United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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
ORBCOMM INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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).
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:
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares outstanding of the registrant’s common stock as of October 28, 2019 is
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ORBCOMM Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
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September 30, |
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2019 |
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December 31, |
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(Unaudited) |
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2018 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts of $ and $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Satellite network and other equipment, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Deferred income taxes |
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Total assets |
$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued liabilities |
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Current portion of deferred revenue |
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Total current liabilities |
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Note payable - related party |
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Notes payable, net of unamortized deferred issuance costs |
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Deferred revenue, net of current portion |
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Deferred tax liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Equity: |
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ORBCOMM Inc. stockholders' equity |
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Series A Convertible Preferred Stock, par value $ December 31, 2018, respectively |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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Less treasury stock, at cost; December 31, 2018, respectively |
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Total ORBCOMM Inc. stockholders' equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
$ |
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$ |
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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)
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Quarters Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Revenues: |
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Service revenues |
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$ |
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$ |
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$ |
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$ |
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Product sales |
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Total revenues |
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Cost of revenues, exclusive of depreciation and amortization shown below: |
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Cost of services |
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Cost of product sales |
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Operating expenses: |
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Selling, general and administrative |
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Product development |
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Depreciation and amortization |
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Acquisition-related and integration costs |
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Income (loss) from operations |
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( |
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Other income (expense): |
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Interest income |
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Other income (expense) |
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Interest expense |
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( |
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Total other expense |
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( |
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( |
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Loss before income taxes |
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( |
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( |
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( |
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Income taxes |
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Net loss |
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( |
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( |
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( |
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Less: Net income attributable to noncontrolling interests |
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Net loss attributable to ORBCOMM Inc. |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss attributable to ORBCOMM Inc. common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Per share information-basic: |
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Net loss attributable to ORBCOMM Inc. common stockholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Per share information-diluted: |
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Net loss attributable to ORBCOMM Inc. common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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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)
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Quarters Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Other comprehensive loss - foreign currency translation adjustments |
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( |
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( |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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( |
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( |
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( |
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Less: Comprehensive income attributable to noncontrolling interests |
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( |
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( |
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( |
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Comprehensive loss attributable to ORBCOMM Inc. |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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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)
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Nine Months Ended September 30, |
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2019 |
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2018 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Change in allowance for doubtful accounts |
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Change in the fair value of acquisition-related contingent consideration |
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( |
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( |
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Amortization and write-off of deferred financing fees |
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Depreciation and amortization |
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Stock-based compensation |
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Foreign exchange (gain) loss |
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( |
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Deferred income taxes |
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( |
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( |
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Other |
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— |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable and accrued liabilities |
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( |
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Deferred revenue |
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Other liabilities |
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( |
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( |
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Net cash provided by (used in) operating activities |
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( |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Other |
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— |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from public offering of common stock, net of underwriters’ discounts and commissions and offering costs of $ |
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— |
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Payments under revolving credit facility |
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— |
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( |
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Proceeds under revolving credit facility |
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— |
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Proceeds from issuance of common stock under employee stock purchase plan |
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Purchases of common stock under share repurchase program |
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( |
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— |
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Net cash (used in) provided by financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Beginning of period |
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End of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Cash paid for: |
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Interest |
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$ |
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$ |
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Income taxes |
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$ |
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$ |
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Supplemental schedule of noncash investing and financing activities |
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Noncash investing and financing activities: |
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Capital expenditures incurred not yet paid |
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$ |
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$ |
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Stock-based compensation related to capital expenditures |
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$ |
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$ |
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Series A convertible preferred stock dividend paid-in-kind |
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$ |
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$ |
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Common stock issued as payment for MPUs |
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$ |
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$ |
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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
Quarters Ended September 30, 2019 and 2018
(in thousands, except share data)
(Unaudited)
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Accumulated |
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Series A convertible |
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Additional |
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other |
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Preferred stock |
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Common stock |
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paid-in |
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comprehensive |
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Accumulated |
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Treasury stock |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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income (loss) |
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deficit |
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Shares |
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Amount |
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interests |
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equity |
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Balances, July 1, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Common stock repurchased under share repurchase program |
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— |
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— |
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( |
) |
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( |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Net income (loss) |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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Series A convertible preferred stock dividend |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balances, September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Balances, July 1, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of SARs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balances, September 30, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
7
ORBCOMM Inc.
Condensed Consolidated Statements of Changes in Equity
Nine Months Ended September 30, 2019 and 2018
(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, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of common stock under employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Common stock issued as payment for MPUs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Common stock repurchased under share repurchase program |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Series A convertible preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercise of SARs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balances, September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Balances, January 1, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Proceeds from public offering of common stock, net of underwriters' discounts and commissions and offering costs of $ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Common stock issued as payment for MPUs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of common stock under employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Series A convertible preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercise of SARs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balances, September 30, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
8
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
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, 2018. 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, 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
9
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
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 to its customers and resellers, using the output method. In addition, data analytics service revenues are generated from monthly subscription-based services supplying analytical data to its customers, 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
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 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.
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2019 |
|
|
2018 |
|
||
|
Service activation fees |
|
$ |
|
|
|
$ |
|
|
|
Prepaid services |
|
|
|
|
|
|
|
|
|
Extended warranty revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Long-term portion |
|
$ |
|
|
|
$ |
|
|
10
During the quarter and nine months ended September 30, 2019, the Company recognized revenue of $
Shipping costs billed to customers are included in product sales and the related costs are included as cost of product sales.
The Company generates revenue from leasing arrangements of subscriber communicators, under FASB Accounting Standards Codification (“ASC”) Topic 842 “Leases” (“ASC 842”), using the estimated selling prices for each of the deliverables recognized. Product and installation revenues associated with these arrangements are recognized upon shipment or installation of the subscriber communicator, depending on the specific contractual terms. Service and warranty revenues are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection from the customer is not reasonably assured at the time the service is provided.
The following table summarizes the components of revenue from contracts with customers, as well as revenue recognized under ASC 842:
|
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Revenue from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring service revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized under ASC 842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Revenue Recognition for Arrangements with Multiple Performance Obligations
The Company enters into contracts with its customers that include multiple performance obligations, which typically include subscriber communicators, monthly usage fees and optional extended warranty service agreements. The Company evaluates each item to determine whether it represents a promise to transfer a distinct good or service to the customer and therefore is a separate performance obligation under ASU 2014-09. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative stand-alone selling price of each performance obligation. The Company uses an observable price to determine the stand-alone selling price for each separate performance obligation when sold on its own or a cost-plus margin approach when an observable price is not available.
If an arrangement provided to a customer has a significant and incremental discount on future revenue, such discount is considered a performance obligation and a proportionate amount of the discount should be allocated to each element based on the relative stand-alone selling price of each element, regardless of the discount. The Company has determined that arrangements provided to its customers do not include significant and incremental discounts.
Fair Value of Financial Instruments
The Company has no financial assets or liabilities that are measured at fair value on a recurring basis. However, if certain triggering events occur, the Company is required to evaluate the non-financial assets for impairment and any resulting asset impairment would require that a non-financial asset be recorded at fair value. FASB ASC Topic 820 “Fair Value Measurement Disclosure” prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1 - unadjusted quoted prices for identical assets or liabilities traded in active markets; Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3 - unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.
The carrying amounts of the Company’s financial instruments, including cash, accounts receivable and accounts payable approximated their fair values due to the short-term nature of these items. As of September 30, 2019, the fair value of the Senior Secured Notes, as defined below, is based on observable relevant market information. Fluctuation between the carrying amount and the fair value of the Senior Secured Notes for the period presented is associated with changes in market interest rates. The Company may redeem all or part of the Senior Secured Notes at any time or from time to time at its option at specified redemption prices that would include “make-whole” premiums. Refer to “Note 10 – Notes Payable” for more information.
11
The carrying amounts and fair values of the Company’s Senior Secured Notes are shown in the following table:
|
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||||||||||
|
|
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
|
Senior Secured Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The fair value of the note payable - related party, $
Concentration of Risk
The Company’s customers are primarily commercial organizations. Accounts receivable are generally unsecured.
Accounts receivable are due in accordance with payment terms set forth in contracts negotiated with customers. Amounts due from customers are stated net of an allowance for doubtful accounts. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts are past due, the customer’s current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are deemed uncollectible.
There were
There were
The Company is dependent on
As of September 30, 2019, the Company did not maintain in-orbit insurance coverage for its ORBCOMM Generation 1 or ORBCOMM Generation 2 satellites to address the risk of potential systemic anomalies, failures or catastrophic events affecting its satellite constellation.
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on a weighted average cost basis. At September 30, 2019 and December 31, 2018, inventory, net of inventory obsolescence, consisted primarily of finished goods and purchased parts to be utilized by its contract manufacturer totaling $
Valuation of Long-Lived Assets
Property and equipment and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The Company measures recoverability by comparing the carrying amounts of the assets to the projected undiscounted cash flows the assets are expected to generate. An impairment loss is recognized to the extent the carrying value exceeds the fair value.
The Company’s satellite constellation and related assets are evaluated as a single asset group whenever facts or circumstances indicate that the carrying value may not be recoverable. If indicators of impairment are identified, recoverability of long-lived assets is measured by comparing their carrying amount to the projected cash flows the assets are expected to generate.
Determining whether an impairment has occurred typically requires the use of significant estimates and assumptions, including the allocation of cash flows to assets or asset groups and, if required, an estimate of fair value for those assets or asset groups.
If a satellite were to fail while in-orbit, the resulting loss would be charged to expense in the period it is determined that the satellite is not recoverable. Refer to “Note 6 – Satellite Network and Other Equipment, Net” for more information.
12
Warranty Costs
The Company accrues for warranty coverage on product sales estimated at the time of sale based on historical costs to repair or replace products for customers compared to historical product sales. The warranty accrual is included in accrued liabilities on the Company’s condensed consolidated balance sheets.
Separately-priced extended warranty coverage is recorded as warranty revenue over the term of the extended warranty coverage and the related warranty costs are recorded as incurred during the coverage period.
Warranty coverage that includes additional services, such as repairs and maintenance of the product, is treated as a separate performance obligation and the related warranty and repairs/maintenance costs are recorded as incurred.
Refer to “Note 8 – Accrued Liabilities” for more information.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both finance and operating leases, along with additional qualitative and quantitative disclosures. The Company adopted the guidance prospectively as of January 1, 2019, the date of initial application. As part of the adoption, the Company elected the package of practical expedients, the short-term lease exemption and the practical expedient to not separate lease and non-lease components. The Company completed its comprehensive review of its lease portfolio for all lease types and embedded leases throughout each region. Refer to “Note 15 – Leases” for more information.
In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which will be effective for fiscal years beginning after December 15, 2019. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under ASU 2017-04, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The adoption of this standard, which will be applied prospectively, is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which will be effective for fiscal years beginning after December 15, 2019. ASU 2016-13 introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets. Upon initial recognition, an entity will be required to estimate a credit loss expected over the life of an exposure. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
3. Acquisitions
inthinc Technology Solutions, Inc.
On
Contingent Consideration
Additional consideration was conditionally due to the Inthinc sellers upon achievement of certain financial milestones through June 2019. The fair value measurement of the contingent consideration obligation was determined using Level 3 unobservable inputs supported by little or no market activity and based on the Company’s own assumptions. The estimated fair value of the contingent consideration was determined based on the Company’s estimates using the probability-weighted discounted cash flow approach. As of September 30, 2019 and December 31, 2018, the Company recorded $
13
general and administrative (“SG&A”) expenses on the condensed consolidated statement of operations for the nine months ended September 30, 2019.
4. Stock-Based Compensation
The Company’s stock-based compensation plan consists of its 2016 Long-Term Incentives Plan (the “2016 LTIP”). As of September 30, 2019, there were
Total stock-based compensation recorded by the Company for the quarters ended September 30, 2019 and 2018 was $
The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations for the quarters and nine months ended September 30, 2019 and 2018:
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Cost of services |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of September 30, 2019, the Company had unrecognized compensation costs for all share-based payment arrangements totaling $
Time-Based Stock Appreciation Rights
A summary of the Company’s time-based stock appreciation rights (“SARs”) for the nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
||
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Intrinsic |
|
|||
|
|
|
Number of |
|
|
Average |
|
|
Contractual |
|
|
Value |
|
||||
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(in thousands) |
|
||||
|
Outstanding at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
2.93 |
|
|
$ |
|
|
|
Exercisable at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
2.87 |
|
|
$ |
|
|
|
Vested and expected to vest at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
2.93 |
|
|
$ |
|
|
For the quarters ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense related to these time-based SARs of $
The intrinsic value of the time-based SARs exercised during the nine months ended September 30, 2019 was $
14
Performance-Based Stock Appreciation Rights
A summary of the Company’s performance-based SARs for the nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
||
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Intrinsic |
|
|||
|
|
|
Number of |
|
|
Average |
|
|
Contractual |
|
|
Value |
|
||||
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(in thousands) |
|
||||
|
Outstanding at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
3.87 |
|
|
$ |
|
|
|
Exercisable at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
3.87 |
|
|
$ |
|
|
|
Vested and expected to vest at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
3.87 |
|
|
$ |
|
|
For the quarters and nine months ended September 30, 2019 and 2018, the Company did
The intrinsic value of the performance-based SARs exercised during the nine months ended September 30, 2019 was $
The Company did
Time-Based Restricted Stock Units
A summary of the Company’s time-based restricted stock units (“RSUs”) for the nine months ended September 30, 2019 is as follows:
|
|
|
Number of Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
||
|
Balance at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
Forfeited or expired |
|
|
( |
) |
|
|
|
|
|
Balance at September 30, 2019 |
|
|
|
|
|
$ |
|
|
For the quarters ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense related to the time-based RSUs of $
Performance-Based Restricted Stock Units
A summary of the Company’s performance-based RSUs for the nine months ended September 30, 2019 is as follows:
|
|
|
Number of Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
||
|
Balance at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
Forfeited or expired |
|
|
( |
) |
|
|
|
|
|
Balance at September 30, 2019 |
|
|
|
|
|
$ |
|
|
15
For the quarters ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense related to the performance-based RSUs of $
The fair value of the time-based and performance-based RSU awards are based upon the closing stock price of the Company’s common stock on the date of grant.
Market Performance Units
The Company grants Market Performance Units (“MPUs”) to its senior executives based on stock price performance over a three-year period measured on December 31 of each year in the performance period. The MPUs will vest in equal installments at the end of each year in the performance period only if the Company satisfies the stock price performance targets and the senior executives continue their employment through the dates the Compensation Committee has determined that the targets have been achieved. The value of the MPUs that will be earned each year ranges up to
As the MPUs contain both performance and service conditions, they have been treated as a series of three separate awards, or tranches, for purposes of recognizing stock-based compensation expense. The Company recognizes stock-based compensation expense on a tranche-by-tranche basis over the requisite service period for that specific tranche. The Company estimated the fair value of the MPUs using a Monte Carlo simulation model that used the following assumptions:
|
|
|
Nine Months Ended September 30, |
||
|
|
|
2019 |
|
2018 |
|
Risk-free interest rate |
|
1.61% to 1.88% |
|
2.19% to 2.84% |
|
Estimated volatility factor |
|
40.0% to 54.0% |
|
25.0% to 28.0% |
|
Expected dividends |
|
|
|
|
For the quarters ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense related to these MPUs of $(
As of September 30, 2019, the Company recorded $
In January 2019, the Company issued
In January 2018, the Company issued
Employee Stock Purchase Plan
On February 16, 2016, the Company’s board of directors adopted the ORBCOMM Inc. Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s shareholders on April 20, 2016. Under the terms of the ESPP,
16
5. Net Income (Loss) Attributable to ORBCOMM Inc. Common Stockholders
The Company accounts for earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. The numerator in calculating basic and diluted EPS is an amount equal to the net income (loss) attributable to ORBCOMM Inc. common stockholders for the periods presented. The denominator in calculating basic EPS is the weighted average shares outstanding for the respective periods. The denominator in calculating diluted EPS is the weighted average shares outstanding, plus the dilutive effect of stock option grants, unvested SAR and RSU grants and shares of Series A convertible preferred stock, for the respective periods.
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net loss attributable to ORBCOMM Inc. common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of grants of stock options, unvested SARs and RSUs and shares of Series A convertible preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Diluted number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The computation of net loss attributable to ORBCOMM Inc. common stockholders for the quarters and nine months ended September 30, 2019 and 2018 is as follows:
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net loss attributable to ORBCOMM Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Preferred stock dividends on Series A convertible preferred stock |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net loss attributable to ORBCOMM Inc. common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
6. Satellite Network and Other Equipment, Net
Satellite network and other equipment, net consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2019 |
|
|
2018 |
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Satellite network |
|
|
|
|
|
|
|
|
|
Capitalized software |
|
|
|
|
|
|
|
|
|
Computer hardware |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Assets under construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
During the quarters ended September 30, 2019 and 2018, the Company capitalized internal costs attributable to the design, development and enhancement of the Company’s products and services and internal-use software of $
17
Depreciation and amortization expense for the quarters ended September 30, 2019 and 2018 was $
For the quarters ended September 30, 2019 and 2018, $
As of September 30, 2019 and December 31, 2018, assets under construction primarily consisted of costs associated with acquiring, developing and testing software and hardware for internal and external use that have not yet been placed into service.
7. Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the estimated fair values of the underlying net tangible and intangible assets. Goodwill is allocated to the Company’s one reportable segment, which is its only reporting unit.
Intangible assets, net consisted of the following:
|
|
|
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||||||||||||||||||
|
|
|
Useful life |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||
|
|
|
(years) |
|
Cost |
|
|
amortization |
|
|
Net |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
||||||
|
Customer lists |
|
5 - 15 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Patents and technology |
|
3 - 10 |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Trade names and trademarks |
|
1 - 2 |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
At September 30, 2019, the weighted-average amortization period for the intangible assets was
Amortization expense was $
Estimated future amortization expense for intangible assets is as follows:
|
|
|
Amount |
|
|
|
2019 (remaining) |
|
$ |
|
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
18
8. Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2019 |
|
|
2018 |
|
||
|
Accrued compensation and benefits |
|
$ |
|
|
|
$ |
|
|
|
Accrued warranty obligations |
|
|
|
|
|
|
|
|
|
Acquired customer product liabilities |
|
|
— |
|
|
|
|
|
|
Corporate income tax payable |
|
|
|
|
|
|
|
|
|
Contingent consideration amount |
|
|
— |
|
|
|
|
|
|
VAT payable |
|
|
|
|
|
|
|
|
|
Accrued satellite network and other equipment |
|
|
|
|
|
|
|
|
|
Accrued inventory purchases |
|
|
|
|
|
|
|
|
|
Accrued interest expense |
|
|
|
|
|
|
|
|
|
Accrued professional fees |
|
|
|
|
|
|
|
|
|
Accrued airtime charges |
|
|
|
|
|
|
|
|
|
Short-term lease liability |
|
|
|
|
|
|
— |
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Changes in accrued warranty obligations consisted of the following:
|
|
|
2019 |
|
|
2018 |
|
||
|
Balance at January 1, |
|
$ |
|
|
|
$ |
|
|
|
Warranty liabilities assumed from acquisitions |
|
|
— |
|
|
|
|
|
|
Reduction of warranty liabilities assumed in connection with acquisitions |
|
|
( |
) |
|
|
( |
) |
|
Warranty expense |
|
|
|
|
|
|
|
|
|
Warranty charges |
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, |
|
$ |
|
|
|
$ |
|
|
9. Note Payable - Related Party
In connection with the acquisition of a majority interest in Satcom International Group plc in 2005, the Company recorded an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.), a stockholder of the Company. At each of September 30, 2019 and December 31, 2018, the principal balance of the note payable was €
10. Notes Payable
Senior Secured Notes
On April 10, 2017, the Company issued $
19
The Company has the option to redeem some or all of the Senior Secured Notes at any time on or after April 1, 2020, at redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption. The Company also has the option to redeem some or all of the Senior Secured Notes at any time before April 1, 2020 at a redemption price of
The Indenture contains covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets; subject, in all cases, to certain specified exceptions. Such limitations have various exceptions and baskets as set forth in the Indenture, including the incurrence by the Company and its restricted subsidiaries of indebtedness under potential new credit facilities in the aggregate principal amount at any one time outstanding not to exceed $
In connection with the issuance of the Senior Secured Notes, the Company incurred debt issuance costs of approximately $
Revolving Credit Facility
On December 18, 2017, the Company and certain of its subsidiaries entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent and collateral agent. The Revolving Credit Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $
The Revolving Credit Agreement contains customary representations and warranties, conditions to funding, covenants and events of default. The Revolving Credit Agreement contains covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets; subject, in all cases, to certain specified exceptions. Such limitations have various baskets as set forth in the Revolving Credit Agreement.
At September 30, 2019,
11. Stockholders’ Equity
Preferred Stock
The Company currently has
Series A Convertible Preferred Stock
During the quarter and nine months ended September 30, 2019, the Company issued dividends to the holders of Series A convertible preferred stock in the amount of
20
Common Stock
As of September 30, 2019, the Company has reserved
On April 10, 2018, the Company completed a public offering of
On April 13, 2018, the Company filed a shelf registration statement with the SEC, registering an unspecified amount of debt and/or equity securities that the Company may offer in one or more offerings on terms to be determined at the time of sale. The shelf registration statement was automatically effective upon filing and superseded and replaced the Company’s previous shelf registration statement declared effective on April 14, 2015, which was due to expire on April 14, 2018.
On August 5, 2019, the Company’s Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $
12. Segment Information
The Company operates in
|
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
United States |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
South America |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Japan |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Europe |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Other |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
13. Income Taxes
For the quarters ended September 30, 2019 and 2018, the Company’s income tax expense was $
As of September 30, 2019 and December 31, 2018, the Company maintained a valuation allowance against its net deferred tax assets primarily attributable to operations in the United States, as the realization of such assets was not considered more likely than not.
There were
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
21
14. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters cannot be predicted with certainty, management currently believes that the outcome of these proceedings, including the matters described below, either individually or in the aggregate, will not have a material adverse effect on its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
Joseph Smith v. ORBCOMM Inc.
Joseph Smith filed a complaint on June 3, 2014 against ORBCOMM Inc. and StarTrak Information Technologies LLC in the Eastern District of Texas alleging infringement of U.S. Patent No. 6,611,686 (“the ’686 Patent”). On October 8, 2015, the Company and Joseph Smith entered into a Settlement and Patent Licensing Agreement (the “Smith Settlement Agreement”), which resulted in a dismissal of the pending litigation alleging infringement of the ’686 Patent. The Smith Settlement Agreement granted an exclusive license and transfer of all rights under the ’686 Patent to the Company in exchange for a one-time payment by the Company of $
In accordance with the terms of the Smith Settlement Agreement, the Company brought suit against CalAmp Corp. (“CalAmp”) in April 2016, which was settled on April 24, 2017 (the “CalAmp Settlement”). Pursuant to the CalAmp Settlement, no payments were made by either the Company or CalAmp and each of the Company and CalAmp granted the other royalty-free licenses and covenants not to sue for the patents-in-suit as well as general releases in order to resolve the litigation between CalAmp and the Company.
Mr. Smith claims that the Company received significant non-monetary consideration in the CalAmp Settlement (by virtue of the releases and covenants not to sue for the counterclaims and countersuits brought by CalAmp) in excess of the costs incurred by the Company to pursue CalAmp and is entitled to
Timothy Slifkin v. ORBCOMM Inc.
The Company received a letter dated January 3, 2017 from Timothy Slifkin, containing a Demand for Arbitration asserting fraudulent misrepresentations and various contractual claims based on his employment with StarTrak Information Technologies LLC and seeking a declaratory judgment establishing his ownership of the stock appreciation rights that were forfeited as a result of his termination of employment, with a total monetary claim against of the Company of $
On September 20, 2019, the arbitrator granted the Company’s motion for summary judgment dismissing all of Mr. Slifkin’s claims.
22
Airtime Credits
In 2001, in connection with the organization of ORBCOMM Europe and the reorganization of the ORBCOMM business in Europe, the Company agreed to grant certain country representatives in Europe approximately $
15. Leases
Lessee
The Company determines whether an arrangement is a lease at inception. The Company has operating leases for land, office space, data centers and storage facilities, as well as office equipment and vehicles. The Company’s leases have remaining lease terms of less than
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU assets also include any lease payments made in advance of lease commencements and exclude lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The Company has lease agreements with lease and non-lease components, which are generally not accounted for separately.
Components of lease expense are as follows:
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
2019 |
|
|
|
Operating lease cost |
|
$ |
|
|
The Company has lease arrangements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. In addition, the Company has variable lease costs associated with certain leases. Lease costs associated with the short-term leases and variable lease components, included in SG&A expenses on the Company’s condensed consolidated statements of operations, are not material.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
2019 |
|
|
|
Operating cash flow information: |
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
|
Non-cash activity: |
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations |
|
$ |
|
|
23
Supplemental balance sheet information related to the Company’s operating leases is as follows:
|
|
|
|
September 30, |
|
|
|
|
Balance Sheet Classification |
|
2019 |
|
|
|
Right-of-use assets |
Other assets |
|
$ |
|
|
|
Current lease liabilities |
Accrued liabilities |
|
$ |
|
|
|
Non-current lease liabilities |
Other liabilities |
|
$ |
|
|
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
|
|
|
September 30, |
|
|
|
|
|
2019 |
|
|
|
Weighted-average remaining lease term (in years) |
|
|
7.05 |
|
|
Weighted-average discount rate |
|
|
|
% |
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:
|
|
|
September 30, |
|
|
|
|
|
2019 |
|
|
|
2019 (remaining) |
|
$ |
|
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
|
Present value of lease liabilities |
|
$ |
|
|
Lessor
Although most of the Company’s revenue from its product sales comes from the sale of subscriber communicators, the Company also leases some subscriber communicators to certain customers. The Company determines the existence of a lease when the customer controls the use of the identified product for a period of time defined in the lease agreement. The Company’s leases range in duration between three to
The Company classifies these leases as sales-type leases and recognizes revenue and cost of product sales upon delivery or installation, depending on the specific contractual terms. The Company’s leases include certain termination fees, as defined in the lease agreements, and do not typically include purchase rights at the end of the lease.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements discussed in this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q 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. (“JB Hunt”), 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 and satellite network service providers to deliver existing and developing services in certain areas of our business; significant interruptions, discontinuation or loss of satellite network or other 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 (“Annual Report”), 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.
Unless otherwise noted or the context otherwise requires, references in this Form 10-Q to “ORBCOMM,” “the Company,” “our company,” “we,” “us” or “our” refer to ORBCOMM Inc. and its direct and indirect subsidiaries.
Overview
We are a global provider of industrial IoT solutions, including network connectivity, devices, device management and web reporting applications. These solutions enable optimal business efficiencies, increased asset utilization and reduced asset write-offs, helping customers realize benefits on a worldwide basis. Our 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, we provide satellite AIS data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide. Through two acquisitions in 2017, we added vehicle fleet management, as well as in-cab and vehicle fleet solutions to our transportation product portfolio. We provide our services using multiple network platforms, including our own constellation of low-Earth orbit satellites and our accompanying ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular (Tier One) wireless providers. We also offer customer solutions utilizing additional satellite network service options that we obtain through service agreements we have entered
25
into with third-party mobile satellite providers. Our satellite-based customer solution offerings use small, low-power, mobile satellite subscriber communicators for remote asset connectivity, and our terrestrial-based solutions utilize cellular data modems with subscriber identity modules (“SIMs”). We also resell service using the two-way Inmarsat plc satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging our IsatDataPro technology. Our customer solutions provide access to data gathered over these systems through connections to other public or private networks, including the Internet. We are dedicated to providing what we believe are the most versatile, leading-edge industrial IoT solutions in our markets that enable our customers to run their businesses more efficiently.
Customers benefiting from our network, products and solutions include original equipment manufacturers, such as Caterpillar Inc., Doosan Infracore America, Hitachi Construction Machinery Co. Ltd., John Deere, Komatsu Ltd., and Volvo Construction Equipment; vertical market technology integrators known as value-added resellers (“VARs”), international value-added resellers (“IVARs”), such as American Innovations, and value-added solutions providers (“SPs”), such as Onixsat, Satlink and Sascar (collectively referred to as MCPs); and end-to-end solutions customers such as Carrier Transicold, Thermo King, C&S Wholesale, Canadian National Railways, CR England, Hub Group, Inc., JB Hunt, KLLM Transport Services, Marten Transport, Prime Inc., Swift Transportation, Target, Tropicana, Tyson Foods, Walmart and Werner Enterprises.
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations, liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, accounts receivable, accounting for business combinations, goodwill, intangible assets, satellite network and other equipment, long-lived assets, capitalized development costs, income taxes, warranty costs, loss contingencies and the value of securities underlying stock-based compensation. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies and estimates, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Except for Financial Accounting Standards Board Accounting Standards Update 2016-02 “Leases (Topic 842)” as noted in “Note 2 – Summary of Significant Accounting Policies” and “Note 15 – Leases” of the Notes to the Condensed Consolidated Financial Statements, there have been no material changes to our critical accounting policies during 2019.
Revenues
We derive 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 our satellite network, as well as other satellite networks and cellular wireless networks that we resell to our customers (i.e., our MCPs, MCAs and direct customers). Usage fees are generally based upon the data transmitted by a customer and the overall number of subscriber communicators and/or SIMs activated by each customer and whether we provide services through our value-added portal. Service revenues are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection from the customer is not reasonably assured at the time the service is provided. We also generate recurring AIS service revenues from subscription-based services supplying recurring AIS data services to customers and resellers, as well as data analytic service revenues from monthly subscription-based services supplying analytical data to our customers. In addition, we earn service revenues from extended warranty service agreements extending beyond the initial warranty period of typically one year; installation services; royalty fees from third parties for the use of our proprietary communications protocol, recognized at a point in time when the third party notifies us of the units it has manufactured and a unique serial number is assigned to each unit; and fees from providing engineering, technical and management support services to customers.
We derive product sales primarily from sales of industrial IoT telematics devices, modems and cellular wireless SIMs (for our terrestrial-communication services) to our resellers (i.e., our MCPs and MCAs) and direct customers. Revenues generated from product sales are either recognized when the products are shipped or when customers accept the product, depending on the specific contractual terms. Shipping costs billed to customers are included in product sales and the related costs are included as cost of product sales.
Revenues generated from leasing arrangements of subscriber communicators are recognized using the estimated selling price for each deliverable in the arrangement. Product and installation revenues associated with these arrangements are recognized upon shipment or installation of the subscriber communicator, depending on the specific contractual terms. Service and warranty revenues are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection from the customer is not reasonably assured at the time the service is provided.
26
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.
The table below presents our revenues for the quarters and nine months ended September 30, 2019 and 2018, together with the percentage of total revenues represented by each revenue category:
|
|
|
Quarters Ended September 30, |
|
|||||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
||||||||||
|
Service revenues |
|
$ |
40,550 |
|
|
|
58.6 |
% |
|
$ |
38,473 |
|
|
|
54.2 |
% |
|
Product sales |
|
|
28,643 |
|
|
|
41.4 |
% |
|
|
32,569 |
|
|
|
45.8 |
% |
|
|
|
$ |
69,193 |
|
|
|
100.0 |
% |
|
$ |
71,042 |
|
|
|
100.0 |
% |
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
||||||||||
|
Service revenues |
|
$ |
119,295 |
|
|
|
59.0 |
% |
|
$ |
114,940 |
|
|
|
54.8 |
% |
|
Product sales |
|
|
83,036 |
|
|
|
41.0 |
% |
|
|
94,863 |
|
|
|
45.2 |
% |
|
|
|
$ |
202,331 |
|
|
|
100.0 |
% |
|
$ |
209,803 |
|
|
|
100.0 |
% |
Total revenues for the quarters ended September 30, 2019 and 2018 were $69.2 million and $71.0 million, respectively, a decrease of 2.5%. Total revenues for the nine months ended September 30, 2019 and 2018 were $202.3 million and $209.8 million, respectively, a decrease of 3.6%.
Service Revenues
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Recurring service revenues |
|
$ |
39,161 |
|
|
$ |
37,192 |
|
|
$ |
1,969 |
|
|
|
5.3 |
% |
|
Other service revenues |
|
|
1,389 |
|
|
|
1,281 |
|
|
|
108 |
|
|
|
8.4 |
% |
|
Total service revenues |
|
$ |
40,550 |
|
|
$ |
38,473 |
|
|
$ |
2,077 |
|
|
|
5.4 |
% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Recurring service revenues |
|
$ |
115,196 |
|
|
$ |
111,010 |
|
|
$ |
4,186 |
|
|
|
3.8 |
% |
|
Other service revenues |
|
|
4,099 |
|
|
|
3,930 |
|
|
|
169 |
|
|
|
4.3 |
% |
|
Total service revenues |
|
$ |
119,295 |
|
|
$ |
114,940 |
|
|
$ |
4,355 |
|
|
|
3.8 |
% |
We derive recurring service revenues from monthly fees from industrial IoT connectivity services, extended warranty service agreements extending beyond the initial warranty period of typically one year, royalty fees from third parties for the use of our proprietary communications protocol and activations of subscriber communicators and SIMs. We derive other service revenues from installation services, fees from providing engineering, technical and management support services to customers and the sale of software licenses to our customers.
The increases in service revenues for the quarter and nine months ended September 30, 2019, compared to the prior year periods, were primarily due to revenue generated from growth in billable subscriber communicators across our services. As of September 30, 2019, including the billable subscriber communicators issued by Maersk Lines described below, we had approximately 2,583,000 billable subscriber communicators compared to approximately 2,304,000 billable subscriber communicators as of September 30, 2018, an increase of 12.1%.
We were notified that our program with Maersk Lines, through our contract with AT&T Services, Inc., will not be extended and will expire on December 31, 2019. This program provides us with total recurring service revenues of approximately $3.0 million annually for engineering support services, with additional deferred revenues of approximately $0.6 million and $0.9 million recognized in the third quarter and first nine months of 2019, respectively. In addition, we recorded $0.4 million of other service revenues in the quarter ended September 30, 2019, related to device activations that had not been previously recognized. The contract and the accounting of revenues was assumed as part of the WAM Technologies, LLC acquisition in 2015. The program also accounts for approximately 400,000 billable subscribers, which will cease to have recurring service revenues associated with them. We will report billable subscribers both with and without these subscribers through the end of 2019, and without these subscribers beginning in 2020.
27
Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of service revenue from these units, as well as the mix of new subscriber activations in the period.
Product Sales
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Product sales |
|
$ |
28,643 |
|
|
$ |
32,569 |
|
|
$ |
(3,926 |
) |
|
|
(12.1 |
)% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Product sales |
|
$ |
83,036 |
|
|
$ |
94,863 |
|
|
$ |
(11,827 |
) |
|
|
(12.5 |
)% |
We derive product sales primarily from sales of industrial IoT subscriber communicators, including telematics devices, modems and cellular wireless SIMs, to our resellers and direct customers, as well as through leasing arrangements of subscriber communicators.
The decreases in product sales for the quarter and nine months ended September 30, 2019, compared to the prior year periods, were primarily due to a slowdown in the North American transportation market and timing of shipments associated with our existing and new customers during the 2019 period and the inclusion of a significant product deployment during the nine months ended September 30, 2018.
Cost of Revenues, Exclusive of Depreciation and Amortization
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Cost of services |
|
$ |
12,568 |
|
|
$ |
12,764 |
|
|
$ |
(196 |
) |
|
|
(1.5 |
)% |
|
Cost of product sales |
|
|
19,640 |
|
|
|
24,679 |
|
|
|
(5,039 |
) |
|
|
(20.4 |
)% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Cost of services |
|
$ |
39,123 |
|
|
$ |
40,704 |
|
|
$ |
(1,581 |
) |
|
|
(3.9 |
)% |
|
Cost of product sales |
|
|
58,275 |
|
|
|
73,363 |
|
|
|
(15,088 |
) |
|
|
(20.6 |
)% |
Cost of services is comprised of expenses to operate our network, such as payroll and related costs, including stock-based compensation, installation costs, and usage fees to third-party networks, but excludes depreciation and amortization discussed below. The decrease in cost of services for the quarter ended September 30, 2019, compared to the prior year period, was primarily due to cost reductions associated with usage fees to third-party networks. The decrease in cost of services for the nine months ended September 30, 2019, compared to the prior year period, was primarily due to the inclusion of non-recurring installation costs associated with significant product deployments during the nine months ended September 30, 2018.
Cost of product sales includes the purchase price of subscriber communicators and SIMs sold, costs of warranty obligations, shipping charges, as well as operational costs to fulfill customer orders, including costs for employees and inventory management. The decreases in cost of product sales for the quarter and nine months ended September 30, 2019, were primarily due to the decrease in product sales and the lower costs associated with new product offerings and the mix of product shipments, compared to the prior year periods.
Selling, General and Administrative Expenses
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Selling, general and administrative expenses |
|
$ |
18,211 |
|
|
$ |
14,823 |
|
|
$ |
3,388 |
|
|
|
22.9 |
% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Selling, general and administrative expenses |
|
$ |
52,842 |
|
|
$ |
51,352 |
|
|
$ |
1,490 |
|
|
|
2.9 |
% |
28
Selling, general and administrative (“SG&A”) expenses relate primarily to expenses for general management, sales and marketing, finance, audit and legal fees and general operating expenses. The increases in SG&A expenses for the quarter ended September 30, 2019, compared to the prior year period, was largely due to the reduction of the contingent liability related to the acquisition of inthinc Technology Solutions, Inc. in the quarter ended September 30, 2018. The increase in SG&A expenses for the nine months ended September 30, 2019, compared to the prior year period, was primarily due to reductions in the contingent liabilities in 2018 to a larger extent than in the 2019 period, as well as other increased operating expenses.
Product Development Expenses
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Product development |
|
$ |
3,686 |
|
|
$ |
3,816 |
|
|
$ |
(130 |
) |
|
|
(3.4 |
)% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Product development |
|
$ |
11,385 |
|
|
$ |
9,671 |
|
|
$ |
1,714 |
|
|
|
17.7 |
% |
Product development expenses consist primarily of the expenses associated with our engineering efforts, including the cost of third parties, to provide maintenance and support for our current products and applications. The increase in product development expenses for the nine months ended September 30, 2019, compared to the prior year period, reflects increases in employee-related and outside labor costs, as well as other expenses as we continue to develop new solutions and services for our customers.
Depreciation and Amortization
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Depreciation and amortization |
|
$ |
12,794 |
|
|
$ |
12,081 |
|
|
$ |
713 |
|
|
|
5.9 |
% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Depreciation and amortization |
|
$ |
37,998 |
|
|
$ |
36,146 |
|
|
$ |
1,852 |
|
|
|
5.1 |
% |
The increases in depreciation and amortization for the quarter and nine months ended September 30, 2019, compared to the prior year periods, were primarily due to higher depreciation associated with our capitalized costs attributable to the design, development and enhancements of our products and services sold to our customers and our internally developed software.
Acquisition-Related and Integration Costs
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Acquisition-related and integration costs |
|
$ |
4 |
|
|
$ |
395 |
|
|
$ |
(391 |
) |
|
|
(99.0 |
)% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Acquisition-related and integration costs |
|
$ |
693 |
|
|
$ |
1,495 |
|
|
$ |
(802 |
) |
|
|
(53.6 |
)% |
29
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to our acquisitions. The decreases in acquisition-related and integration costs for the quarter and nine months ended September 30, 2019, compared to the prior year periods, reflect lower acquisition and integration activity for the 2019 periods.
Other Income (Expense)
Other income (expense) is comprised primarily of interest expense, foreign exchange gains and losses and interest income related to capital leases and from our cash and cash equivalents, which can consist of U.S. Treasuries and interest-bearing instruments.
|
|
|
Quarters Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Interest income |
|
$ |
444 |
|
|
$ |
648 |
|
|
$ |
(204 |
) |
|
|
(31.5 |
)% |
|
Other income (expense) |
|
|
188 |
|
|
|
120 |
|
|
|
68 |
|
|
|
56.7 |
% |
|
Interest expense |
|
|
(5,287 |
) |
|
|
(5,232 |
) |
|
|
(55 |
) |
|
|
1.1 |
% |
|
Total other expense |
|
$ |
(4,655 |
) |
|
$ |
(4,464 |
) |
|
$ |
(191 |
) |
|
|
4.3 |
% |
|
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
(In thousands) |
|
2019 |
|
|
2018 |
|
|
Dollars |
|
|
% |
|
||||
|
Interest income |
|
$ |
1,408 |
|
|
$ |
1,576 |
|
|
$ |
(168 |
) |
|
|
(10.7 |
)% |
|
Other income (expense) |
|
|
130 |
|
|
|
108 |
|
|
|
22 |
|
|
|
20.4 |
% |
|
Interest expense |
|
|
(15,850 |
) |
|
|
(15,733 |
) |
|
|
(117 |
) |
|
|
0.7 |
% |
|
Total other expense |
|
$ |
(14,312 |
) |
|
$ |
(14,049 |
) |
|
$ |
(263 |
) |
|
|
1.9 |
% |
The increases in other expense for the quarter and nine months ended September 30, 2019, compared to the prior year periods, were primarily due to decreased interest income related to our capital leases and our cash and cash equivalents during the period. We believe our foreign exchange exposure is limited as a majority of our revenue is collected in U.S. dollars.
Income Taxes
For the quarter ended September 30, 2019, our income tax expense was $1.5 million, compared to $1.2 million for the prior year period. For both the nine months ended September 30, 2019 and 2018, our income tax expense was $3.4 million. The increase in the income tax provision for the quarter ended September 30, 2019 primarily related to the provision to return true-ups for multiple international entity tax returns. This resulted in an international tax expense recorded in the period. For the nine months ended September 30, 2019, the true-up was offset by lower deferred tax expense related to the amortization of goodwill.
As of September 30, 2019 and December 31, 2018, we maintained a valuation allowance against our net deferred tax assets primarily attributable to operations in the United States, as the realization of such assets was not considered more likely than not.
Net Loss
For the quarter ended September 30, 2019, we had a net loss of $3.9 million compared to a net loss of $3.2 million in the prior year period, primarily due to increased SG&A costs, as described above.
For the nine months ended September 30, 2019, we had a net loss of $15.7 million compared to a net loss of $20.4 million in the prior year period, primarily due to decreased costs associated with our products and services.
Noncontrolling Interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders, representing $0.14 million and $0.27 million for the quarter and nine months ended September 30, 2019, respectively, and $0.07 million and $0.22 million for the quarter and nine months ended September 30, 2018, respectively.
Net Loss Attributable to ORBCOMM Inc.
For the quarter ended September 30, 2019, we had a net loss attributable to our company of $4.0 million compared to a net loss of $3.3 million in the prior year period. For the nine months ended September 30, 2019, we had a net loss attributable to our company of $15.9 million compared to a net loss of $20.6 million in the prior year period.
30
Liquidity and Capital Resources
Overview
Our liquidity requirements arise from our working capital needs, our obligations to make scheduled payments of interest on our indebtedness and our need to fund capital expenditures to support our current operations and to facilitate growth and expansion. We have financed our operations and expansion with cash flows from operating activities, sales of our common stock through public offerings and private placements of debt. At September 30, 2019, we had an accumulated deficit of $208.4 million. Our primary sources of liquidity consist of cash and cash equivalents totaling $50.9 million at September 30, 2019 and an unused Revolving Credit Facility under the Revolving Credit Agreement, as described below, available for use for working capital and general business purposes, which we believe will be sufficient to provide working capital, make interest payments and make capital expenditures to support operations and facilitate growth and expansion for the next twelve months.
Operating Activities
Cash provided by our operating activities for the nine months ended September 30, 2019 was $20.8 million, resulting from a net loss of $15.7 million and cash used by working capital of $7.9 million, offset by non-cash items including $38.0 million for depreciation and amortization and $5.4 million for stock-based compensation. Working capital activities primarily consisted of an increase of $6.0 million in accounts receivable largely related to timing of receivables, an increase of $4.0 million in inventory, an increase of $3.3 million in prepaid expenses and other assets and a decrease of $1.2 million in other liabilities, offset, in part, by an increase of $7.0 million in accounts payable and accrued liabilities primarily related to timing of payments.
Cash used in our operating activities for the nine months ended September 30, 2018 was $0.9 million, resulting from a net loss of $20.4 million and cash used by working capital of $18.7 million, offset by non-cash items including $36.1 million for depreciation and amortization and $5.7 million for stock-based compensation. Working capital activities primarily consisted of a decrease of $11.5 million in accounts payable and accrued liabilities primarily related to timing of payments and an increase of $14.5 million in accounts receivable related to timing of receivables, offset, in part, by a decrease of $5.6 million in inventories.
Investing Activities
Cash used in our investing activities for the nine months ended September 30, 2019 was $16.2 million, resulting from capital expenditures during the period.
Cash used in our investing activities for the nine months ended September 30, 2018 was $16.5 million, resulting from capital expenditures during the period.
Financing Activities
Cash used in our financing activities for the nine months ended September 30, 2019 was $7.3 million, due to payments of $7.9 million in purchases of common stock under the Company’s share repurchase program, offset, in part, by $0.6 million in proceeds from the sale of common stock under the employee stock purchase plan.
Cash provided by our financing activities for the nine months ended September 30, 2018 was $28.6 million, primarily due to proceeds of $28.0 million received from our public offering of common stock completed in April 2018.
Future Liquidity and Capital Resource Requirements
We believe that our existing cash and cash equivalents, along with expected cash flows from operating activities and additional funds available under our Revolving Credit Facility will be sufficient over the next 12 months to provide working capital, cover interest payments on our debt facilities and fund growth initiatives and capital expenditures.
On April 10, 2017, we issued $250.0 million aggregate principal amount of 8.0% Senior Secured Notes due 2024. The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 10, 2017, among us, certain of our domestic subsidiaries party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee and collateral agent. The Senior Secured Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and are secured on a first priority basis by (i) pledges of capital stock of certain of our directly- and indirectly-owned subsidiaries; and (ii) substantially all of our and our Guarantors’ other property and assets, to the extent a first priority security interest is able to be granted or perfected therein, and subject, in all cases, to certain specified exceptions, and an intercreditor agreement with the collateral agent for our Revolving Credit Facility described below. Interest payments are due on the Senior Secured Notes semi-annually in arrears on April 1 and October 1, beginning October 1, 2017.
31
We have the option to redeem some or all of the Senior Secured Notes at any time on or after April 1, 2020, at redemption prices set forth in the Indenture plus accrued and unpaid interest, if any, to the date of redemption. We also have the option to redeem some or all of the Senior Secured Notes at any time before April 1, 2020 at a redemption price of 100% of the principal amount of the Senior Secured Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption. In addition, at any time before April 1, 2020, we may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption, with the proceeds from certain equity issuances.
The Indenture contains covenants that, among other things, limit our ability and our restricted subsidiaries’ ability to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting our subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets; subject, in all cases, to certain specified exceptions. Such limitations have various exceptions and baskets as set forth in the Indenture, including the incurrence by us and our restricted subsidiaries of indebtedness under potential new credit facilities in the aggregate principal amount at any one time outstanding not to exceed $50 million.
On December 18, 2017, we and certain of our subsidiaries entered into a Revolving Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. The Revolving Credit Agreement provides for a Revolving Credit Facility in an aggregate principal amount of up to $25.0 million for working capital and general corporate purposes and matures on December 18, 2022. The Revolving Credit Facility will bear interest at an alternative base rate or an adjusted LIBOR, plus an applicable margin of 1.50% in the case of alternative base rate loans and 2.50% in the case of adjusted LIBOR loans. The Revolving Credit Facility is secured by a first priority security interest in substantially all of our and our subsidiaries’ assets under a Security Agreement among the Company, the applicable subsidiaries and JPMorgan Chase Bank, N.A., subject to an intercreditor agreement with the indenture trustee for the Senior Secured Notes. The Revolving Credit Facility has no scheduled principal amortization until the maturity date. Subject to the terms set forth in the Revolving Credit Agreement, we may borrow, repay and reborrow amounts under the Revolving Credit Facility at any time prior to the maturity date.
The Revolving Credit Agreement contains covenants that, among other things, limit us and our restricted subsidiaries’ ability to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting our subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets, subject, in all cases, to certain specified exceptions. Such limitations have various baskets as set forth in the Revolving Credit Agreement.
At September 30, 2019, no amounts were outstanding under the Revolving Credit Facility. As of September 30, 2019, we were in compliance with all financial covenants under the Revolving Credit Agreement.
On April 10, 2018, we completed a public offering of 3,450,000 shares of our common stock, including 450,000 shares sold upon exercise in full of the underwriters’ option to purchase additional shares at a price of $8.60 per share. We received net proceeds of approximately $28.0 million after deducting underwriters’ discounts and commissions and offering costs.
On April 13, 2018, we filed a shelf registration statement with the SEC, registering an unspecified amount of debt and/or equity securities that we may offer in one or more offerings on terms to be determined at the time of sale. The shelf registration statement was automatically effective upon filing and superseded and replaced our previous shelf registration statement declared effective on April 14, 2015, which was due to expire on April 14, 2018.
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
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. We believe EBITDA is useful to our management and investors in evaluating our operating performance because it is one of the primary measures we use to evaluate the economic productivity of our operations, including our ability to obtain and maintain our customers, our ability to operate our business effectively, the efficiency of our employees and the profitability associated with their performance. It also helps our management and investors to meaningfully evaluate and compare the results of our operations from period to period on a consistent basis by removing the impact of our financing transactions and the depreciation and amortization impact of capital investments from our operating results. In addition, our management uses EBITDA in presentations to our 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 our annual operating budget. We also
32
believe Adjusted EBITDA, 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, is useful to investors to evaluate our 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.
EBITDA and Adjusted EBITDA are not performance measures calculated in accordance with U.S. GAAP. While we consider EBITDA and Adjusted EBITDA to be important measures of operating performance, they should be considered in addition to, and not as substitutes for, or superior to, net loss or other measures of financial performance prepared in accordance with U.S. GAAP and may be different than EBITDA and Adjusted EBITDA measures presented by other companies.
The following table reconciles our net loss attributable to ORBCOMM Inc. to EBITDA and Adjusted EBITDA for the periods shown:
|
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
|
|
(In thousands) |
|
|
(In thousands) |
|
||||||||||
|
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 |
|
|
Stock-based compensation |
|
|
1,663 |
|
|
|
2,312 |
|
|
|
5,406 |
|
|
|
5,747 |
|
|
Net income attributable to 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 |
|
For the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018, EBITDA increased $0.5 million, while net loss attributable to ORBCOMM Inc. increased $0.7 million and Adjusted EBITDA decreased $0.5 million.
For the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, EBITDA increased $6.8 million, while net loss attributable to ORBCOMM Inc. decreased $4.7 million and Adjusted EBITDA increased $5.7 million.
Non-GAAP Gross Margin
Non-GAAP Service Gross Margin is defined as Non-GAAP Service gross profit divided by service revenues. Non-GAAP Service gross profit is defined as service revenues, minus cost 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 sales (including depreciation and amortization expense) plus depreciation and amortization expense. We believe that Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are useful to evaluate and compare the results of our operations from period to period on a consistent basis by removing the depreciation and amortization impact of capital investments from our operating results.
Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are not performance measures calculated in accordance with U.S. GAAP. While we consider Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin to be important measures of operating performance, they should be considered in addition to, and not as substitutes for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP and may be different than Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin measures presented by other companies.
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:
33
|
|
|
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 |
% |
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. This increase was primarily due to recurring service revenue growth and reduced costs. GAAP Service Gross Margin, inclusive of depreciation and amortization expense, was 56.5% in the nine months ended September 30, 2019 compared to 53.4% in the prior year period. Non-GAAP Service Gross Margin, excluding depreciation and amortization expense, was 67.2% in the nine months ended September 30, 2019, compared to 64.6% in the prior year period. These improvements were due to bringing onboard new subscribers at higher margins and limiting product installations at negative margins in the nine months ended September 30, 2019, compared to the prior year period.
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, excluding depreciation and amortization expense, was 31.4% in the third quarter of 2019, compared to 24.2% in the prior year period. GAAP Product Gross Margin, inclusive of depreciation and amortization expense, was 27.3% in the nine months ended September 30, 2019, compared to 20.0% in the prior year period. Non-GAAP Product Gross Margin, excluding depreciation and amortization expense, was 29.8% in the nine months ended September 30, 2019, compared to 22.7% in the prior year period. These improvements were primarily due to a better mix of higher-margin products shipped in greater volumes in the quarter and nine months ended September 30, 2019, compared to the prior year periods.
Contractual Obligations
As of September 30, 2019, there have been no material changes in our contractual obligations previously disclosed in our Annual Report.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
As of September 30, 2019, there have been no material changes in our assessment of our sensitivity to market risk, as previously disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our Annual Report.
34
Concentration of Credit Risk
There were no customers who generated revenues greater than 10% of the Company’s consolidated total revenues for the quarters and nine months ended September 30, 2019 and 2018.
Item 4. Disclosure Controls and Procedures
Evaluation of the Company’s Disclosure Controls and Procedures
The Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of September 30, 2019. Based on their evaluation, the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2019.
Changes in Internal Control over Financial Reporting
We reviewed our internal control over financial reporting at September 30, 2019. As a result of the acquisitions of inthinc, inc. (“Inthinc”) in June 2017 and Blue Tree Systems Limited (“Blue Tree”) in October 2017, we continue to integrate certain business processes and systems of Inthinc and Blue Tree. Accordingly, certain changes have been made and will continue to be made to our internal controls over financial reporting until such time as this integration is complete.
There have been no other changes in our internal control over financial reporting identified in an evaluation thereof that occurred during the nine months ended September 30, 2019, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various litigation matters involving claims incidental to our business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. Management currently believes that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations or financial condition. We record reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
See “Note 14 – Commitments and Contingencies” of the Notes to the Condensed Consolidated Financial Statements for the nine months ended September 30, 2019 included in this Quarterly Report on Form 10-Q for a description of our significant legal proceedings, which is incorporated by reference herein.
Item 1A. Risk Factors
As of September 30, 2019, there have been no material changes in the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases
The table below sets forth information with respect to purchases of shares of our common stock made by us or on our behalf during the quarter ended September 30, 2019:
|
Issuer Purchases of Equity Securities (1) |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share (2) |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
|
July 1-31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
August 1-31, 2019 |
|
|
1,150,460 |
|
|
$ |
4.98 |
|
|
|
1,150,460 |
|
|
$ |
19,292,914 |
|
|
September 1-30, 2019 |
|
|
431,569 |
|
|
$ |
4.95 |
|
|
|
1,582,029 |
|
|
$ |
17,123,934 |
|
|
Total |
|
|
1,582,029 |
|
|
$ |
4.96 |
|
|
|
1,582,029 |
|
|
|
|
|
|
(1) |
On August 5, 2019, our Board of Directors authorized the repurchase of up to $25 million of our common stock through various means, including open market transactions and privately negotiated transactions, until August 5, 2020. In addition, open market repurchases of common stock may be made pursuant to applicable securities laws and regulations, including Rule 10b-18, as well as Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. |
|
(2) |
The average per-share cost for repurchases under the repurchase program from inception through September 30, 2019 was $4.96. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
36
Item 5. Other Information
On October 29, 2019, we entered into an employment agreement (the “Employment Agreement”) with Constantine “Dean” Milcos, our Executive Vice President and Chief Financial Officer, effective as of November 1, 2019. The Employment Agreement has an initial term ending on December 31, 2019. Upon the expiration of the initial term or any extension thereof, the term of the Employment Agreement will be automatically extended by twelve additional calendar months through the next December 31st, unless either party notifies the other party in writing at least 90 days in advance of such expiration that he or it does not want such extension to occur, in which case the term of the Employment Agreement will not be further extended, and Mr. Milcos’s employment will terminate upon such expiration. Notwithstanding the foregoing, Mr. Milcos’s employment with us may be terminated prior to the expiration of the term of the Employment Agreement pursuant to the provisions described below.
The Employment Agreement provides for an annual base salary, currently of $280,000. In addition to his salary, Mr. Milcos is entitled to certain employee benefits, including medical and disability insurance, term life insurance, paid holiday and vacation time and other employee benefits paid by us. Under the Employment Agreement, each calendar year (beginning with calendar year 2019), Mr. Milcos is eligible to receive a bonus with a target bonus opportunity equal up to 75% of his annual base salary and subject to a maximum payment in an amount, payable in cash, dependent upon achieving certain performance targets (both financial and qualitative) established each year by the board of directors, provided that Mr. Milcos is actively employed by us on the last day of the fiscal year for which the bonus is paid and is not terminated with “cause” (as defined in the Employment Agreement) prior to the payment of such bonus. Mr. Milcos is entitled to participate in any profit sharing and/or pension plan generally provided for our executives, and in any equity incentive plan established by us in which our senior executives are generally permitted to participate.
If Mr. Milcos’s employment is terminated (1) by us without cause or (2) as a result of a notice of non-extension of the Employment Agreement provided by us during the term of the Employment Agreement, he will be entitled to receive an amount equal to the sum of (A) his base salary for a period of one year, payable beginning on the 60th day following his termination of employment (subject to any delay that may be required by Section 409A) and (B) the amount equal to the target bonus opportunity for the calendar year in which his termination of employment occurs, payable in equal installments over a twelve-month period (the “Post-Termination Payments”), and continued health insurance coverage for one year following such termination. If Mr. Milcos’s employment is terminated as a result of his disability during the term of the Employment Agreement, he will be entitled to continue to receive an amount equal to his base salary for a period of one year following such termination and continued health insurance coverage for one year following such termination. The Post-Termination Payments, disability payments and insurance coverage are conditioned on his executing a release in favor of us. In addition, the Employment Agreement contains standard covenants relating to confidentiality and assignment of intellectual property rights, a two-year post-employment non-solicitation covenant (only to the extent Mr. Milcos receives the post-termination payments he is entitled to receive under the Employment Agreement), a one-year post-employment non-competition covenant (only to the extent Mr. Milcos receives the post-termination payments he is entitled to receive under the Employment Agreement), and a covenant to comply with Company policies, including any applicable compensation recoupment policy then in effect.
Upon a termination of employment by us without “cause” within the eighteen-month period following a “change of control” (as defined in the Employment Agreement), subject to the execution of a release in favor of us, Mr. Milcos will be entitled to receive an amount equal to one and one-half times the Post-Termination Payments (payable in a lump sum on the 60th day following his termination of employment) and continued health insurance coverage for a period of eighteen months.
37
Item 6. Exhibits
The following exhibits are being filed with or incorporated by reference in this Quarterly Report on Form 10-Q:
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
3.3 |
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
10.2 |
|
Employment Agreement dated October 28, 2019 between Constantine Milcos and the Company. |
|
|
|
|
|
31.1 |
|
Certification of President and Chief Executive Officer required by Rule 13a-14(a). |
|
|
|
|
|
31.2 |
|
Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a). |
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File – The Cover Page Interactive Data File does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
ORBCOMM Inc. (Registrant) |
|
|
|
|
|
Date: October 30, 2019 |
|
/s/ Marc J. Eisenberg |
|
|
|
Marc J. Eisenberg |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
Date: October 30, 2019 |
|
/s/ Constantine Milcos |
|
|
|
Constantine Milcos |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39