling interests, impairment loss, and acquisition-related and integration costs, is useful to investors to evaluate the Company’s core operating results and financial performance because it excludes items that are significant non-cash or non-recurring expenses reflected in the Condensed Consolidated Statements of Operations. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Total Revenues.

 

Non-GAAP Service Gross Margin is defined as Non-GAAP Service gross profit divided by Service Revenue. Non-GAAP Service gross profit is defined as Service Revenue, minus costs of services (including depreciation and amortization expense) plus depreciation and amortization expense. Non-GAAP Product Gross Margin is defined as Non-GAAP Product gross profit divided by Product Sales. Non-GAAP Product gross profit is defined as Product Sales, minus cost of product (including depreciation and amortization expense) plus depreciation and amortization expense. The Company believes that Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are useful to evaluate and compare the results of the Company’s operations from period to period on a consistent basis by removing the depreciation and amortization impact of capital investments from its operating results.