ORBCOMM Inc., a global provider of Machine-to-Machine (M2M) and Internet of Things (IoT) solutions, today announced financial results for the third quarter ended September 30, 2016.
“In the third quarter, we had mixed results. Service Revenues grew about 4% sequentially marking our largest organic increase to date, while Product Sales came in lower than anticipated due to logistical and timing issues,” said Marc Eisenberg, ORBCOMM’s Chief Executive Officer. “We expect to catch-up over the next couple of quarters and add multiple new projects to the mix. Adjusted EBITDA margins improved to about 26% for the third quarter this year demonstrating the operating leverage from improved Service Revenues,” said Robert Costantini, Chief Financial Officer of ORBCOMM. “Cash flows from operations increased by over $11 million in Q3 to over $19 million for the first nine months of 2016.”
For Q3 of 2016, Total Revenues of $46.3 million were up slightly year-over-year. Service Revenues increased 15% over the prior year period to $28.8 million. Product Sales of $17.4 million were ($3.6) million or 17% lower than the prior year period. The shortfall in Product Sales was caused by a number of factors, including shifting manufacturing of multiple product lines to a new contract manufacturer, delays in new program releases from distribution partners, and delays in the completion of engineering tasks needed to deliver customers updated products. We believe we will ship these products over the next couple of quarters.
For Q3 of 2016, Adjusted EBITDA was $12.0 million, 25.8% of Total Revenues, and increased $0.9 million or 8.5% over the prior year period.
Net Income (Loss) attributable to ORBCOMM Inc. Common Stockholders was ($14.0) million Net Loss for the third quarter of 2016, compared to Net Income of $1.6 million for the same period in 2015, lower largely due to an Impairment Loss of ($10.7) million related to an in-orbit OG2 satellite that lost communication (see Impairment Loss-satellite network below).
Net subscriber communicator additions for ORBCOMM were 37,000 in Q3 of 2016, taking the total billable subscriber communicators to 1,687,000 at September 30, 2016, which compares to 1,330,000 at the end of the same period last year; a 27% increase year-over-year.
On September 19, 2016, we announced that ORBCOMM has been selected by Global Fishing Watch to provide extensive global satellite Automatic Identification System (AIS) data from commercial fishing vessels for its new online technology platform. Global Fishing Watch is a collaboration by Oceana, Google and SkyTruth to end Illegal, Unreported and Unregulated (IUU) fishing by identifying fishing vessels and analyzing fishing activity to ensure environmental regulations are upheld. ORBCOMM provides Global Fishing Watch with more than 20 million AIS data points every day that show the movement of the world’s largest commercial vessels over time.
On August 25, 2016, we announced that ORBCOMM has been selected by L.J. Rogers Trucking, Inc. (L.J. Rogers) to provide an industry-leading asset tracking solution for its dry van trailer fleet. Headquartered in Mebane, NC, L.J. Rogers focuses on full-service truckload transportation and logistics support throughout the United States. ORBCOMM’s end-to-end solution will provide wireless connectivity through its proprietary hardware and a web-based reporting platform for optimal fleet management. L.J. Rogers expects to complete deployment of ORBCOMM’s solution by the second quarter of 2017.
On August 11, 2016, we announced that ORBCOMM was selected by Northern Refrigerated Transportation, Inc. (Northern Refrigerated) to provide industry-leading telematics solutions for its fleet of refrigerated trailers. Based in Turlock, CA, Northern Refrigerated is a leader in Less Than Truckload (LTL) West Coast refrigerated transport solutions. Northern Refrigerated is using ORBCOMM’s cold chain telematics systems to track, monitor and control its refrigerated trailers. Northern Refrigerated will complete deployment of ORBCOMM’s cold chain solution by the end of 2016.
On August 4, 2016, Carrier Transicold announced it will offer a customized telematics solution that will deliver advanced capabilities for its transport refrigeration units (TRUs). The new telematics solution will help fleets manage their refrigerated assets by enabling remote refrigeration unit monitoring, control and diagnostics, data management and other value-added capabilities. ORBCOMM Inc., was selected to develop the system according to design and qualification requirements specified by Carrier Transicold. With field trials nearing completion, Carrier Transicold anticipates the full release of its telematics solution in North America in 2017, followed by rollouts in Europe and other regions around the world.
On September 27, 2016, we announced that ORBCOMM has been named a winner of two IoT Evolution Asset Tracking Awards for ORBCOMM’s CargoWatch® Secure web application and its Cold Chain Telematics Solution by IoT Evolution magazine and IoT Evolution World, leading print and online voices of the high-growth IoT marketplace.
On September 21, 2016, we announced that ORBCOMM has enhanced its cold chain compliance solution for the European refrigerated transportation market. In addition to industry-leading temperature recorders, sensors and the ColdChainView web application, ORBCOMM’s comprehensive solution now includes connectivity services from some of the largest providers of terrestrial services in Europe as well as a new mobile app. By enabling precise temperature monitoring, fuel management, preventive maintenance and remote control for food, pharmaceuticals and other temperature-controlled cargo, ORBCOMM helps customers improve end-to-end operations and gain total assurance from the product’s origin to destination.
On September 20, 2016, we announced that ORBCOMM has received the Good Automated Manufacturing Practice (GAMP® 5) official certification of approval from the European Institute for Pharma Logistics (EIPL) for its Euroscan-branded product line of temperature recording devices and cold chain monitoring systems. GAMP 5 guidelines are published by the International Society for Pharmaceutical Engineering (ISPE) and provide a flexible, risk-based approach on how to define and implement quality procedures, including compliant computerized systems, that support Good Distribution Practices (GDP) of pharmaceutical products for human use.
On September 7, 2016, we introduced our Enterprise IoT Toolkit, which provides every layer of the IoT stack required to develop market-specific solutions that improve asset utilization, reduce operational costs and provide long-term return on investment (ROI). ORBCOMM’s IoT Toolkit components are available together or separately to enterprises, Original Equipment Manufacturers (OEMs), solution providers and Value Added Resellers (VARs) to create M2M and IoT solutions with the assurance that all of the building blocks are interoperable and come with a single point of contact for support. ORBCOMM’s IoT Toolkit is a finalist in the CTIA Super Mobility 2016 E-Tech Awards in both the Industrial IoT (IIoT, M2M, Sensors, RFID, NFC etc.) and Mobile Cloud categories.
On August 16, 2016, we announced that ORBCOMM was named a winner of two IoT Evolution Product of the Year Awards for the ORBCOMM PT 7000 and the ORBCOMMconnect multi-network management portal by IoT Evolution magazine and IoT Evolution World, the leading magazine and Web site covering IoT technologies. The winners were published in the following issue of IoT Evolution magazine.
For the third quarter ended September 30, 2016, Service Revenues were up 15% over the prior year period to $28.8 million. The increase in Service Revenues in Q3 this year was driven by both organic growth and our most recent acquisitions. Organic growth benefited from the OG2 satellite constellation and a growing subscriber base across multiple lines of business.
Product Sales during the third quarter of 2016 were $17.4 million compared to $21.0 million during the same period last year, decreasing $3.6 million or 17%. Products sales were hampered by timing and logistical issues that impacted transportation solutions, along with continued headwinds in South America. Product Sales were up in European markets in Q3 over last year.
Total Revenues for the third quarter ended September 30, 2016 were slightly up at $46.3 million compared to $46.1 million during the same period of 2015.
Cost of Revenues and Operating Expenses
Total Cost of Revenues and Operating Expenses for the third quarter of 2016 were $58.3 million compared to $42.9 million during the same period in 2015. Cost of Revenues, exclusive of Depreciation and Amortization, decreased slightly year-over-year largely due to lower Cost of Products sold, partially offset by increases in costs to operate the companies acquired. Operating Expenses were higher this year than the prior year period primarily due to higher Depreciation and Amortization, Product Development and non-labor related SG&A expenses as well as an Impairment Loss of ($10.7) million related to an in-orbit OG2 satellite that lost communication.
Impairment Loss-satellite network
In August 2016, the Company lost communication with one of the in-orbit OG2 satellites launched in July 2014. While we are still trying to recover the satellite, due to the extended period without communication we are recording an impairment charge of $10.7 million to write-off the net book value of this satellite as of September 30, 2016. The loss of this one satellite is not expected to have a material impact on network communications services or our financials going forward. The Company believes the loss of communication is likely a workmanship or piece part issue, specific to this one satellite. Under the terms of our in-orbit insurance for the satellites launched in July 2014, which was extended through December 21, 2016, we expect this satellite to be the one satellite deductible across the five satellites covered under this in-orbit policy.
Income (Loss) Before Income Taxes, Net Income (Loss), and Earnings Per Share
Income (Loss) Before Income Taxes for the third quarter of 2016 was a ($14.0) million loss, compared to the $1.9 million profit for the third quarter of 2015.
Net Income (Loss) attributable to ORBCOMM Inc. Common Stockholders was ($14.0) million Net Loss for the third quarter of 2016, compared to Net Income of $1.6 million for the same period in 2015. Basic EPS was a loss of ($0.20) per share for the third quarter of 2016 versus a profit of $0.02 per share for the third quarter of 2015. The Net Income (Loss) attributable to ORBCOMM Inc. Common Stockholders includes an Impairment Loss of ($10.7) million related to an in-orbit OG2 satellite that lost communication.
Net Income (Loss) – Ex-Items, attributable to ORBCOMM Inc. Common Stockholders and Basic EPS – Ex-Items are non-GAAP financial measures used by the Company. Please see the financial tables at the end of the release for a reconciliation of Net Income (Loss) – Ex-Items, attributable to ORBCOMM Inc. Common Stockholders and Basic EPS – Ex-Items.
EBITDA and Adjusted EBITDA
EBITDA for the third quarter of 2016 was ($0.5) million compared to $9.4 million in the third quarter of 2015.
Adjusted EBITDA was $12.0 million for the third quarter of 2016 compared to $11.0 million in the third quarter of 2015, an increase of 8.5%.
EBITDA and Adjusted EBITDA are non-GAAP financial measures used by the Company to measure operating performance and the quality of earnings. Please see the financial tables at the end of the release for a reconciliation of EBITDA and Adjusted EBITDA.
Balance Sheet & Cash Flow
At September 30, 2016, Cash and Cash Equivalents totaled $21.3 million, compared to $28.1 million at December 31, 2015 that included $1.0 million in Restricted Cash, decreasing ($6.8) million. The Cash decline was partially offset by the $19.2 million of Cash generated by operations through the first nine months of 2016. Cash invested in Capital Expenditures was ($22.5) million, of which ($8.3) million was due to the completion of milestone and insurance payments for the OG2 program related to the final launch in late 2015 and includes ($1.6) million of capitalized interest. In addition, we paid ($3.8) million for the Skygistics acquisition in the second quarter of 2016.
For the Full Year 2016, the Company now expects Total Revenues to range between $188 million and $191 million and Adjusted EBITDA at about 25% margins to Total Revenues.