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ORBCOMM Inc. Reports Operating Results (10-Q)

May 11, 2009 | About:

ORBCOMM Inc. (ORBC) filed Quarterly Report for the period ended 2009-03-31.

ORBCOMM INC. is a leading global satellite data communications company focused on Machine-to-Machine communications. Its customers include General Electric Caterpillar Inc. Volvo Group and Komatsu Ltd. among other industry leaders. By means of a global network of twenty nine low-earth orbit satellites and accompanying ground infrastructure ORBCOMM?s low-cost and reliable two-way data communications products and services track monitor and control mobile and fixed assets in four core markets: commercial transportation; heavy equipment; industrial fixed assets; and marine/homeland security. The company's products are installed on trucks containers marine vessels locomotives backhoes pipelines oil wells utility meters storage tanks and other assets. ORBCOMM is headquartered in Fort Lee New Jersey and has a Network Control Center in Dulles Virginia. ORBCOMM Inc. has a market cap of $79.3 million; its shares were traded at around $1.87 with and P/S ratio of 2.6.

Highlight of Business Operations:

EBITDA during the three months ended March 31, 2009 decreased by $7.2 million over the three months ended March 31, 2008. This decrease was due to a non-cash impairment charge of $7.0 million for one of our quick-launch satellites and an increase in operating expenses of $1.7 million, offset by higher net service revenue of $1.8 million. Operating expenses increased during the three months ended March 31, 2009 due to $0.4 million in operating expenses of ORBCOMM Japan, unanticipated expenses of $0.2 million for a contested proxy vote, $0.1 million in severance payments and $0.1 million in legal fees related to the preparation of our pending satellite insurance claim. We also had an increase of $0.5 million for bad debt reserves. These increases were offset by a decrease of $0.4 million in stock-based compensation expense. Also during the three months ended March 31, 2008, we recognized a $0.9 million gain from the settlement of claims from ORBCOMM Japan which did not recur during the three months ended March 31, 2009.

Costs of services increased by $1.2 million, or 58.4%, to $3.2 million for the three months ended March 31, 2009 from $2.0 million during the three months ended March 31, 2008. The increase is primarily due to increases in network telecommunications costs to support higher service revenues, gateway maintenance costs, the consolidation of ORBCOMM Japan and depreciation expense of $0.6 million primarily related to the Coast Guard demonstration satellite placed in service during the third quarter of 2008. As a percentage of service revenues, cost of services were 48.6% of service revenues for the three months ended March 31, 2009 compared to 41.9% for the three months ended March 31, 2008.

Costs of product sales decreased by $0.2 million, or 13.4%, to $1.1 million for the three months ended March 31, 2009 from $1.3 million for the three months ended March 31, 2008. Product cost represented 47.2% of the cost of product sales for the three months ended March 31, 2009, which decreased by $0.3 million, or 38.1%, to $0.5 million for the three months ended March 31, 2009 from $0.8 million for the three months ended March 31, 2008. We had a gross loss from product sales (revenues from product sales minus costs of product sales including distribution costs) of $0.4 million and $0.3 million for the three months ended March 31, 2009 and 2008. The gross loss from product sales was related to lower revenues from subscriber communicator sales which was not enough to cover costs associated with distribution, fulfillment and customer service costs associated with completing customer orders.

Selling, general and administrative expenses increased by $0.4 million, or 8.1%, to $4.8 million for the three months ended March 31, 2009 from $4.4 million for the three months ended March 31, 2008. This increase is primarily due to expenses of $0.2 million for a contested proxy, $0.1 million in severance payments and $0.1 million in legal fees related to the preparation of our pending satellite insurance claim. We also had increases related to the consolidation of ORBCOMM Japan, an increase of $0.5 million for bad debt reserves, offset by a decrease of $0.3 million in stock-based compensation expense and decreases in other expenses. We expect to incur additional costs during the second quarter of 2009 relating to the proxy contest.

Cash used in our operating activities for the three months ended March 31, 2009 was $1.3 million resulting from a net loss of $9.1 million, offset by adjustments for non-cash items of $9.2 million, and $1.3 million used for working capital. Adjustments for non-cash items primarily consisted of a $7.0 million impairment charge for one of our quick-launch satellites, $1.3 million for depreciation and amortization and $0.5 million for stock-based compensation. Working capital activities primarily consisted of a net uses of cash of $0.7 million for an increase in accounts receivable primarily related to the increase in our service revenues and $0.8 million for a decrease in accounts payable and accrued expenses primarily related to timing of payments made to vendors.

Cash provided by our operating activities for the three months ended March 31, 2008 was $0.1 million resulting from a net loss of $0.5 million, offset by adjustments for non-cash items of $0.7 million. Adjustments for non-cash items primarily consisted of $0.6 million for depreciation and amortization and $0.8 million for stock-based compensation, offset by decreases of $0.2 million in the allowance for doubtful accounts and a $0.6 million non-cash gain related to the 37% interest we received in ORBCOMM Japan in March 2008.

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