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United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File Number 001-33118

 

ORBCOMM INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

41-2118289

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

395 W. Passaic Street, Rochelle Park, New Jersey 07662

(Address of principal executive offices)

703-433-6300

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

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

The number of shares outstanding of the registrant’s common stock as of April 27, 2020 is 78,622,348.

 

 


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

3

Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2020 and March 31, 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2020 and March 31, 2019

5

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2020 and March 31, 2019

6

Condensed Consolidated Statements of Changes in Equity (unaudited) for the three months ended March 31, 2020 and March 31, 2019

7

Notes to the Condensed Consolidated Financial Statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3. Quantitative and Qualitative Disclosures about Market Risks

31

Item 4. Disclosure Controls and Procedures

32

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3. Defaults Upon Senior Securities

34

Item 4. Mine Safety Disclosures

34

Item 5. Other Information

34

Item 6. Exhibits

35

SIGNATURES

36

 

 

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ORBCOMM Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share data)

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

70,112

 

 

$

54,258

 

Accounts receivable, net of allowance for doubtful accounts of $5,305

   and $4,480, respectively

 

58,460

 

 

 

60,595

 

Inventories

 

40,473

 

 

 

39,881

 

Prepaid expenses and other current assets

 

16,200

 

 

 

18,003

 

Total current assets

 

185,245

 

 

 

172,737

 

Satellite network and other equipment, net

 

140,291

 

 

 

145,553

 

Goodwill

 

166,129

 

 

 

166,129

 

Intangible assets, net

 

70,096

 

 

 

73,280

 

Other assets

 

21,735

 

 

 

23,149

 

Deferred income taxes

 

207

 

 

 

132

 

Total assets

$

583,703

 

 

$

580,980

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

14,796

 

 

$

16,722

 

Accrued liabilities

 

35,625

 

 

 

36,951

 

Current portion of deferred revenue

 

6,932

 

 

 

3,865

 

Total current liabilities

 

57,353

 

 

 

57,538

 

Note payable - related party

 

1,252

 

 

 

1,275

 

Notes payable, net of unamortized deferred issuance costs

 

261,877

 

 

 

246,683

 

Deferred revenue, net of current portion

 

2,708

 

 

 

6,771

 

Deferred tax liabilities

 

14,900

 

 

 

14,894

 

Other liabilities

 

15,623

 

 

 

16,303

 

Total liabilities

 

353,713

 

 

 

343,464

 

Commitments and contingencies

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

ORBCOMM Inc. stockholders' equity

 

 

 

 

 

 

 

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

   authorized; 40,624 shares issued and outstanding at March 31, 2020 and

   December 31, 2019

 

406

 

 

 

406

 

Common stock, par value $0.001; 250,000,000 shares authorized; 78,525,184 and

   78,062,451 shares issued at March 31, 2020 and December 31, 2019, respectively

 

78

 

 

 

78

 

Additional paid-in capital

 

449,431

 

 

 

447,681

 

Accumulated other comprehensive loss

 

(907

)

 

 

(1,013

)

Accumulated deficit

 

(217,917

)

 

 

(210,942

)

Less treasury stock, at cost; 836,904 shares and 0 shares at March 31, 2020

   and December 31, 2019, respectively

 

(2,502

)

 

 

 

Total ORBCOMM Inc. stockholders' equity

 

228,589

 

 

 

236,210

 

Noncontrolling interests

 

1,401

 

 

 

1,306

 

Total equity

 

229,990

 

 

 

237,516

 

Total liabilities and equity

$

583,703

 

 

$

580,980

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

3


ORBCOMM Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Service revenues

 

$

40,524

 

 

$

39,007

 

Product sales

 

 

25,655

 

 

 

27,028

 

Total revenues

 

 

66,179

 

 

 

66,035

 

Cost of revenues, exclusive of depreciation and amortization

   shown below:

 

 

 

 

 

 

 

 

Cost of services

 

 

13,081

 

 

 

13,047

 

Cost of product sales

 

 

17,281

 

 

 

19,028

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

19,730

 

 

 

17,179

 

Product development

 

 

3,820

 

 

 

3,967

 

Depreciation and amortization

 

 

13,364

 

 

 

12,678

 

Acquisition-related and integration costs

 

 

91

 

 

 

215

 

Loss from operations

 

 

(1,188

)

 

 

(79

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

416

 

 

 

392

 

Other income (expense)

 

 

(266

)

 

 

242

 

Interest expense

 

 

(5,246

)

 

 

(5,241

)

Total other expense

 

 

(5,096

)

 

 

(4,607

)

Loss before income taxes

 

 

(6,284

)

 

 

(4,686

)

Income taxes

 

 

553

 

 

 

710

 

Net loss

 

 

(6,837

)

 

 

(5,396

)

Less: Net income attributable to noncontrolling

   interests

 

 

138

 

 

 

94

 

Net loss attributable to ORBCOMM Inc.

 

$

(6,975

)

 

$

(5,490

)

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(6,975

)

 

$

(5,490

)

Per share information-basic:

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.09

)

 

$

(0.07

)

Per share information-diluted:

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.09

)

 

$

(0.07

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

78,313

 

 

 

79,387

 

Diluted

 

 

78,313

 

 

 

79,387

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

4


ORBCOMM Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(6,837

)

 

$

(5,396

)

Other comprehensive income - Foreign currency translation

   adjustments

 

 

63

 

 

 

(515

)

Other comprehensive income

 

 

63

 

 

 

(515

)

Comprehensive loss

 

 

(6,774

)

 

 

(5,911

)

Less: Comprehensive income attributable to

   noncontrolling interests

 

 

(95

)

 

 

(85

)

Comprehensive loss attributable to ORBCOMM Inc.

 

$

(6,869

)

 

$

(5,996

)

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

5


ORBCOMM Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,837

)

 

$

(5,396

)

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

 

 

 

 

 

 

 

 

Change in allowance for doubtful accounts

 

 

1,301

 

 

 

144

 

Change in the fair value of acquisition-related contingent consideration

 

 

 

 

 

(2,063

)

Amortization and write-off of deferred financing fees

 

 

194

 

 

 

194

 

Depreciation and amortization

 

 

13,364

 

 

 

12,678

 

Stock-based compensation

 

 

1,679

 

 

 

2,082

 

Foreign exchange (gain) loss

 

 

106

 

 

 

(256

)

Deferred income taxes

 

 

(20

)

 

 

(1,042

)

Other

 

 

580

 

 

 

752

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

823

 

 

 

(2,852

)

Inventories

 

 

(608

)

 

 

(785

)

Prepaid expenses and other assets

 

 

2,424

 

 

 

(1,549

)

Accounts payable and accrued liabilities

 

 

(3,160

)

 

 

7,439

 

Deferred revenue

 

 

(1,005

)

 

 

351

 

Other liabilities

 

 

(634

)

 

 

(679

)

Net cash provided by operating activities

 

 

8,207

 

 

 

9,018

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,843

)

 

 

(4,515

)

Net cash used in investing activities

 

 

(4,843

)

 

 

(4,515

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchases of common stock under share repurchase program

 

 

(2,527

)

 

 

 

Proceeds from revolving credit facility

 

 

15,000

 

 

 

 

Net cash provided by financing activities

 

 

12,473

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

17

 

 

 

(191

)

Net increase in cash and cash equivalents

 

 

15,854

 

 

 

4,312

 

Beginning of period

 

 

54,258

 

 

 

53,766

 

End of period

 

$

70,112

 

 

$

58,078

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

 

Income taxes

 

$

2,666

 

 

$

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred not yet paid

 

$

1,065

 

 

$

467

 

Stock-based compensation related to capital expenditures

 

$

113

 

 

$

336

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

 

6


ORBCOMM Inc.

Condensed Consolidated Statements of Changes in Equity

Three Months Ended March 31, 2020 and 2019

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

Treasury stock

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

Shares

 

 

Amount

 

 

interests

 

 

equity

 

Balances, January 1, 2020

 

 

40,624

 

 

$

406

 

 

 

78,062,451

 

 

$

78

 

 

$

447,681

 

 

$

(1,013

)

 

$

(210,942

)

 

 

 

 

$

 

 

$

1,306

 

 

$

237,516

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

421,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,775

 

Common stock repurchased

  under share repurchase program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

 

 

 

 

836,904

 

 

 

(2,502

)

 

 

 

 

 

(2,527

)

Exercise of SARs

 

 

 

 

 

 

 

 

41,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,975

)

 

 

 

 

 

 

 

 

138

 

 

 

(6,837

)

Foreign currency

   translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

63

 

Balances, March 31, 2020

 

 

40,624

 

 

$

406

 

 

 

78,525,184

 

 

$

78

 

 

$

449,431

 

 

$

(907

)

 

$

(217,917

)

 

 

836,904

 

 

$

(2,502

)

 

$

1,401

 

 

$

229,990

 

Balances, January 1, 2019

 

 

39,442

 

 

$

394

 

 

 

79,008,243

 

 

$

79

 

 

$

449,343

 

 

$

(381

)

 

$

(192,507

)

 

 

29,990

 

 

$

(96

)

 

$

1,026

 

 

$

257,858

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

496,336

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,395

 

Common stock issued as

   payment for MPUs

 

 

 

 

 

 

 

 

60,885

 

 

 

 

 

 

502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

502

 

Exercise of SARs

 

 

 

 

 

 

 

 

3,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,490

)

 

 

 

 

 

 

 

 

94

 

 

 

(5,396

)

Foreign currency

   translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(506

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(515

)

Balances, March 31, 2019

 

 

39,442

 

 

$

394

 

 

 

79,568,496

 

 

$

80

 

 

$

452,240

 

 

$

(887

)

 

$

(197,997

)

 

 

29,990

 

 

$

(96

)

 

$

1,111

 

 

$

254,845

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

 

7


ORBCOMM Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

 

 

1. Organization and Business

ORBCOMM Inc. (“ORBCOMM” or the “Company”), a Delaware corporation, is a global provider of industrial Internet of Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. The Company’s industrial IoT products and services are designed to track, monitor, control and enhance security for a variety of assets, such as trailers, trucks, rail cars, sea containers, power generators, fluid tanks, marine vessels, diesel or electric powered generators (“gensets”), oil and gas wells, pipeline monitoring equipment, irrigation control systems and utility meters, in the transportation and supply chain, heavy equipment, fixed asset monitoring and maritime industries, as well as for governments. Additionally, the Company provides satellite Automatic Identification Service (“AIS”) data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide. Through two acquisitions in 2017, the Company added vehicle fleet management, as well as in-cab and vehicle fleet solutions to its transportation solution portfolio. The Company provides its services using multiple network platforms, including its own constellation of low-Earth orbit satellites and accompanying ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular (Tier One) wireless providers. The Company also offers customer solutions utilizing additional satellite network service options that the Company obtains through service agreements entered into with multiple mobile satellite providers. The Company’s satellite-based customer solution offerings use small, low-power, mobile satellite subscriber communicators for remote asset connectivity, and the Company’s terrestrial-based solutions utilize cellular data modems with subscriber identity modules (“SIMs”). The Company also resells service using the two-way Inmarsat plc satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging the Company’s IsatDataPro technology. The Company’s customer solutions provide access to data gathered over these systems via connections to other public or private networks, including the Internet. The Company is dedicated to providing what it believes are the most versatile, leading-edge industrial IoT solutions in its markets to enable its customers to run their businesses more efficiently.

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying financial statements are unaudited and, in the opinion of management, include all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations, comprehensive income and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and investments in variable interest entities in which the Company is determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The portions of majority-owned subsidiaries that the Company does not own are reflected as noncontrolling interests on the condensed consolidated balance sheets.

Investments

Investments in entities over which the Company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method of accounting. The Company considers several factors in determining whether it has the ability to exercise significant influence with respect to investments, including, but not limited to, its direct and indirect ownership level in the voting securities, active participation on the board of directors, approval of operating and budgeting decisions and other participatory and protective rights. Under the equity method, the Company’s proportionate share of the net income or loss of such investees is reflected in the Company’s condensed consolidated results of operations. When the Company does not exercise significant influence over the investee, the investment is accounted for under the cost method.

Although the Company owns interests in companies that it accounts for pursuant to the equity method, the investments in those entities had no carrying value as of March 31, 2020 and December 31, 2019. The Company has no guarantees or other funding obligations to those entities and the Company had no equity in the earnings or losses of those investees for the three months ended March 31, 2020 and 2019.

8


 

Acquisition-Related and Integration Costs

Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to acquisitions.

Revenue Recognition

On January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). The Company reviewed its contract portfolio and determined its application of ASU 2014-09 did not have a material impact on the comparability of revenue recognized prior to the adoption of ASU 2014-09.

The Company derives recurring service revenues primarily from monthly fees for industrial IoT connectivity services that consist of subscriber-based and recurring monthly usage fees for each subscriber communicator or SIM activated for use on its satellite network, other satellite networks and cellular wireless networks that the Company resells to its resellers, Market Channel Partners (“MCPs”) and Market Channel Affiliates (“MCAs”), and direct customers. In addition, the Company earns recurring service revenues from subscription-based services providing recurring AIS data services to government and commercial customers worldwide. The Company also earns recurring service revenues from activations of subscriber communicators and SIMs, optional separately-priced extended warranty service agreements extending beyond the initial warranty period, typically one year, which are billed to the customer upon shipment of a subscriber communicator, and royalty fees relating to the manufacture of subscriber communicators under a manufacturing agreement.

Service revenues derived from usage fees are generally based upon the data transmitted by a customer, the overall number of subscriber communicators and/or SIMs activated by each customer, and whether the Company provides services through its value-added portal. Using the output method, these service revenues are recognized over time, as services are rendered, or at a point in time, based on the contract terms. AIS service revenues are generated over time from monthly subscription-based services supplying AIS data services to government and commercial customers worldwide, using the output method. Revenues from the activation of both subscriber communicators and SIMs are initially recorded as deferred revenues and are, thereafter, recognized on a ratable basis using a time-based output method, generally over three years, the estimated life of the subscriber communicator. Revenues from separately-priced extended warranty service agreements extending beyond the initial warranty period, typically one year, are initially recorded as deferred revenues and are, thereafter, recognized on a ratable basis using a time-based output method, generally over two to five years.

The Company earns other service revenues from installation services and engineering, technical and management support services. Revenues generated from installation services are recognized at a point in time when the services are completed. Revenues generated from engineering, technical and management support services to customers are recognized over time as the service is provided. The Company also generates other service revenues through the sale of software licenses to its customers, which are recognized at a point in time when the license is provided to the customer.

Product sales are derived from sales of complete industrial IoT subscriber communicators, including telematics devices, modems or cellular wireless SIMs (for the Company’s terrestrial-communication services) to the Company’s resellers (i.e., MCPs and MCAs) and direct customers. Product sales are recognized at a point in time when title transfers, when the products are shipped or when customers accept the products, depending on the specific contractual terms. Sales of subscriber communicators and SIMs are not subject to return and title and risk of loss pass to the customer generally at the time of shipment.

Amounts received prior to the performance of services under customer contracts are recognized as deferred revenues and revenue recognition is deferred until such time that all revenue recognition criteria have been met. Deferred revenue as of March 31, 2020 and December 31, 2019 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Service activation fees

 

$

2,957

 

 

$

3,007

 

Prepaid services

 

 

5,486

 

 

 

6,423

 

Extended warranty revenues

 

 

1,197

 

 

 

1,206