Dear Fellow Shareholders,
With more than 25 years of experience in delivering breakthrough
technology, products and services that connect the world’s assets,
ORBCOMM is a leader and innovator in driving the digital transformation
of industry. In 2019 we solidified our position as the vendor of choice
in the Industrial Internet of Things (IIoT), providing our customers with
advanced solutions that extend beyond track and trace to help them be
more competitive, efficient and profitable. By offering customers around
the globe a Cloud-based platform that is built for the future, integrating
multiple asset types, unique feature sets as well as incremental value
through data analytics, we have a differentiated IIoT portfolio positioned to
drive growth in 2020.
2019 was driven largely by our integration efforts,
focused on building efficiency and scalability
across the Company and consolidating our existing
products and platforms that we gained through our
13 acquisitions. We are in the process of converging
redundant hardware, overlapping web platforms and
multiple accounting systems to increase efficiencies
across the business. These efforts have already
resulted in lowering the number of hardware product
lines from our high of 160 down to 53 and, in the
process, have reduced inventory levels by more than
20 percent and improved hardware margins by 25
percent. We expect further consolidation in 2020
leading to just 40 hardware product lines. We are also
in the process of converging over 20 web platforms
across our various solutions with the goal of just
two, thereby reducing integrations across multiple
platforms and better utilizing our resources to focus
on innovation. In addition, we have implemented a
global Enterprise Resource Planning (ERP) System
to integrate all 13 acquisitions on a single platform,
enabling a more efficient financial close process,
improved inventory turns and simplified billing.
Overall, as a result of these initiatives, we believe
ORBCOMM will emerge as a fully integrated, better
scaled and more productive company. Our focus in
2020 can now turn to advancing our technology and
better serving our customers, leading to faster growth
and further cash generation, all of which are key to the
future success of the Company.
From a financial perspective, our integration efforts
led to significant margin expansion across service,
product and Adjusted EBITDA, as well as improved
cash flow generation. While ORBCOMM has a
history of strong organic revenue growth, 2019 Total
Revenues of $272 million were in the same range
as 2018. Revenues were impacted by a difficult U.S.
transportation macro environment with heightened
global trade tensions. Despite nearly flat revenues, our
efforts to deploy new cost-optimized products and
improve overall service margins resulted in achieving
2019
CORPORATE OFFICERS
Marc J. Eisenberg
Chief Executive Officer and President
Constantine “Dean” Milcos
Executive Vice President and Chief Financial Officer
Outside the US: +1-703-433-6300
Christian G. Le Brun
Executive Vice President and General Counsel
Craig E. Malone
Executive Vice President, Product Development
462 South 4th Street, Suite 1600
GENERAL INFORMATION
Company Contact Information:
395 W. Passaic Street, Third Floor
Rochelle Park, NJ 07662
US toll-free: 800-ORBCOMM
www.orbcomm.com
Transfer Agent and Registrar:
Computershare
Louisville, KY 40202
US toll-free: 800-522-6645
Outside the US: +1-201-680-6578
www.computershare.com/investor
Stock Exchange:
Common Stock (Symbol: ORBC)
NASDAQ Global Market
Independent Registered Public Accounting Firm:
Grant Thornton LLP
757 Third Avenue
New York, NY 10017
www.grantthornton.com
The company’s annual meeting of shareholders will
be held at its Florida office:
2700 North Military Trail, Suite 410
Boca Raton, FL 33431
at 8:00 a.m., on Wednesday, April 22, 2020.
John J. Stolte, Jr.
Executive Vice President, Technology
and Operations
BOARD OF DIRECTORS
Jerome B. Eisenberg
Chairman of the Board
Marc J. Eisenberg
Chief Executive Officer and President
Marco Fuchs
Chief Executive Officer and Chairman of
the Managing Board of OHB SE
Denise Gibson
Karen Gould
Executive Vice President and Chief Financial Officer
of The Turner Corporation
Timothy Kelleher
Managing Partner of Silver Canyon Group, LLC
John Major
President of MTSG
Co-Founder and Chairman of Ice Mobility
Annual Meeting:
record Adjusted EBITDA of $63 million, an 11%
increase over 2018. This performance helped generate
$30 million in Operating Cash Flow, a significant
increase of $19 million over the prior year. While these
results represent improvements over the prior year,
our share price does not reflect these improvements,
nor does it reflect the expected benefits of the
investments we have made in our integration efforts.
As we look to 2020, with these new levels of margins,
cash flow moving in an upward trend and large
deployments underway, we anticipate our financial
performance to continue to improve, achieving greater
levels of profitability and shareholder value.
With the increasing role IIoT technology is playing
in our customers’ operations, we continue to make
innovation a priority. In addition to rolling out new
feature-rich, cost-reduced products and services, we
embarked on a number of new product development
initiatives. For example, to support the heavy
equipment industry, we introduced an enhanced
heavy equipment monitoring device available in
single and dual-mode satellite, as well as a low-cost
asset tracking device equipped with an integrated
antenna, all available on our enhanced FleetEdge4
web platform. We expanded our refrigerated container
and vessel monitoring platforms to manage the
intermodal industry’s new, energy-efficient Controlled
Atmosphere containers, which regulate carbon
dioxide, oxygen and nitrogen levels to enhance the
quality and shelf life of produce in transit. There are
several product and service innovations planned for
launch in 2020, which feature disruptive technology,
our unique dual-mode connectivity, an array of
sensors and customer-specific integrations, providing
greater value and ROI-driven insights to customers
about their business operations.
To enhance our satellite offering, we contracted
to build, launch and operate two next generation
Automatic Identification System (AIS) CubeSats to
expand AIS coverage, increase visibility to smaller
Class B ships and enhance our polar footprint.
The CubeSats, which feature three dedicated AIS
receivers and a state-of-the-art antenna, are expected
to outperform all other AIS satellites in orbit. We are
expecting the first launch in late 2020.
In 2019 we leveraged our deep industry expertise,
value-added services and leading-edge technology to
win opportunities in the transportation & distribution,
supply chain & logistics, heavy equipment, maritime
and government industries. We expanded our
customer portfolio with some pivotal wins, many of
which were “double play” and “triple play” opportunities
that selected ORBCOMM for our ability to deliver
solutions for multiple asset classes, including dry van,
refrigerated and in-cab, utilizing a single integrated
platform. We secured one of our most significant
opportunities to date with Carrier, the largest
refrigerated transportation OEM globally, in support
of one of the industry’s largest shipping companies.
This exciting project is a fleet-wide, global deployment
of 150,000 devices that spans five continents and
enables the customer to gain complete command
and control of their refrigerated containers. There are
several other high-profile customers and many small
and mid-sized opportunities on the horizon that are
setting the stage for a strong 2020.
As we head into a new decade, we are proud of
our impact on the digitization of industry and will
continue to strive for profitable growth and operational
excellence through our integration efforts to build
efficiency and scalability across the Company. We
are confident in our strategic plan and believe that
2020 will bring an increasing number of customer
opportunities in new geographies and market
segments, improved financial results and increased
shareholder value.
On behalf of the ORBCOMM team, thank you for your
continued support.
Sincerely,
Marc Eisenberg
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33118
ORBCOMM INC.
(Exact name of registrant in its charter)
Delaware
(State or other jurisdiction of
incorporation of organization)
41-2118289
(I.R.S. Employer
Identification Number)
395 W. Passaic Street
Rochelle Park, New Jersey 07662
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(703) 433-6300
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common stock, par value $0.001 per share
Trading Symbols(s)
ORBC
Name of Each Exchange on Which Registered:
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (based on the closing price reported on the
Nasdaq Global Market on June 30, 2019) was $545,928,379.
Shares held by all executive officers and directors of the registrant have been excluded from the foregoing calculation because such persons
may be deemed to be affiliates of the registrant.
The number of shares of the registrant’s common stock outstanding as of February 21, 2020 was 78,344,013.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2020 Annual Meeting of Stockholders to be held on April 22, 2020 are incorporated by
reference in Part III of this Form 10-K.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART I
Business.....................................................................................................................................................................
Risk Factors ...............................................................................................................................................................
Unresolved Staff Comments......................................................................................................................................
Properties...................................................................................................................................................................
Legal Proceedings .....................................................................................................................................................
Mine Safety Disclosures............................................................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Securities ..............................................................................................................................................................
Selected Consolidated Financial Data .......................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...................................
Quantitative and Qualitative Disclosures about Market Risks..................................................................................
Financial Statements and Supplementary Data .........................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................
Controls and Procedures............................................................................................................................................
Other Information......................................................................................................................................................
PART III
Directors and Executive Officers of the Registrant and Corporate Governance.......................................................
Executive Compensation ...........................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................
Certain Relationships and Related Transactions, and Director Independence..........................................................
Principal Accountant Fees and Services....................................................................................................................
PART IV
Item 15.
Exhibits and Financial Statements Schedules ...........................................................................................................
SIGNATURES .................................................................................................................................................................................
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Forward- Looking Statements
Certain statements discussed in Part I, Item 1. “Business”, Part I, Item 3. “Legal Proceedings”, Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K
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, AIS data and industrial IoT
industries; the inability to effect suitable investments, alliances and acquisitions or the inability to successfully integrate acquired
businesses and systems; defects, errors or other insufficiencies in our products or services; failure to meet minimum service level
commitments to certain of our customers; our dependence on significant customers for a substantial portion of our revenues, including
key customers such as JB Hunt Transport Services, Inc., Caterpillar Inc., Komatsu Ltd., Carrier Transicold and Satlink S.L.; our
ability to expand our business outside the United States and risks related to the economic, political and other conditions in foreign
countries in which 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 man-made or natural disasters, 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 and oversight; lack of in-orbit or other insurance
for our ORBCOMM Generation 1 or ORBCOMM Generation 2 satellites; our reliance on third-party wireless network service
providers to deliver existing and developing services in certain areas of our business; significant interruptions, discontinuation or loss
of services provided by Inmarsat plc; failure to maintain proper and effective internal controls; inaccurate estimates in accounting or
incorrect financial assumptions; significant operating risks related to our satellites due to various types of potential anomalies and
potential impacts of space debris or other spacecrafts; 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, data processing systems and software 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
$250.0 million 8.0% senior secured note indenture and our revolving credit agreement, under which we may borrow up to $25.0
million, that could restrict our business activities or our ability to execute our strategic objectives or adversely affect our financial
performance; and risks related to an investment in our common stock, including volatility due to our quarterly performance or our
recently announced stock repurchase program. In addition, specific consideration should be given to various factors described in Part
I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, and elsewhere in this Annual Report on Form 10-K. We undertake no obligation to publicly revise any forward-looking
statements or cautionary factors, except as required by law.
1
Item 1.
Business
PART I
We are a global provider of industrial Internet of Things (“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 Automatic Identification Service
(“AIS”) data services to assist in vessel navigation and to improve maritime safety for government and commercial customers
worldwide. Through two acquisitions in 2017, we added vehicle fleet management, as well as in-cab and fleet vehicle solutions, to our
transportation solution portfolio. We provide our services using multiple network platforms, including our own constellation of low-
Earth orbit (“LEO”) 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 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 (“Inmarsat”) satellite network to provide higher bandwidth,
low-latency satellite products and services, leveraging our IsatDataPro (“IDP”) 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 business operations more efficiently and achieve significant return on investment.
Customers benefiting from our network, products and solutions include original equipment manufacturers (“OEMs”), 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”) and international value-
added resellers (“IVARs”), such as American Innovations, and value-added solutions providers, such as Onixsat, Satlink and Sascar
(collectively referred to as “MCPs”); and end-to-end solutions customers such as Carrier Transicold, C&S Wholesale, Canadian
National Railways, CR England, Hub Group, Inc., JB Hunt Transport Services, Inc. (“JB Hunt”), KLLM Transport Services, Marten
Transport, Prime Inc., Swift Transportation, Target, Tropicana, Tyson Foods, Walmart and Werner Enterprises.
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). We
also generate recurring AIS service revenues from subscription-based services supplying recurring AIS data services to customers and
resellers, as well as monthly subscription-based service revenues from our platform that provides operational and transaction data
management and business intelligence. 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 parties notify us of the units they have
manufactured and a unique serial number is assigned to each unit; and fees from providing engineering, technical and management
support services to our customers.
We derive product sales primarily from sales of complete 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.
Unless otherwise noted or the context otherwise requires, references in this Form 10-K to “ORBCOMM,” “the Company,” “our
company,” “we,” “us” or “our” refer to ORBCOMM Inc. and its direct and indirect subsidiaries.
2
Business Development Activities
Stock repurchase program
On August 5, 2019, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $25.0
million of our outstanding shares of common stock through open market transactions and privately negotiated transactions, until
August 5, 2020. In addition, open market repurchases of our shares 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. During
the year ended December 31, 2019, we repurchased 1,930,414 shares at an average share price of $4.86. As of December 31, 2019,
authorization for approximately $15.6 million of our common stock remained available for future purchases under the repurchase
program.
Share offering
On April 13, 2018, we filed a shelf registration statement with the Securities and Exchange Commission (“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.
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.
Senior secured notes
On April 10, 2017, we issued $250.0 million aggregate principal amount of 8.0% senior secured notes due 2024 (the “Senior
Secured Notes”). 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
“Indenture”). 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.
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 $50.0 million.
On April 10, 2017, a portion of the proceeds from the issuance of the Senior Secured Notes was used to repay in full our
outstanding obligations under our $150.0 million outstanding credit facilities incurred pursuant to the secured credit facilities credit
agreement entered into on September 30, 2014, and to terminate the agreement, resulting in an early payment fee of $1.5 million and
an additional expense associated with the remaining unamortized debt issuance cost of $2.4 million.
3
Revolving credit facility
On December 18, 2017, we and certain of our 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 $25.0 million for working capital and general corporate purposes and matures on December 18, 2022. The Revolving
Credit Facility bears 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, 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 customary representations and warranties, conditions to funding, covenants and
events of default. 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 December 31, 2019, no amounts were outstanding under the Revolving Credit Facility. As of December 31, 2019, we were in
compliance with all financial covenants under the Revolving Credit Agreement.
Strategic alliance with Inmarsat
In early 2016, in connection with the strategic alliance with Inmarsat announced on November 4, 2013, we introduced the first
of a series of interchangeable modems that work with either our ORBCOMM Generation 2 (“OG2”) VHF network or Inmarsat’s L-
band network. These modems have the same footprint, connectors, power input, and programming environment to allow for easy
exchange of modems for the different networks. Manufacturers and partners are able to place into their products the appropriate
modem that corresponds with either our or Inmarsat’s network based on geography, message size and delivery speed for ease of use
and flexibility. In addition, users are able to take advantage of our relationships with Tier One cellular providers for dual-mode
cellular and satellite service with either satellite network. We also offer our unique ORBCOMMConnect Platform, which seamlessly
translates and integrates the communications from our diverse network service partners into a uniform set of commands and
information. This facilitates a uniform platform for provisioning, billing and multi-mode access for industrial IoT applications,
supported by Inmarsat’s machine-to-machine (“M2M”) Access Platform, enabling access to network and terminal management tools
for wholesale integration with us.
These versatile offerings are available in our end-to-end solutions for heavy equipment, fixed asset monitoring and
transportation industries, as well as through our MCPs. We leverage our relationship with Inmarsat to access their worldwide fleet of
L-band geostationary (“GEO”) satellites to provide IDP, a satellite packet data service offering the highest throughput and lowest
latency in the market.
Our Business Strengths and Competitive Advantage
With years of experience in providing global M2M and industrial IoT solutions, we continue to deliver advanced products and
services that connect the world’s assets to increase visibility, operational efficiency and profitability and enable faster and smarter
business decisions through data analytics and reporting for our customers across a wide range of vertical markets. As industrial IoT
and business intelligence technologies transform the competitive landscape at an increasing pace, customers are looking for more
sophisticated solutions that extend beyond track and trace applications to unlock incremental value in their business so they can see
more, know more and do more.
Our key competitive advantages include a broad range of industrial IoT network connectivity solutions, including cellular
network connectivity through our partnerships with Tier One cellular carriers, and global, two-way satellite data communication
connectivity through our own network of LEO satellites and accompanying ground infrastructure, as well as through a strategic
partnership with Inmarsat.
4
By leveraging our deep industry expertise and market domain knowledge in transportation & distribution, supply chain &
logistics, heavy equipment, maritime industries, as well as for governments, we are changing the way enterprises track, monitor,
protect, control, and predict the behavior of assets around the world. We provide individual application components, such as modems
and chip sets, as well as full end-to-end solutions, such as freight transportation monitoring, cold chain compliance, refrigerated asset
monitoring, vehicle fleet management, in-cab driver safety and cargo security systems. Our combination of global network services
along with our state-of-the-art devices, and an open, cloud-based analytics platform and information management engine provides
what we believe is the global industrial IoT market’s most comprehensive service offering and positions us as a leader and innovator
in this marketplace. In addition, our global solution delivery team provides end-to-end customer service – from installation to
deployment to ongoing customer care — to support our diverse customer base anywhere in the world. We believe that our approach to
industrial IoT solutions along with the depth of our expertise are unique in our industry and position us to respond effectively to
rapidly evolving market demands.
Our customer base has widely divergent requirements for hardware, connectivity, middleware, and software that depend, in part,
on specific industry, geography, and price requirements. Leveraging our engineering expertise in the global industrial IoT sector and
through our diverse portfolio of devices, network services, and data analytics platform, we offer solutions that enable customers to
minimize development time, reduce costs and increase operational efficiency, whether by saving on fuel, improving asset turn times,
lowering maintenance costs or optimizing asset utilization. In addition to operational and transaction data management for customers
in our key markets, our robust platform provides in-depth descriptive, predictive and prescriptive insights to increase the efficiency of
customer processes and better manage costs, resulting in a strong return on investment. We believe our flexibility in responding to
unique customer requirements, as well as our ability to provide all these products and services ourselves as a single source enhances
our competitive positioning.
Through our satellite network, we provide worldwide coverage, including in the open ocean, allowing end users to access our
communications system in areas outside the coverage of terrestrial networks. Our unique, proven technology offers full two-way data
communication with minimal line-of-sight limitations and reliable performance. Using our satellite-based AIS system, which is
equipped on each of our OG2 satellites, our customers have access to AIS data well beyond coastal regions in a cost-effective and
timely fashion. We provide global AIS data service through a combination of satellite and terrestrial data, enabling government and
commercial customers to track more than 200,000 AIS-equipped vessels worldwide per day, facilitating maritime surveillance and
intelligence. We intend to continue working with system integrators and maritime information service providers to develop AIS-based
value-added services and to facilitate the sales and distribution of AIS data.
In addition, we are continuing to make investments to support growth in the AIS markets by enhancing our service offering. We
are partnering with Clyde Space, who will build, launch and operate our two next-generation AIS CubeSats, each of which host three
dedicated AIS receivers, including a highly versatile Software Defined Radio, along with a state-of-the-art antenna concept to
maximize AIS detections. The two new satellites are expected to expand coverage of our constellation, increase visibility to smaller
Class B ships and enhance our polar footprint with launches planned on two separate missions starting in late 2020.
Our Strategy
Our long-term growth strategy capitalizes on expanding our capabilities and distribution through a build, buy or partner
approach based on time to market and return on investment. Our growth is a result of our ability to leverage our extensive world-class
in-house engineering capabilities to design new products, as well as reduce costs and improve the functionality of our products
through product redesign initiatives. In addition, we continue to identify strategic acquisitions that expand existing business lines,
increase our resources and scalability and build collaborative partnerships with fellow industry leaders.
Our strategic relationships with key distributors and OEMs have enabled us to streamline our sales and distribution channels
and, in some cases, shift much of the risk and cost of developing and marketing end-user applications to the OEMs and MCPs. We
have established strategic relationships with major OEMs, such as Carrier Transicold, Komatsu Ltd., Volvo Construction Equipment
and Oshkosh Corporation / JLG Industries, Inc., as well as key VARs and IVARs, such as Precise Innovations and American
Innovations in North America, along with Onixsat, Satlink S.L. and Sascar in key international markets.
Industry Overview
Businesses and governments increasingly face the need to track, control, monitor and communicate with fixed and mobile assets
that are located throughout the world. At the same time, these assets increasingly incorporate microprocessors, sensors and other
devices that can provide a variety of information and analytical insight about the asset’s location, condition, operation and
environment and are capable of responding to external commands and queries. As these intelligent devices proliferate, we believe that
the need to establish two-way communications with these devices is greater than ever. The owners and operators of these intelligent
devices are seeking low-cost and efficient communications systems that will enable them to communicate with these devices.
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We operate in the industrial IoT industry, which includes various types of communications systems that enable intelligent
machines, devices and fixed or mobile assets to communicate information from the machine, device, or fixed or mobile asset to and
from back-office information systems of the businesses and government agencies that track, monitor, control and communicate with
them. These industrial IoT data communications systems integrate a number of technologies and cross several different industries,
including computer hardware and software systems, positioning systems, terrestrial and satellite communications networks and
information technologies (such as data hosting and business intelligence).
There are four main components in any industrial IoT data communications system:
1.
Devices and device management. Devices and sensors collect, measure, record and gather data about intelligent or
trackable remote or mobile assets and their environment to be used, analyzed or otherwise disseminated to other
machines, applications or human operators. These devices and sensors can:
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Report the location, speed and fuel economy data from trucks and locomotives;
Monitor the location, condition and environmental factors of dry van trailers, railcars and marine shipping
containers;
Monitor the location, condition and temperature of refrigerated trailers, railcars and marine shipping containers that
transport temperature-sensitive cargo, including remote command and control of temperature;
Monitor vehicle fleet location, route details and fuel usage;
Monitor driver in-cab behavior;
Report operating data usage and required maintenance for heavy equipment;
Monitor fishing vessels to enforce government regulations regarding geographic and seasonal restrictions;
Report the location and condition of ocean buoys;
Report energy consumption from a utility meter;
Monitor corrosion in a pipeline;
Monitor levels in liquid, gas and materials storage tanks;
Measure water delivery in agricultural pipelines; and
Monitor environmental conditions in agricultural facilities.
2.
3.
4.
Network connectivity and subscriber management. The communications network enables a connection to take place
between the fixed or mobile asset and the back-office systems and users of that asset’s data. The proliferation of terrestrial
and satellite-based wireless networks has enabled the creation of a variety of industrial IoT data communications
applications. Networks that are being used to deliver asset data include terrestrial communications networks, such as
cellular, radio paging and WiFi networks, and satellite communications networks, utilizing LEO or GEO satellites.
Software-as-a-Service (“SaaS”) applications. Data collected from a remote asset is used in a variety of ways with SaaS
applications that allow the end user to track, monitor, control, communicate with and predict the behavior of these assets
with a greater degree of control and with much less time and expense than would be required to do so manually.
Platform-as-a-Service (“PaaS”). Multiple devices over various networks are better managed with a device management
platform, utilizing cloud-based portal technology to provide visibility and management to all devices. With a single
interface for managing multiple networks and devices, connectivity and device-specific messaging is abstracted to a
common interface and messaging application programming interface (API), allowing the end user to speak one language
to all of their connected industrial IoT devices for complete interoperability.
Market Opportunity
We believe the following market opportunities, as well as the increasing mainstream deployment of industrial IoT solutions, will
continue to position us as a leader and innovator in the global industrial IoT market:
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Commercial transportation and distribution
For-hire transportation companies, including truckload carriers, shipping lines, railroads and third-party logistics providers, and
the in-house transportation operations of enterprises are increasingly requiring industrial IoT telematics solutions to manage their
transportation assets more safely and efficiently and to improve performance and utilization. These wireless devices report location,
engine diagnostic data, fuel consumption, compliance, fuel taxes, driver electronic data logs, cargo condition, on/off utilization,
empty/loaded condition, demurrage and detention, facility entry/exit, as well as a wide variety of other functions, in order to provide
better control over business operations.
A growing number of truck and trailer fleet owners, operators and OEMs are integrating industrial IoT data communications
systems into their transportation operations. In order to improve driver safety and effectively track hours of service, the Federal Motor
Carrier Safety Administration (FMCSA) instituted regulatory requirements for Electronic Logging Devices (ELDs), also known as the
“ELD Mandate,” with a deadline of December 16, 2019. Through the Blue Tree Systems Limited (“Blue Tree”) acquisition, we are
now able to offer what we believe is the most advanced and user-friendly ELD solution on the market for medium-to large-sized
fleets, which not only enables regulatory compliance but also enables far greater operational efficiency. The trailer market also
requires additional wireless applications, such as cargo sensor reporting, load monitoring, fuel measurement, control of refrigeration
systems and door alarms, which we offer as part of our complete transportation solution portfolio. Future regulations may require
position tracking of specific types of cargo, such as hazardous materials, and could also increase trailer tracking market opportunities.
The coordination and integration of the broad collection of transportation assets, including trucks, trailers, containers, chassis and
gensets, through an integrated service can provide significant benefits, synergies and savings to customers through operating
efficiencies and increased logistical performance. The unified delivery of all these transport asset solutions provides a significant
advantage for us, which now offers what we believe is the transportation industry’s most comprehensive, integrated platform for
nearly all transportation assets leveraging the technology acquired from the inthinc, Inc. (“Inthinc”) acquisition and Blue Tree
acquisition.
Refrigerated or cold chain transportation shippers and transportation companies have a growing need to track and monitor
environmental and control conditions and fill the visibility gap of cargo over rail, trucking and sea transport, representing an important
market opportunity. Our industry-leading cold chain monitoring solutions, including those for trailers, railcars, gensets and sea
containers, address this significant market. In addition, the Food and Drug Administration’s Food Safety Modernization Act
(“FSMA”) continues to impact the growth of our market opportunity in this sector as we continue to work with our customers to
ensure they are informed, compliant and FSMA-ready. The FSMA ensures the safety of food across the supply chain through the
introduction of new requirements for food manufacturers, processors, transporters and distributors. The FSMA requires every large
food distribution company to implement wireless monitoring solutions at every step, from farm to table, which we expect will
continue to increase the demand for our cold chain monitoring systems.
Fleet management
Enterprises that utilize large and geographically dispersed fleets of vehicles are demanding improved fleet visibility, operational
efficiency, regulatory compliance, and improved asset management. The demand for fleet management solutions has increased due to
driver hours of service regulations imposed in the United States by the ELD Mandate, innovations in workforce productivity, more
efficient driver performance via electronic monitoring, and new safety applications. Wireless applications provide enterprise fleet
operators with a wide variety of fleet management services, including driver hours of service compliance, asset tracking, instantaneous
driver coaching and performance feedback, vehicle efficiency monitoring, fuel management, and asset utilization. Through the Blue
Tree acquisition, we offer a driver-friendly, ELD-compliant in-cab solution to private and for-hire truck fleets. Fleet asset management
is one of the largest and most dynamic markets for industrial IoT applications and offers a rapid growth opportunity for specialized
solutions for in-cab telematics in the freight transportation industry.
Fleet safety and compliance
Commercial vehicle accidents caused by driver behavior is the most frequent and costly source of safety liability for many
industrial companies. Lapses in driver behavior contribute to the majority of industrial safety-related injuries and deaths, costing
billions of dollars annually. Improving fleet safety involves more than simple driver monitoring and reactive policy measures—it
requires a proactive solution that provides verbal coaching to drivers in real-time to develop safer driving habits. Through the Inthinc
acquisition, we provide this technology, including the unique “Speed-by-StreetTM” feature, that is squarely focused on improving
driver safety. This solution is the only real-time fleet safety solution that detects unsafe driver behavior, such as speeding, aggressive
driving, and seat belt violations, and conducts in-cab verbal coaching, lowering the incidences of accidents and fineable offenses.
Customers, particularly those in industrial environments such as oil and gas, utilities, services industries, and emergency services,
increasingly benefit from safer fleet operations and better management of their drivers, expanding our reach into many new market
segments.
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Manufacturing, warehousing and supply chain management
In the increasingly complex and competitive world of manufacturing and supply chain operations, enterprises need to ensure
that high-value materials, tools and supplies converge at the right time and place. Manufacturing and warehousing profitability is
dependent on ensuring just-in-time availability and accurate real-time location of inventory in the supply chain. Companies employing
sophisticated supply chain methods have the potential to realize greater profits than competitors using more traditional means. As
regulatory pressure for buying multiple technologies rises, customers are increasingly demanding integrated solutions from single-
source providers. We provide end-to-end industrial IoT solutions based on multi-modal short-range tracking technologies such as
RFID, WiFi, condition sensors and actuators that are more capable of handling the complex demands of today’s manufacturing and
supply chain operations.
Heavy equipment
Heavy equipment fleet owners and leasing companies seeking to improve fleet productivity and profitability require applications
that report diagnostic information, location, time-of-use information, emergency notification, driver usage and maintenance alerts for
their heavy equipment, which may be in remote, difficult-to-reach locations. Using industrial IoT data communications systems, heavy
equipment fleet operators can remotely manage the productivity and mechanical condition of their equipment, potentially lowering
operating costs through preventive maintenance. OEMs can also use industrial IoT applications to better anticipate the maintenance
and spare parts needs of their customers, expanding the market for higher-margin spare parts orders. Heavy equipment OEMs are
increasingly integrating industrial IoT data communications systems into their equipment at the factory or offering them as options
through certified after-market dealers.
Fixed asset monitoring
Companies with widely dispersed fixed assets, such as remote oil and gas equipment, require a means of collecting data from
them to monitor productivity, manage inventory, increase security, minimize downtime and realize other operational benefits, as well
as manage remote operation of valves, compressors, pumps and electrical switches. Industrial IoT systems can provide automated
meter reading, oil and gas storage tank monitoring, pipeline monitoring and environmental monitoring, which can reduce labor costs,
fuel costs, and the expense of on-site monitoring and maintenance.
Marine
Marine vessels need satellite-based communications due to the absence of reliable terrestrial-based coverage more than a few
miles offshore. We offer industrial IoT solutions ranging from maritime sensors on buoys to features and functions to support luxury
recreational marine vessels and commercial fishing vessels. These applications include onboard diagnostics and other marine
telematics, alarms, requests for assistance, security, location reporting and tracking, two-way messaging, catch data and weather
reports. Owners and operators of commercial fishing and other marine vessels are increasingly subject to regulations governing,
among other things, commercial fishing seasons and geographic limitations, vessel tracking, safety systems, and resource management
and protection.
We expect to leverage our investment in satellite technology to resell our M2M data services and the AIS data collected by our
network to maritime services and governmental agencies. Further expansion of our maritime business has been driven by our
distribution agreements with resellers to resell the M2M and AIS data for commercial purposes.
Government and homeland security
Governments worldwide are seeking to address the global terror threat by monitoring land borders and hazardous materials, as
well as marine vessels and containers. In addition, modern military and public safety forces use a variety of applications, particularly
in supply chain management, logistics and support, which could incorporate our products and services. Industrial IoT systems are used
in applications to address infiltration across land borders by, for example, monitoring seismic sensors placed along the border to detect
incursions. Industrial IoT systems are also used in applications to address homeland security requirements, such as tracking and
monitoring vessels and containers.
Customers
We market and sell our products and services directly to OEM and government customers and end users, and indirectly through
MCPs and MCAs, as discussed below.
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Revenues in Foreign Geographic Areas
Revenues in 2019, 2018 and 2017 in foreign geographic areas, mostly South America, Europe and Japan, represented
approximately 49%, 37% and 22% of our consolidated revenues, respectively. Other than South America and Europe, no foreign
geographic area accounted for more than 10% of our consolidated revenues. See also “Note 12 – Segment Information” in our audited
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Sales, Marketing and Distribution
We generally market our services and products through the following channels:
Market Channel Partners (MCPs). We are currently working with a number of MCPs and seek to add additional MCPs as we
expand our business. The role of the MCP is to develop tailored applications that utilize our system and then market them, through non-
exclusive licenses, to specific, targeted vertical markets and geographies. MCPs are responsible for establishing retail pricing, collecting
revenues from end users and for providing customer service and support. Our MCPs have made significant investments in developing
ORBCOMM-based applications. MCPs pay fees for access to our system based on either a fixed monthly recurring charge or on the
amount of data transmitted.
Generally, subject to regulatory restrictions, MCPs that have an IVAR arrangement allow us to enter into a single agreement
with any given IVAR and allow the IVARs to pay directly to us a single price on a single monthly invoice in a single currency for
worldwide service, regardless of the territories in which they sell, avoiding the need to negotiate prices in each territory.
Market Channel Affiliates (MCAs). We primarily market and distribute our services outside the United States through our
subsidiary companies, several of which are overseas joint ventures, that are assigned specific international territories. We rely on these
MCAs to establish business in their respective territories, including obtaining and maintaining necessary regulatory and other
approvals, as well as managing local resellers. We believe our MCAs, through their local expertise, are able to operate in these
territories in a more efficient and cost-effective manner. We currently have MCAs covering over 135 countries and territories. As we
seek to expand internationally, we expect to add additional MCAs to cover Asia and Africa. We pay our MCAs a commission on
revenues received from IVARs from each subscriber activated in the specific territory assigned to the MCA.
Direct to End Users. We also market directly to end users, providing services and products tailored to particular vertical
markets, establishing retail pricing, collecting revenues and providing customer service and support.
Competition
Over the last several years, we have transitioned from a satellite network operator to a multi-network service provider to an
industrial IoT solutions company to today, where we offer the full industrial IoT technology stack and leverage our satellite network,
as well as price competitive networks, as a key differentiator. We believe no other industrial IoT company offers more options for
hardware, software, connectivity, and responsive analytics at competitive price points. Currently, we are the only commercial provider
of below 1 GHz band, or little LEO, two-way data satellite services optimized for narrowband. However, we are not the only provider
of data communication services, and our industrial IoT products and services are increasingly subject to competition from existing and
new entrants into the markets we serve. Competing service providers can be divided into four main categories: telematics and
industrial IoT solution providers (including OEMs), terrestrial tower-based cellular networks, LEO mobile satellite and geostationary
satellite service providers.
Telematics and industrial IoT solution providers
The growth in the industrial IoT industry has led to other competitors that compete with our products and services, including
system integrators, device management and open source platforms, enterprise and commercial fleets, for-hire carriers, tank monitoring
applications and petroleum logistics solutions, as well as OEMs in the refrigeration and transportation markets. In addition, IoT device
manufacturers are seeking to expand into solutions to increase recurring service revenue. However, our industry-leading combination
of global network services along with our state-of-the-art devices, breadth of related services and robust cloud-based analytics and
reporting platform, for multiple market segments, asset classes and fleets of any size, provide what we believe is the global industrial
IoT market’s most comprehensive service offering and positions us as a leader and innovator in this marketplace.
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Terrestrial tower-based cellular networks
While terrestrial tower-based cellular networks are capable of providing services comparable to ours at higher data rates, they
lack seamless global coverage. Terrestrial coverage is dependent on the location of tower transmitters, which are generally located in
densely populated areas or heavily traveled routes. Several data and messaging markets, such as long-haul trucking, railroads, oil and
gas, agriculture, utility distribution and heavy construction, have significant activity in sparsely populated areas with limited or no
terrestrial coverage. In some geographic areas, terrestrial tower-based networks have gaps in their coverage and may require a back-up
system to fill such coverage gaps. We have entered into re-seller agreements with several major Tier One cellular wireless providers to
provide our customers options for incorporating terrestrial communications connectivity for industrial IoT solutions, in either single-
mode or dual-mode configurations that use both terrestrial and satellite network platforms. In addition, cellular providers are
expanding into IoT solutions.
Low-Earth orbit mobile satellite service providers
LEO mobile satellite service providers operating above the 1 GHz band, or big LEO systems, can provide data connectivity with
global coverage that can compete with our communications services. The primary focus of big LEO satellite service providers has
been on circuit-switched communications tailored for time- and bandwidth-intensive voice traffic, which is less efficient than the
transfer of short data messages. However, big LEO satellite service providers have shifted to focus more on industrial IoT data
communications. These systems entail significantly higher costs for the satellite fleet operator and the end users. Our principal big
LEO mobile satellite service competitors are Iridium Communications Inc. and, to a lesser extent, Globalstar, Inc., whose satellite
airtime services we also resell.
Geostationary satellite service providers
Geostationary satellite system operators can offer services that compete with ours. Certain pan-regional or global systems
(operating in the L- or S-bands), such as Inmarsat, are designed and licensed for mobile high-speed data and voice services. We
believe that the equipment cost and service fees for narrowband data communications using these systems are also significantly higher
than ours, and that these geostationary providers cannot offer global service with competitive communications devices and costs. In
addition, they have other limitations, such as requiring a clear line of sight between the communicator equipment and the satellite,
being affected by adverse weather or atmospheric conditions, and being vulnerable to catastrophic single-point failures of their
satellites with limited backup options. In addition, we resell satellite airtime service provided by Inmarsat to meet specific customer
needs.
Product Development
We develop products and service enhancements that we sell directly to our end-user customers, as well as design new products
and services that enhance features and capabilities, while at the same time reducing costs of our products and services.
ORBCOMM Communications System
Overview
Our industrial IoT data communications services are provided by offering a unique combination of both satellite and terrestrial
networks including our proprietary LEO satellite constellation, consisting of our ORBCOMM Generation 1 (“OG1”) and OG2
satellites, which are equipped with additional AIS capabilities, operating in the VHF band. In addition, we offer data communication
services provided by third-party satellite constellations, such as our partnership with Inmarsat, through which we provide L-band GEO
satellite service via both IDP, a satellite packet data service offering the highest payload and lowest latency in the market and a 3G-
based service, and the Globalstar, Inc. satellite network. In addition, we provide data communication services utilizing Tier One
wireless carriers through partnerships with AT&T, Verizon, T-Mobile, Telefonica, Orange, Rogers, Jersey Telecom and Vodafone,
whose Access Point Name (“APN”) networks are tightly integrated into our own production network to provide a common interface
for a mix of carrier and service options for our customers.
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We utilize our ORBCOMMConnect Platform to seamlessly translate and integrate the communications from our diverse
network service partners into a uniform and easily manageable set of commands and responses and information delivery. This creates
a common user platform for provisioning, billing and multi-mode access for industrial IoT applications and enables access to network
and terminal management tools for rapid wholesale integration with our network. We sell or lease to our customers a subscriber
component, which consists of satellite subscriber communicators and cellular terrestrial units, or wireless modems incorporating
SIMs, used by end users to transmit and receive messages to and from their assets and our system. In addition, our web applications
provide specialized data feeds that are established through our application gateway interface to third-party dispatch systems and
proprietary customer software applications to provide customers with data and analytics from telematics products and specialized
sensors.
The data generated by our customer base typically comes from end-user or ORBCOMM-developed applications. The data may
be transferred to either a satellite terminal or a terrestrial-based wireless device using a SIM on the partner cellular provider’s network.
If the data is transferred to a satellite subscriber communicator, data is transmitted to the next satellite that comes into view in near
real-time. The data is then routed by the satellite to the next gateway earth station (“GES”) that it successfully connects to, which in
turn forwards it to the ORBCOMM gateway control center (“GCC”). Within the GCC, the data is processed, safe-stored, and
forwarded to its ultimate destination and, if requested, an acknowledgment that the message content has been received is transmitted
back to the subscriber communicators. If the data is transferred to a cellular device, data is routed through the partner carrier’s network
via VPN to the ORBCOMM GCC and forwarded to its ultimate destination in real time. The destination for transferred data may be
another subscriber communicator, a SIM, a corporate resource management system, any personal or business Internet e-mail address,
a pager or a text message-capable cellular phone, or any combination of the above. In addition, data can be sent in the reverse
direction (a feature which is utilized by many applications to remotely control assets) using similar methods.
System Status
OG1 satellites
With the launch of the OG2 satellites, we are gradually phasing out the OG1 satellites. We will maintain operational control for
the remaining lives of the OG1 satellites.
OG2 satellites
On July 14, 2014, we launched six of our next-generation OG2 satellites, all of which were placed into proper orbit. On
September 15, 2014, following an in-orbit testing period, we initiated commercial service for the six OG2 satellites. On December 21,
2015, we launched the remaining 11 next-generation OG2 satellites, all of which were placed into proper orbit. On March 1, 2016,
following an in-orbit testing period, we initiated commercial service for the 11 OG2 satellites. Of the 17 OG2 satellites placed in
service, we have lost communication with five satellites. In October 2018, we experienced a communication issue with one OG2
satellite. We remain in operational control of this satellite and are developing new software in an attempt to restore AIS and/or
messaging services.
In 2017, following a loss of communication with three OG2 satellites we established a comprehensive investigative team that
included outside independent consultants, internal engineers and OG2 contractors to determine the root cause of the anomalies
affecting these three OG2 satellites and associated corrective measures. The investigative team identified two potential primary causes
for the loss of communication and developed operational procedures and software enhancements to mitigate the risk of a similar
anomaly occurring on other OG2 satellites. The investigative team did not identify a systemic design flaw in the OG2 satellites. The
satellite network capacity remains multiple times more capable than current demand, while there has been a small effect on message
delivery times.
The operational OG2 satellites are providing both M2M messaging and AIS service for our global customers. The satellites have
been divided into four separate planes and were placed into differing altitudes to allow each plane to drift to the proper orbit. All of the
drifting operations are complete and the OG2 satellites are equally spaced in four planes providing customers the optimum coverage.
ORBCOMM gateways
The GESs in the United States and internationally are performing well. In addition to routine maintenance, we continue to
perform hardware and software upgrades which have improved the functionality of the GESs. Specifically, new antenna control and
drive systems have been installed in several of the GESs in conjunction with the aforementioned upgrades.
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ORBCOMM network capacity
With the addition of our OG2 satellites, the ORBCOMM network capacity has been greatly increased. In the backwards
compatible OG1 mode, each OG2 satellite has more than six times the capacity of the OG1 satellites because each OG2 satellite has
six downlink transmitters where the OG1 satellites have only one. Currently, the OG2 satellites are meeting our capacity needs with
just one or two downlink channels per satellite. Our ground segment was originally designed with scalability in mind. As technologies
in storage and networking solutions evolve, we are continuously upgrading, through internal resources, the key components that are
impacted most by an increasing subscriber base.
Inmarsat Services
With our acquisition of SkyWave Mobile Communications, Inc. (“SkyWave”) in January 2015 (the “SkyWave Acquisition”),
we entered into an agreement with Inmarsat to transition the primary operational control of the IDP services to Inmarsat. This
transition is complete, and the system performance is over 99.6% network availability. For the legacy IsatM2M services, we provide
operational support to Inmarsat’s engineering and operations teams. Like the IDP services, network availability for IsatM2M services
has been consistent and reliable. For both the IDP and IsatM2M services, we remain in control of the message delivery gateway that
is the interface to our customers for message delivery. The gateway is a redundant system providing customer access via two
independent Internet lines which offer connectivity to their mobile terminals and messages over multiple transports and protocols. It
is a high-availability system responsible for connection, storing and relaying messages between customers and Inmarsat satellite
network systems, as well as providing terrestrial messaging services between customers and mobile terminals.
Terrestrial Services
We have active partnerships with many of the major terrestrial carriers, both domestically and abroad, including AT&T,
Verizon, T-Mobile, Telefonica, Orange, Rogers, Jersey Telecom and Vodafone. We have tightly integrated each carrier’s APN into
our production network to provide a common interface for a mix of carrier and service options for our customers. The integration
planning of each carrier network is at the core of our goal to provide a consistent and reliable uniform messaging environment over a
variety of networks. We maintain redundant connections to carriers through an East Coast primary data center and West Coast backup
data center. Our Network Control Center (“NCC”), staffed 24 hours a day, monitors all aspects of the network to ensure prompt
response to network anomalies when they occur. Aside from a traditional Network Management System (“NMS”) utilizing Simple
Network Management Protocol (“SNMP”) for infrastructure monitoring, device and carrier specific tests simulate customer traffic and
provide performance metrics for support staff and engineers. A three-tier support structure is employed to ensure that staff with
domain specific knowledge are quickly assigned to address anomalies and implement resolutions.
AIS Services
Our AIS data services are provided through a combination of our OG2 satellites, which are all enabled with advanced AIS data
receivers, and third-party space-based assets and terrestrial AIS data providers.
Regulation of Our Business in the United States
FCC authorizations
Any entity seeking to construct, launch, or operate a commercial satellite system in the United States must first be licensed by
the U.S. Federal Communications Commission (“FCC”). ORBCOMM License Corp., a wholly owned subsidiary of ours, holds the
FCC license for our VHF LEO Satellite System (the “Space Segment License”). ORBCOMM License Corp. also holds additional
FCC licenses relating to our United States GESs, and our VHF and L-Band subscriber communicator deployments in the United
States. We believe that our business, as currently conducted, is in full compliance with all applicable FCC rules, policies and license
conditions.
FCC license renewals
The current 15-year term of our Space Segment License expires in April 2025, and the renewal application must be filed
between 30 and 90 days prior to the end of the twelfth year of the current license term (i.e., between 30 and 90 days prior to April
2022). The current FCC earth station licenses for the United States GESs and VHF subscriber communicators expire on May 17, 2020
and June 12, 2020, respectively, and our two L-Band subscriber communicator licenses expire on January 22, 2034 and April 19,
2026, respectively. Renewal applications for our FCC earth station licenses must be filed between 30 and 90 days prior to expiration.
We will timely file our applications for renewal of our four United States GES and VHF subscriber communicator FCC licenses in
accordance with FCC rules and procedures, and we expect that those renewal applications will be granted by the FCC. However,
although the FCC has been positively disposed thus far towards granting our applications for license renewals, there can be no
assurance that the FCC will in fact grant our earth station license renewals, or renew our other FCC licenses in the future.
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We believe that our business as currently conducted is in full compliance with all applicable FCC rules, policies, and license
conditions. We also believe that we will have the ability to continue to comply with all applicable FCC requirements, although we
cannot provide assurance that will be the case.
Non-common carrier status
All of our FCC licenses authorize our provision of commercial services on a “non-common carrier” basis. As a result, our
service offerings are subject to limited FCC regulations, and we are not required to comply with the obligations, restrictions and
reporting requirements applicable to common carriers or to providers of Commercial Mobile Radio Services, or CMRS. There can be
no assurance, however, that in the future, we will not be deemed by the FCC to provide services that are designated common carrier or
CMRS, or that the FCC will not exercise its discretionary authority to apply its common carrier or CMRS rules and regulations to our
service offerings. If this were to occur, we would be subject to FCC obligations that include record retention requirements, limitations
on use or disclosure of customer proprietary network information and truth-in-billing regulations. In addition, we would need to obtain
FCC approval for foreign ownership in excess of 25% and authority under Section 214 of the Communications Act of 1934, as
amended, to provide international services. Finally, we would be subject to additional reporting obligations with regard to
international traffic and circuits, and Equal Employment Opportunity Act compliance.
United States regulatory controls
We are subject to U.S. import and export control laws and regulations, specifically the Arms Export Control Act, the
International Traffic in Arms Regulations, and the Export Administration Regulations. We are also subject to other regulatory
regimes, including trade and economic sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office
of Foreign Assets Control and the Foreign Corrupt Practices Act, and we believe we are in full compliance with all such laws and
regulations. We also believe that we have obtained all the specific authorizations currently needed to operate our business and believe
that the terms of the relevant licenses are sufficient given the scope and duration of the activities to which they pertain.
Regulation of Our Business in Other Countries
Our business and our business objectives are inherently worldwide, and our product and service offerings are subject to national
telecommunication regulation and other applicable laws and regulations of every country in which we, our MCAs, and our MCPs
conduct business. These other applicable laws and regulations include various European Union compliance obligations, the UK
Bribery Act, the General Data Protection Regulation, and other national privacy and information security compliance regimes in
countries, including Canada, Australia, Argentina, China and Brazil. These rules and policies, all of which are subject to change from
time to time without prior notice, specify technical parameters for the operation of network facilities and subscriber communicators,
determine the permissible uses of network facilities and subscriber communicators, and otherwise establish the terms and conditions
pursuant to which our products and services can be offered and utilized in any given country. As a result, we, our MCAs, our MCPs
and, in some cases, our respective customers, must comply with various overseas legal and regulatory regimes, and obtain and
maintain requisite local regulatory and other governmental approvals in each country where our product and services are offered and
utilized. The process for obtaining the applicable regulatory authorization varies from country to country, and in some instances may
require technical studies or actual experimental field tests under the direction and/or supervision of the local regulatory authority.
Certain countries continue to require that some or all telecommunications services be provided by a government-owned or controlled
entity. Therefore, under such circumstances, we may be required to offer our products or services through a government-owned or
controlled entity. Failure to obtain or maintain any requisite authorizations in any given country could mean that some or all of our
products and services may not be provided or utilized in that country.
We believe, but cannot provide assurance that we, our MCAs, our MCPs, and our customers are in compliance with all
applicable laws and policies and have obtained all necessary regulatory or other governmental approvals required to conduct our
respective current business activities in each of the countries where we currently operate. However, it may not be possible for us, our
MCAs, our MCPs, and our customers to maintain compliance with all applicable laws and policies, or obtain, modify, or maintain
requisite regulatory or other governmental approvals in the future. Moreover, future changes in applicable regulatory or governmental
approval requirements may result in disruptions of our ability to provide or utilize some or all of the products and services we offer in
one or more countries, or alternatively, result in added operational costs, which could materially harm our business.
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Non-U.S. GESs for our satellite constellation
To date, in addition to those in the United States, GESs for our VHF satellite constellation have been authorized and deployed in
Argentina, Australia, Brazil, Curaçao, Italy, Japan, Kazakhstan, Malaysia, Morocco, South Africa and South Korea. GESs are
generally licensed on an individual facility basis. This process normally entails radio frequency coordination within the country of
operation for the specific frequencies to be used in the designated geographic location of the subject GES. This domestic frequency
coordination is in addition to any international coordination that may be required, as determined by the proximity of the GES location
to foreign borders (see “— International Regulation of Our VHF LEO Satellite System” below). Based on the best available
information, we believe that each of the GES authorizations is sufficient for the provision of our VHF satellite constellation services in
the areas served by the relevant facilities. We will need additional GES authorizations in other countries as we install additional
ORBCOMM GESs around the world.
Equipment standards
Each manufacturer of the applicable subscriber communicator is contractually responsible to obtain and maintain the
governmental authorizations necessary to operate their subscriber communicators in each jurisdiction. Most countries generally
require all radio transmission equipment used within their borders to comply with operating standards that may include specifications
relating to required minimum acceptable levels for radiated power, power density and spurious emissions into adjacent frequency
bands not allocated for the intended use. Technical criteria established by telecommunications equipment standards issued by the FCC
and/or the European Telecommunications Standards Institute, or ETSI, are generally accepted and/or closely duplicated by domestic
equipment approval regulations in most countries. To the best of our knowledge, all of the subscriber communicator models that we,
our MCAs, and our MCPs offer on the market comply with established FCC and ETSI standards.
International Regulation of Our VHF LEO Satellite System
The use of certain orbital planes and related system radio frequency assignments by our VHF LEO Satellite System, as licensed
by the FCC, is subject to the frequency coordination and registration process of the International Telecommunication Union (“ITU”).
In order to protect satellite systems from harmful radio frequency interference from other satellite communications systems, the ITU
maintains a Master International Frequency Register (“MIFR”), of radio frequency assignments and their associated orbital locations.
Each ITU member state (referred to as an administration) is required by treaty to give notice of, coordinate and register its proposed
use of radio frequency assignments and associated orbital locations with the ITU’s Radio Communication Bureau.
The FCC serves as the notifying administration for the United States and is responsible for filing and coordinating the allocated
radio frequency assignments and associated orbital locations for our VHF LEO Satellite System with both the ITU’s Radio
Communication Bureau and the national administrations of other countries. While the FCC, as our notifying administration, is
responsible for coordinating our VHF LEO Satellite System, in practice the satellite licensee is generally responsible for identifying
any potential interference concerns with existing systems or those enjoying date priority and for coordinating with such systems. If we
are unable to reach agreement and finalize coordination, the FCC would then assist with such coordination.
The FCC has notified the ITU that our VHF LEO Satellite System was initially placed into service in April 1995 and that it has
operated without any substantiated complaints of interference since that time. The FCC has also informed the ITU that our system has
successfully completed the international coordination process and has been formally registered in the MIFR. We continue to support
FCC efforts to complete any additional required international coordination relating to our system and our new satellites, as necessary.
If design modifications we may make to our future satellites entail substantial changes to the frequency utilization by the subject
system component(s), additional international coordination may be required or reasonably deemed advisable. However, we believe
that ITU coordination can be successfully completed in all circumstances where such coordination is required, although we cannot
provide assurance that we will successfully complete such ITU coordination. Failure to complete requisite ITU coordination could
have a material adverse effect on our business. Regardless, to date, and to our best knowledge, the system has not caused harmful
interference to any other radio system, or suffered harmful interference from any other radio system.
Intellectual Property
We use and hold intellectual property rights for a number of trademarks, service marks and logos for our system. We have two
main marks — “ORBCOMM” — which is registered or is pending registration in approximately 125 countries and the ORBCOMM
logo, which is represented by the ORBCOMM name in black type with a distinctive red graphic within the second “O.”
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The
telematics solutions services provided by our affiliates use
including “REEFERTRAK” and
“CARGOWATCH,” that are registered in the U.S. and numerous countries around the world. Other trademarks, such as
“GLOBALTRAK,” are seeking registration only in the U.S., while others, such as “STARTRAK,” “MOBILENET” and
“FLEETEDGE,” are subject to common law protection. In addition, as part of the Blue Tree acquisition, we acquired the “R:COM”
trademark registered in the U.S. and European Community, as well as “BLUE TREE SYSTEMS & DEVICE,” which is also
registered in the European Community.
trademarks,
Our telematics solutions services are protected by approximately 100 patents maintained across the United States, Europe,
Australia, China, Mexico and Canada. We also have a significant number of pending patent applications relating to our devices and
solutions services. Further, we expect to file additional patent applications in the appropriate countries to protect our technology
investments and innovations.
We believe that all intellectual property rights used in our system were independently developed or duly licensed by us, by those
we license the rights from or by the technology companies who supplied portions of our system. We cannot provide assurance,
however, that third parties will not bring suit against us for patent or other infringement of intellectual property rights.
The value of intellectual property assets recorded for accounting purposes is primarily related to technology-based intangible
assets resulting from acquisitions.
Employees
As of December 31, 2019, we had 786 full-time employees. Our employees are not covered by any collective bargaining
agreements and we have not experienced a work stoppage since our inception.
Corporate Information
ORBCOMM Inc. was incorporated in Delaware in 2003. Our principal executive offices are located at 395 W. Passaic Street,
Rochelle Park, New Jersey 07662, and our telephone number is (703) 433-6300. Our website is www.orbcomm.com and information
contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We file
annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet website
that contains reports, proxy statements and other information regarding issuers like us that file electronically with the SEC, which can
be found at http://www.sec.gov. Our annual, quarterly and current reports, and amendments to those reports can be obtained free of
charge through the Investors section of our website as soon as reasonably practicable after we electronically file such documents with,
or furnish them to, the SEC or from the SEC through its website.
Information About Our Executive Officers
Certain information regarding our executive officers is provided below:
Name
Marc J. Eisenberg................................................................
Constantine Milcos .............................................................
Christian G. Le Brun ...........................................................
Craig Malone.......................................................................
John J. Stolte, Jr. .................................................................
Position(s)
Age
53 Chief Executive Officer and President
54 Executive Vice President and Chief Financial Officer
52 Executive Vice President and General Counsel
57 Executive Vice President, Product Development
60 Executive Vice President, Technology and Operations
Marc J. Eisenberg is our Chief Executive Officer and President, a position he has held since March 31, 2008, and a member of
our board of directors since March 7, 2008. From June 2006 to March 30, 2008, he was our Chief Operating Officer and from March
2002 to June 2006, he was our Executive Vice President, Sales and Marketing. Mr. Eisenberg was a member of the board of directors
of ORBCOMM Holdings LLC from May 2002 until February 2004. Prior to joining ORBCOMM, from 1999 to 2001, Mr. Eisenberg
was a Senior Vice President of Cablevision Electronics Investments, where among his duties he was responsible for selling
Cablevision services such as video and internet subscriptions through its retail channel. From 1984 to 1999, he held various positions,
most recently as the Senior Vice President of Sales and Operations with the consumer electronics company The Wiz, where he
oversaw sales and operations and was responsible for over 2,000 employees and $1.0 billion a year in sales. Mr. Eisenberg is the son
of Jerome B. Eisenberg, our Chairman of the Board.
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Constantine Milcos is our Executive Vice President and Chief Financial Officer, a position he has held since April 5, 2019.
From September 2013 to April 2019, Mr. Milcos was our Senior Vice President and Chief Accounting Officer. Prior to joining
ORBCOMM, Mr. Milcos served in various accounting roles at Medco Health Solutions from 2003 to 2013, most recently serving as
Vice President, SEC Reporting, Technical Accounting and Controls from 2008 to 2013. In addition, from 1999 to 2003, he was an
accountant with KPMG, LLP. Mr. Milcos is a Certified Public Accountant licensed in the State of New York.
Christian G. Le Brun is our Executive Vice President and General Counsel, a position he has held since March 31, 2008. From
April 2005 to March 30, 2008, Mr. Le Brun was our Senior Vice President and General Counsel. Prior to joining ORBCOMM, from
1999 to 2005, Mr. Le Brun was an attorney with Chadbourne & Parke LLP, where he oversaw a broad range of transactions, including
mergers, acquisitions, divestitures, corporate restructurings and work-outs, as well as debt and equity financing arrangements
involving publicly-held and private companies. In addition, from 1994 to 1999, he was a corporate attorney with Pullman & Comley,
LLC. Mr. Le Brun is a member of the New York State Bar.
Craig Malone is our Executive Vice President, Product Development, a position he has held since July 8, 2013. Mr. Malone
joined ORBCOMM in 2011 as the Senior Vice President of Product Development. Mr. Malone has over 20 years of experience in
leading teams engaged in the development of innovative products and solutions for the M2M, wireless and telecommunications
industries. Prior to joining ORBCOMM, Mr. Malone was the Senior Vice President of Product Development and Operations at
Skybitz. He also served as the Vice President of Product Development and Chief Technology Officer at GeoLogic Solutions and held
executive positions at Philips Electronics and Raytheon Company.
John J. Stolte, Jr. is our Executive Vice President, Technology and Operations, a position he has held since April 2001. From
January to April 2001, he held a similar position with ORBCOMM Global L.P. Mr. Stolte has over 25 years of technology
management experience in the aerospace and telecommunications industries. Prior to joining ORBCOMM Global L.P., Mr. Stolte
held a number of positions at Orbital Sciences Corporation from September 1990 to January 2001, most recently as Program Director,
where he was responsible for the design, manufacturing and launch of the ORBCOMM satellite constellation. From 1982 to 1990,
Mr. Stolte worked for McDonnell Douglas in a number of positions, including at the Naval Research Laboratory where he led the
successful integration, test and launch of a multi-billion dollar defense satellite.
Item 1A.
Risk Factors
Set forth below and elsewhere in this Annual Report on Form 10-K are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K. Any
of these risks could also materially and adversely affect our business, financial condition, results of operations or the price of our
common stock. Because of the following factors, as well as other variables affecting our operating results, past financial performance
should not be considered as a reliable indicator of future performance and investors should not use historical trends to anticipate
results or trends in future periods.
Risks Related to Our Business
Our business plan depends on both increased demand for our products and services and our ability to successfully secure and
retain business from large enterprise customers.
Our business plan is predicated on continued growth in demand for our products and services, which is often dependent on the
continued growth of business from our existing customers through their purchasing of additional products and services, the renewal of
existing agreements and selling our products and services to new and existing large enterprise customers. Demand for such data
products and services may not grow, or may even contract, either generally or in particular geographic markets, for particular types of
services or during particular time periods. A lack of demand for our products and services could harm our ability to develop our
business and increase our revenue and could exert downward pressure on prices. A decline in prices would decrease our revenues and
negatively affect our ability to generate cash for investments and other working capital needs. Our business plan assumes that potential
customers and end users will accept certain limitations that can be inherent in our product and service offerings. For example, our
VHF satellite system is optimized for small packet, or narrowband, data transmissions, is subject to certain delays in the relay of
messages, referred to as latencies, and may be subject to certain line-of-sight limitations between our satellites and the end user’s
subscriber communicator.
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Specifically, our ability to successfully implement our business plan depends on a number of factors, including:
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our ability to successfully secure new large enterprise customers and accurately predict their development and deployment
schedule;
our ability to continue to successfully and timely introduce innovative new products and services that satisfy market
demand, including new services provided via our satellite constellation, our other satellite network platforms, our
terrestrial communication network platforms, our dual-mode or multi-mode network platform products and services, and
our emerging data analytics business;
our ability to sell our products and services in additional countries and vertical markets;
the ability of our various MCAs and MCPs to market and sell our products and services, and to continue to successfully
develop, market, and sell additional offerings based on our products and services;
our ability to continue to offer our customers a diversity of satellite and terrestrial communication network platform
options, including our ability to maintain and limit the effects of decreased health, in-orbit anomalies, capacity and control
of our ORBCOMM VHF satellites;
failure to renew or maintain our business with existing customers at existing levels or to attract new customers;
the inability to obtain or maintain the necessary regulatory or other required governmental approvals in particular
countries or territories;
our ability to meet customers’ increasing demand for more sophisticated and complex solutions;
our ability to meet transportation market customers’ increasing demand for a sales model that combines the cost of
hardware and service for one monthly price over a multi-year term; and
our ability to maintain competitive prices for our products and services and control costs.
We substantially rely on our subsidiary companies and various third parties to market and sell our products and services, and to
develop and sell additional offerings utilizing our products and services. If these parties are unsuccessful in these endeavors,
our business will be harmed.
To successfully develop, market, and sell our products and services, we substantially rely on our subsidiary companies, several
of which are overseas joint ventures, to address particular products or services, vertical segments, or distinct market territories (we
refer collectively to these subsidiary companies as MCAs). We also substantially rely on our various third parties, including product
and service developers and providers, distributors, resellers, solution providers and others (we refer collectively to these third parties
as MCPs). The willingness and ability of our existing and potential new MCPs to engage or continue to engage in our business
depends on a number of factors, including whether they perceive our services to be compatible with their business objectives, whether
the prices they can charge end users will provide an adequate return, and the burden imposed by market challenges or regulatory
constraints. We believe that successful marketing of our products and services will depend on our ability to continue to develop and
launch competitively-priced solutions that support the specific needs of the targeted end users. The design, development and
implementation of successful solutions require the commitment of substantial financial and technological resources by us and our
MCPs. Certain of our MCPs are, and many potential new MCPs will be, newly formed or small ventures with limited financial
resources, and such entities might not be successful in their efforts to effectively market our products and services, or to design new
offerings that utilize our products and services. The inability of our MCAs and MCPs to successfully market and sell to end users
could have a material adverse effect on our business, financial condition and results of operations. We also believe that our success
depends upon the competitive pricing of product and service offerings by us, our MCAs and our MCPs. However, we have little or no
control over our MCPs with respect to customer pricing decisions.
The substantial reliance we must place on our MCAs and MCPs is inherent to our business structure and is driven by the
competitive landscape in which we operate. Thus, our revenues, profitability, liquidity and reputation could be adversely affected if
either our MCAs or our MCPs are not sufficiently successful.
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We have incurred net losses since our inception, other than in 2012 and 2013, and may incur additional net losses in the future.
As a result, we have an accumulated deficit of $210.9 million as of December 31, 2019. To become profitable, we must increase
our revenues at a faster rate than increases in our expenses.
We have had annual net losses since our inception, other than in fiscal years 2012 and 2013, and as of December 31, 2019, we
have an accumulated deficit of $210.9 million. Our future results will continue to reflect significant operating expenses, including
expenses associated with expanding our sales and marketing efforts, maintaining the infrastructure to operate as a public company,
and the ongoing depreciation, operation and maintenance of our fleet of VHF and AIS satellites and associated ground network
facilities, as well as the additional facilities we own and operate in connection with our other satellite and terrestrial network platform
service offerings. The continued development of our business will also require additional capital expenditures for, among other things,
the installation and maintenance of additional GESs and associated satellite network ground facilities around the world relating to our
VHF and AIS satellite systems, as well as expenditures for the ongoing maintenance, repair, upgrade, or expansion of other network
facilities that we own and operate. In addition, our acquisitions have resulted in increases in intangible assets, which are subject to
amortization and potential impairment. Accordingly, as we make these capital and acquisition investments, our future results will
include greater depreciation and amortization expense which reflect the full cost of acquiring these new assets and we may incur
additional operating losses and net losses in the future.
In order to become profitable, we must continue to increase revenue at a faster rate than increases in expenses. Revenue will
depend on our success, the success of our MCAs and MCPs and acceptance of our products and services by end users in current
markets, as well as in new geographic and industry markets. We may not be able to sustain such profitability, if achieved.
We face substantial competition from existing and potential competitors in the telecommunications, AIS data and industrial IoT
industries, including numerous OEMs as well as terrestrial and satellite-based network systems with greater resources, which
could reduce our market share and revenues. Many of these competitors in the transportation and cargo markets offer
hardware and solutions in a bundled offering for a single monthly fee, which could reduce our market share and revenues if we
do not match this bundled sales model.
Competition in the telecommunications, AIS data and industrial IoT industries is intense, fueled by rapid, continuous
technological advances and alliances between industry participants seeking to capture significant market share. We face competition
from numerous existing and potential alternative products and services provided by various companies, including sophisticated two-
way satellite-based data and voice communication services and digital cellular services, such as GSM, 3G, 4G, LTE, 5G, two-way
terrestrial services such as Low-Power Wide-Area Network (“LPWAN”), and a diverse group of industrial IoT providers aggressively
pricing their products and services, including by bundling their hardware and service for a single monthly fee, to gain market share.
The rigorously competitive environment in which we operate can have a substantial negative influence on pricing flexibility, gross
profit margins and market share, both for our products and services and the offerings of our MCPs. For example, we face ongoing
market pressures from several global satellite communication services operators that offer mobile satellite data products and services
that directly compete with our products and services. New and advanced technology which can perform essentially the same functions
as our products and services, direct broadcast satellites, newly deployed satellites of competing low-earth orbit satellite systems and
other forms of wireless transmission, are in various stages of development by others in the industry.
The industrial IoT and telematics industry includes numerous companies developing technologies to compete with our products
and services including OEMs such as ThermoKing and Carrier with respect to the refrigerated cargo market and truck and trailer
OEMs with respect to the transportation market. OEMs and large enterprise customers have also begun developing their own device
management and open source platforms which operate independently of the ORBCOMM platform. These technologies are being
developed, marketed and supported by entities that may have significantly greater financial, technical, marketing and distribution
resources than we do. These technologies could adversely impact the demand for our products and services. Research and
development by others may lead to technologies that render some or all of our services non-competitive or obsolete in the future. In
addition, a continuing trend toward consolidation and strategic alliances in the telecommunications industry, as well as the potential
development of new satellite constellations, could give rise to significant new competitors. With respect to AIS-enabled satellites, a
number of competitors have entered and may continue to enter the market, which we expect to give rise to additional competition.
Furthermore, some foreign competitors may benefit from government subsidies, or other protective measures, afforded by their home
countries. Some of these competitors may provide more efficient or less expensive products or services than we are able to provide by
utilizing more aggressive pricing policies and offering customers more attractive terms than we can, which could reduce our market
share and adversely affect our revenues and business.
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The market for industrial IoT solutions in which we participate is highly fragmented and competitive, with relatively low
barriers to entry. If we do not compete effectively, our operating results may be harmed.
The market for industrial IoT solutions is highly fragmented, consisting of a significant number of vendors, competitive and
rapidly changing, with relatively low barriers to entry. Competition in our market is based primarily on the level of difficulty in
installing, using and maintaining solutions, total cost of ownership, product performance, functionality, interoperability, brand and
reputation, distribution channels, industries and the financial resources of the vendor. We expect competition to intensify in the future
with the introduction of new technologies and market entrants and with the possible consolidation of competitors. Mobile service and
software providers, such as Garmin Ltd., provide limited services at lower prices or no charge, such as basic GPS-based mapping,
tracking and turn-by-turn directions that could be expanded or further developed to more directly compete with our solutions. OEMs
could provide factory-installed devices and may in turn compete directly or indirectly with us by partnering with one or more of our
competitors, and we cannot provide any assurance that we would be able to participate in this new ecosystem. Our competitors may
reduce their pricing in order to more effectively compete with us. This could result in a decrease in our subscription volumes or cause
our churn to increase. Increased competition could result in reduced operating margins, increased sales and marketing expenses and
the loss of market share, any of which would likely cause serious harm to our operating results.
Our success depends, in part, on our ability to effect suitable investments, alliances and acquisitions and our ability to
successfully integrate the businesses and systems we acquire.
Since mid-2011, we have expanded our business both organically and through several key acquisitions. On an ongoing basis, we
review investment, alliance and acquisition prospects that would complement our existing product offerings, augment our market
coverage or enhance our technological capabilities. However, we cannot assure that we will be able to identify and consummate
suitable investment, alliance or acquisition transactions in the future. Our prospects and ability to strategically pursue possible new
acquisitions or joint ventures are subject to our ability to:
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evaluate the goodwill and acquisition-related intangible assets for impairment and when such assets are found to be
impaired, they will be written down to estimated fair value, with a charge against earnings;
successfully engage with our existing MCAs and MCPs, and develop new MCA and MCP relationships; and
use all of our capabilities to expand our business across existing and new verticals and key markets throughout the world
by driving existing and new customers to our array of product and service offerings.
Even if we are able to successfully identify and consummate suitable acquisition transactions, the consummation of such
acquisitions may result in:
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issuances of equity securities dilutive to our existing shareholders;
the incurrence of substantial debt and assumption of unknown liabilities;
the potential loss of key employees from the acquired company;
amortization expenses related to intangible assets; and
the diversion of management’s attention from other business concerns.
Furthermore, the integration of acquired businesses and their products and services may be expensive, time-consuming and a
strain on our resources and present certain challenges, including:
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the impairment of relationships with employees and customers;
the inability to successfully complete, or delays in, the integration and consolidation of the acquired businesses and
software platforms in which the Company has been investing for several years;
the inability to maintain brand recognition of the acquired businesses;
the inability to maintain corporate controls, procedures and policies;
the failure of acquired features, functions, products or services to achieve market acceptance; and
potential unknown liabilities associated with acquired businesses.
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Defects, errors or other insufficiencies in our products or services have and could result in end users rejecting our offerings,
which could damage our reputation and harm our financial condition.
We must continue to successfully develop and deploy innovative, reliable, and cost-effective products and services that keep
pace with rapidly changing markets and customer requirements. These efforts, which often entail complex or accelerated development
cycles, can result in offerings that have undetected errors or defects, especially when first introduced or when subsequent versions are
introduced. Any such errors or defects could result in the disruption or failure of our products or services, or even personal injury or
property damage. Any such occurrence could damage our reputation as well as the reputation of respective MCAs or MCPs, and result
in lost customers, lost revenue, diverted development resources, increased service, recall and warranty costs, and even liability claims.
In addition, it is possible that our products could become the subject of a product recall as a result of a product defect. We do not
maintain recall insurance, so any recall could have a material adverse effect on our business, financial condition and results of
operations. In addition to the direct expenses of liability claim awards, recalls and litigation, any of the foregoing might cause us
adverse publicity, which could harm our reputation and compromise our ability to sell our products in the future.
We provide minimum service level commitments to certain of our customers, including certain of our transportation and many
of our AIS data customers, and our failure to meet them could cause us to issue credits for future subscriptions or pay penalties,
which could harm our results of operations.
Certain of our customer agreements currently, and may in the future, provide minimum service level commitments regarding
items such as uptime, functionality or performance, including certain of our transportation and many of our AIS data customers. The
loss of one or more of our AIS-enabled OG2 satellites or third-party AIS satellites could cause our AIS service to fall below minimum
service level commitments. If we are unable to meet the stated service level commitments for these customers or suffer extended
periods of service unavailability, we are or may be contractually obligated to provide these customers with credits for future service,
provide services at no cost, allow customers to terminate service, or pay other penalties which could adversely impact our revenue.
We do not currently have any reserves on our balance sheet for these commitments.
Because we depend on a few significant customers for a substantial portion of our revenues, the loss or significant decline or
slowdown in growth in business of any of these customers could seriously harm our business.
Our revenues depend on a small number of significant customers such as JB Hunt, Caterpillar Inc., Komatsu Ltd., Carrier
Transicold, and Satlink S.L., which collectively represented approximately 21.0% and 20.1% of our revenues in 2019 and 2018,
respectively, and are expected to represent a substantial portion of our revenues in the near future. As a result, the loss of any one of
these customers, or decline or slowdown in the growth in business of these customers, which has occurred and could continue to occur
at any time, could have a material adverse effect on our business, financial condition and results of operations. In addition, because
service revenue depends either partially or entirely on the usage levels of data transmission by our customers and end users, the
decline or slowdown in the growth of usage patterns of these customers, which has occurred and could continue to occur at any time
with or without a reduction in the number of our billable subscribers, could have a material adverse effect on our business, financial
condition and results of operations.
We could be adversely affected if we are not successful in expanding and managing our business outside of the United States
and there are numerous risks inherent to our international operations that are beyond our control.
Our business and our business objectives are inherently worldwide. As a result, we are subject to certain political and economic
risks, such as changes in international and foreign jurisdictional law and regulation, varying applicable telecommunication industry
and governmental standards, tariffs or taxes and other trade barriers, exchange controls, expropriation, and political and economic
instability, including fluctuations in the value of foreign currencies. Certain of these risks may be greater in developing countries or
regions, where economic, political or diplomatic conditions may be significantly more volatile than those commonly experienced in
the United States and other industrialized countries.
Unless we are able to continue expanding our business, particularly in markets outside of the United States, our ability to grow
our business could be adversely affected. Although we currently have MCAs registered to do business in more than 45 countries
outside of the United States, we also must substantially rely on MCPs to establish and grow our business in many overseas markets. In
some countries, due to market conditions, foreign ownership restrictions, or other business or legal constraints, we are compelled or
even required to rely on MCPs to obtain and maintain necessary local regulatory and other approvals for some or all of the products
and services sought to be offered. We and/or our MCAs or MCPs may not be successful in obtaining and maintaining the necessary
regulatory and other approvals in some countries or territories. Moreover, even if those approvals are obtained and maintained, efforts
to develop markets and/or distribution networks within any given country may not be successful. Certain of our MCPs are, or are
likely to be, newly formed or small ventures with limited or no operational history and limited financial resources, and any such
entities may not be successful in their efforts to secure adequate financing and continue operating. In addition, in certain countries and
territories outside the United States, we must currently rely on MCPs to operate and maintain various components of our system, such
as several of the GESs for our VHF satellite system. These entities may not be successful in operating and maintaining such
components of our communications system and may not have the same financial incentives as we do to maintain those components in
good repair.
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Our business is affected by the regulatory laws and policies of the countries in which we operate. In addition, in certain
countries regulatory frameworks may be rudimentary or in an early stage of development, which can make it difficult to secure the
necessary approvals to operate in those jurisdictions. In certain jurisdictions, we rely on our MCPs to obtain and maintain necessary
local regulatory and other governmental approvals. There can be no assurance that we, our MCAs, or our MCPs will be successful in
obtaining or maintaining the necessary approvals for countries that may offer desirable new market opportunities and, if these efforts
are not successful, we will be unable to do business in such countries. In addition, efforts to implement network facilities in certain
foreign countries may be complicated, constrained, or even prohibited due to legal requirements we must comply with in the United
States or other jurisdictions that may contravene with legal requirements in the new country markets to which we seek access.
Furthermore, our ability to provide services in these countries is also constrained by national laws and policies regarding the
installation and operation of in-country network facilities that manage and control the flow of communication traffic coming to and
from the respective national territories. Our inability to offer our products and services in one or more important new markets could
have a negative impact on our business. Even where the necessary regulatory and other governmental approvals can be obtained in
these countries, the cost of developing, deploying, operating and maintaining required local network infrastructure, or other costs
associated with ongoing regulatory compliance, may be prohibitive, which could impair our ability to expand our product and service
offerings in such areas and undermine our value for potential customers in these markets.
While expanding our international operations would advance our growth, it would also increase numerous risks, including:
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difficulties in penetrating new markets due to established and entrenched competitors;
difficulties in developing products and services that are tailored to the needs of local customers;
difficulties in developing products and services at competitive prices due to foreign exchange fluctuations;
lack of local acceptance, recognition, or knowledge of our products and services;
unavailability of or difficulties in establishing relationships with local customers and distributors;
significant investments, including the development, deployment and maintenance of dedicated network facilities in certain
countries with laws that require such facilities to be installed and operated within their jurisdiction to connect the traffic
coming to and from their territory;
unpredictable events resulting in economic or political instability in certain countries;
changes in laws and policies affecting trade and investment in certain jurisdictions;
exposure to varying or inconsistently enforced legal standards, including, but not limited to, intellectual property
protection and foreign state ownership laws;
difficulties in obtaining required regulatory or other governmental approvals;
difficulties in enforcing legal rights, even those provided for under applicable law;
local domestic ownership requirements;
changing and conflicting local regulatory or legal requirements; and
excessive tax, import duty, tariff, or other governmental fee requirements.
Fluctuations in foreign currency exchange rates could have a material adverse effect on our business, results of operations and
financial condition.
Fluctuations in foreign currency exchange rates could have a material adverse effect on our business, results of operations and
financial condition. Our consolidated financial results are reported in U.S. dollars, however a portion of our costs and expenses are
incurred in foreign currencies. Fluctuations in the value of these foreign currencies against the U.S. dollar could result in substantial
changes in reported earnings and operating results due to the translation of these foreign currency transactions into U.S. dollars.
Further, any appreciation of the U.S. dollar may also negatively affect our growth by increasing the cost of our products and services
in foreign countries. In the future, we may choose to employ various hedging strategies to partially mitigate these foreign exchange
risks, including the use of forward exchange contracts. These strategies may not be effective in protecting us against the effects of
fluctuations from movements in foreign exchange rates. Our failure to mitigate these foreign currency exchange risks could materially
adversely affect our business, results of operations and financial condition.
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If we become subject to unanticipated domestic or foreign tax or fee liabilities, it could materially increase our costs.
We operate in various tax jurisdictions. We believe that we comply, in all material respects, with our obligations to file returns
and pay taxes and fees in these jurisdictions. However, our position is subject to review and possible challenge by the authorities of
these jurisdictions. If the applicable authorities were to successfully challenge our current tax or fee positions, or if there were changes
in the manner in which we conduct our activities, or changes in the interpretation or application of existing laws, we could become
subject to material unanticipated tax or fee liabilities. We may also become subject to additional tax, tariff, or fee liabilities as a result
of changes in laws, which could in certain circumstances, have a retroactive effect. Further, our current tax rates are subject to change
by the various taxing authorities in the jurisdictions in which we operate. These changes can result in additional, unanticipated taxes
and fees which could adversely affect our business.
Our operating results may be harmed if we are required to collect sales, use, services or other related taxes for our solutions in
jurisdictions where we have not historically done so.
We do not believe that we are required to collect sales, use, services or other similar taxes from our customers in certain
jurisdictions. However, one or more countries or states may seek to impose sales, use, services, or other tax collection obligations on
us, including for past sales. A successful assertion by one or more jurisdictions that we should collect sales or other taxes on the sale
of our solutions could result in substantial tax liabilities for past sales and decrease our ability to compete for future sales. Each
country and each state has different rules and regulations governing sales and use taxes and these rules and regulations are subject to
varying interpretations that may change over time. We review these rules and regulations periodically and, when we believe sales and
use taxes apply in a particular jurisdiction, voluntarily engage tax authorities in order to determine how to comply with their rules and
regulations. We cannot provide assurance that we will not be subject to sales and use taxes or related penalties for past sales in
jurisdictions where we presently believe sales and use taxes are not due. We reserve estimated sales and use taxes on our financial
statements but we cannot be certain that we have made sufficient reserves to cover such taxes.
Providers of goods or services are typically held responsible by taxing authorities for the collection and payment of any
applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with
respect to our solutions, we may be liable for past taxes, in addition to being required to collect sales or similar taxes for our solutions
going forward. Liability for past taxes may also include very substantial interest and penalty charges. Our client contracts provide that
our clients must pay all applicable sales and similar taxes. Nevertheless, clients may be reluctant to pay back taxes and may refuse
responsibility for interest or penalties associated with those taxes or we may determine that it would not be feasible to seek
reimbursement. If we are required to collect and pay back taxes and the associated interest and penalties and if our clients do not
reimburse us for all or a portion of these amounts, we could incur unplanned expenses that may be substantial. Moreover, imposition
of such taxes on our solutions going forward will effectively increase the cost of such solutions to our clients.
Many states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes,
as well as the circumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have
been introduced in Congress that would provide states with additional authority to impose such taxes. Accordingly, it is possible that
either federal or state legislative changes may require us to collect additional sales and similar taxes from our clients in the future.
Economic, political and other conditions could have a material adverse effect on our business, results of operations or financial
condition.
A significant portion of our revenues are generated from customers located in foreign countries. Some foreign economies have
been impacted by government agencies and unstable economic cycles. Governments have often changed monetary, taxation, credit,
tariff and other policies to influence the course of their country’s economy. For example, government actions to control inflation have
at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports.
Our customers may be adversely affected by exchange rate movements; exchange control policies; expansion or contraction of the
local economy; inflation; tax policies; other economic political, diplomatic and social developments; interest rates; liquidity of
domestic capital and lending markets; and social and political instability. Specifically, the ongoing trade dispute with China and the
UK’s pending departure from the European Union may have an adverse effect on both our and our customers’ operating expenses and
result in increased obstacles to operational efficiency.
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Extreme events such as a man-made or natural disasters, earthquakes, severe weather or other climate change-related events
could diminish or preclude our ability to provide communications service.
Extreme events or the collateral effects of such events could damage or destroy some or all of our communication system
network platforms, including our GESs and communication with our satellites. Such events could impair or completely preclude our
ability to provide service to our customers in the affected region(s) on a temporary, prolonged, or even permanent basis. Even if
network facilities that we own and operate were not affected by any extreme event, some or all of the communication services we
provide could be disrupted if an extreme event damages or destroys third-party networks that we utilize, or disrupts our ability to
connect to those networks. Our operations or the operations of our MCPs with facilities in various locations may be interrupted by
extreme events and affect our ability to provide service and products for a period of time. Such failure or service disruptions could
materially harm our business and results of operations.
We rely on a limited number of manufacturers for many of our products and devices. If we are unable to, or cannot find third
parties to, manufacture a sufficient quantity of our products and devices at a reasonable price, the prospects for our business
will be negatively impacted.
The development, manufacture and availability on a timely basis of electronics components, materials and parts are critical to
the successful commercial operation of our system. We rely on contract manufacturers to procure these components in order to
produce the products and devices that we market and sell. Many of these components are manufactured in China whose supply chain
is currently being impacted by the coronavirus outbreak and its widening effect on trade. If the outbreak continues, there will likely be
an adverse effect on the availability of components necessary to complete the manufacturing of our products. Our solutions
subsidiaries rely on a few contract manufacturers. We may not be able to furnish our customers with a sufficient supply of products
and devices at price points or with functional characteristics and reliability that meet their needs. An inability or delay to successfully
source these materials and manufacture products and devices that meet the needs of customers and are available in sufficient numbers
and at prices that render our services cost-effective to customers could limit the acceptance of our system and potentially affect the
quality of our services, which could have a material adverse effect on our business, financial condition and results of operations.
Our business may be materially and adversely affected if any of our direct or indirect relationships with these contract
manufacturers is terminated or modified. If our arrangements with third-party manufacturers are terminated, our search for additional
or alternate manufacturers could result in significant delays, added expense and an inability to maintain or expand our customer base.
Any of these events could require us to take unforeseen actions or devote additional resources to provide our services and could harm
our ability to compete effectively.
In particular, significant interruptions, discontinuation, slowdown or loss of the supply of subscriber communicators from our
vendor Sanmina Corporation (“Sanmina”) or a change in our commercial relationship with Sanmina could have a material
adverse effect on our business.
Our business is heavily dependent on Sanmina, a contract manufacturer with significant operations in Mexico, for the
manufacture of our subscriber communicators that we design and sell. Consequently, significant interruptions, discontinuation,
slowdown or loss of Sanmina’s manufacturing and supply of products will negatively affect our ability to grow, provide reliable
service and could have a material adverse effect on our business. While we currently have a good relationship with Sanmina, we
cannot provide assurance that our future commercial relationship or arrangements with Sanmina will not change in a manner that has
an adverse effect on our business. In addition, any change in trading agreements between the United States and Mexico could have a
significant impact on our business.
If our arrangements with third-party manufacturers, including Sanmina, are terminated or expire, our search for additional or
alternate manufacturers could result in significant delays in customers activating products on our communications system, added
expense for our customers and our inability to maintain or expand our customer base.
We are, and in the future may continue to be, subject to legal proceedings that could adversely affect our business.
We may be subject to legal claims involving stockholder, consumer, antitrust, intellectual property infringement, product
liability and other issues. We are also currently in litigation related to employment matters, acquisition-related claims, patent
infringement and contractual matters, among other issues. Litigation is subject to inherent uncertainties, including increases in
demands for our management team’s attention and potential high costs and unfavorable rulings. If an unfavorable ruling were to
occur, it could include money damages and have a material adverse effect on our business, financial condition and results of
operations for the period in which the ruling occurred or future periods. See also “Note 14 – Commitments and Contingencies” in our
audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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Our business relies on intellectual property, some of which third parties own, and we, our MCAs, MCPs or respective customers
may inadvertently infringe upon their patents and proprietary rights. We have been and may in the future become subject to
claims that our products violate the patent or intellectual property rights of others, which could be costly and disruptive to us.
Many entities, including some of our competitors, currently or may in the future, hold patents and other intellectual property
rights that cover or affect products or services related to those that are offered by us, our MCAs, our MCPs, or our respective
customers. We cannot provide assurance that we are aware of all third-party intellectual property rights upon which any of our
products or services may infringe. As a result, certain of our products or services may become subject to intellectual property
infringement claims or litigation. In addition, certain of our patents, trademarks, copyrights or other intellectual property rights may
be challenged by our competitors or others. The defense of intellectual property suits is both costly and time-consuming, even if
ultimately successful, and may divert management’s attention from other business concerns. An adverse determination in litigation to
which we may become a party could, among other things:
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subject us, our MCAs, our MCPs, or our respective customers to significant liabilities to third parties, including treble
damages;
require disputed rights to be licensed from a third party for royalties that may be substantial;
require cessation of the use of important technology;
prohibit the sale of some or all products and services;
require the redesign of products in such a way as to avoid infringing upon others’ patents; or
cause the loss of the exclusive use of certain technologies, resulting in a loss of a competitive market advantage.
We cannot estimate the extent to which we, our MCAs, our MCPs, or our respective customers may be required to obtain
intellectual property licenses in the future, or the availability and cost of any such licenses. To the extent that we are required to pay
royalties to third parties to whom we are not currently making payments, these increased costs of doing business could negatively
affect our profitability or liquidity. If a competitor holds intellectual property rights, it may not allow the use of its intellectual
property at any price, which could adversely affect our competitive position.
Some of our products and services incorporate open source software. While we believe we have used all such open source
software properly and in accordance with the disclosed terms and conditions of such use, there is risk that the interpretation of how
such software can be used may be subject to change due to changes in regulation or by court interpretation. In the event our use of
open source software changes, we may be required to seek a license for continued use at unanticipated cost and expense, to develop
our own software solution or to discontinue the sale of a product or service incorporating the open source software, each of which
could adversely affect our business.
Because we operate our business in a highly regulated industry, we may be subjected to increased regulatory restrictions and
oversight which could disrupt our service or increase our operating costs.
Telecommunications product and service providers are subject to extensive regulation under the laws of various national and
international regulatory bodies, all of which are subject to change, from time to time without prior notice. These rules and policies
establish the terms and conditions pursuant to which we, or MCAs and our MCPs must conduct our respective businesses by, among
other things, requiring that certain regulatory and other governmental authorizations be obtained and maintained, establishing
technical parameters for the operation of facilities and subscriber communicators, and determining the permissible uses of facilities
and subscriber communicators. Additionally, under some circumstances, these rules and policies may require us, our MCAs and our
MCPs to suspend or terminate the operation or use of network facilities we operate or utilize, or otherwise alter or disrupt our ability
to provide services. Any such events could significantly disrupt or preclude the operation of some or all of our communications
systems. These rules and policies may also impose regulatory constraints on the use of subscriber communicators within certain
countries or territories. They may also cause delays in the marketing of our services and products, may impose costly fees and
procedures on us, our MCAs or our MCPs, and may give a competitive advantage to larger companies with whom we compete.
Applicable laws and regulations also impose many other compliance obligations, which may differ from county to country, including
those relating to import and export control, anti-corruption, data privacy, and information security. Possible future changes to
regulations and policies in the countries in which we operate may result in additional regulatory requirements or restrictions on the
services and equipment we provide, which may have a material adverse effect on our business and operations. Although we believe
that we, our MCAs, and our MCPs comply with applicable laws and regulations, and have obtained all the regulatory or other
governmental approvals required to conduct our respective businesses as they are currently operated, it may not be possible to obtain,
modify or maintain such approvals in the future. Moreover, future changes in applicable laws, regulations, and regulatory or
governmental approval requirements may result in disruptions of our ability to provide some or all of the products and services we
offer, or alternatively, result in added operational costs, which could materially harm our business.
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The U.S. Departments of Justice, State and Treasury and other international regulatory agencies and authorities impose a broad
range of criminal and civil penalties against companies and individuals who violate various lists of parties with whom engaging in
business is prohibited or who engage in prohibited business activities, such as bribery and violations of export control laws. A
violation of these laws, rules or regulations could have a material adverse effect on our ability to operate our business. Although we
have implemented policies and processes to address these prohibited activities, we cannot guarantee that employees, partners, vendors,
representatives or agents will not engage in conduct that would result in our being held responsible for the improper conduct. We
have, in the past and may in the future, be subject to investigations by regulatory authorities, including the Department of Commerce’s
Bureau of Industry and Security. We believe that there is no pending investigation, claim or litigation that could have a material
adverse effect on our operations.
We do not currently maintain in-orbit or other insurance for our OG1 or OG2 satellites.
We do not currently maintain in-orbit insurance coverage for our OG1 or OG2 satellites to address the risk of potential systemic
anomalies, failures, collisions with our satellites or other satellites or debris, or catastrophic events affecting the existing satellite
constellation. An uninsured failure of one or more of our satellites could have a material adverse effect on our financial condition and
results of operations.
We do not maintain third-party liability insurance with respect to our satellites. Accordingly, we have no insurance to cover any
third-party damages that may be caused by any of our satellites. If we experience significant uninsured losses, such events could have
a material adverse impact on our business, financial condition and results of operations.
Certain areas of our business rely upon third-party wireless network service providers, which are potential competitors, to
deliver existing and developing services.
Certain services we provide rely on our relationships with third-party wireless network service providers, including Verizon,
AT&T, T-Mobile, Telefonica, Orange, Rogers and Vodafone with respect to cellular communications and Inmarsat with respect to
ORBCOMM L-Band satellite services. Our ability to provide these services and grow our business depends on continued access to
these wireless networks and our ability to purchase sufficient capacity at competitive pricing. Increases in the fees charged by cellular
carriers for data transmission or changes in the cellular networks, such as a cellular carrier discontinuing support of the network
currently used by our devices, thereby requiring retrofitting of our devices, could increase our costs and impact our profitability. In
addition, our services depend on the continuing reliability and security of these third-party networks, which could be adversely
affected by errors, defects, interrupted service and/or a breach of the network security. While our existing agreements have multiple
year terms, certain of these wireless network service providers are, and in the future could become, competitors. This competition
could adversely affect our relationships and their willingness to sell us airtime at commercially reasonable rates.
Significant interruptions, discontinuation or loss of services provided by Inmarsat plc and its subsidiaries or a change in our
commercial relationship with the Inmarsat group could have a material adverse effect on our business.
The revenues generated by our provision of L-Band mobile satellite network services are materially dependent on the satellite
network services provided to us by Inmarsat group. Consequently, any significant interruptions, discontinuation or loss of those
services due to the temporary or permanent failure of Inmarsat satellites or associated Inmarsat terrestrial network facilities would
negatively affect our ability to provide reliable service and could have a material adverse effect on our L-Band mobile satellite product
and service revenues. Increases in the fees charged by Inmarsat or discontinuing the L-Band service used by our customers’ fielded
devices, thereby requiring retrofitting of our devices, would increase our costs and impact our profitability. Additionally, we cannot
provide any assurance that our future commercial relationship or arrangements with Inmarsat will not change in a manner that has an
adverse effect on our business.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely
basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”) and The NASDAQ Stock Market (“NASDAQ”). The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We perform
system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the
effectiveness of our internal controls over financial reporting in our Annual Reports on Form 10-K, as required by Section 404 of the
Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner,
or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial
statements, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market
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price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory
authorities. Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements.
If we fail to maintain effective controls over financial reporting in the future, it could result in a material misstatement of our financial
statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose
confidence in our financial statements.
If our estimates in accounting are inaccurate and our financial assumptions are proven wrong, our reported results may be
different than the guidance provided to the market.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”). As part of the preparation of these statements, we make assumptions, estimates and judgments about various entries, such
as capital expenditures, anticipated revenue collection and recognition, impairment of long-lived assets such as goodwill, warranty
reserves, debt service, employee compensation, and contingent liabilities. These entries are based on our judgment and observations
of similar historical circumstances and what we believe to be reasonable under the circumstances. If the underlying assumptions upon
which we rely are incorrect, the actual results of our operations could differ and require us to revise our financial statements, which
could adversely affect our stock price. In addition, new accounting rules that may be established from time to time by various
regulatory authorities including the IRS and SEC may require a revision to our financial statements that could adversely affect our
reported financial results.
Risks Related to Our Technology
Satellites are subject to significant operating risks due to various types of potential anomalies and potential impacts of space
debris or other spacecrafts.
Satellites utilize highly complex technology and operate in the harsh environment of space and, accordingly, are subject to
significant operational risks while in orbit. These risks include malfunctions, or anomalies, that have occurred and may continue to
occur in our satellites. In addition, satellites have a limited life capacity and they could become compromised over their designated
operational life span. Some of the principal satellite anomalies include:
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Mechanical and electrical failures due to manufacturing error or defect, including:
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Mechanical failures that degrade the functionality of a satellite, such as the failure of solar array panel drive
mechanisms, rate gyros or momentum wheels;
Antenna failures and defects that degrade the communications capability of the satellite;
Circuit failures that reduce the power output of the solar array panels on the satellites;
Failure of the battery cells that power the payload and spacecraft operations during daily solar eclipse periods;
Power system failures that result in a shutdown or loss of the satellite;
Avionics system failures, including GPS, that degrade or cause loss of the satellite;
Altitude control system failures that degrade or cause the inoperability of the satellite;
Transmitter or receiver failures that degrade or cause the inability of the satellite to communicate with subscriber
communicator units or GESs;
Communications system failures that affect overall system capacity;
Satellite computer or processor re-boots or failures that impair or cause the inoperability of the satellites; and
Radio frequency interference emitted internally or externally from the spacecraft affecting the communication links.
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Equipment degradation during the satellite’s lifetime, including:
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Degradation of the batteries’ ability to accept a full charge;
Degradation of solar array panels due to radiation;
General degradation resulting from operating in the harsh space environment, such as from solar flares;
Degradation or failure of reaction wheels;
Degradation of the thermal control surfaces;
Degradation and/or corruption of memory devices; and
Propulsion system failures that degrade or cause the inability to reposition the satellite.
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Deficiencies of control or communications software, including:
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Failure of the charging algorithm that may damage the satellite’s batteries;
Problems with the communications and messaging servicing functions of the satellite;
Limitations on the satellite’s digital signal processing capability that limit satellite communications capacity; and
Problems with the fault control mechanisms embedded in the satellite.
We have experienced, and may in the future experience, anomalies in some of the categories described above. The effects of
these anomalies include, but are not limited to, failure of the satellite, degraded communications performance, reduced power
available to the satellite in sunlight and/or eclipse, battery overcharging or undercharging and limitations on satellite communications
capacity. Some of these effects may be increased during periods of greater message traffic and could result in our system requiring
more than one attempt to send messages before they get through to our satellites. Although these multiple re-try effects do not result in
lost messages, they could lead to increased messaging latencies for the end user and reduced throughput for our system. We consider a
satellite “failed” only when it can no longer provide any communications service, and we do not intend to undertake further efforts to
return it to service. See “ORBCOMM Communications System — System Status — ORBCOMM Network Capacity” for a
description of our network capacity. While we have already implemented a number of system adjustments, we cannot provide
assurance that these actions will succeed or adequately address the effects of any anomalies in a timely manner or at all.
Collisions with space debris or other spacecraft could materially affect system performance and our business. Our satellites
operate at LEO altitudes, in a regime populated by other operational satellites, defunct satellites and other cataloged debris, and debris
that is too small to be tracked, and do not have the ability to actively maneuver to avoid space debris or other satellites. Two major
events have increased the LEO debris population: a deliberate Chinese ASAT test in 2007 and an accidental collision in 2009 between
an operational Iridium satellite and a non-operational Russian satellite. While we coordinate with the Joint Space Operations Center as
well as with other governmental and commercial spacecraft operators to limit the risk of collision, such risk cannot be fully
eliminated.
While certain software deficiencies may be corrected remotely, most, if not all, of the satellite anomalies or debris collision
damage cannot be corrected once the satellites are placed in orbit. See “ORBCOMM Communications System — System Status” for a
description of the operational status and anomalies that affect our satellites. We may experience additional anomalies in the future,
whether of the types described above or arising from the failure of other systems or components, and operational redundancy may not
be available upon the occurrence of such anomalies.
When one or more of our satellites fail, we record an impairment charge in our statement of operations, which would have the
effect of fully reducing the net book value of that satellite listed in our statement of operations to a zero value. Any such impairment
charge would depress our net income for the reporting period in which the failure occurs, which was most recently the case in 2017
when we wrote off the net book value of three OG2 satellites.
Our products and services could fail to perform or perform at reduced levels of service because of technological malfunctions,
satellite failures or deficiencies or events outside of our control, which would seriously harm our business and reputation.
Our products and services are exposed to the risks inherent in a large-scale, complex telecommunications system employing
advanced technology. Any disruption to our services, information systems or communication networks or those of third parties into
which our network connects, could result in the inability of our customers to receive our services for an indeterminate period of time.
Satellite anomalies and other technical and operational deficiencies of our communications system described in this Annual Report on
Form 10-K, could result in system failures or reduced levels of service. In addition, certain components of our system are located in
foreign countries, and as a result, are potentially subject to governmental, regulatory or other actions in such countries which could
force us to limit the operations of, or completely shut down, components of our system, including GESs or subscriber communicators.
Any disruption to our services or extended periods of reduced levels of service could, and increased latencies in our satellite network
delivering messages have caused and could continue to cause us to lose customers or revenue, result in delays or cancellations of
future implementations of our products and services, result in failure to attract customers or could result in litigation, customer service
or repair work that would involve substantial costs and distract management from operating our business. The failure of any of the
diverse and dispersed elements of the system, including satellites, network control center or backup control center, GESs, gateway
control centers or subscriber communicators, to function and coordinate as required could render the system unable to perform at the
quality and capacity levels required for success. If the satellite network can no longer provide commercially acceptable service, our
satellite subscriber communicators would no longer generate monthly service revenue. Any system failures, repeated product failures,
shortened product life or extended reduced levels of service could reduce our sales, increase costs or result in warranty or liability
claims and seriously harm our business.
27
Some of the hardware and software we use in operating our GESs and our customers’ subscriber communicators were designed
and manufactured over 15 years ago and could be more difficult and expensive to service, upgrade or replace.
Some of the hardware and software we use in operating our GESs and our customers’ subscriber communicators were designed
and manufactured over 15 years ago and portions are becoming obsolete. As they continue to age, they may become less reliable and
will be more difficult and expensive to service, upgrade or replace. Although we maintain inventories of some spare parts for our
GESs, it nonetheless may be difficult or impossible to obtain all necessary replacement parts for the hardware. Our business plan
contemplates updating or replacing some of the hardware and software in our network, however, the age of our existing gateway
hardware and software may present us with technical and operational challenges that complicate or otherwise make it infeasible to
carry out our planned upgrades and replacements, and the expenditure of resources, both from a monetary and human capital
perspective, may exceed our estimates. In addition, some of our customers have a GPS device that may no longer accurately reflect
the correct date, which may prevent the data messaging to be triggered. Without upgrading and replacing this equipment,
obsolescence of the technologies that we use could have a material adverse effect on our revenues, profitability and liquidity.
Technical or other difficulties with our GESs could harm our business.
The ongoing operations of our satellite constellation rely on the functionality of our GESs, some of which are owned and
maintained by third parties. While we believe that the overall health of the majority of our GESs remains stable, we have experienced
and may continue to experience technical difficulties or parts obsolescence with our GESs which negatively impact service in the
region covered by that GES. Certain problems with these GESs have reduced and may continue to reduce their availability and
negatively impact the performance of our system in that region. In addition, due to regulatory and licensing constraints in certain
countries in which we operate, we are unable to wholly-own or majority-own some of the GESs in our system located outside the
United States. As a result of these ownership restrictions, we rely on third parties to own and operate some of these GESs. If our
relationship with these third parties deteriorates or where these third parties have been and may continue to be unable or unwilling to
bear the cost of operating or maintaining the GESs, or if there are changes in the applicable domestic regulations that require us to
give up any or all of our ownership interests in any of the GESs, our control over our satellites could be diminished and our business
could be harmed.
The collection, storage, transmission, use and disclosure of user data and personal information could give rise to liabilities or
additional costs as a result of laws, governmental regulations and evolving views of personal privacy rights.
We transmit, and in some cases store, end-user data, which may include personal information. In jurisdictions around the world,
personal information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and
security. For example, effective January 1, 2020, the California Consumer Privacy Act became effective, and other privacy related
regulations are pending in several other states such as New York and Nevada. Regulatory enforcement of the EU General Data
Protection Regulation has begun resulting in significant fines for non-compliance. Other countries have recently adopted similar laws
and regulations, including Brazil, Australia, Canada, and China. The interpretation of privacy and data protection laws and regulations
regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions is unclear and evolving.
These laws may be interpreted and applied in conflicting ways from each other and in a manner that is not consistent with our current
data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change
our business practices. Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that
we are required to comply with their laws, even where we have no local entity, employees or infrastructure. We could be forced to
incur significant expenses if we were required to modify our products, our services or our existing security and privacy procedures in
order to comply with new or expanded regulations. In addition, if end users allege that their personal information is not collected,
stored, transmitted, used or disclosed appropriately or in accordance with our privacy policies or applicable laws, we could have
liability to them, including claims and litigation resulting from such allegations. Any failure on our part to protect end users’ privacy
and data could result in a loss of user confidence, hurt our reputation and ultimately result in the loss of users. In addition, in the event
that we suffer a loss or adverse event to our data storage or it is determined that our policies and procedures have failed to comply
with evolving laws and regulations, we may be subject to significant regulatory investigations and fines or penalties. These laws,
rules and regulations may further limit our ability to develop additional products or services that incorporate the data related to our
business, including data analytics.
28
The failure of our information technology systems could disrupt our business operations which could have a material adverse
effect on our business, financial condition and results of operations.
The operation of our business depends on our information technology systems. We rely on our information technology systems
to effectively manage, among other things, our subsidiaries’ customer interface as well as business data, communications, supply
chain, inventory management, customer order entry and order fulfillment, processing transactions, summarizing and reporting results
of operations, human resources benefits and payroll management, complying with regulatory, legal or tax requirements and other
processes and data necessary to manage our business. We use technology to provide secure transmission of confidential information,
including our business data and customer information. To achieve our strategic objectives and to remain competitive, we must
continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the
development, either internally or through independent consultants, of new proprietary software. Our inability to design, develop,
implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete
effectively, could make us less competitive, increase our costs and adversely affect our business. The failure of our information
technology systems, whether ours or those of third parties with whom we contract to support the provision of our services, to perform
as we anticipate could disrupt our business and could result in, among other things, transaction errors, processing inefficiencies, loss
of data and the loss of sales and customers, which could cause our business and results of operations to suffer. In addition, our
information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including,
without limitation, fire, natural disasters, power outages, system failures, system conversions, security breaches, cyber-attacks, viruses
and/or human error. In any such event, we could be required to make a significant investment to fix or replace our information
technology systems, and we could experience interruptions in its ability to service our customers. Any such damage or interruption
could have a material adverse effect on our business, financial condition and results of operations.
Security problems with our networks, data processing systems, software products, and those systems or services of our third-
party providers may be vulnerable to security risks, could cause increased cyber-security protection costs and general service
costs, harm our reputation, and result in liability and increased expense for litigation, regulatory fines and diversion of
management time.
We process and retain large amounts of customer information. Our software products also enable our customers to store and
process data. We have included security features in our products and processes that are intended to protect the privacy and integrity of
data, including confidential client data, and we expect the secure transmission of data over public networks. Security for our products
and processes is critical given the confidential nature of the information contained in our systems. We also rely on employees in our
network operations centers, data centers, and support operations to follow our procedures when handling such information. However,
our network and those of our third-party service providers (including data storage facilities), banks, and our customers may be
vulnerable to unauthorized access, computer viruses and other security problems. It is possible that our security controls, our selection
and training of employees, and other practices we follow may not prevent the improper disclosure of information. Persons who
circumvent security measures could wrongfully obtain or use information on the network or cause interruptions, delays or
malfunctions in our operations, or misappropriation of assets, any of which could have a material adverse effect on our business,
financial condition and results of operations. Any unauthorized access, computer viruses, accidental or intentional release of
confidential or personal information or other disruptions could result in increased costs, customer dissatisfaction leading to loss of
customers and revenues, and fines and other liabilities. Also, such disclosure could harm our reputation and subject us to liability in
regulatory proceedings and private litigation, resulting in increased costs or loss of revenue. Improper disclosure of corporate data
could result in lawsuits or regulatory proceedings alleging damages and perceptions that our products and services do not adequately
protect the privacy of customer data and could inhibit sales of our products and services. In addition, our customer and vendor
contracts may not sufficiently protect us against third-party claims related to an incident. Defending these types of claims could result
in increased expenses for litigation and claims settlement and a significant diversion of our management’s attention. Additionally, our
software products, the systems on which the products are used, and our processes may not be impervious to intentional break-ins
(“hacking”), email spoofing, phishing, cyber-attacks or other disruptive disclosures or problems, whether as a result of inadvertent
third-party action, employee action, malfeasance, or otherwise. Hacking, email spoofing, phishing, cyber-attacks or other disruptive
problems could result in the diversion of our development resources, damage to our reputation, increased cyber-security protection
costs and general service costs. Although we have implemented and intend to continue to implement security measures, these
measures may prove to be inadequate and result in system failures and delays that could lower network operations center availability.
These cyber-security events, any damage caused by them, or interruptions could have a material adverse effect on our business,
financial condition and results of operations.
29
Risks Related to Our Debt
Our Indenture and Revolving Credit Agreement could restrict our business activities or our ability to execute our strategic
objectives or adversely affect our financial performance.
On April 10, 2017, we entered into the Indenture and issued $250.0 million of our 8.0% Senior Secured Notes that refinanced
credit facilities in the aggregate principal amount of $160.0 million. On December 18, 2017, we entered into the Revolving Credit
Agreement that provides for the Revolving Credit Facility of up to $25.0 million for working capital and general corporate purposes.
The Indenture, Revolving Credit Agreement and related security agreement contain covenants that may restrict our business
activities or our ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default
under our indebtedness. Our inability to generate sufficient cash flow to satisfy interest payments and principal repayment at maturity,
could adversely affect our financial condition, operating results and cash flows. The covenants in the Indenture, Revolving Credit
Agreement and related security agreement limit our ability to, among other things, incur additional indebtedness and liens, sell,
transfer, lease or otherwise dispose of our subsidiaries’ assets, or merge or consolidate with other companies. We must also comply
with an incurrence covenant of having available liquidity and not exceeding a specific leverage ratio. Failure to comply with the
covenants could result in an event of default, which, if not cured or waived, could allow the noteholders or lenders, as applicable, to
require repayment in full of all principal and interest outstanding. If we fail to repay such amounts, the noteholders or lenders, as
applicable, may foreclose on substantially all of our assets which we have pledged. If we are unable to cure the default, we may need
to repay the debt and find other sources of financing and there can be no assurance that we would have access to other sources of
financing on acceptable terms, or at all.
Our substantial indebtedness may adversely affect our business, financial condition and operating results.
As of December 31, 2019, we have $250.0 million in aggregate principal amount of total debt from the issuance of 8.0% Senior
Secured Notes. On December 18, 2017, we also entered into the Revolving Credit Agreement for a Revolving Credit Facility of up to
$25.0 million, bearing 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. If drawn, the Revolving Credit Facility would be pari passu
with the $250.0 million 8.0% Senior Secured Notes. Our level of indebtedness may have material adverse effects on our business,
financial condition and operating results, including to:
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make it more difficult for us to satisfy our debt service obligations or refinance our indebtedness;
require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby
reducing the availability of our cash flows to fund working capital, capital expenditures and other general operating
requirements;
limit our ability to obtain additional financing to fund our working capital requirements, capital expenditures, acquisitions,
investments, debt service obligations and other general corporate requirements;
restrict us from making strategic acquisitions, taking advantage of favorable business opportunities or executing our
strategic priorities;
place us at a relative competitive disadvantage compared to our competitors that have proportionately less debt;
limit our flexibility to plan for, or react to, changes in our business and the industries in which we operate, which may
adversely affect our operating results and ability to meet our debt service obligations;
increase our vulnerability to the current and potentially more severe adverse general economic and industry conditions;
limit our ability, or increase the cost, to refinance our indebtedness; and
limit our ability to purchase the notes upon a change of control triggering event, or disposition of “substantially all” of our
assets, as required by the indenture governing the Senior Secured Notes.
As a result of our indebtedness, we may be restricted in pursuing desirable business activities and in our operations, and as a
result, our business and ability to repay the notes may be adversely affected. Despite our current level of indebtedness, we may still be
able to incur substantially more debt. This could further exacerbate the risks that we and our subsidiaries face. We currently do not
generate sufficient cash flow to repay the aggregate principal amount of our outstanding indebtedness which will require us to
refinance our 8.0% Senior Secured Notes on or prior to their maturity date of April 1, 2024.
30
Risks Related to an Investment in Our Common Stock
The price of our common stock has been, and may continue to be, volatile and investments in our common stock may decline in
value.
The trading price of our common stock has been and may continue to be volatile and purchasers of our common stock could
incur substantial losses. Factors that could affect the trading price of our common stock include:
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liquidity of the market in, and demand for, our common stock;
changes in expectations from securities analysts or investors as to our future financial performance or subscriber growth
estimates, if any;
actual or anticipated fluctuations in our or competitors’ operating and financial results and overall market valuation;
our financial or subscriber growth performance failing to meet the expectations of market analysts, investors or the
guidance we provide to investors;
investor perception of and confidence in capital markets and equity investments;
our ability to raise additional funds to meet our capital needs;
conditions and trends in the end markets we serve and changes in the estimation of the size and growth rate of these
markets;
announcements relating to our business or the business of our competitors, customers or suppliers;
investor perception of our prospects, our industry and the markets in which we operate;
changes in our pricing policies or the pricing policies of our competitors;
loss of one or more of our significant customers;
changes in key management personnel;
failure of our satellites or any issues related to our products to perform as expected;
changes in our credit rating or future prospects by rating agencies;
the outcome of any litigation by or against us, including any judgments favorable or adverse to us;
changes in governmental regulation, including the imposition of tariffs or other trade barriers; and
general economic, political and other market conditions.
In addition, the stock market in general, and The Nasdaq Global Market and the market for telecommunications companies in
particular, have experienced and may continue to experience extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular companies affected. These broad market and industry factors may
materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of
volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company.
Such litigation has previously been instituted against us and could result in substantial costs and a diversion of management’s attention
and resources, which could have a material adverse effect on our business, financial condition, future results and cash flow.
Our quarterly operating results have fluctuated in the past and may fluctuate in the future, which could cause volatility in the
price of our common stock.
Our quarterly operating results have fluctuated in the past and may fluctuate in the future as a result of a variety of factors, many
of which are outside of our control, including the cyclical nature of the transportation and other markets we serve, and sales cycle lead
time for large customers to evaluate, purchase and deploy IoT products and services. If our quarterly operating results fall below the
expectations of securities analysts, investors or our guidance, the price of our stock could decline substantially. The following factors,
among others, could cause fluctuations in our quarterly operating results:
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our ability to attract new customers and retain existing customers;
our ability to accurately forecast business cycles in our target markets, customer sales cycles, and revenues and
appropriately plan our expenses;
31
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the mix of our products and services sold, including any pricing changes passed on to customers or received from
suppliers;
our ability to introduce new features, including integration of our existing solutions with third-party software and devices;
the cost and availability of components, including any changes to our sourcing or manufacturing partners;
the actions of our competitors, including consolidation within the industry, pricing changes or the introduction of new
products or services;
our ability to effectively manage our growth;
our ability to successfully manage any future acquisitions of businesses, solutions, or technologies;
the timing and cost of developing or acquiring technologies, services, or businesses;
service outages or security breaches and any related occurrences which could impact our reputation;
trade protection measures, such as tariffs and duties, and import or export licensing requirements;
fluctuations in foreign currency exchange rates;
changes in government regulation affecting our business; and
provision of solutions from an OEM-controlled channel, from which ORBCOMM may be excluded.
We believe that our quarterly operating results may vary significantly in the future and that period-to-period comparisons of our
operating results may not be meaningful. The results of one quarter are not an indication of future performance.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
The trading market for our common stock will continue to depend in part on the research and reports that securities or industry
analysts publish about us or our business. If we do not continue to maintain adequate research coverage or if one or more of the
analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price
would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly,
demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We are subject to anti-takeover provisions which could affect the price of our common stock.
Our amended and restated certificate of incorporation and our bylaws contain provisions that could make it difficult for a third
party to acquire us without the consent of our board of directors. These provisions do not permit actions by our stockholders by
written consent and require the approval of the holders of at least 66 2/3% of our outstanding common stock entitled to vote to amend
certain provisions of our amended and restated certificate of incorporation and bylaws. In addition, these provisions include
procedural requirements relating to stockholder meetings and stockholder proposals that could make stockholder actions more
difficult. Our board of directors is classified into three classes of directors serving staggered, three-year terms and may be removed
only for cause. Any vacancy on the board of directors may be filled only by the vote of the majority of directors then in office. Our
board of directors has the right to issue preferred stock with rights senior to those of the common stock without stockholder approval,
which could be used to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been
approved by our board of directors. Delaware law also imposes some restrictions on mergers and other business combinations between
us and any holder of 15% or more of our outstanding common stock. Although we believe these provisions provide for an opportunity
to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer
may be considered beneficial by some stockholders and may delay or prevent an acquisition of our company.
The future issuance of additional shares of our common stock could cause dilution of ownership interests and adversely affect
our stock price.
We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests
of our current stockholders. We are authorized to issue 250 million shares of common stock, of which approximately 78 million shares
of voting common stock were issued and outstanding as of December 31, 2019 and approximately 172 million were available for
future issuance. The potential issuance of such additional shares of common stock, whether directly or pursuant to any conversion
right of any convertible securities, may create downward pressure on the trading price of our common stock. We may also issue
additional shares of our common stock or other securities that are convertible into or exercisable for common stock to raise capital,
acquire businesses or related assets, or other business purposes. Future sales of substantial amounts of common stock, or the
perception that sales might occur, could have a material adverse effect on the price of our common stock.
32
We have issued, and may in the future issue, additional shares of preferred stock or other securities with greater rights than our
common stock.
Subject to the rules of NASDAQ, our certificate of incorporation authorizes our board of directors to issue one or more series of
preferred stock and set the terms of the preferred stock without seeking any further approval from holders of our common stock.
Currently, there are 50 million shares of preferred stock authorized and approximately 41,000 shares of Series A convertible preferred
stock were issued and outstanding as of December 31, 2019. Any preferred stock that is issued may rank ahead of our common stock
in terms of dividends, priority and liquidation premiums and may have greater voting rights than holders of our common stock.
Our recently announced stock repurchase program could affect the price of our common stock, increase the volatility of our
common stock and could diminish our cash reserves. Such repurchase program may be suspended or discontinued at any time,
which may result in a decrease in the trading price of our common stock.
In August 2019, our Board of Directors approved a stock repurchase program to repurchase up to $25.0 million of our
outstanding common stock. This stock repurchase program does not obligate the Company to repurchase any dollar amount or number
of shares of common stock and may be suspended or discontinued at any time, which could cause the market price of our common
stock to decline. The number of shares and the timing of repurchases will be determined by management at its discretion and will
depend on a number of factors, including, but not limited to, stock price, trading volume and general market conditions, along with
working capital requirements, general business conditions, compliance with terms of our indebtedness, and other factors. We may
effect repurchases under any stock repurchase program from time to time in the open market, in privately negotiated transactions or
otherwise, including accelerated stock repurchase arrangements. Between August 2019 and December 31, 2019, we repurchased
approximately $9.0 million of common stock, with the remaining $16.0 million authorized available for future repurchases of stock.
Since the stock repurchase program has been and is expected to be funded through existing cash and cash equivalents, the stock
repurchase program has reduced and could continue to reduce the amount of cash we have available to fund our operations, including
product development, working capital, capital expenditures, acquisitions, and any other business purpose. There can be no assurance
that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels
at which we repurchased shares of common stock. Although our stock repurchase program is intended to enhance stockholder value,
short-term stock price fluctuations could reduce the program’s effectiveness.
We do not expect to pay dividends on our common stock in the foreseeable future.
We do not currently pay cash dividends on our common stock and, because we currently intend to retain all cash we generate to
fund the growth of our business, we do not expect to pay dividends on our common stock in the foreseeable future. Any future
dividend payments would be within the discretion of our board of directors and would depend on a variety of factors, including our
results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, debt
covenants, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors
may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock. Our
intent not to pay dividends in the foreseeable future may make our common stock less attractive as an investment.
Item 1B.
Unresolved Staff Comments
None.
33
Item 2.
Properties
We currently lease the following properties for operations and administrative functions:
Location
Rochelle Park, New Jersey .....................
Sterling, Virginia ....................................
Ottawa, Canada.......................................
Kowloon, Hong Kong.............................
San Jose, California ................................
Hyderabad, India.....................................
Pune, India ..............................................
Utica, New York.....................................
Hoensbroek, The Netherlands ................
Bonn, Germany.......................................
Centurion, South Africa..........................
Galway, Ireland.......................................
Salt Lake City, Utah ...............................
Boca Raton, Florida ................................
Tokyo, Japan...........................................
Real Property Owned or Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Lease Expiration
March 2027
November 2025
February 2031
January 2021
January 2022
June 2025
June 2020
May 2024
May 2022
December 2024
February 2020
September 2022
July 2021
December 2027
September 2021
In addition, we currently own eleven GESs at the following locations, four situated on owned real property and seven on real
property subject to leases:
Gateway
St. John’s, Arizona..................................
Arcade, New York ..................................
Curaçao ...................................................
Rutherglen Vic, Australia .......................
East Wenatchee, Washington .................
Ocilla, Georgia........................................
Kijal, Malaysia........................................
Hartebeesthoek, South Africa.................
Kitaura-town, Japan................................
Zona Franca de Justo Daract, Argentina....
Itaborai, Brazil ........................................
Real Property Owned or Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Lease Expiration
n/a
n/a
n/a
n/a
Month to Month
May 2033
August 2022
December 2020
March 2023
May 2022
June 2024
We currently own or lease real property sufficient for our business operations, although we may need to purchase or lease
additional real property in the future. We intend to renew all leases due to expire in 2020.
Item 3.
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” in our audited consolidated financial statements included in Part II, Item 8 of
this Annual Report on Form 10-K.
Item 4.
Mine Safety Disclosures
Not applicable.
34
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Trading Market and Symbol of Our Common Stock
Our common stock trades on The Nasdaq Global Market under the symbol “ORBC”.
As of February 13, 2020, there were 195 holders of record of our common stock.
Dividend Payments and Policy
Common stock: We have never declared or paid cash dividends on shares of our common stock. Our board of directors
currently intends to retain all available funds and future earnings to support operations and to finance the growth and development of
our business and does not intend to pay cash dividends on our common stock for the foreseeable future. Our board of directors may,
from time to time, examine our dividend policy and may, in its absolute discretion, change such policy. In addition, dividends are
restricted by the covenants in our Indenture and Revolving Credit Agreement.
Series A convertible preferred stock: Pursuant to the terms of our Series A convertible preferred stock, the holders are entitled
to receive a cumulative 4% annual dividend payable quarterly in additional shares of Series A convertible preferred stock. In 2019, we
issued dividends of 1,182 preferred shares.
Issuer Repurchases
The table below sets forth information with respect to purchases of shares of our common stock made by or on our behalf during
the three months ended December 31, 2019:
Issuer Purchases of Equity Securities (1)
Period
Balances at September 30, 2019 ......
October 1 to October 31, 2019.........
November 1 to November 30, 2019.
December 1 to December 31, 2019..
Fourth quarter 2019 totals................
Total Number of
Shares Purchased
Average Price Paid
Per Share (2)
258,579
43,903
45,903
348,385
$
$
$
$
4.67
3.92
3.84
4.47
Maximum
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
17,123,934
15,907,726
15,734,142
15,556,383
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
1,582,029
1,840,608
1,884,511
1,930,414
1,930,414
$
$
$
$
(1)
On August 5, 2019, our Board of Directors authorized the repurchase of up to $25.0 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 security 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 December 31, 2019 was $4.86.
35
Stock Performance Graph
The graph set forth below compares the cumulative total shareholder return on our common stock between December 31, 2014
and December 31, 2019, with the cumulative total result of (i) the Russell 2000 Index and (ii) the NASDAQ Telecommunications
Index, over the same period. This graph assumes the investment of $100 on December 31, 2014 in our common stock, the Russell
2000 Index and the NASDAQ Telecommunication Index, and assumes the reinvestment of dividends, if any. The graph assumes the
initial value of our common stock on December 31, 2014 was the closing sales price of $6.54 per share.
The comparisons shown in the graph below are based on historical data. We caution that the stock price performance shown in
the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
Information used in the graph was obtained from Research Data Group, a source believed to be reliable, but we are not responsible for
any errors or omissions in such information.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among ORBCOMM Inc., the Russell 2000 Index
and the NASDAQ Telecommunications Index
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/14
12/15
12/16
12/17
12/18
12/19
ORBCOMM Inc.
Russell 2000
NASDAQ Telecommunications
*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2020 Russell Investment Group. All rights reserved.
36
(Amounts in dollars)
ORBCOMM Inc. .........................................................
Russell 2000 .................................................................
NASDAQ Telecommunications .................................
12/14
100.00
100.00
100.00
12/15
110.70
95.59
97.52
12/16
126.45
115.95
102.36
12/17
155.66
132.94
127.62
12/18
126.30
118.30
127.16
12/19
64.37
148.49
142.60
Item 6.
Selected Consolidated Financial Data
The following selected consolidated financial data should be read together with the information under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related
notes in this Annual Report on Form 10-K. We have derived the consolidated statement of operations data for the years ended
December 31, 2019, 2018 and 2017 and the consolidated balance sheet data as of December 31, 2019 and 2018 from our audited
consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K. We have derived the
consolidated statement of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data as
of December 31, 2017, 2016 and 2015 from our consolidated financial statements, which are not included in this Annual Report on
Form 10-K. Our historical results are not necessarily indicative of future results of operations.
Consolidated Statement of Operations Data:
2019(1)(2)
2018(1)(2)
2017(1)(2)
2016(1)(2)
2015(1)(3)
(In thousands, except per share data)
Service revenues..................................................................... $
Product sales...........................................................................
Total revenues .............................................................
160,594
111,419
272,013
$
153,589
122,551
276,140
$
$
134,938
119,282
254,220
$
112,881
73,863
186,744
99,973
78,320
178,293
Year Ended December 31,
Costs and expenses:
Cost of services.................................................................
Cost of product sales.........................................................
Selling, general and administrative...................................
Product development ........................................................
Impairment charges...........................................................
Depreciation and amortization..........................................
Acquisition-related and integration costs .........................
Total costs and expenses .............................................
Income (loss) from operations................................................
Other expense .........................................................................
Loss from continuing operations before income
taxes.....................................................................................
Income taxes...........................................................................
Net loss...................................................................................
Less: Net income attributable to the
noncontrolling interests..................................................
Net loss attributable to ORBCOMM Inc................................ $
Net loss attributable to ORBCOMM Inc.
common stockholders.......................................................... $
Per share information-basic:
Net loss attributable to ORBCOMM Inc.
common stockholders .................................................... $
Per share information-diluted:
Net loss attributable to ORBCOMM Inc.
common stockholders .................................................... $
Weighted average common shares outstanding:
52,264
78,377
69,590
14,720
—
50,702
788
266,441
5,572
(19,321)
53,184
93,444
66,988
13,405
—
49,684
1,624
278,329
(2,189)
(19,092)
50,548
99,640
55,753
8,941
31,224
45,681
3,315
295,102
(40,882)
(20,722)
37,913
55,037
46,915
6,252
10,680
42,803
1,630
201,230
(14,486)
(8,223)
34,109
56,413
44,395
6,469
12,748
26,571
4,803
185,508
(7,215)
(4,559)
(13,749)
4,383
(18,132)
(21,281)
4,658
(25,939)
(61,604)
(409)
(61,195)
(22,709)
517
(23,226)
(11,774)
1,225
(12,999)
291
(18,423) $
305
(26,244) $
89
(61,284) $
285
(23,511) $
252
(13,251)
(18,435) $
(26,262) $
(61,296) $
(23,525) $
(13,287)
(0.23) $
(0.34) $
(0.84) $
(0.33) $
(0.19)
(0.23) $
(0.34) $
(0.84) $
(0.33) $
(0.19)
Basic..................................................................................
Diluted ..............................................................................
79,259
79,259
77,603
77,603
72,882
72,882
70,907
70,907
70,419
70,419
37
As of December 31,
2019(1)(2)(4)
2018(1)(2)
Cash and cash equivalents...................................................... $
Working capital ......................................................................
Satellite network and other equipment, net ............................
Goodwill.................................................................................
Intangible assets, net ..............................................................
Total assets .............................................................................
Note payable — related party.................................................
Notes payable, net of unamortized deferred issuance costs ...
Total equity ............................................................................
54,258
115,199
145,553
166,129
73,280
580,980
1,275
246,683
237,516
$
53,766
104,068
160,070
166,129
86,264
586,459
1,298
245,907
257,858
2017(1)(2)
(In thousands)
34,830
$
74,282
174,178
166,678
99,339
595,194
1,366
245,131
246,396
2016(1)(2)
2015(1)(2)
$
$
25,023
37,882
215,841
114,033
82,545
506,154
1,195
147,458
281,868
27,077
38,646
229,970
112,425
93,172
523,019
1,241
146,548
299,756
(1) Amounts include the impact of several acquisitions of businesses. For more information regarding our acquisitions, refer to
“Note 3 — Acquisitions” in our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on
Form 10-K.
(2) On September 30, 2014, we entered into a credit agreement with Macquarie CAF LLC which provided secured credit facilities
in an aggregate amount of $160.0 million, providing for an initial term loan facility, a Term B2 term loan facility, a Term B3
term loan facility, and a revolving loan facility (our “Secured Credit Facilities”) in order to refinance our $45.0 million 9.5% per
annum senior notes. On October 10, 2014, we borrowed $70.0 million under the initial term loan facility, a portion of which was
used to repay in full our $45.0 million 9.5% per annum senior notes, and $10.0 million under the revolving credit facility. On
December 30, 2014, we borrowed $70.0 million under the Term B3 facility, which was used to partially fund the SkyWave
Acquisition. On January 16, 2015, we borrowed $10.0 million under the Term B2 facility, which was used to partially fund the
acquisition of InSync Software Inc. (“InSync”).
On April 10, 2017, we issued $250.0 million aggregate principal amount of the Senior Secured Notes due 2024, the proceeds of
which was used to repay in full our outstanding obligations under, and to terminate our $150.0 million outstanding Secured
Credit Facilities. For more information regarding the Senior Credit Facilities and Senior Secured Notes, refer to “Note 10 —
Notes Payable” in our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
(3) We made certain reclassifications to prior period information to conform to the current period presentation, including the
reclassification of depreciation and amortization from cost of services, cost of product sales, selling, general and administrative
(“SG&A”) expenses and product development into its own caption. These reclassifications had no effect on previously reported
net income.
(4) Amounts include the impact of the implementation of Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 842 “Leases” (“ASC 842”). For more information, refer to “Note 15 — Leases” in our audited
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
38
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Notes
which appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors,” and elsewhere in this Annual Report on
Form 10-K.
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 solution 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 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 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.
2019 Strategic Transactions
During 2019, we completed the following strategic transactions that had an impact and will continue to have an impact on our
results of operations:
Stock Repurchase Program
On August 5, 2019, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $25.0
million of our outstanding shares of common stock through 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.
2018 Strategic Transactions
During 2018, we completed the following strategic transactions that had an impact and will continue to have an impact on our
results of operations:
Public Offering
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.
Shelf Registration
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.
39
2017 Strategic Transactions
During 2017, we completed the following strategic transactions that had an impact and will continue to have an impact on our
results of operations:
Acquisition of Blue Tree Systems Limited
On October 2, 2017, we purchased all of the issued share capital of Blue Tree for an aggregate consideration of (i) $34.3 million
in cash; (ii) issuance of 191,022 shares of our common stock, valued at $10.47 per share, which reflected our common stock closing
price one business day prior to the closing date; and (iii) additional consideration of up to $5.8 million, subject to certain operational
milestones. The Blue Tree Acquisition solidified our transportation product portfolio by adding truck in-cab and refrigerated fleet
vehicle solutions to our cargo solution. For additional information regarding the Blue Tree Acquisition, refer to “Note 3 —
Acquisitions” in our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Acquisition of inthinc, Inc.
On June 9, 2017, we completed the acquisition of substantially all of the assets of Inthinc for an aggregate consideration of (i)
$34.2 million in cash; (ii) issuance of 76,796 shares of our common stock, valued at $9.95 per share; and (iii) additional consideration
of up to $25.0 million, subject to certain operational milestones. The acquisition of Inthinc allows us to offer fleet management and
driver safety solutions to enterprises and industrial companies worldwide, who operate large commercial vehicle fleets. For additional
information regarding the Inthinc Acquisition, refer to “Note 3 — Acquisitions” in our audited consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
Senior Secured Notes
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, 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.
On April 10, 2017, a portion of the proceeds of the issuance of the Senior Secured Notes was used to repay in full our
outstanding obligations under, and to terminate our $150.0 million outstanding Secured Credit Facilities incurred pursuant to the credit
agreement entered into on September 30, 2014, resulting in an early payment fee of $1.5 million and an additional expense associated
with the remaining unamortized debt issuance cost of $2.4 million.
Revolving Credit Facility
On December 18, 2017, we and certain of our subsidiaries entered into a Revolving Credit Agreement with JPMorgan Chase, 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, 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.
40
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 optional, separately-priced 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.
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.
Costs and expenses
Direct costs
We operate a proprietary LEO satellite network and accompanying ground equipment, including fifteen GESs, three AIS data
reception earth stations, and three regional gateway control centers. Our proprietary satellite-based communications system is
typically characterized by high initial capital expenditures and relatively low marginal costs for providing service. We use as part of
our solution, as well as resell, network connectivity for two other satellite networks and seven terrestrial network partners. Reselling
network connectivity typically involves a cost for each device connected to the network system and the amount paid to each provider
will vary. In addition, we incur costs associated with the installation services provided to our customers.
We primarily sell industrial IoT telematics devices and modems that we design and build using contract manufacturers. For each
industrial IoT device and modem, we incur engineering costs, manufacturing costs, warehousing and shipping costs and inventory
management costs.
Operating expenses
We incur expenses associated with sales, marketing and administrative expenses related to the operation of our business,
including significant charges for depreciation and amortization of our satellite communications system and other acquired intellectual
property and intangible assets we acquired or developed. We also incur engineering expenses developing and supporting the operation
of our communications system and the early stage engineering work on new products and services that are not yet determined to be
technologically feasible.
Acquisition-related and integration costs
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly
attributable to our acquisitions. These costs were expensed as incurred and are reflected in acquisition-related and integration costs on
our consolidated statements of operations.
41
Results of operations for the years ended December 31, 2019 and 2018
Revenue
The table below presents our revenues for the years ended December 31, 2019 and 2018, together with the percentage of total
revenue represented by each revenue category (in thousands):
(In thousands)
Service revenues...................................................................... $
Product sales............................................................................
$
2019
160,594
111,419
272,013
59.0% $
41.0%
100.0% $
2018
153,589
122,551
276,140
55.6%
44.4%
100.0%
Year Ended December 31,
Total revenues for the year ended December 31, 2019 decreased $4.1 million, or 1.5%, to $272.0 million in 2019 from $276.1
million in 2018.
Service revenues
(In thousands)
Recurring service revenues...................................................... $
Other service revenues ............................................................
Total service revenues ............................................................. $
2019
155,284 $
5,310
160,594 $
2018
148,367 $
5,222
153,589 $
Year Ended
December 31,
Change
Dollars
%
6,917
88
7,005
4.7%
1.7%
4.6%
The increase in service revenue for the year ended December 31, 2019, compared to the prior year period, was primarily due to
revenue generated from growth in billable subscriber communicators across our services.
As of December 31, 2019, including the communicator devices issued by Maersk Lines, we had approximately 2,657,000
billable subscriber communicators compared to approximately 2,374,000 billable subscriber communicators as of December 31, 2018,
an increase of 11.9%. As of December 31, 2019, excluding the billable subscriber communicators issued by Maersk Lines described
below, we had approximately 2,231,000 billable subscriber communicators. Separately, at year-end 2019, we deactivated
approximately 85,000 non-revenue generating device communicators that were not actively transmitting data or were in a suspend/test
mode. This action was performed in connection with our platform convergence project. Subsequent to these adjustments, we had
approximately 2,144,000 billable subscriber communicators at December 31, 2019.
During 2019, we were notified that our program with Maersk Lines, through our contract with AT&T Services, Inc., would
expire on December 31, 2019. This program provided us with total recurring service revenues of approximately $3.0 million annually
for engineering support services, with additional deferred revenues of approximately $1.5 million recognized during the year ended
December 31, 2019. In addition, we recorded $0.5 million of other service revenues in the year ended December 31, 2019, related to
device activations that had not been previously recognized. The contract was assumed as part of the WAM Technologies, LLC
acquisition in 2015.
Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of
service revenue from these units.
Product sales
(In thousands)
Product sales............................................................................ $
2019
111,419 $
2018
122,551 $
Year Ended
December 31,
Change
Dollars
%
(11,132)
(9.1)%
The decrease in product sales for the year ended December 31, 2019, compared to the prior year period, was 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 significant product deployments during the year ended December 31, 2018 that did not
recur at similar levels in 2019.
42
Cost of revenues, exclusive of depreciation and amortization
(In thousands)
Cost of services........................................................................ $
Cost of product sales ...............................................................
2019
52,264 $
78,377
2018
53,184 $
93,444
Year Ended
December 31,
Change
Dollars
%
(920)
(15,067)
(1.7)%
(16.1)%
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 exclude depreciation and amortization discussed below.
The decrease in cost of services for the year ended December 31, 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 year ended December 31,
2018 that did not recur at similar levels in 2019.
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 decrease in cost of product sales for the year ended December 31, 2019, compared to the prior year period, was primarily due to
the decrease in product sales and the lower costs associated with new product offerings and the mix of product shipments.
Selling, general and administrative expenses
(In thousands)
Selling, general and administrative expenses.......................... $
2019
2018
Dollars
%
69,590 $
66,988 $
2,602
3.9%
Year Ended
December 31,
Change
SG&A expenses relate primarily to expenses for general management, sales and marketing, finance, audit and legal fees and
general operating expenses. The increase in SG&A expenses for the year ended December 31, 2019, compared to the prior year
period, was primarily due to reductions in contingent liabilities in 2018 to a larger extent than in the 2019 period.
Product development expenses
(In thousands)
Product development ............................................................... $
2019
2018
Dollars
%
14,720 $
13,405 $
1,315
9.8%
Year Ended
December 31,
Change
Product development expenses consist primarily of the expenses associated with our engineering efforts to establish technical
feasibility, and the cost of third parties and internal staff to support our current applications. Product development expenses for the
year ended December 31, 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 research new solutions and services for our customers.
Depreciation and amortization
(In thousands)
Depreciation and amortization ................................................ $
2019
2018
Dollars
%
50,702 $
49,684 $
1,018
2.0%
Year Ended
December 31,
Change
The increase in depreciation and amortization for the year ended December 31, 2019, compared to the prior year period, was
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.
43
Acquisition-related and integration costs
(In thousands)
Acquisition-related and integration costs ................................ $
2019
2018
Dollars
%
788 $
1,624 $
(836)
(51.5)%
Year Ended
December 31,
Change
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly
attributable to our acquisitions. The decrease in acquisition-related and integration costs reflected lower acquisition and integration
activity for the year ended December 31, 2019, compared to the prior year period.
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.
(In thousands)
Year Ended
December 31,
Change
2019
2018
Dollars
%
Interest income .................................................................. $
Other income (expense).....................................................
Interest expense .................................................................
Total other expense ...................................................... $
1,957 $
(129)
(21,149)
(19,321) $
1,918 $
45
(21,055)
(19,092) $
39
(174)
(94)
(229)
2.0%
(386.7)%
0.4%
1.2%
The increase in other expense for the year ended December 31, 2019, compared to the prior year, was primarily due to an
increase in other income (expense) in 2019, related to foreign currency losses. We believe our foreign exchange exposure is limited as
a majority of our revenue is collected in U.S. dollars.
Income taxes
In 2019, we recorded income taxes of $4.4 million, which primarily included foreign income taxes of $4.1 million from income
generated by our international operations and $0.3 million of income tax benefit related to amortization of tax goodwill generated
from acquisitions.
In 2018, we recorded income taxes of $4.7 million, which primarily included foreign income taxes of $4.0 million from income
generated by our international operations and $0.7 million of income tax benefit related to amortization of tax goodwill generated
from acquisitions.
Net loss
For the year ended December 31, 2019, we had a net loss of $18.1 million compared to a net loss of $25.9 million for the year
ended December 31, 2018, primarily due to decreased costs associated with our products and services.
Noncontrolling interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.
Net loss attributable to ORBCOMM Inc.
For the year ended December 31, 2019, we had a net loss attributable to our Company of $18.4 million, compared to a net loss
attributable to our Company of $26.2 million for the year ended December 31, 2018.
For both of the years ended December 31, 2019 and 2018, the net loss attributable to our common stockholders considers
dividends of less than $0.1 million paid in shares of the Series A convertible preferred stock.
44
Results of operations for the years ended December 31, 2018 and 2017
Revenue
The table below presents our revenues for the years ended December 31, 2018 and 2017, together with the percentage of total
revenue represented by each revenue category (in thousands):
(In thousands)
Service revenues...................................................................... $
Product sales............................................................................
$
2018
153,589
122,551
276,140
55.6% $
44.4%
100.0% $
2017
134,938
119,282
254,220
53.1%
46.9%
100.0%
Year Ended December 31,
Total revenues for the year ended December 31, 2018 increased $21.9 million, or 8.6%, to $276.1 million in 2018 from $254.2
million in 2017.
Service revenues
(In thousands)
Recurring service revenues...................................................... $
Other service revenues ............................................................
Total service revenues ............................................................. $
2018
148,367 $
5,222
153,589 $
2017
126,540 $
8,398
134,938 $
Year Ended
December 31,
Change
Dollars
%
21,827
(3,176)
18,651
17.2%
(37.8)%
13.8%
The increase in service revenues for the year ended December 31, 2018, compared to the prior year period, was primarily due to
revenue generated from growth in billable subscriber communicators across our services and from inclusion of our 2017 acquisitions
for a full year.
As of December 31, 2018, we had approximately 2,374,000 billable subscriber communicators compared to approximately
2,026,000 billable subscriber communicators as of December 31, 2017, an increase of 17.2%.
Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of
service revenue from these units.
Product sales
(In thousands)
Product sales............................................................................ $
2018
122,551 $
2017
119,282 $
Year Ended
December 31,
Change
Dollars
%
3,269
2.7%
The increase in product sales for the year ended December 31, 2018, compared to the prior year period, was primarily due to the
inclusion of our 2017 acquisitions for a full year. In addition, the year ended December 31, 2017 included significant product
deployments to new customers, primarily 71,845 units to JB Hunt which did not recur at similar levels in the year ended December 31,
2018.
Costs of revenues, exclusive of depreciation and amortization
(In thousands)
Cost of services........................................................................ $
Cost of product sales ...............................................................
2018
53,184 $
93,444
2017
50,548 $
99,640
Year Ended
December 31,
Change
Dollars
%
2,636
(6,196)
5.2%
(6.2)%
45
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 increase in cost of services for the year ended December 31, 2018, compared to the prior year period, was primarily due to an
increase in billable subscribers and inclusion of our 2017 acquisitions for a full year.
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 decrease in cost of product sales for the year ended December 31, 2018, compared to the prior year period, was primarily due to
lower costs associated with the new product offerings, the mix of product shipments and the costs associated with the product sales in
the year ended December 31, 2017.
Selling, general and administrative expenses
(In thousands)
Selling, general and administrative expenses.......................... $
2018
2017
Dollars
%
66,988 $
55,753 $
11,235
20.2%
Year Ended
December 31,
Change
SG&A expenses relate primarily to expenses for general management, sales and marketing, finance, audit and legal fees and
general operating expenses. The increase in SG&A expenses for the year ended December 31, 2018, compared to the prior year
period, reflects increases in employee-related costs and other operating expenses, mainly related to our 2017 acquisitions, offset, in
part, by a reduction of the contingent earn-out liability related to the acquisitions of Inthinc and Blue Tree.
Product development expenses
(In thousands)
Product development ............................................................... $
2018
2017
Dollars
%
13,405 $
8,941 $
4,464
49.9%
Year Ended
December 31,
Change
Product development expenses consist primarily of the expenses associated with our early stage engineering efforts to establish
technical feasibility, and the cost of third parties and internal staff to support our current applications. The increase in product
development expenses for the year ended December 31, 2018, compared to the prior year period, reflects increases in employee costs
and other operating expenses, mainly related to our 2017 acquisitions.
Impairment charges — satellite network
(In thousands)
Impairment charges - satellite network ................................... $
2018
2017
Dollars
%
— $
31,224 $
(31,224)
NM
Year Ended
December 31,
Change
Impairment charges relate to the impairment or loss of satellites on our proprietary network. The decrease for the year ended
December 31, 2018, compared to the prior year period, was primarily due to the loss of three OG2 satellites during 2017. No
impairment was recorded during 2018.
Depreciation and amortization
(In thousands)
Depreciation and amortization ................................................ $
2018
2017
Dollars
%
49,684 $
45,681 $
4,003
8.8%
Year Ended
December 31,
Change
46
The increase in depreciation and amortization for the year ended December 31, 2018, compared to the prior year period, was
primarily due to 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 offset, in part, by lower depreciation associated
with our satellite network as a result of impairments incurred in 2017.
Acquisition-related and integration costs
(In thousands)
Acquisition-related and integration costs ................................ $
2018
2017
Dollars
%
1,624 $
3,315 $
(1,691)
(51.0)%
Year Ended
December 31,
Change
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly
attributable to our acquisitions. The decrease in acquisition-related and integration costs reflected lower acquisition and integration
activity in the 2018 period compared to the prior year period.
Other income (expense)
Other income (expense) is comprised primarily of interest expense, foreign exchange gains and losses, interest income from our
cash and cash equivalents, which can consist of U.S. Treasuries, interest bearing instruments, and our previously held investments in
marketable securities consisting of U.S. government and agency obligations, corporate obligations and FDIC-insured certificates of
deposit classified as held to maturity and interest income related to capital leases.
(In thousands)
Year Ended
December 31,
Change
2018
2017
Dollars
%
Interest income................................................................... $
Other income (expense) .....................................................
Interest expense..................................................................
Loss on debt extinguishment..............................................
Total other expense....................................................... $
1,918 $
45
(21,055)
—
(19,092) $
959 $
(160)
(17,653)
(3,868)
(20,722) $
959
205
(3,402)
3,868
1,630
100.0%
(128.1)%
19.3%
NM
(7.9)%
The decrease in other expense for the year ended December 31, 2018, compared to the prior year, was primarily due to the loss
on extinguishment of our Secured Credit Facilities with Macquarie CAF LLC incurred in the quarter ended June 30, 2017 and an
increase in interest income mainly attributable to our lease receivable associated with customer product financing arrangements,
offset, in part, by increased interest expense as a result of higher outstanding principal balances and higher interest rates associated
with our Senior Secured Notes issued on April 10, 2017. We believe our foreign exchange exposure is limited as a majority of our
revenue is collected in U.S. dollars.
Income taxes
In 2018, we recorded income taxes of $4.7 million, which primarily included foreign income taxes of $4.0 million from income
generated by our international operations and $0.7 million of income tax benefit related to amortization of tax goodwill generated
from acquisitions.
In 2017, we recorded income taxes of $(0.4) million, which primarily included foreign income taxes of $1.7 million from
income generated by our international operations and $(2.1) million of income tax benefit related to the impact of the Tax Cuts and
Jobs Act of 2017 on the amortization of tax goodwill generated from our acquisitions.
Net loss
For the year ended December 31, 2018, we had a net loss of $25.9 million compared to a net loss of $61.2 million for the year
ended December 31, 2017. The 2018 period included a full year of increased interest expense arising from our Senior Secured Notes
issued in April 2017 and increased SG&A and product development costs, while the 2017 period included the $31.2 million satellite
impairment loss and the $3.9 million loss on extinguishment of debt related to our Secured Credit Facilities.
Noncontrolling interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.
47
Net loss attributable to ORBCOMM Inc.
For the year ended December 31, 2018, we had a net loss attributable to our Company of $26.2 million, compared to a net loss
of $61.3 million for the year ended December 31, 2017.
For both of the years ended December 31, 2018 and 2017, the net loss attributable to our common stockholders considers
dividends of less than $0.1 million, paid in shares of the Series A convertible preferred stock.
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 December 31, 2019, we had an accumulated deficit of $210.9 million. Our primary
sources of liquidity consist of cash and cash equivalents totaling $54.3 million 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 in 2019 was $30.1 million resulting from a net loss of $18.1 million and cash used by
working capital of $10.3 million, offset by non-cash items including $50.7 million for depreciation and amortization and $6.2 million
for stock-based compensation. Working capital activities primarily consisted of an increase in accounts receivable of $5.2 million
related to timing of collections and an increase of $5.6 million in inventories.
Cash provided by our operating activities in 2018 was $11.5 million resulting from a net loss of $25.9 million and cash used by
working capital of $14.9 million, offset by non-cash items including $49.7 million for depreciation and amortization and $7.9 million
for stock-based compensation. Working capital activities primarily consisted of a decrease of $14.9 million in accounts payable and
accrued liabilities primarily related to timing of payments and an increase in accounts receivable of $14.0 million related to timing of
collections, offset, in part, by a decrease of $8.3 million in inventories and a decrease in prepaid expenses and other assets of $4.0
million.
Cash used in our operating activities in 2017 was $5.0 million resulting from a net loss of $61.2 million and cash used by
working capital of $26.9 million, offset by non-cash items including $45.7 million for depreciation and amortization, $31.2 million for
an impairment loss on our satellite network, $5.7 million for stock-based compensation and $3.1 million for amortization and write-off
of deferred financing fees. Working capital activities primarily consisted of net uses of cash of $16.9 million in inventories as a result
of our increased business activities, increases in accounts receivable of $10.0 million relating to timing of collections and an increase
in prepaid expenses and other assets of $10.5 million, offset, in part, by increases in accounts payable and accrued liabilities of $12.2
million as a result of timing of invoices.
Investing activities
Cash used in our investing activities in 2019 was $21.1 million, resulting from capital expenditures during the period.
Cash used in our investing activities in 2018 was $21.5 million, resulting primarily from capital expenditures during the period.
Cash used in our investing activities in 2017 was $95.9 million, resulting from $67.9 million in cash consideration paid in
connection with the Inthinc and Blue Tree Acquisitions and capital expenditures of $27.4 million, including approximately $4.0
million related to final payments for the OG2 program.
Financing activities
Cash used in our financing activities in 2019 was $8.4 million, due to payments of $9.4 million in purchases of common stock
under our share repurchase program, offset, in part, by $1.1 million in proceeds from the sale of common stock under the employee
stock purchase plan.
Cash provided by our financing activities in 2018 was $29.2 million, due to proceeds of $28.0 million received from our April
2018 Public Offering and $1.2 million from our employee stock purchase plan.
48
Cash provided by our financing activities in 2017 was $110.3 million, primarily due to proceeds received from the issuance of
our Senior Secured Notes of $250.0 million, proceeds from the issuance of common stock in a private offering of $15.0 million and
proceeds from our employee stock purchase plan of $1.0 million, offset, in part, by payment of $5.4 million of debt issuance costs
related to our Senior Secured Notes and the $150.0 million repayment of our Secured Credit Facilities, as well as payments of
contingent consideration of $0.3 million in connection with a previous acquisition.
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, 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.
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 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 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 $50.0 million.
On April 10, 2017, a portion of the proceeds of the issuance of the Senior Secured Notes was used to repay in full our
outstanding obligations under, and to terminate, our $150.0 million outstanding Secured Credit Facilities incurred pursuant to the
secured credit facilities credit agreement, resulting in an early payment fee of $1.5 million and an additional expense associated with
the remaining unamortized debt issuance cost of $2.4 million.
On December 18, 2017, we and certain of our subsidiaries entered into the Revolving Credit Agreement with JPMorgan Chase,
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 bears 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, 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.
49
The Revolving Credit Agreement 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 baskets as set forth in the Revolving
Credit Agreement.
At December 31, 2019, no amounts were outstanding under the Revolving Credit Facility. As of December 31, 2019, we were in
compliance with all financial covenants under the Revolving Credit Agreement.
On June 9, 2017, we completed the Inthinc Acquisition for cash consideration of $34.2 million, issuance of 76,796 shares of our
common stock, valued at $9.95 per share, and additional contingent consideration of up to $25.0 million, subject to meeting certain
operational milestones, payable in stock or a combination of cash and stock at our election.
On June 15, 2017, we completed a private placement of 1,552,795 shares of our common stock at a price of $9.66 per
share, calculated as 95% of the volume-weighted average trading price of our common stock for the 30 trading days ending on June
14, 2017, for which we received net proceeds of $15.0 million.
On October 2, 2017, we purchased all of the shares of Blue Tree for an aggregate consideration of (i) $34.3 million in cash; (ii)
issuance of 191,022 shares of the Company’s common stock, valued at $10.47 per share, which reflected our common stock closing
price one business day prior to the closing date; and (iii) additional consideration up to $5.8 million based on Blue Tree achieving
certain thresholds, payable in stock or a combination of cash and stock at our election.
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
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 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.
50
The following table reconciles our net loss attributable to ORBCOMM Inc. to EBITDA and Adjusted EBITDA for the periods
shown:
2019
Year Ended December 31,
2018
(In thousands)
2017
Net loss attributable to ORBCOMM Inc. ................................. $
Income tax expense...................................................................
Interest income..........................................................................
Interest expense ........................................................................
Loss on debt extinguishment ....................................................
Depreciation and amortization..................................................
EBITDA....................................................................................
Stock-based compensation........................................................
Net income attributable to the noncontrolling interests............
Acquisition-related and integration costs .................................
Impairment charges ..................................................................
Adjusted EBITDA .................................................................... $
(18,423) $
4,383
(1,957)
21,149
—
50,702
55,854
6,180
291
788
—
63,113 $
(26,244) $
4,658
(1,918)
21,055
—
49,684
47,235
7,910
305
1,624
—
57,074 $
(61,284)
(409)
(959)
17,653
3,868
45,681
4,550
5,673
89
3,315
31,224
44,851
For the year ended December 31, 2019 compared to the year ended December 31, 2018, EBITDA increased $8.6 million, while
net loss attributable to ORBCOMM Inc. improved $7.8 million and Adjusted EBITDA increased $6.0 million.
For the year ended December 31, 2018 compared to the year ended December 31, 2017, EBITDA increased $42.7 million, while
net loss attributable to ORBCOMM Inc. improved $35.0 million and Adjusted EBITDA increased $12.2 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:
2019
Year Ended December 31,
2018
(In thousands, except margin data)
2017
160,594
$
153,589
$
134,938
69,250
91,344
16,986
108,330
$
56.9%
67.5%
$
$
70,312
83,277
17,128
100,405
$
54.2%
65.4%
71,151
63,787
20,603
84,390
47.3%
62.5%
Service revenues ...................................................................... $
Minus - Cost of services, including depreciation and
amortization expense ............................................................
GAAP Service gross profit ...................................................... $
Plus - Depreciation and amortization expense.........................
Non-GAAP Service gross profit .............................................. $
GAAP Service Gross Margin...................................................
Non-GAAP Service Gross Margin ..........................................
51
Product sales ............................................................................ $
Minus - Cost of product sales, including depreciation
and amortization expense......................................................
GAAP Product gross profit...................................................... $
Plus - Depreciation and amortization expense.........................
Non-GAAP Product gross profit.............................................. $
GAAP Product Gross Margin ..................................................
Non-GAAP Product Gross Margin..........................................
2019
Year Ended December 31,
2018
(In thousands, except margin data)
2017
111,419
$
122,551
$
119,282
81,006
30,413
2,629
33,042
$
27.3%
29.7%
$
$
96,686
25,865
3,242
29,107
$
21.1%
23.8%
102,381
16,901
2,741
19,642
14.2%
16.5%
GAAP Service Gross Margin, inclusive of depreciation and amortization expense, was 56.9% in the year ended December 31,
2019, compared to 54.2% in the prior year. Non-GAAP Service Gross Margin, excluding depreciation and amortization expense, was
67.5% in the year ended December 31, 2019, compared to 65.4% in the prior year. These improvements were due to bringing onboard
new subscribers at higher margins and limiting product installations at negative margins compared to the prior year. GAAP Service
Gross Margin, inclusive of depreciation and amortization expense, was 54.2% in the year ended December 31, 2018, compared to
47.3% in the prior year. Non-GAAP Service Gross Margin, excluding depreciation and amortization expense, was 65.4% in the year
ended December 31, 2018, compared to 62.5% in the prior year. These improvements were due to bringing onboard new subscribers
at higher margins compared to the prior year.
GAAP Product Gross Margin, inclusive of depreciation and amortization expense, was 27.3% in the year ended December 31,
2019, compared to 21.1% in the prior year. Non-GAAP Product Gross Margin, excluding depreciation and amortization expense, was
29.7% in the year ended December 31, 2019, compared to 23.8% in the prior year. These improvements were primarily due to a better
mix of higher-margin products shipped in greater volumes compared to the prior year. GAAP Product Gross Margin, inclusive of
depreciation and amortization expense, was 21.1% in the year ended December 31, 2018, compared to 14.2% in the prior year. Non-
GAAP Product Gross Margin, excluding depreciation and amortization expense, was 23.8% in the year ended December 31, 2018,
compared to 16.5% in the prior year. These improvements were primarily due to a better mix of higher-margin products shipped in
greater volumes compared to the prior year.
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2019 and the effect those obligations are expected
to have on our liquidity and cash flows in future periods:
Operating leases (1)................................................................ $
Senior Secured Notes (2)........................................................
Interest payments on Senior Secured Notes (3) .....................
Carrier providers (4)...............................................................
$
Less Than
1 Year
Payment Due by Period
1 to 3
Years
3 to 5
Years
3,972
—
20,000
8,091
32,063
$
$
7,312
—
40,000
12,037
59,349
$
$
6,438
250,000
26,667
12,646
295,751
$
$
After 5
Years
7,298
—
—
74,206
81,504
Total
25,020
250,000
86,667
106,980
468,667
$
$
(1) Amounts represent future minimum payments under operating leases for our office spaces and other facilities.
(2) Amounts represent repayment of the principal of the Senior Secured Notes in April 2024 based on our outstanding long-term
debt as of December 31, 2019.
(3)
(4)
Interest payments reflect borrowing rates for our outstanding long-term debt as of December 31, 2019.
Future amounts are based on assumed growth. We do not have a contractual commitment for our carriers, however there is no
current expectation that we will stop using these carriers.
Off-Balance Sheet Arrangements
None.
52
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations, liquidity and capital resources are based on our consolidated financial
statements which have been prepared in conformity with GAAP. The preparation of these consolidated financial statements requires
us to make certain 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. We believe the following critical accounting policies
affect our more significant estimates and judgments in the preparation of our consolidated financial statements.
Revenue recognition
We recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectability is reasonably assured. Our revenue recognition policy requires us to make significant judgments
regarding the probability of collection of the resulting accounts receivable balance based on prior history and the creditworthiness of
our customers. In instances where collection is not reasonably assured, revenue is recognized when we receive cash from the
customer.
We derive 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 our satellite
network, as well as other satellite networks and cellular wireless networks that we resell to our resellers, MCPs and MCAs, and direct
customers. In addition, we earn recurring service revenues from providing AIS data services to government and commercial customers
worldwide. AIS service revenues are generated over time from monthly subscription-based services supplying AIS data to our
customers and resellers using the output method. We also earn recurring service revenues from activations of subscriber
communicators and SIMs, optional separately-priced extended warranty service agreements extending beyond the initial warranty
period of typically one year, which are billed to the customer upon shipment of a subscriber communicator.
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 we provide services through our 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. Revenues from the activation of both subscriber communicators and SIMs are initially recorded as deferred revenues
and are, thereafter, recognized on a ratable basis using a time-based output method, generally over three years, the estimated life of the
subscriber communicator. Revenues from separately-priced extended warranty service agreements extending beyond the initial
warranty period, typically one year, are initially recorded as deferred revenues and are, thereafter, recognized on a ratable basis using a
time-based output method, generally over two to five years.
We earn 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 using the output method when the services are
completed. Revenues generated from engineering, technical and management support services are recognized over time as the service
is provided. We also generate other service revenues through the sale of software licenses to our customers, which is recognized at a
point in time using the output method when the license is provided to the customer.
Product sales are derived from sales of complete industrial IoT telematics devices, modems or cellular wireless SIMs (for our
terrestrial-communication services) to our 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.
Shipping costs billed to customers are included in product sales and the related costs are included as cost of product sales on our
consolidated statements of operations.
We generate revenue from leasing arrangements of subscriber communicators, under FASB 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.
53
Revenue recognition for arrangements with multiple performance obligations
We enter into contracts with our customers that include multiple performance obligations, which typically include subscriber
communicators, monthly usage fees and optional extended warranty service agreements. We evaluate each item to determine whether
it represents a promise to transfer a distinct good or service to the customer and is therefore a separate performance obligation under
FASB Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers.” If a contract is separated into
more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on
the estimated relative stand-alone selling prices of each performance obligation. We use an observable price to determine the stand-
alone selling price for separate performance obligations when sold on its own or a cost-plus margin approach when one is not
available.
If an arrangement provided to a customer has a significant and incremental discount on future revenue, such right 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. We have determined that arrangements provided to our customers do
not include significant and incremental discounts.
Accounts receivable
Accounts receivable are due in accordance with payment terms included in our negotiated contracts. Amounts due are stated net
of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are considered past
due. We make ongoing assumptions and judgments relating to the collectability of our accounts receivable to determine our required
allowances based on a number of factors such as the age of the receivable, credit history of the customer, historical experience and
current economic conditions that may affect a customer’s ability to pay. Past experience may not be indicative of future collections; as
a result, allowances for doubtful accounts may deviate from our estimates as a percentage of accounts receivable and sales.
Satellite network and other equipment, net
Satellite network and other equipment, net are stated at cost, less accumulated depreciation and amortization. We use judgment
to determine the useful life of our satellite network based on the estimated operational lives of the satellites and periodic reviews of
engineering data relating to the operation and performance of our satellite network.
Satellite network includes the costs of our constellation of satellites and the ground and control facilities, which consists of
GESs, gateway control centers and the network control center.
As of December 31, 2019 and 2018, assets under construction primarily consisted of costs associated with acquiring,
developing, enhancing and testing software and hardware for internal and external use that have not yet been placed into service.
Accounting for business combinations
We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and
liabilities assumed be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is
assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price
over the estimated fair values of the net assets acquired is recorded to goodwill. Intangible assets are amortized over the expected life
of the asset. We make significant assumptions and estimates in determining the preliminary estimated purchase price and the
preliminary allocation of the estimated purchase in the consolidated financial statements. These preliminary estimates and assumptions
are subject to change as we finalize the valuations. The final valuations may change significantly from the preliminary estimates. Fair
value determinations and useful life estimates are based on, among other factors, estimates of expected future cash flows from
revenues of the intangible assets acquired, estimates of appropriate discount rates used to calculate the present value of expected future
cash flows, estimated useful lives of the intangible assets acquired and other factors. Although we believe the assumptions and
estimates we have made have been reasonable and appropriate, they are based, in part, on historical experience, information obtained
from the management of the acquired companies and future expectations. For these and other reasons, actual results may vary
significantly from estimated results.
54
Contingent consideration
We determine the acquisition date fair value of contingent consideration obligations based on a probability-weighted income
approach derived from milestone estimates and a probability assessment with respect to the likelihood of achieving contingent
obligations. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3
measurement as defined in FASB ASC Topic 820 “Fair Value Measurement.” At each reporting date, the contingent consideration
obligation will be revalued to estimated fair value and changes in fair value will be reflected as income or expense in our consolidated
statement of operations. Changes in the fair value of the contingent consideration obligations may result from changes in probability
assumptions with respect to the likelihood of achieving the various contingent payment obligations. Adverse changes in assumptions
utilized in our contingent consideration fair value estimates could result in an increase in our contingent consideration obligation and a
corresponding charge to operating income.
Goodwill
Goodwill is not amortized, but is tested for impairment on an annual basis and between annual tests whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is
defined as an operating segment, or one level below the operating segment. We operate in one operating segment, which is our only
reporting unit.
We test for an indication of goodwill impairment on November 30 of each year or when indicators of impairment exist, by
comparing the fair value of our reporting unit to its carrying value. If there is an indication of impairment, we perform a “step two”
test to measure the impairment. Impairments, if any, are recorded to the statement of operations in the period the impairment is
recognized.
A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators include
a sustained and significant decline in our stock price and market capitalization, a decline in our expected future cash flows, a
significant adverse change in legal factors or in the business climate and unanticipated competition. There was no goodwill
impairment for the years ended December 31, 2019, 2018 and 2017.
Long-lived assets, including finite-lived intangible assets
Management reviews long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. In connection with this review, we reevaluate the periods of
depreciation and amortization. We recognize an impairment loss when the sum of the future undiscounted net cash flows expected to
be realized from the asset is less than its carrying amount. If an asset is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its fair value, which is determined using projected
discounted future net cash flows, using the appropriate discount rate. Our satellite constellation and related assets, including satellites
under construction, 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. Considerable judgment by us is necessary to estimate the fair
value of the assets and accordingly, actual results could vary significantly from such estimates. Our most significant estimates and
judgments relating to the long-lived asset impairments include the allocation of cash flows to assets or asset groups and, if required, an
estimate of fair value for those assets or asset groups, the timing and amount of projected future cash flows and the discount rate
selected to measure the risks inherent in future cash flows.
There was no impairment charge recorded relating to intangible assets for the years ended December 31, 2019, 2018 and 2017.
If a satellite were to fail during launch or while in orbit, the resulting loss would be charged to expense in the period it is
determined that the satellite is not recoverable. The amount of any such loss would be reduced by the insurance proceeds, if any,
estimated to be received. An impairment loss of $31.2 million related to the loss of three OG2 satellites was recorded in the year
ended December 31, 2017. There were no insurance proceeds associated with this loss because of the deductible under our in-orbit
insurance coverage. There was no impairment charge recorded in the years ended December 31, 2019 and 2018.
55
Capitalized development costs
Judgments and estimates occur in the calculation of capitalized development costs. We evaluate and estimate when a
preliminary project stage is completed and the point when the project is substantially complete and ready for use. We base our
estimates and evaluations on engineering data. We capitalize the costs of acquiring, developing and testing software and hardware to
meet our internal needs and for products and services that have not yet been placed into service. Capitalization of costs associated with
software obtained or developed for internal use commences when both the preliminary project stage is completed and management has
authorized further funding for the project, based on a determination that it is probable that the project will be completed and used to
perform the function intended. Capitalized costs include only (1) the external direct cost of materials and services consumed in
developing or obtaining internal-use software, and (2) payroll and payroll-related costs for employees who are directly associated
with, and devote time to, a qualifying project, and (3) certain external software development costs upon the establishment of
technological feasibility. Technological feasibility is considered to have occurred upon completion of either a detailed program design
or a working model. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready
for its intended use. Internal use software costs are amortized once the software is placed in service using the straight-line method over
periods ranging from three to seven years. Product and service development costs are amortized over the estimated life of the product
once it has been released for commercial sale.
Income taxes
We estimate our income taxes separately for each tax jurisdiction in which we conduct operations. This process involves
estimating actual current tax expense and assessing temporary differences resulting from different treatment of items between book
and tax, which results in deferred tax assets and liabilities. We recognize a change in tax rates on deferred tax assets and liabilities in
income in the period that includes the enactment date. In determining the net deferred tax assets and valuation allowances, we are
required to make judgments and estimates in assessing the realizability of the deferred tax assets. In assessing the realizability of our
deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible.
We recognize the effect of tax law changes in the period of enactment. Changes in existing tax laws and rates, their related
interpretations, and the uncertainty generated by the current economic environment may affect the amounts of our deferred tax
liabilities or the valuations of our deferred tax assets over time. Our accounting for deferred tax consequences represents
management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
We account for uncertainty in income tax positions using a two-step approach. The first step is to determine whether it is more
likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The second step is to measure the tax position at the largest amount of benefit
that is greater than 50% likely of being realized upon ultimate settlement. Accounting for uncertainties in income taxes positions
involves significant judgments by management.
Warranty costs
Warranty coverage is accrued upon product sales and provides for costs to replace or fix defective products. Our analysis of the
warranty liabilities associated with the warranty coverage estimates them based on historical costs of the acquired companies to
replace or fix products for customers, and may require additional liability for warranty coverage for other specific claims that are
expected to be incurred within the warranty period, for which it is estimated that customers may have a warranty claim. Accrual
estimates may differ from actual results and adjustments to the estimated warranty liability would be required.
Separately-priced extended warranty coverage is recorded as warranty revenue over the term of the extended warranty coverage
and the related warranty costs during the coverage period are recorded as incurred.
Warranty coverage that includes additional services such as repairs or maintenance of the product is treated as a separate
deliverable and the related warranty and repairs or maintenance costs are recorded as incurred.
Loss contingencies
We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and
reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual
amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final
determination of the liability is made. There is significant uncertainty relating to the outcome of any potential legal actions and other
claims and the difficulty of predicting the likelihood and range of the potential liability involved, coupled with the material impact on
our results of operations that could result from legal actions or other claims and assessments.
56
Stock-based compensation
Our share-based compensation plans consist of the 2016 Long-Term Incentives Plan (the “2016 LTIP”) and the 2006 Long-
Term Incentives Plan (the “2006 LTIP”), under which no further awards may be made. The 2016 LTIP, approved by our stockholders
in April 2016, and the 2006 LTIP approved by our stockholders in April 2006, provide for the grants of non-qualified stock options,
stock appreciation rights (“SARs”), common stock, restricted stock, restricted stock units (“RSUs”), performance units and
performance shares to our employees and non-employee directors. We did not grant any stock options in 2019, 2018 and 2017.
We measure and recognize stock-based compensation expense for share-based payment awards to employees and directors
based on estimated fair values on the date of grant. The value of the portion of the award that is ultimately expected to vest is
recognized as expense over the requisite service period. For awards with performance conditions, an evaluation is made at the grant
date and future periods as to the likelihood of the performance criteria being met. Compensation expense is adjusted in future periods
for subsequent changes in the performance condition until the vesting date. We estimate forfeitures at the time of grant and revise, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
For the years ended December 31, 2019, 2018 and 2017, we recognized $6.2 million, $7.9 million and $5.7 million of stock-
based compensation expense, respectively. As of December 31, 2019, we had an aggregate of $6.8 million of unrecognized
compensation costs for all share-based payment arrangements.
We expect that our planned use of share-based payment arrangements will continue to be a significant expense for us in future
periods. We have not recognized, and do not expect to recognize in the near future, any significant tax benefit related to employee
stock-based compensation expense as a result of the full valuation allowance on our net deferred tax assets and net operating loss
carryforwards generated in the U.S.
The fair value of each time-based and performance-based SAR award is estimated on the date of grant using the Black-Scholes
option pricing model with the assumptions described below for the periods indicated. Depending how long our common stock has
been publicly traded at the grant date, the expected volatility was based either on (i) an average of our historical volatility over the
expected terms of the SAR awards and comparable publicly traded companies’ historical volatility or (ii) our historical volatility over
the expected terms of the SAR awards. We used the “simplified” method to determine the expected terms of SARs due to a limited
history of exercises. Estimated forfeitures were based on voluntary and involuntary termination behavior as well as an analysis of
actual forfeitures. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term
of the SAR grants. We did not grant time-based or performance-based SARs during the years ended December 31, 2019 and 2018.
Risk-free interest rate ......................................
Expected life (years) .......................................
Estimated volatility factor ...............................
Expected dividends .........................................
2019
None
None
None
None
Year Ended December 31,
2018
None
None
None
None
2017
2.10%
6.0
59.85%
None
The grant date fair values of RSU awards granted in 2019, 2018 and 2017 were based upon the closing stock price of our
common stock on the date of grant.
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 financing and operating leases, along with additional qualitative and quantitative disclosures. We adopted ASU 2016-02
prospectively as of January 1, 2019, the date of initial application. As part of the adoption, we elected the package of practical
expedients, the short-term lease exemption and the practical expedient to not separate lease and non-lease components. We completed
our comprehensive review of our lease portfolio for all lease types and embedded leases throughout each region. See also “Note 15 –
Leases” in our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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 is 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. A goodwill impairment will
now 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 our consolidated
financial statements.
57
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 our consolidated financial
statements.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risks
Effects of Inflation Risk
Overall, we believe that the impact of inflation risk on our business will not be significant.
Foreign Currency Risk
The majority of our revenues and expenses are transacted in U.S. dollars. Due to operations in Japan, Europe and Africa, we
have foreign exchange exposures to non-U.S. dollar revenues. Due to operations in Canada, we have foreign exchange exposures to
non-U.S. dollar expenses. For the years ended December 31, 2019 and 2018, revenues denominated in foreign currencies were
approximately 9.9% and 14.9% of total revenues, respectively. For the year ended December 31, 2019, our revenues would have
decreased by approximately 1.2% if the U.S. dollar would have strengthened by 10%.
We have assets and liabilities denominated in foreign currencies. At December 31, 2019, a hypothetical change in the fair value
of these assets and liabilities from an increase (decrease) of 10% of the U.S. dollar would be an increase (decrease) of approximately
$2.0 million.
Concentration of Credit Risk
There were no customers who generated revenues greater than 10% of our consolidated total revenues for the years ended
December 31, 2019 and 2018. For the year ended December 31, 2017, JB Hunt comprised 10.8% of our consolidated total revenues.
Item 8.
Financial Statements and Supplementary Data
The consolidated financial statements of ORBCOMM Inc. and its subsidiaries, including the notes thereto and the report
thereon, are presented beginning at page F-1 of this Annual Report on Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
(a) Disclosure Controls and Procedures
In connection with the preparation of this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and
with the participation of our management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company
that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and
procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures were effective.
58
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f). Management, including our Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of our internal control over financial reporting based upon criteria established in Internal Control –
Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that our internal control over financial reporting was effective as of December 31, 2019. The effectiveness of
our internal control over financial reporting as of December 31, 2019 has been audited by Grant Thornton LLP, an independent
registered public accounting firm, as stated in its attestation report which is included below.
(c) Changes in Internal Control over Financial Reporting
We reviewed our internal control over financial reporting at December 31, 2019. As a result of the acquisitions of Inthinc and
Blue Tree, 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 these integrations are
complete.
There have been no other changes in our internal control over financial reporting identified in an evaluation thereof that
occurred during the last fiscal quarter of 2019 that materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
59
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ORBCOMM Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ORBCOMM Inc.(a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013
Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019, and our report
dated February 28, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
New York, New York
February 28, 2020
60
Item 9B.
Other Information
None.
61
Item 10.
Directors and Executive Officers of the Registrant and Corporate Governance
Identification of Directors
PART III
Reference is made to the information regarding directors under the heading “Election of Directors (Proposal 1)” in the Proxy
Statement for our 2020 Annual Meeting of stockholders to be held on April 22, 2020 (our “2020 Proxy Statement”), which
information is hereby incorporated by reference.
Identification of Executive Officers
Reference is made to the information regarding executive officers under the heading “Information About Our Executive
Officers” in Part I, Item 1 of this Annual Report on Form 10-K.
Identification of Audit Committee and Audit Committee Financial Expert
Reference is made to the information regarding directors under the heading “Board of Directors and Committees — Audit
Committee” in our 2020 Proxy Statement, which information is hereby incorporated by reference.
Material Changes to Procedures for Recommending Directors
Reference is made to the information regarding directors under the heading “Board of Directors and Committees — Nominating
and Corporate Governance Committee” in our 2020 Proxy Statement, which information is hereby incorporated by reference.
Code of Ethics
We have adopted a code of ethics, or Code of Business Conduct, to comply with the rules of the SEC and NASDAQ. Our Code
of Business Conduct applies to our directors, officers and employees, including our principal executive officer and senior financial
officers. A copy of our Code of Business Conduct is maintained on our website at www.orbcomm.com.
Item 11.
Executive Compensation
Reference is made to the information under the headings “Board of Directors and Committees — Compensation Committee
Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and
“Compensation of Executive Officers” in our 2020 Proxy Statement, which information is hereby incorporated by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Beneficial Ownership
Reference is made to the information under the heading “Security Ownership of Certain Beneficial Owners and Management”
in our 2020 Proxy Statement, which information is hereby incorporated by reference.
Equity Compensation Plan Information
Reference is made to the information under the heading “Equity Compensation Plan Information” in our 2020 Proxy Statement,
which information is hereby incorporated by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Reference is made to the information under the heading “Certain Relationships and Transactions with Related Persons” in our
2020 Proxy Statement, which information is hereby incorporated by reference.
Item 14.
Principal Accountant Fees and Services
Reference is made to the information under the heading “Proposal to Ratify the Appointment of Independent Registered Public
Accounting Firm (Proposal 2) — Principal Accountant Fees” in our 2020 Proxy Statement, which information is hereby incorporated
by reference.
62
PART IV
Item 15.
Exhibits and Financial Statements Schedules
(a)(1) Financial Statements
See Index to Consolidated Financial Statements appearing on page F-1.
(a)(2) Financial Statement Schedules
Schedule II- See Index to Consolidated Financial Statements appearing on page F-1
Financial statement schedules not filed herein have been omitted as they are not applicable or the required information or
equivalent information has been included in the financial statements or the notes thereto.
(a)(3) Exhibits
Exhibit
No.
Description
3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2006, is incorporated herein by reference.
3.2 Amended Bylaws of the Company, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006, is incorporated herein by reference.
3.3 Certificate of Designation of Series A Convertible Preferred Stock of ORBCOMM, filed as Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on May 20, 2011, is incorporated herein by reference.
4.1
4.2
Indenture, dated as of April 10, 2017, by and between the Company and U.S. Bank National Association, as trustee and
collateral agent, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 12, 2017, is incorporated
herein by reference.
Security Agreement, dated as of April 10, 2017, by and among the Company, the subsidiaries party thereto and U.S. Bank
National Association, as collateral agent, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April
12, 2017, is incorporated herein by reference.
4.3 Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
*10.2 Non-Employee Director Deferred Compensation Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2015, is incorporated herein by reference.
10.3
Form of Indemnification Agreement between the Company and the executive officers and directors of the Company, filed
as Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (Registration No. 333-134088), is incorporated
herein by reference.
10.4
Schedule identifying agreements substantially identical to the form of Indemnification Agreement.
*10.5
2016 Long-Term Incentives Plan, filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on April 26,
2016, is incorporated herein by reference.
*10.5.1 Form of Restricted Stock Unit Award Agreement (including Restricted Stock Unit Award Agreement Terms and
Conditions) under the Company's 2016 Long-Term Incentives Plan for awards made prior to December 1, 2018, filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, is incorporated
herein by reference.
*10.5.2 Form of Performance Unit Award Agreement under the Company's 2016 Long-Term Incentives Plan for awards made prior
to December 1, 2018, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2016, is incorporated herein by reference.
*10.5.3 Form of Restricted Stock Unit Award Agreement (including Restricted Stock Unit Award Agreement Terms and
Conditions) under the Company’s 2016 Long-Term Incentives Plan for awards made on or after December 1, 2018, filed as
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, is incorporated
herein by reference.
63
Exhibit
No.
Description
*10.5.4 Form of Performance Unit Award Agreement under the Company’s 2016 Long-Term Incentives Plan for awards made on
or after December 1, 2018, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2018, is incorporated herein by reference.
*10.5.5 Form of Stock Appreciation Right Award Agreement (including Stock Appreciation Right Award Agreement Terms and
Conditions) under the Company’s 2016 Long-Term Incentives Plan for awards made on or after December 1, 2018, filed as
Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, is incorporated
herein by reference.
*10.6
2006 Long-Term Incentives Plan, as amended, filed as Exhibit 99 to the Company’s Current Report on Form 8-K filed on
May 3, 2011, is incorporated herein by reference.
*10.6.1 Form of Stock Appreciation Rights Award Agreement under the 2006 Long-Term Incentives Plan, filed as Exhibit 10.25 to
the Company’s Registration Statement on Form S-1 (Registration No. 333-134088), is incorporated herein by reference.
*10.7
Summary of Non-Employee Director Compensation, effective as of March 1, 2019, filed as Exhibit 10.7 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018, is incorporated herein by reference.
*10.8.1 Employment Offer Letter of Michael W. Ford, dated as of August 20, 2018, filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on August 21, 2018, is incorporated herein by reference.
*10.8.2 Severance Agreement and General Release of Claims, dated April 4, 2019, filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on April 5, 2019, is incorporated herein by reference.
*10.9 Amended and Restated Employment Agreement between Marc J. Eisenberg and the Company, effective as of March 1,
2019, filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, is
incorporated herein by reference.
*10.10 Amended and Restated Employment Agreement between John J. Stolte, Jr. and the Company, effective as of March 1,
2019, filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, is
incorporated herein by reference.
*10.11 Amended and Restated Employment Agreement between Christian G. Le Brun and the Company, effective as of March 1,
2019, filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, is
incorporated herein by reference.
*10.12 Amended and Restated Employment Agreement between Craig Malone and the Company, effective as of March 1, 2019,
filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, is
incorporated herein by reference.
*10.13 Employment Agreement between Constantine Milcos and the Company, effective as of November 1, 2019, filed as Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, is incorporated herein by
reference.
10.17 Asset Purchase Agreement, dated June 9, 2017, among the Company, the sellers party thereto and inthinc Investors, L.P., in
its capacity as stockholder representative, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on June
12, 2017, is incorporated herein by reference.
10.18
10.19
10.20
Senior Secured Revolving Credit Agreement, dated as of December 18, 2017, among the Company, the guarantors party
thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 22, 2017, is incorporated herein by
reference.
Security Agreement, dated as of December 18, 2017, among the Company, the subsidiaries party thereto and JPMorgan
Chase Bank, N.A., as collateral agent, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on
December 22, 2017, is incorporated herein by reference.
First Lien Intercreditor Agreement, dated as of December 18, 2017, among the Company, the other grantors party thereto,
and U.S. Bank National Association, as the notes collateral agent and trustee for the indenture secured parties, filed as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 22, 2017, is incorporated herein by
reference.
21
Subsidiaries of the Company.
64
Exhibit
No.
Description
23.1
Consent of Grant Thornton LLP, an independent registered public accounting firm.
24
31.1
31.2
32
Power of Attorney authorizing certain persons to sign this Annual Report on behalf of certain directors and executive
officers of the Company.
Certification of the Chief Executive Officer and President required by Rule 13a-14(a).
Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a).
Certification of the Chief Executive Officer and President and Executive Vice President and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act.
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.
Management contract or compensatory plan or arrangement.
Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been
separately filed with the SEC.
Item 16. Form 10-K Summary
None.
65
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ORBCOMM Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Rochelle Park, State of New
Jersey, on February 28, 2020.
SIGNATURES
ORBCOMM Inc.
By:
/s/ Marc J. Eisenberg
Marc J. Eisenberg
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on February 28, 2020 by the
following persons in the capacities indicated:
Signature
/s/ Marc J. Eisenberg
Marc J. Eisenberg
/s/ Jerome B. Eisenberg*
Jerome B. Eisenberg
/s/ Marco Fuchs*
Marco Fuchs
/s/ Timothy Kelleher*
Timothy Kelleher
/s/ John Major*
John Major
/s/ Karen Gould*
Karen Gould
/s/ Denise Gibson*
Denise Gibson
/s/ Constantine Milcos
Constantine Milcos
Title
Chief Executive Officer and President and Director
(principal executive officer)
Chairman of the Board
Director
Director
Director
Director
Director
Executive Vice President and Chief Financial Officer
(principal financial officer and principal accounting officer)
*By:
/s/ Christian G. Le Brun
Christian G. Le Brun, Attorney-in-Fact**
**
By authority of the Power of Attorney filed as Exhibit 24 hereto.
66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (Grant Thornton LLP) ........................................................................
Consolidated Balance Sheets as of December 31, 2019 and 2018 ...................................................................................................
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 ..................................................
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2019, 2018 and 2017...................
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 .................................................
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017 .....................................
Page
F-2
F-4
F-5
F-6
F-7
F-9
Notes to Consolidated Financial Statements.....................................................................................................................................
F-10
Schedule II — Valuation and Qualifying Accounts .........................................................................................................................
F-38
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ORBCOMM Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of ORBCOMM Inc. (a Delaware corporation) and subsidiaries
(the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income,
changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related
notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019
and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”), and our report dated February 28, 2020 expressed an unqualified opinion.
Changes in accounting principles
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in
fiscal year 2019 due to the adoption of the Accounting Standards Codification Topic 842, Leases.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Determination of capitalized development costs
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company capitalizes certain internal costs related to
the design, development and enhancement of the Company’s products and services as well as internal-use software. The Company
capitalized $14 million of internal development costs during the year ended December 31, 2019. We identified that capitalization of
software development internal costs to be a critical audit matter.
The principal consideration for our determination that capitalized internal cost of software development is a critical audit matter
is the degree of subjectivity involved in assessing which projects met the capitalization criteria, based on the development stage of the
project and the costs being capitalized.
F-2
Our audit procedures related to the capitalization of software development internal costs included the following, among others.
We tested the design and operating effectiveness of internal controls over the Company’s process to capitalize internal costs of
software development, including controls to evaluate the nature of the costs incurred and assessing the development stage to determine
which development projects met the capitalization criteria. We evaluated the Company’s current year project capitalization
conclusions based on an understanding of a sample of development projects and the associated software development activities, by
working with relevant project management. We also assessed the reliability of the Company’s conclusions through confirmations
with a sample of individual developers regarding the nature of their development activities. We tested the underlying support for
capitalized amounts by agreeing a sample of such amounts to supporting documentation.
We have served as the Company’s auditor since 2015.
/s/ GRANT THORNTON LLP
New York, New York
February 28, 2020
F-3
ORBCOMM Inc.
Consolidated Balance Sheets
(in thousands, except par value and share data)
Current assets:
ASSETS
Cash and cash equivalents ................................................................................................
Accounts receivable, net of allowances for doubtful accounts of $4,480 and $4,072,
respectively ....................................................................................................................
Inventories ........................................................................................................................
Prepaid expenses and other current assets ........................................................................
Total current assets ................................................................................................
Satellite network and other equipment, net ............................................................................
Goodwill.................................................................................................................................
Intangible assets, net ..............................................................................................................
Other assets ............................................................................................................................
Deferred income taxes............................................................................................................
Total assets .......................................................................................................
Current liabilities:
LIABILITIES AND EQUITY
Accounts payable..............................................................................................................
Accrued liabilities .............................................................................................................
Current portion of deferred revenue .................................................................................
Total current liabilities ................................................................................................
Note payable — related party.................................................................................................
Notes payable, net of unamortized deferred issuance costs ...................................................
Deferred revenue, net of current portion ................................................................................
Deferred tax liabilities ............................................................................................................
Other liabilities .......................................................................................................................
Total liabilities..................................................................................................
Commitments and contingencies
Equity:
ORBCOMM Inc. stockholders’ equity
December 31,
2019
2018
$
54,258
$
53,766
$
$
60,595
39,881
18,003
172,737
145,553
166,129
73,280
23,149
132
580,980
16,722
36,951
3,865
57,538
1,275
246,683
6,771
14,894
16,303
343,464
$
$
57,665
34,300
15,553
161,284
160,070
166,129
86,264
12,603
109
586,459
15,527
35,735
5,954
57,216
1,298
245,907
5,471
16,109
2,600
328,601
Series A Convertible Preferred Stock, par value $0.001; 1,000,000 shares authorized;
40,624 and 39,442 shares issued and outstanding at December 31, 2019 and
December 31, 2018, respectively...................................................................................
Common stock, par value $0.001; 250,000,000 shares authorized; 78,062,451
and 79,008,243 shares issued at December 31, 2019 and December 31, 2018,
respectively ....................................................................................................................
Additional paid-in capital .................................................................................................
Accumulated other comprehensive loss ...........................................................................
Accumulated deficit..........................................................................................................
Less treasury stock, at cost; 29,990 shares at December 31, 2018 ...................................
Total ORBCOMM Inc. stockholders’ equity ........................................................
Noncontrolling interests....................................................................................................
Total equity.......................................................................................................
Total liabilities and equity .............................................................................
$
406
394
78
447,681
(1,013)
(210,942)
—
236,210
1,306
237,516
580,980
$
79
449,343
(381)
(192,507)
(96)
256,832
1,026
257,858
586,459
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-4
ORBCOMM Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Revenues:
Service revenues........................................................................................... $
Product sales.................................................................................................
Total revenues .........................................................................................
$
160,594
111,419
272,013
$
153,589
122,551
276,140
134,938
119,282
254,220
2019
Year Ended December 31,
2018
2017
Cost of revenues, exclusive of depreciation and amortization shown
below:
Cost of services ............................................................................................
Cost of product sales ....................................................................................
Operating expenses:
Selling, general and administrative ..............................................................
Product development ....................................................................................
Impairment charges - satellite network ........................................................
Depreciation and amortization .....................................................................
Acquisition-related and integration costs .....................................................
Income (loss) from operations
Other (expense) income:
Interest income .............................................................................................
Other income (expense)................................................................................
Interest expense ............................................................................................
Loss on debt extinguishment ........................................................................
Total other expense .................................................................................
Loss before income taxes .................................................................................
Income taxes .....................................................................................................
Net loss ..............................................................................................................
Less: Net income attributable to the noncontrolling interests ......................
Net loss attributable to ORBCOMM Inc....................................................... $
Net loss attributable to ORBCOMM Inc. common
stockholders ................................................................................................... $
Per share information-basic:
52,264
78,377
69,590
14,720
—
50,702
788
5,572
1,957
(129)
(21,149)
—
(19,321)
(13,749)
4,383
(18,132)
291
(18,423) $
53,184
93,444
66,988
13,405
—
49,684
1,624
(2,189)
1,918
45
(21,055)
—
(19,092)
(21,281)
4,658
(25,939)
305
(26,244) $
50,548
99,640
55,753
8,941
31,224
45,681
3,315
(40,882)
959
(160)
(17,653)
(3,868)
(20,722)
(61,604)
(409)
(61,195)
89
(61,284)
(18,435) $
(26,262) $
(61,296)
Net loss attributable to ORBCOMM Inc. common stockholders ................ $
(0.23) $
(0.34) $
(0.84)
Per share information-diluted:
Net loss attributable to ORBCOMM Inc. common stockholders ................ $
(0.23) $
(0.34) $
(0.84)
Weighted average common shares outstanding:
Basic .............................................................................................................
Diluted ..........................................................................................................
79,259
79,259
77,603
77,603
72,882
72,882
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-5
ORBCOMM Inc.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
Net loss .............................................................................................................. $
Other comprehensive (loss) income — Foreign currency translation
adjustments .....................................................................................................
Other comprehensive (loss) income................................................................
Comprehensive loss..........................................................................................
Less comprehensive income attributable to noncontrolling interests ..........
Comprehensive loss attributable to ORBCOMM Inc. ................................. $
2019
Year Ended December 31,
2018
2017
(18,132) $
(25,939) $
(61,195)
(643)
(643)
(18,775)
(280)
(19,055) $
(649)
(649)
(26,588)
(293)
(26,881) $
1,342
1,342
(59,853)
(86)
(59,939)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-6
ORBCOMM Inc.
Consolidated Statements of Cash Flows
(in thousands)
2019
Year Ended December 31,
2018
2017
(18,132) $
(25,939) $
(61,195)
3,426
49,684
—
(8,035)
776
7,910
59
(1,491)
—
(14,040)
8,277
3,994
(14,876)
2,708
(999)
11,454
—
(22,198)
650
(21,548)
85
45,681
31,224
(1,002)
3,106
5,673
299
(2,047)
—
(10,025)
(16,922)
(10,474)
12,168
(1,653)
41
(5,041)
(67,911)
(27,360)
(650)
(95,921)
Cash flows from operating activities:
Net loss ......................................................................................................... $
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Change in allowance for doubtful accounts............................................
Depreciation and amortization ................................................................
Impairment loss – satellite network ........................................................
Change in the fair values of acquisition-related contingent
consideration ........................................................................................
Amortization and write-off of deferred debt fees ...................................
Stock-based compensation......................................................................
Foreign exchange (gain) loss ..................................................................
Deferred income taxes ............................................................................
Other .......................................................................................................
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ................................................................................
Inventories...............................................................................................
Prepaid expenses and other assets...........................................................
Accounts payable and accrued liabilities ................................................
Deferred revenue.....................................................................................
Other liabilities........................................................................................
Net cash provided by (used in) operating activities................................
2,008
50,702
—
(2,063)
776
6,180
(143)
(1,213)
2,240
(5,156)
(5,607)
2,432
1,093
(783)
(2,250)
30,084
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired ...........................................
Capital expenditures .....................................................................................
Other .............................................................................................................
Net cash used in investing activities .......................................................
—
(21,067)
—
(21,067)
F-7
ORBCOMM Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from financing activities:
Proceeds from issuance of common stock ...................................................
Proceeds from issuance of long-term debt ...................................................
Payment under revolving credit facility .......................................................
Proceeds from revolving credit facility ........................................................
Cash paid for debt issuance costs .................................................................
Proceeds from employee stock purchase plan..............................................
Purchases of common stock under share repurchase program.....................
Principal payment of long-term debt............................................................
Payment of deferred purchase consideration................................................
Net cash (used in) provided by financing activities................................
Effect of exchange rate changes on cash and cash equivalents....................
Net increase in cash and cash equivalents .....................................................
Cash and cash equivalents:
2019
Year Ended December 31,
2018
2017
—
—
—
—
—
1,076
(9,444)
—
—
(8,368)
(157)
492
27,967
—
(14,000)
14,000
—
1,194
—
—
—
29,161
(131)
18,936
15,000
250,000
—
—
(5,359)
1,001
—
(150,000)
(347)
110,295
474
9,807
Beginning of year .........................................................................................
End of year ................................................................................................... $
53,766
54,258
$
34,830
53,766
$
25,023
34,830
Supplemental disclosures of cash flow information:
Cash paid for:
Interest .......................................................................................................... $
Income taxes................................................................................................. $
20,000
4,810
$
$
20,036
5,532
$
$
12,911
805
Supplemental cash flow disclosures (See Note 17)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-8
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-
F
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Note 1. Organization and Business
ORBCOMM Inc. (“ORBCOMM” or the “Company”), a Delaware corporation, is a global provider of industrial Internet of
Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. The
Company’s industrial IoT products and services are designed to track, monitor, control and enhance security for a variety of assets,
such as trailers, trucks, rail cars, sea containers, power generators, fluid tanks, marine vessels, diesel or electric powered generators
(“gensets”), oil and gas wells, pipeline monitoring equipment, irrigation control systems and utility meters, in the transportation and
supply chain, heavy equipment, fixed asset monitoring and maritime industries, as well as for governments. Additionally, the
Company provides satellite Automatic Identification Service (“AIS”) data services to assist in vessel navigation and to improve
maritime safety for government and commercial customers worldwide. Through two acquisitions in 2017, the Company added vehicle
fleet management, as well as in-cab and vehicle fleet solutions to its transportation solution portfolio. The Company provides its
services using multiple network platforms, including its own constellation of low-Earth orbit (“LEO”) satellites and accompanying
ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major
cellular (Tier One) wireless providers. The Company also offers customer solutions utilizing additional satellite network service
options that the Company obtains through service agreements entered into with multiple mobile satellite providers. The Company’s
satellite-based customer solution offerings use small, low-power, mobile satellite subscriber communicators for remote asset
connectivity, and the Company’s terrestrial-based solutions utilize cellular data modems with subscriber identity modules (“SIMs”).
The Company also resells service using the two-way Inmarsat plc satellite network to provide higher bandwidth, low-latency satellite
products and services, leveraging the Company’s IsatDataPro technology. The Company’s customer solutions provide access to data
gathered over these systems via connections to other public or private networks, including the Internet. The Company is dedicated to
providing what it believes are the most versatile, leading-edge industrial IoT solutions in its markets to enable its customers to run
their businesses more efficiently.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”). In the opinion of management, the financial statements as of December 31, 2019 and 2018 and for
the years ended December 31, 2019, 2018 and 2017 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 accompanying consolidated 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 consolidated balance sheets.
Investments
Investments in entities over which the Company has the ability to exercise significant influence but does not have a controlling
interest are accounted for under the equity method of accounting. The Company considers several factors in determining whether it
has the ability to exercise significant influence with respect to investments, including, but not limited to, its direct and indirect
ownership level in the voting securities, active participation on the board of directors, approval of operating and budgeting decisions
and other participatory and protective rights. Under the equity method, the Company’s proportionate share of the net income or loss of
such investees is reflected in the Company’s consolidated results of operations. When the Company does not exercise significant
influence over the investee, the investment is accounted for under the cost method.
Although the Company owns interests in companies that it accounts for pursuant to the equity method, the investments in those
entities had no carrying value as of December 31, 2019 and 2018. The Company has no guarantees or other funding obligations to
those entities, and the Company had no equity in the earnings or losses of those investees for the years ended December 31, 2019,
2018 and 2017.
F-10
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses at the
date of the consolidated financial statements and during the reporting periods, and to disclose contingent assets and liabilities at the
date of the consolidated financial statements. Actual results could differ from those estimates. The most significant estimates relate to
recognition of revenue, allowances over accounts receivable, reserves over inventory balances, the recognition and measurement of
assets acquired and liabilities assumed in business combinations at fair value, assessment of indicators of goodwill impairment,
determination of useful lives of the Company’s satellite network and other equipment and intangible assets, the assessment of
expected cash flows used in evaluating long-lived assets, including intangible assets, for impairment, the calculation of capitalized
development costs, the assessment of the Company’s incremental borrowing rate used to determine its right-of-use asset and lease
liability, accounting for uncertainties in income tax positions, estimates associated with warranty costs and loss contingencies,
estimates related to the recognition and subsequent valuation of contingent considerations and the value of securities underlying stock-
based compensation.
Business combinations
The Company accounts for business combinations pursuant to Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 805 “Business Combinations,” which requires that assets acquired and liabilities assumed be
recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying
net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair
values of the net assets acquired is allocated to goodwill. The purchase price allocation process requires the Company to make
significant assumptions and estimates in determining the purchase price and the fair value of assets acquired and liabilities assumed at
the acquisition date. The Company’s assumptions and estimates are subject to refinement and, as a result, during the measurement
period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities
assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period, any subsequent adjustments are
recorded to the Company’s consolidated statements of operations. The Company’s consolidated financial statements and results of
operations reflect an acquired business after the completion of the acquisition.
Contingent consideration
The Company determines the acquisition date fair value of contingent consideration obligations based on a probability-weighted
income approach derived from milestone estimates and a probability assessment with respect to the likelihood of achieving
performance metrics. The fair value measurement is based on significant inputs not observable in the market and thus represents a
Level 3 measurement as defined in FASB ASC Topic 820 “Fair Value Measurement.” At each reporting date, the contingent
consideration obligation is revalued to estimated fair value and any changes in fair value are reflected as income or expense in the
Company’s consolidated statement of operations. Changes in the fair value of the contingent consideration obligations may result from
changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations. Adverse
changes in assumptions utilized in the Company’s contingent consideration fair value estimates could result in an increase in the
Company’s contingent consideration obligation and a corresponding charge to operating income.
Acquisition-related and integration costs
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly
attributable to acquisitions. For the years ended December 31, 2019, 2018 and 2017, the Company incurred acquisition-related and
integration costs of $788, $1,624 and $3,315, respectively. These costs were expensed as incurred and are reflected in acquisition-
related and integration costs on the Company’s consolidated statements of operations.
Revenue recognition
On January 1, 2018, the Company adopted 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.
F-11
The Company derives recurring service revenues primarily from monthly fees for industrial IoT connectivity services that
consist of subscriber-based and recurring monthly usage fees for each subscriber communicator or SIM activated for use on its
satellite network, other satellite networks and cellular wireless networks that the Company resells to its resellers, Market Channel
Partners (“MCPs”) and Market Channel Affiliates (“MCAs”), and direct customers. In addition, the Company earns recurring service
revenues from subscription-based services providing recurring AIS data services to government and commercial customers
worldwide. The Company also earns recurring service revenues from activations of subscriber communicators and SIMs, optional
separately-priced extended warranty service agreements extending beyond the initial warranty period, typically one year, which are
billed to the customer upon shipment of a subscriber communicator, and royalty fees relating to the manufacture of subscriber
communicators under a manufacturing agreement.
Service revenues derived from usage fees are generally based upon the data transmitted by a customer, the overall number of
subscriber communicators and/or SIMs activated by each customer, and whether the Company provides services through its value-
added portal. Using the output method, these service revenues are recognized over time, as services are rendered, or at a point in time,
based on the contract terms. AIS service revenues are generated over time from monthly subscription-based services supplying AIS
data services to government and commercial customers worldwide, using the output method. Revenues from the activation of both
subscriber communicators and SIMs are initially recorded as deferred revenues and are, thereafter, recognized on a ratable basis using
a time-based output method, generally over three years, the estimated life of the subscriber communicator. Revenues from separately-
priced extended warranty service agreements extending beyond the initial warranty period, typically one year, are initially recorded as
deferred revenues and are, thereafter, recognized on a ratable basis using a time-based output method, generally over two to five years.
The Company earns other service revenues from installation services and engineering, technical and management support services.
Revenues generated from installation services are recognized at a point in time when the services are completed. Revenues generated
from engineering, technical and management support services to customers are recognized over time as the service is provided. The
Company also generates other service revenues through the sale of software licenses to its customers, which are recognized at a point
in time when the license is provided to the customer.
Product sales are derived from sales of complete industrial IoT subscriber communicators, including telematics devices,
modems, or cellular wireless SIMs (for the Company’s terrestrial-communication services) to the Company’s resellers (i.e., MCPs and
MCAs) and direct customers. Product sales are recognized at a point in time when title transfers, when the products are shipped, or
when customers accept the products, depending on the specific contractual terms. Sales of subscriber communicators and SIMs are not
subject to return and title and risk of loss pass to the customer generally at the time of shipment.
Amounts received prior to the performance of services under customer contracts are recognized as deferred revenues and
revenue recognition is deferred until such time that all revenue recognition criteria have been met. Deferred revenue as of December
31, 2019 and 2018 consisted of the following:
Service activation fees ................................................................ $
Prepaid services ..........................................................................
Extended warranty revenues.......................................................
Less current portion ....................................................................
Long-term portion....................................................................... $
December 31,
2019
2018
3,007 $
6,423
1,206
10,636
(3,865)
6,771 $
2,813
7,816
796
11,425
(5,954)
5,471
During the years ended December 31, 2019 and 2018, the Company recognized revenue of $5,896 and $5,236, respectively,
which was included as deferred revenue as of December 31, 2018 and 2017.
Shipping costs billed to customers are included in product sales and the related costs are included as cost of product sales on the
Company’s consolidated statements of operations.
The Company generates revenue from leasing arrangements of subscriber communicators, under FASB 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.
F-12
The following table summarizes the components of revenue from contracts with customers, as well as revenue recognized under
ASC 842:
Revenue from contracts with customers:
Year Ended December 31,
2018
2017
2019
Recurring service revenues........................................ $ 155,284 $ 148,367 $ 126,540
Other service revenues...............................................
8,398
134,938
Total service revenues ............................................
112,942
Product sales ..............................................................
247,880
Total revenue from contracts with customers ..............
Product sales recognized under ASC 842 ....................
6,340
Total revenues .............................................................. $ 272,013 $ 276,140 $ 254,220
5,222
153,589
117,018
270,607
5,533
5,310
160,594
105,660
266,254
5,759
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 would 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.
Cost of revenues
The Company operates its own LEO satellite network and accompanying ground equipment, including fifteen gateway earth
stations (“GESs”), three AIS data reception earth stations, and three regional gateway control centers. The Company’s proprietary
satellite-based communications system is typically characterized by high initial capital expenditures and relatively low marginal costs
for providing service. The Company resells network connectivity for two other satellite networks and seven terrestrial network
partners. Reselling network connectivity typically involves a cost for each device connected to the network system and the amount
paid to each provider will vary. Cost of services is comprised of expenses to operate the Company’s network, such as payroll and
related costs, including stock-based compensation, installation costs, and usage fees to third-party networks.
The Company primarily sells industrial IoT telematics devices and modems that the Company designs and builds with contract
manufacturers. 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 of the Company’s employees and inventory management to fulfill customer
orders.
Foreign currency translation
The Company has foreign operations where the functional currency is the local currency. For these operations, assets and
liabilities are translated using the end-of-period exchange rates and revenues, expenses and cash flows are translated using average
rates of exchange for the period. Equity is translated at the rate of exchange at the date of the equity transaction. Translation
adjustments are recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). Foreign
currency transaction gains and losses related to assets and liabilities that are denominated in a currency other than the functional
currency are included in other income (expense) on the consolidated statements of operations. Foreign currency translation gains and
losses related to operational expenses denominated in a currency other than the functional currency are included in selling, general and
administrative (“SG&A”) expenses on the consolidated statements of operations. For the years ended December 31, 2019, 2018 and
2017, the Company recorded a foreign currency translation loss of $84, $76, and $374, respectively.
F-13
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. 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.
The carrying amounts and fair values of the Company’s Senior Secured Notes are shown in the following table:
Senior Secured Notes ........................................ $ 250,000 $ 241,875 $ 250,000 $ 255,000
December 31, 2019
Fair
Value
Carrying
Amount
December 31, 2018
Fair
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Carrying
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The fair value of the note payable-related party, $1,275 book value at December 31, 2019, has a de minimis value.
Cash and cash equivalents
The Company considers all liquid investments with original maturities of three months or less, at the time of purchase, to be
cash equivalents. At December 31, 2019 and 2018, the Company had a cash and cash equivalents balance of $54,258 and $53,766,
respectively.
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 no customers who generated revenues greater than 10% of the Company’s consolidated total revenues for the years
ended December 31, 2019 and 2018. For the year ended December 31, 2017, JB Hunt Transport Services, Inc. comprised 10.8% of the
Company’s consolidated total revenues.
There were no customers who generated accounts receivable greater than 10% of the Company’s consolidated accounts
receivable as of December 31, 2019 and 2018.
The Company is dependent on one vendor, Sanmina Corporation (“Sanmina”), a contract manufacturer with significant
operations in Mexico, for the manufacture of subscriber communicators that the Company designs and sells. For the years ended
December 31, 2019 and 2018, approximately $75,068, or 67.4%, and $73,476, or 60.0%, respectively, of the Company’s product sales
was generated from the sale of the Company’s core products produced by Sanmina.
As of December 31, 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.
F-14
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on a weighted average cost basis. At December 31,
2019 and 2018, inventory, net of inventory obsolescence, consisted primarily of finished goods and purchased parts to be utilized by
its contract manufacturer totaling $33,379 and $27,701, respectively, and raw materials totaling $6,502 and $6,599, respectively. The
Company reviews inventory quantities on hand, evaluates the realizability of inventories and adjusts the carrying value, as necessary,
based on forecasted product demand. A provision, recorded in cost of product sales on the Company’s consolidated statements of
operations, is made for potential losses on slow-moving and obsolete inventories when identified.
Satellite network and other equipment, net
Satellite network and other equipment, net are stated at cost less accumulated depreciation and amortization. Major renewals
and improvements are capitalized, while maintenance and repairs are charged to operations as incurred.
Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of their useful life or their respective lease term. The following table provides
the range of estimated useful lives used for each asset type:
Satellite network ............................................................................
Capitalized software.......................................................................
Computer hardware........................................................................
Other ..............................................................................................
Useful Life
(years)
10
3-7
3
2-7
Satellite network includes costs of the constellation of satellites, and the ground and control facilities, consisting of GESs,
gateway control centers and the network control center.
As of December 31, 2019 and 2018, assets under construction primarily consist of costs associated with acquiring, developing,
enhancing and testing software and hardware for internal and external use that have not yet been placed into service.
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 amounts 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 values exceed the fair values.
The Company’s satellite constellation and related assets are evaluated as a single asset group whenever facts or circumstances
indicate that the carrying values may not be recoverable. If indicators of impairment are identified, recoverability of long-lived assets
is measured by comparing their carrying amounts 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, estimates of fair values 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. The amount of any such loss would be reduced to the extent of insurance proceeds, if any, estimated to be
received. During the year ended December 31, 2017, an impairment loss of $31,224 was recorded to write off the net book value
relating to the Company’s in-orbit OG2 satellites. There was no impairment loss recorded for the years ended December 31, 2019 and
2018. See “Note 6 – Satellite Network and Other Equipment, Net” for additional details relating to the impairment of these satellites.
F-15
Capitalized development costs for internal and external use
The Company capitalizes the costs of acquiring, developing and testing software and hardware to meet the Company’s internal
needs and for products and services that have not yet been placed into service. Capitalization of costs associated with software
obtained or developed for internal use commences when both the preliminary project stage is completed and management has
authorized further funding for the project, based on a determination that it is probable that the project will be completed and used to
perform the function intended. Capitalized costs include only (1) the external direct cost of materials and services consumed in
developing or obtaining internal-use software, (2) payroll and payroll-related costs for employees who are directly associated with,
and devote time to, a qualifying project, and (3) certain external software development costs upon the establishment of technological
feasibility. Technological feasibility is considered to have occurred upon completion of either a detailed program design or a working
model. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its
intended use. Internal-use software costs are amortized once the software is placed in service using the straight-line method over
periods ranging from three to seven years. Product and service development costs are amortized over the estimated life of the product
once it has been released for commercial sale.
Capitalized patent defense costs
The Company capitalizes costs incurred in connection with the defense of a patent the Company owns when the defense against
the alleged infringer is deemed probable of success, and the costs will increase the value of the patent.
Goodwill
Goodwill represents the excess of the purchase price over the underlying net tangible and intangible assets of the Company’s
acquisitions. Goodwill is not amortized, but is tested for impairment on an annual basis and between annual tests whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level,
which is defined as an operating segment or one level below the operating segment. The Company operates in one reportable segment
which is its only reporting unit.
The Company tests for an indication of goodwill impairment annually on November 30 or when an indicator of impairment
exists, by comparing the fair value of the reporting unit to its carrying value. If there is an indication of impairment, the Company
performs a “step two” test to measure the impairment. There was no impairment of goodwill for the years ended December 31, 2019,
2018 and 2017.
Intangible assets
Intangible assets that are not considered to have an indefinite life are amortized over their useful lives. Intangible assets include
patents and technology, customer lists and trademarks. Intangible assets are amortized using the straight-line method over the
estimated useful lives of the assets.
Impairment of long-lived assets
The Company reviews its long-lived assets and amortizable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In connection with this review, the Company also re-evaluates
the periods of depreciation and amortization for these assets. The Company recognizes an impairment loss when the sum of the future
undiscounted net cash flows expected to be realized from the asset is less than its carrying amount. If an asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value,
which is determined using the projected discounted future net cash flows, using the appropriate discount rate.
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 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.
F-16
Income taxes
The Company estimates its income taxes separately for each tax jurisdiction in which it conducts operations. This process
involves estimating actual current tax expense and assessing temporary differences resulting from the different treatment of items
between book and tax which results in deferred tax assets and liabilities. The Company recognizes in income a change in tax rates on
deferred tax assets and liabilities in the period that includes the enactment date. Valuation allowances are established when realization
of deferred tax assets is not considered more likely than not.
The Company recognizes the effect of tax law changes in the period of enactment. Changes in existing tax laws and rates, their
related interpretations, and the uncertainty generated by the current economic environment may affect the amounts of the Company’s
deferred tax liabilities or the valuations of the Company’s deferred tax assets over time. The Company’s accounting for deferred tax
consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates.
In determining whether the realization of deferred tax assets is considered to be more likely than not, the Company assesses the
realizability of the deferred tax assets on a jurisdiction-by-jurisdiction basis. This assessment is dependent upon past operating results
and projected profitability. The weight given to the positive and negative evidence is commensurate with the extent to which the
evidence is objectively verified.
The Company accounts for uncertainty in income tax positions using a two-step approach. The first step is to determine whether
it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The second step is to measure the tax position at the largest amount
of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Loss contingencies
The Company accrues for costs relating to litigation, claims and other contingent matters when such liabilities become probable
and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate.
Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the
final determination of the liability is made.
Pre-acquisition contingencies
The Company has evaluated pre-acquisition contingencies that existed as of the acquisition dates of the businesses acquired. If
any pre-acquisition contingencies acquired as part of an acquisition become probable and estimable, the Company will record such
amounts at fair market value in the measurement period, or the Company’s results of operations after the measurement period, as
applicable.
Stock-based compensation
The Company measures and recognizes stock-based compensation expense for equity-based payment awards made to
employees and directors based on estimated fair values on the date of grant. For equity-based payment awards, the Company
recognizes compensation expense over the service period, net of estimated forfeitures using the straight-line method. For awards with
non-market performance conditions, an evaluation is made at the grant date and future periods as to the likelihood of the performance
criteria being met. Compensation expense is adjusted for changes in the likelihood of achieving the performance condition until the
vesting date. For liability-based awards with market performance conditions, compensation expense is revalued at the end of each
quarter based on the awards’ fair value using the graded vesting attribution method over the vesting period.
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 ASU 2016-02
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.
Adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $10,892 and $13,825,
respectively, as of January 1, 2019. Refer to “Note 15 – Leases” for more information.
F-17
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.
Note 3. Acquisitions
2017 Business Development
Blue Tree Systems Limited
On October 2, 2017, pursuant to a Share Purchase Agreement entered into by ORBCOMM Technology Ireland Limited, a
wholly-owned subsidiary of the Company, and Blue Tree Systems Investment Limited, Investec Ventures Ireland Limited and certain
individual sellers (collectively, the “Sellers”), the Company completed the acquisition of 100% of the outstanding shares of Blue Tree
Systems Limited, for an aggregate consideration of (i) $34,331 in cash; (ii) issuance of 191,022 shares of the Company’s common
stock, valued at $10.47 per share, which reflected the Company’s common stock closing price one business day prior to the closing
date; and (iii) additional consideration up to $5,750 based on Blue Tree Systems Limited achieving certain operational objections (the
“Blue Tree Acquisition”).
Purchase Price Allocation
The Blue Tree Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets
acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date (the
“Acquisition Method”). The excess of the preliminary purchase price over the preliminary net assets was recorded as goodwill. The
preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to
change during the one-year measurement period. The total consideration for the Blue Tree Acquisition was $37,107, of which $776
represents acquisition date contingent consideration at fair value, in a debt-free, cash-free transaction. During the year ended
December 31, 2018, the Company recorded a measurement period adjustment related to certain working capital accounts, resulting in
a decrease in goodwill of $393. The purchase price allocation for the acquisition is as follows:
Cash ............................................................................................... $
Accounts receivable.......................................................................
Inventories .....................................................................................
Prepaid expenses and other current assets.....................................
Property, plant and equipment.......................................................
Intangible assets.............................................................................
Total identifiable assets acquired ..................................................
Accounts payable...........................................................................
Accrued expenses ..........................................................................
Deferred tax liability......................................................................
Total liabilities assumed ................................................................
Net identifiable assets acquired .....................................................
Goodwill ........................................................................................
Total purchase price ...................................................................... $
Amount
656
2,335
1,395
992
72
12,020
17,470
4,124
778
1,503
6,405
11,065
26,042
37,107
F-18
Intangible Assets
The estimated fair value of the technology and trademark intangible assets was determined using the “relief from royalty
method” under the income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on the
costs savings that are available through ownership of the asset by the avoidance of paying royalties to license the use of the assets
from another owner (the “Technology and Trademark Valuation Technique”). The estimated fair value of the customer lists was
determined using the “excess earnings method” under the income approach, which represents the total income to be generated by the
asset (the “Customer List Valuation Technique”). Some of the more significant assumptions inherent in the development of those asset
valuations include the projected revenue associated with the asset, the appropriate discount rate to select in order to measure the risk
inherent in each future cash flow stream, the assessment of each asset’s life cycle, as well as other factors. The discount rate used to
arrive at the present value of the customer lists and technology at the acquisition date was 26.5%. The remaining useful lives of the
technology and trademarks were based on historical product development cycles, the projected rate of technology migration and a
market participant’s use of these intangible assets and the pattern of projected economic benefit of these intangible assets. The
remaining useful lives of customer lists were based on the customer attrition and the projected economic benefit of these customers.
Customer lists................................................................
Technology....................................................................
Trade name....................................................................
Estimated
Useful Life
(years)
10
10
1
Amount
$
9,200
2,700
120
12,020
$
Goodwill
The Blue Tree Acquisition solidified the Company’s transportation offering of fleet management and driver safety solutions to
enterprises and industrial companies around the world that operate large commercial vehicle fleets. These factors contributed to a
preliminary estimated purchase price resulting in the recognition of goodwill. The goodwill attributable to the Blue Tree Acquisition is
not deductible for tax purposes.
Indemnification Asset
In connection with the Share Purchase Agreement, the Company entered into an escrow agreement with the Sellers and an
escrow agent. Under the terms of this escrow agreement, $3,675 was placed in an escrow account through April 2019 to fund any
indemnification obligations to the Company under the Share Purchase Agreement. Under the terms of the escrow agreement, as of any
release date for any portion of the escrow account amount, the value of any then submitted and unresolved indemnification claims will
be retained in the escrow account until such time as the applicable claims are resolved.
Contingent Consideration
Additional consideration was conditionally due to the Sellers upon achievement of certain financial milestones through
December 2018. The fair value measurement of the contingent consideration obligation is determined using Level 3 unobservable
inputs supported by little or no market activity based on the Company’s own assumptions. The estimated fair value of the contingent
consideration was determined based on the Company’s preliminary estimates using the probability-weighted discounted cash flow
approach. The financial milestone for this contingent consideration has not been met, and therefore, the Company recorded a reduction
of the contingent liability of $776 in SG&A expenses on the consolidated statement of operations for the year ended December 31,
2018.
inthinc Technology Solutions, Inc.
On June 9, 2017, pursuant to the asset purchase agreement (the “Asset Purchase Agreement”) entered into by the Company and
inthinc, Inc., inthinc Technology Solutions, Inc., tiwi, Inc., inthinc Telematics, Inc., DriveAware, Inc., inthinc Chile, SP and inthinc
Investors, L.P. (collectively, “Inthinc”), the Company completed the acquisition of Inthinc for an aggregate consideration of
(i) $34,236 in cash on a debt-free, cash-free basis; (ii) issuance of 76,796 shares of the Company’s common stock, valued at $9.95 per
share, which reflected a 20-trading day average price of the Company’s stock ending June 8, 2017; and (iii) additional contingent
consideration of up to $25,000, subject to certain operational milestones, payable in stock or a combination of cash and stock at the
Company’s election (the “Inthinc Acquisition”).
F-19
Purchase Price Allocation
The Inthinc Acquisition has been accounted for using the Acquisition Method. The excess of the purchase price over the
preliminary net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary
valuation and the estimates and assumptions are subject to change during the one-year measurement period. During the year ended
December 31, 2018, the Company recorded a measurement period adjustment related to certain working capital accounts, resulting in
a decrease in goodwill of $156. The total consideration for the Inthinc Acquisition was $44,835, of which $9,835 represents
acquisition date contingent consideration at fair value, in a debt-free, cash-free transaction. The purchase price allocation for the
acquisition is as follows:
Accounts receivable....................................................................... $
Inventories .....................................................................................
Prepaid expenses and other current assets.....................................
Property, plant and equipment.......................................................
Lease receivable ............................................................................
Intangible assets.............................................................................
Total identifiable assets acquired ..................................................
Accounts payable...........................................................................
Accrued expenses ..........................................................................
Other current and non-current liabilities .......................................
Total liabilities assumed ................................................................
Net identifiable assets acquired .....................................................
Goodwill ........................................................................................
Total purchase price ...................................................................... $
Amount
2,652
906
112
258
5,067
16,000
24,995
4,613
275
1,326
6,214
18,781
26,054
44,835
Intangible Assets
The estimated fair value of the technology intangible assets was determined using the “relief from royalty method” under the
income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on the costs savings that
are available through ownership of the asset by the avoidance of paying royalties to license the use of the assets from another owner.
The estimated fair value of the customer lists was determined using the Customer List Valuation Technique. Some of the more
significant assumptions inherent in the development of those asset valuations include the projected revenue associated with the assets,
the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each
asset’s life cycle, as well as other factors. The discount rate used to arrive at the acquisition date present value of the customer lists and
technology was 12%. The remaining useful lives of the technology were based on historical product development cycles, the projected
rate of technology migration and a market participant’s use of these intangible assets and the pattern of projected economic benefit of
these intangible assets. The remaining useful lives of the customer lists were based on the customer attrition and projected economic
benefit of these customers.
Customer lists................................................................
Technology....................................................................
Estimated
Useful Life
(years)
15
10
Amount
$
12,400
3,600
16,000
$
Goodwill
The Inthinc Acquisition allows the Company to offer fleet management and driver safety solutions to enterprises and industrial
companies around the world that operate large commercial vehicle fleets. These factors contributed to a preliminary estimated
purchase price resulting in the recognition of goodwill. The goodwill attributable to the Inthinc Acquisition is deductible for tax
purposes.
F-20
Indemnification Asset
In connection with the Asset Purchase Agreement, the Company entered into an escrow agreement with Inthinc and an escrow
agent. Under the terms of this escrow agreement, $1,000 was placed in an escrow account through September 9, 2019 to fund any
working capital and indemnification obligations to the Company under the Asset Purchase Agreement. Under the terms of the escrow
agreement, as of any release date for any portion of the escrow account amount, the value of any then submitted and unresolved
indemnification claims would be retained in the escrow account until such time as the applicable claims are resolved. In the year
ended December 31, 2018, the Company received $1,000 from the escrow account to partially fund the working capital adjustment
payment and indemnification obligations due to the Company and recorded a credit to SG&A expenses. In addition, the 76,796 shares
of ORBCOMM common stock issued as part of the purchase price for Inthinc have been cancelled by the Company in partial payment
of the working capital adjustment due to the Company, and the Company recorded a credit in the amount of $526 to SG&A expenses
in the quarter ended December 31, 2019 to reflect this cancellation.
Acquired Customer Product Obligation
As a result of the Inthinc Acquisition, the Company acquired customer product obligations on Inthinc’s product sales. The
Company’s analysis of the customer product obligation is estimated based on Inthinc’s historical costs to replace or fix products for
customers, as well as installation costs associated with these obligations. On June 9, 2017, the Company had estimated additional
product obligations of $1,032 relating to customer product obligations it was investigating associated with the Inthinc Acquisition as a
result of undisclosed commitments made by Inthinc prior to the Company’s acquisition of Inthinc. As of December 31, 2019, the
Company had no remaining liability on the consolidated balance sheet in connection with this acquired product liability obligation.
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
December 31, 2019 and 2018, the Company recorded $0 and $2,063, respectively, in accrued liabilities on the consolidated balance
sheets in connection with the contingent consideration. All four financial milestones for this additional consideration were not met.
Therefore, the Company recorded a reduction of the contingent liability of $2,063, $7,250 and $795 in SG&A expenses on the
consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017, respectively.
Note 4. Stock-Based Compensation
On April 20, 2016, the stockholders of the Company approved the ORBCOMM Inc. 2016 Long-Term Incentives Plan (the
“2016 LTIP”). The 2016 LTIP replaces the Company’s 2006 Long-Term Incentive Plan (the “2006 LTIP”). The number of shares
authorized for delivery under the 2016 LTIP is 6,949,400 shares, including 1,949,400 shares that remained available under the 2006
LTIP as of February 17, 2016, plus any shares previously subject to awards under the 2006 LTIP that are cancelled, forfeited or lapse
unexercised after that date. As of December 31, 2019, there were 1,433,931 shares available for grant under the 2016 LTIP.
For the years ended December 31, 2019, 2018 and 2017, the Company recognized stock-based compensation expense of $6,180,
$7,910, and $5,673, respectively. For the years ended December 31, 2019, 2018 and 2017, the Company capitalized stock-based
compensation of $650, $503, and $453, respectively. The Company has not recognized, and currently does not expect to recognize in
the foreseeable future, any tax benefit related to stock-based compensation as a result of the full valuation allowance on its net
deferred tax assets and its net operating loss carryforwards generated in the U.S.
The following table summarizes the components of stock-based compensation expense in the consolidated statements of
operations for the years ended December 31, 2019, 2018 and 2017:
Cost of services ......................................................................... $
Cost of product sales .................................................................
Selling, general and administrative ...........................................
Product development.................................................................
Total .......................................................................................... $
471 $
126
4,637
946
6,180 $
666 $
162
6,065
1,017
7,910 $
525
78
4,706
364
5,673
Year Ended December 31,
2018
2017
2019
F-21
As of December 31, 2019, the Company had unrecognized compensation costs for all share-based payment arrangements
totaling $6,847.
Time-Based Stock Appreciation Rights
A summary of the Company’s time-based stock appreciation rights (“SARs”) for the year ended December 31, 2019 is as
follows:
Number of
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2019 ............................................... 2,199,094 $
—
Granted ....................................................................................
(73,800)
Exercised .................................................................................
Forfeited or expired .................................................................
—
Outstanding at December 31, 2019 ......................................... 2,125,294 $
Exercisable at December 31, 2019 .......................................... 2,095,294 $
Vested and expected to vest at December 31, 2019 ................ 2,125,294 $
5.36
—
2.76
—
5.35
5.43
5.35
2.76 $
2.70 $
2.76 $
1,432
1,477
1,432
For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based compensation expense of $146,
$187 and $589 related to these time-based SARs, respectively. As of December 31, 2019, there was no unrecognized compensation
cost related to the SARs expected to be recognized.
The weighted-average grant date fair value of the time-based SARs granted in 2017 was $4.85 per share. There were no time-
based SARs granted during the years ended December 31, 2019 and 2018.
The intrinsic value of the time-based SARs exercised during the year ended December 31, 2019 was $129.
Performance-Based Stock Appreciation Rights
A summary of the Company’s performance-based SARs for the year ended December 31, 2019 is as follows:
Outstanding at January 1, 2019 ...............................................
Granted ....................................................................................
Exercised .................................................................................
Forfeited or expired .................................................................
Outstanding at December 31, 2019 .........................................
Exercisable at December 31, 2019 ..........................................
Vested and expected to vest at December 31, 2019 ................
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
6.02
—
—
—
6.01
6.01
6.01
3.62 $
3.62 $
3.62 $
202
202
202
Number of
Shares
233,496 $
—
—
—
233,496 $
233,496 $
233,496 $
For the years ended December 31, 2019, 2018 and 2017, the Company did not record stock-based compensation expense related
to performance-based SARs. As of December 31, 2019, there was no unrecognized compensation cost related to these SARs expected
to be recognized.
There were no performance-based SARs granted during the years ended December 31, 2019, 2018 and 2017.
The intrinsic value of the performance-based SARs exercised during the year ended December 31, 2019 was $0.
F-22
The fair value of each time-based and performance-based SAR award is estimated on the date of grant using the Black-Scholes
option pricing model with the assumptions described below. For the period indicated, the expected volatility was based on the
Company’s historical volatility over the expected terms of the SAR awards. Estimated forfeitures were based on voluntary and
involuntary termination behavior, as well as an analysis of actual forfeitures. The risk-free interest rate was based on the U.S. Treasury
yield curve at the time of the grant over the expected term of the SAR grants. The Company did not grant time-based or performance-
based SARs during the years ended December 31, 2019 and 2018.
Risk-free interest rate ..............................................
Expected life (years)................................................
Estimated volatility factor .......................................
Expected dividends..................................................
2019
None
None
None
None
Year Ended December 31,
2018
None
None
None
None
2017
2.10%
6.0
59.85%
None
Time-Based Restricted Stock Units
A summary of the Company’s time-based restricted stock units (“RSUs”) for the year ended December 31, 2019 is as follows:
Shares
920,024 $
Balance at January 1, 2019 .........................................................
867,195
Granted........................................................................................
(475,384)
Vested..........................................................................................
Forfeited or expired.....................................................................
(46,401)
Balance at December 31, 2019 ................................................... 1,265,434 $
Weighted-
Average
Grant Date
Fair Value
9.60
4.51
9.87
8.85
6.16
For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based compensation expense related to
the time-based RSUs of $3,972, $4,627 and $3,084, respectively. As of December 31, 2019, $3,849 of total unrecognized
compensation cost related to these RSUs is expected to be recognized through September 2022.
Performance-Based Restricted Stock Units
A summary of the Company’s performance-based RSUs for the year ended December 31, 2019 is as follows:
Shares
613,605 $
Balance at January 1, 2019 .........................................................
748,792
Granted........................................................................................
(262,685)
Vested..........................................................................................
Forfeited or expired.....................................................................
(31,903)
Balance at December 31, 2019 ................................................... 1,067,809 $
Weighted-
Average
Grant Date
Fair Value
9.44
3.99
9.90
9.44
6.28
For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based compensation expense of
$1,769, $2,478 and $955 related to the performance-based RSUs, respectively. As of December 31, 2019, $2,998 of total
unrecognized compensation cost related to these RSUs is expected to be recognized through March 2021.
The fair values 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.
F-23
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 15% of each of the senior executive’s base salaries in the year of the
grant depending on the Company’s stock price performance target for that year. The value of the MPUs can be paid in either cash,
common stock or a combination of cash and common stock, at the Company’s discretion. The MPUs are classified as a liability on the
consolidated balance sheets and are revalued at the end of each reporting period based on the awards’ fair value over a three-year
period.
As of December 31, 2019, the Compensation Committee determined that the fiscal year 2019 stock price performance targets
were not achieved for the 2019, 2018 and 2017 MPUs with respect to the 2019 performance year.
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
values of the MPUs using a Monte Carlo simulation model that used the following assumptions:
2019
Year Ended December 31,
2018
2017
Risk-free interest rate ...................................... 1.59% to 1.62% 2.46% to 2.63% 1.76% to 1.98%
Estimated volatility factor ............................... 40.0% to 55.0% 29.0% to 32.0% 27.0% to 31.0%
Expected dividends .........................................
None
None
None
For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based compensation expense related to
these MPUs of $9, $346 and $862, respectively.
As of December 31, 2019, the Company recorded $0 and $28 in accrued liabilities and other non-current liabilities related to the
MPUs, respectively, on the consolidated balance sheet. As of December 31, 2018, the Company recorded $527 and $131 in accrued
liabilities and other non-current liabilities related to the MPUs, respectively, on the consolidated balance sheet.
In January 2019, the Company issued 60,885 shares of common stock as payment in connection with MPUs for achieving the
fiscal year 2018, 2017 and 2016 MPU awards’ stock performance targets with respect to the 2018 performance year.
In January 2018, the Company issued 81,277 shares of common stock as payment in connection with MPUs for achieving the
fiscal year 2017, 2016 and 2015 MPU awards’ stock performance targets with respect to the 2017 performance year.
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, 5,000,000 shares of
the Company’s common stock are available for issuance and eligible employees may have up to 10% of their gross pay deducted from
their payroll, up to a maximum of $25 per year, to purchase shares of ORBCOMM common stock at a discount of up to 15% of its fair
market value, subject to certain conditions and limitations. Purchases of shares of ORBCOMM common stock under the ESPP are
made twice a year at six month intervals. For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based
compensation expense of $284, $272 and $183, respectively, related to the ESPP. For the year ended December 31, 2019, 136,729
shares and 113,703 shares of the Company’s common stock were purchased under the ESPP at a price of $3.45 and $5.68 per share,
respectively. For the year ended December 31, 2018, 71,440 shares and 81,525 shares of the Company’s common stock were
purchased under the ESPP at a price of $8.06 and $8.21 per share, respectively.
F-24
Note 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. The following table sets
forth the basic and diluted EPS calculations for the years ended December 31, 2019, 2018 and 2017:
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:
Year Ended December 31,
2018
2017
2019
(18,435) $
(26,262) $
(61,296)
79,259
77,603
72,882
—
79,259
—
77,603
—
72,882
Basic .................................................................................... $
Diluted ................................................................................. $
(0.23) $
(0.23) $
(0.34) $
(0.34) $
(0.84)
(0.84)
The computation of net loss attributable to ORBCOMM Inc. common stockholders for the years ended December 31, 2019,
2018 and 2017 is as follows:
Net loss attributable to ORBCOMM Inc. ................................. $
Preferred stock dividends on Series A convertible preferred
stock .......................................................................................
Net loss attributable to ORBCOMM Inc. common
stockholders ........................................................................... $
Years Ended December 31,
2018
(26,244) $
2019
(18,423) $
2017
(61,284)
(12)
(18)
(12)
(18,435) $
(26,262) $
(61,296)
Note 6. Satellite Network and Other Equipment, Net
Satellite network and other equipment, net consisted of the following:
Land ............................................................................................ $
Satellite network .........................................................................
Capitalized software ...................................................................
Computer hardware ....................................................................
Other ...........................................................................................
Assets under construction ...........................................................
Less: accumulated depreciation and amortization......................
$
December 31,
2019
381 $
198,746
83,320
6,528
7,787
13,832
310,594
(165,041)
145,553 $
2018
381
195,886
67,509
5,850
5,610
12,489
287,725
(127,655)
160,070
During the years ended December 31, 2019, 2018 and 2017, the Company capitalized internal costs attributable to the design,
development and enhancement of the Company’s products and services that have not yet been placed into service and internal-use
software in the amounts of $13,945, $12,817 and $12,776, respectively.
Depreciation and amortization expense for the years ended December 31, 2019, 2018 and 2017 was $37,717, $36,609 and
$33,889, respectively, including amortization of internal-use software of $3,117, $3,433 and $6,186 for the years ended December 31,
2019, 2018 and 2017, respectively.
F-25
For the years ended December 31, 2019, 2018 and 2017, 45%, 47% and 61% of depreciation and amortization expense,
respectively, relate to cost of services and 7%, 9% and 8%, respectively, relate to cost of product sales, as these assets support the
Company’s revenue generating activities.
As of December 31, 2019 and 2018, assets under construction primarily consisted of costs associated with acquiring,
developing, enhancing and testing software and hardware for internal and external use that have not yet been placed into service.
One OG2 satellite that was launched in December 2015 experienced a solar array anomaly in July 2016 that resulted in the
satellite entering a safe mode and being taken out of commercial service. This satellite had previously been intermittently providing
AIS service and regularly communicating with the ground infrastructure. In April 2017, communication was lost with this OG2
satellite. The Company’s satellite engineering team developed and uploaded new software designed to prevent a similar solar array
anomaly from occurring on other OG2 satellites.
In June 2017, there was a loss of communication with the prototype OG2 satellite that was launched in December 2015, and in
July 2017 there was a loss of communication with an OG2 satellite that was launched in July 2014. The Company recorded a non-cash
impairment charge of $31,224 in the quarter ended September 30, 2017 to write-off the net book value of the three OG2 satellites. In
addition, the Company decreased satellite network and other equipment by $39,576 and the associated accumulated depreciation by
$8,352 to remove the assets as of September 30, 2017.
In October 2018, the Company experienced a communication issue with an additional OG2 satellite. The Company remains in
operational control of this satellite and is developing new software in an attempt to restore AIS and/or messaging services.
Note 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.
Goodwill consisted of the following:
Balance at January 1,.................................................... $ 166,129 $ 166,678
Measurement period adjustments.................................
(549)
Balance at December 31,.............................................. $ 166,129 $ 166,129
—
2019
2018
During the year ended December 31, 2019, there were no changes to goodwill.
During the year ended December 31, 2018, the following key items impacted goodwill:
(cid:129)
(cid:129)
The Company recorded measurement period adjustments to the preliminary purchase price allocation of the Blue Tree
Acquisition of $393.
The Company recorded measurement period adjustments to the preliminary purchase price allocation of the Inthinc
Acquisition of $156.
Intangible assets, net consisted of the following:
Useful life
(years)
Cost
December 31, 2019
Accumulated
amortization
Net
Cost
December 31, 2018
Accumulated
amortization
Net
Customer lists .......................................................
Patents and technology .........................................
Trade names and trademarks ................................
5 - 15 $113,357 $ (50,457) $ 62,900 $113,357 $ (39,966) $ 73,391
(10,551) 12,873
(13,044) 10,380 23,424
3 - 10 23,424
—
3,003
(3,003)
3,003
—
$139,784 $ (66,504) $ 73,280 $139,784 $ (53,520) $ 86,264
(3,003)
1 - 2
At December 31, 2019, the weighted-average amortization period for the intangible assets was 10.5 years. At December 31,
2019, the weighted-average amortization periods for customer lists, patents and technology and trade names and trademarks were
10.9, 9.3 and 1.2 years, respectively.
Amortization expense for the years ended December 31, 2019, 2018 and 2017 was $12,985, $13,075 and $11,792, respectively.
F-26
Estimated future amortization expense for intangible assets is as follows:
December 31,
2019
2020 ...............................................................................................
2021 ...............................................................................................
2022 ...............................................................................................
2023 ...............................................................................................
2024 ...............................................................................................
Thereafter ......................................................................................
$
12,721
12,112
11,686
11,408
11,122
14,231
73,280
Note 8. Accrued Liabilities
Accrued liabilities consisted of the following:
December 31,
2019
December 31,
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 ..............................................................
$
7,751 $
6,526
—
2,341
—
2,614
247
448
5,000
329
1,818
2,608
7,269
36,951 $
9,367
5,624
546
1,521
2,063
2,286
227
219
5,000
303
901
—
7,678
35,735
Changes in accrued warranty obligations consisted of the following:
Balance at January 1, .................................................................. $
Warranty liabilities assumed from acquisitions..........................
Reduction of warranty liabilities assumed in connection with
acquisitions ..............................................................................
Warranty expense .......................................................................
Warranty charges ........................................................................
Balance at December 31, ............................................................ $
2019
2018
5,624 $
—
(476)
3,604
(2,226)
6,526 $
4,153
151
(486)
3,878
(2,072)
5,624
Note 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 December 31,
2019 and 2018, the principal balance of the note payable was €1,138, with a carrying value of $1,275 and $1,298, respectively. The
carrying value was based on the note’s estimated fair value at the time of acquisition. The difference between the carrying value and
principal balance was being amortized to interest expense over the six-year estimated life, which ended on September 30, 2011. This
note does not bear interest and has no fixed repayment term. Repayment of the note will be made from the distribution profits (as
defined in the note agreement) of ORBCOMM Europe LLC, a wholly-owned subsidiary of the Company. The note has been classified
as long-term, as the Company does not expect any repayments to be required prior to December 31, 2020.
F-27
Note 10. Notes Payable
Senior Secured Notes
On April 10, 2017, the Company issued $250,000 aggregate principal amount of 8.0% senior secured notes due 2024 (the
“Senior Secured Notes”). The Senior Secured Notes were issued pursuant to an indenture, dated as of April 10, 2017, among the
Company, certain of its domestic subsidiaries party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee and
collateral agent (the “Indenture”). 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 the Company’s directly and indirectly
owned subsidiaries; and (ii) substantially all of the other property and assets of the Company and the Guarantors, 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 the Company’s 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.
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 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, the Company 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 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 $50,000.
In connection with the issuance of the Senior Secured Notes, the Company incurred debt issuance costs of approximately
$5,431. For each of the years ended December 31, 2019 and 2018, amortization of the debt issuance costs was $776. The Company
recorded charges of $20,776 to interest expense on its consolidated statements of operations for each of the years ended December 31,
2019 and 2018, related to interest expense and amortization of debt issuance costs associated with the Senior Secured Notes.
Termination of Secured Credit Facilities
On April 10, 2017, a portion of the proceeds from the issuance of the Senior Secured Notes was used to repay in full the
Company’s outstanding obligations under the Company’s $150,000 outstanding credit facilities incurred pursuant to the Secured
Credit Facilities Credit Agreement, as defined below, and to terminate the agreement, resulting in an early payment fee of $1,500 and
an additional expense associated with the remaining unamortized debt issuance cost and fees of $2,368.
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 $25,000 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 the Company’s and its subsidiaries’ assets under a security agreement among the
Company, its subsidiaries and JPMorgan Chase, 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, the Company may borrow, repay and reborrow amounts under the Revolving Credit Facility at any
time prior to the maturity date.
F-28
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 December 31, 2019, no amounts were outstanding under the Revolving Credit Facility. As of December 31, 2019, the
Company was in compliance with all financial covenants under the Revolving Credit Agreement.
Secured Credit Facilities
On September 30, 2014, the Company entered into a credit agreement (the “Secured Credit Facilities Credit Agreement”) with
Macquarie CAF LLC (“Macquarie” or the “Lender”) in order to refinance the Company’s $45,000 9.5% per annum Senior Notes (the
“Senior Notes”). Pursuant to the Secured Credit Facilities Credit Agreement, the Lender provided secured credit facilities (the
“Secured Credit Facilities”) in an aggregate amount of $160,000 comprised of (i) a term loan facility in an aggregate principal amount
of up to $70,000 (the “Initial Term Loan Facility”); (ii) a $10,000 revolving credit facility (the “Prior Revolving Credit Facility”);
(iii) a term loan facility in an aggregate principal amount of up to $10,000 (the “Term B2 Facility”), the proceeds of which were
drawn and used on January 16, 2015 to partially finance the acquisition of InSync Software, Inc. in 2015; and (iv) a term loan facility
in an aggregate principal amount of up to $70,000 (the “Term B3 Facility”), the proceeds of which were drawn on December 30, 2014
and used on January 1, 2015 to partially finance the acquisition of SkyWave Mobile Communications, Inc. Proceeds of the Initial
Term Loan Facility and Prior Revolving Credit Facility were funded on October 10, 2014 and were used to repay in full the
Company’s Senior Notes and pay certain related fees, expenses and accrued interest, as well as for general corporate purposes.
The Secured Credit Facilities had a maturity of five years after the initial fund date of the Initial Term Loan Facility and were
subject to mandatory prepayments in certain circumstances. The Secured Credit Facilities bore interest, at the Company’s election, of
a per annum rate equal to either (a) a base rate plus 3.75% or (b) LIBOR plus 4.75%, with a LIBOR floor of 1.00%.
In connection with entering into the Secured Credit Facilities Credit Agreement, and the subsequent funding of the Initial Term
Loan Facility, Prior Revolving Credit Facility, Term B2 Facility and Term B3 Facility, the Company incurred debt issuance costs of
approximately $4,481. For the year ended December 31, 2017, amortization of the debt issuance costs of $229 was recorded in interest
expense on the consolidated statement of operations. The Company recorded a charge of $2,642 to interest expense on its consolidated
statement of operations for the year ended December 31, 2017 related to interest expense and amortization of debt issuance costs
associated with the Term B2 and Term B3 Facilities and the Initial Term Loan Facility and Prior Revolving Credit Facility after the
OG2 satellites were placed in service on March 1, 2016.
Note 11. Stockholders’ Equity
Preferred Stock
The Company currently has 50,000,000 shares of preferred stock authorized.
Series A Convertible Preferred Stock
The Company currently has 1,000,000 shares of Series A convertible preferred stock authorized. As part of the purchase price
for the acquisition of StarTrak Systems LLC in 2011, the Company issued 183,550 shares of Series A convertible preferred stock, of
which 40,624 shares remain outstanding as of December 31, 2019.
Key terms of the Series A convertible preferred stock are as follows:
Dividends
Holders of the Series A convertible preferred stock are entitled to receive a cumulative 4% dividend annually (calculated on the
basis of the redemption price of $10.00 per share) payable quarterly in additional shares of the Series A convertible preferred stock.
During the years ended December 31, 2019 and 2018, the Company issued dividends in the amounts of 1,182 and 1,898 shares to the
holders of the Series A convertible preferred stock, respectively. As of December 31, 2019, dividends in arrears were $8.
F-29
Conversion
Shares of the Series A convertible preferred stock are convertible into 1.66611 shares of common stock: (i) at the option of the
holder at any time or (ii) at the option of the Company beginning six months from the issuance date and if the average closing market
price for the Company’s common stock for the preceding twenty consecutive trading days equals or exceeds $11.20 per share.
Voting
Each share of the Series A convertible preferred stock is entitled to one vote for each share of common stock into which the
preferred stock is convertible.
Liquidation
In the event of any liquidation, sale or merger of the Company, the holders of the Series A convertible preferred stock are
entitled to receive prior to and in preference over the holders of the common stock an amount equal to $10.00 per share plus unpaid
dividends.
Redemption
The Series A convertible preferred stock may be redeemed by the Company for an amount equal to the issuance price of $10.00
per share plus all unpaid dividends at any time after two years from the issuance date.
Common Stock
As of December 31, 2019, the Company has reserved 14,945,281 shares of common stock for future issuances related to
employee stock compensation plans.
On August 5, 2019, the Company’s Board of Directors authorized a stock repurchase program under which the Company may
repurchase up to $25,000 of the Company’s outstanding shares of common stock through 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. During the year ended December 31, 2019, the Company repurchased 1,930,414 shares at an average share price of
$4.86. As of December 31, 2019, authorization for approximately $15,556 of the Company’s common stock remained available for
future purchases under the repurchase program.
On April 10, 2018, the Company completed a public offering of 3,450,000 shares of its 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. The Company
received net proceeds of approximately $28,000 after deducting underwriters’ discounts and commissions and offering costs.
On April 13, 2018, the Company filed a shelf registration statement with the Securities Exchange Commission, 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.
F-30
Note 12. Segment Information
The Company operates in one reportable segment, industrial IoT services. Other than satellites in orbit, goodwill and intangible
assets, long-lived assets outside of the United States are not significant. The Company’s foreign exchange exposure is limited as
approximately 82% of the Company’s consolidated revenue is collected in U.S. dollars. The following table summarizes revenues on a
percentage basis by geographic region, based on the region in which the customer is located.
United States.............................................................................
South America ..........................................................................
Japan .........................................................................................
Europe.......................................................................................
Other .........................................................................................
Year Ended December 31,
2018
2017
2019
51%
11%
7%
19%
12%
100%
63%
10%
5%
15%
7%
100%
78%
7%
2%
9%
4%
100%
Note 13. Income Taxes
The following is a summary of the Company’s provision for income taxes for the years ended December 31, 2019, 2018 and
2017:
Current
Year Ended December 31,
2018
2017
2019
Federal ................................................................................. $
State .....................................................................................
International.........................................................................
Total ..........................................................................................
Deferred
Federal .................................................................................
State .....................................................................................
International.........................................................................
Valuation allowance ............................................................
Total ...............................................................................
Income taxes ........................................................................ $
129 $
109
5,389
5,627
(1,796)
(517)
(1,430)
2,499
(1,244)
4,383 $
95 $
4
6,137
6,236
(5,754)
107
(2,055)
6,124
(1,578)
4,658 $
26
106
1,757
1,889
(6,231)
(2,340)
(185)
6,458
(2,298)
(409)
United States and foreign income (loss) before income taxes for the years ended December 31, 2019, 2018 and 2017 is as
follows:
United States ............................................................................. $
Foreign ......................................................................................
Total..................................................................................... $
Year Ended December 31,
2018
(33,786) $
12,505
(21,281) $
2019
(29,378) $
15,629
(13,749) $
2017
(69,333)
7,729
(61,604)
F-31
The components of net deferred tax assets (liabilities) are as follows:
Deferred tax assets:
Acquisition-related costs ....................................................... $
Deferred revenues .................................................................
Allowance for doubtful accounts ..........................................
Inventory ...............................................................................
Deferred compensation .........................................................
Bonus accrual ........................................................................
Vacation accrual....................................................................
Lease liability ........................................................................
Deferred rent .........................................................................
Warranty accrual ...................................................................
Accrued expenses..................................................................
Satellite network and other property .....................................
Foreign tax credit ..................................................................
Alternative minimum tax credit ............................................
Tax loss carryforwards and credits........................................
Other......................................................................................
Total deferred tax assets .............................................................
Deferred tax liabilities:
Intangible assets ....................................................................
Right of use asset ..................................................................
Goodwill................................................................................
Total deferred tax liabilities........................................................
Net deferred tax assets before valuation allowance....................
Less valuation allowance............................................................
Net deferred tax assets (liabilities) .............................................
Deferred tax assets, non-current .................................................
Deferred tax liabilities, non-current............................................
Net deferred tax liabilities .......................................................... $
December 31,
2019
2018
396 $
2,319
1,193
1,762
2,499
711
216
4,201
3
1,514
484
5,353
1,449
325
34,945
15
57,385
(13,512)
(3,487)
(6,178)
(23,177)
34,208
(48,970)
(14,762)
132
(14,894)
(14,762) $
441
2,300
1,274
1,709
2,614
874
191
—
551
1,374
466
8,051
1,487
325
29,129
12
50,798
(15,292)
—
(5,035)
(20,327)
30,471
(46,471)
(16,000)
109
(16,109)
(16,000)
Income taxes differ from the amount computed by applying the statutory U.S. federal income tax rate because of the effect of
the following items:
Year Ended December 31,
2018
2019
Income tax expense at U.S. statutory rate ................................. $
State income taxes, net of federal benefit .................................
Effect of foreign subsidiaries ....................................................
Tax credits.................................................................................
Global intangible low-taxed income inclusion .........................
Other permanent items ..............................................................
Change in uncertain tax positions .............................................
True-up from prior years...........................................................
Change in domestic tax rate ......................................................
Other..........................................................................................
Change in valuation allowance .................................................
Income tax................................................................................. $
(2,887) $
(423)
1,783
(672)
2,744
783
—
512
—
44
2,499
4,383 $
(4,468) $
103
1,841
(660)
2,141
(199)
346
(571)
—
1
6,124
4,658 $
2017
(20,946)
(2,261)
(283)
(686)
—
(2,374)
—
—
19,353
330
6,458
(409)
F-32
On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes
from previous tax law. The U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) reduced the federal corporate income tax rate to
21% from 35% effective January 1, 2018. The 2017 Tax Act also changes the taxation of foreign earnings, and companies generally
will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries and will not be
permitted foreign tax credits related to such dividends. Additionally, upon enactment, there is a one-time deemed repatriation tax on
undistributed foreign earnings and profits (the “transition tax”).
The key impacts of the 2017 Tax Act on the Company’s financial statements were the re-measurement of deferred tax balances
to the new corporate tax rate and the calculation of any impacts of the transition tax. The re-measurement of the deferred tax balances
to the new corporate rate is complete and those amounts are not provisional.
Although the Company has taxable earnings and profits from its foreign subsidiaries, the Company had no cash tax payments
for the transition tax. The amount of taxable foreign earnings and profits was significantly less than the Company’s expected tax
losses for 2017, therefore, the Company utilized these losses to offset the income inclusion regarding the transition tax. The Company
has determined that it will elect an accounting policy to treat tax on global intangible low-taxed income inclusions under the 2017 Tax
Act as a period cost when incurred.
As part of the Company’s accounting for the acquisitions, a portion of the purchase price was allocated to goodwill. The
acquired goodwill is deductible for tax purposes and amortized over fifteen years for income tax purposes. Under GAAP, the acquired
goodwill is not amortized in the Company’s financial statements. As such, a deferred income tax expense and a deferred tax liability
arise as a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting
deferred tax liability, which is expected to continue to increase over time, will remain on the Company’s balance sheet indefinitely
unless there is an impairment of the asset. As a result of the 2017 Tax Act and the changes it made to net operating loss carryforward
rules, the Company is now able to use the above deferred tax liability as a source of future taxable income in evaluating the need for a
valuation allowance. This change resulted in a deferred tax benefit of $1,693 during the year ended December 31, 2017.
As of December 31, 2019 and 2018, the Company maintained a valuation allowance against all of its net deferred tax assets,
excluding goodwill, attributable to operations in the United States as the realization was not considered more likely than not.
The net change in the total valuation allowance for the years ended December 31, 2019, 2018 and 2017 was $2,499, $6,124 and
$6,458, respectively.
On January 1, 2017, the Company adopted ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting.”
Prior to adopting the ASU, the Company recognized tax benefits associated with the exercise of SARs and stock options and vesting
of RSUs directly to stockholders’ equity only when the tax benefit reduces income tax payable on the basis that a cash tax savings has
occurred. As a result of adopting this ASU the Company recognized the benefit of net operating loss carryforwards that were created
as a result of previous windfall tax deductions. The gross amount of windfall deductions that were previously not recognized was
approximately $6,529. Due to a full valuation allowance, the recognition of the benefit for the windfall deductions did not have any
impact to the consolidated balance sheet or consolidated statement of operations for the years ended December 31, 2019 and 2018.
As of December 31, 2019 and 2018, the Company had potentially utilizable federal net operating loss carryforwards of
$125,870 and $108,746, respectively. As of December 31, 2019 and 2018, the Company had potentially utilizable state net operating
loss carryforwards of $159,083 and $232,256, respectively. The federal net operating loss carryforwards expire at various times
through 2037 for losses incurred prior to January 1, 2018. All federal net operating losses incurred after January 1, 2018 have an
indefinite life. The state net operating loss carryforwards expire at various times through 2039 for states that do not follow the federal
rule having an indefinite life for losses incurred after 2018. As of December 31, 2019 and 2018, the Company had potentially
utilizable foreign net operating loss carryforwards of $14,035 and $15,989, respectively. The foreign net operating loss carryforwards
expire on various dates through 2039.
The utilization of the Company’s net operating losses may be subject to a substantial limitation due to the “change of ownership
provisions” under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration
of the net operating loss carryforwards before their utilization.
As of December 31, 2019, the Company has not provided deferred income taxes on the undistributed earnings of its foreign
subsidiaries. The amount of such earnings was $21,677. These earnings have been permanently reinvested and the Company does not
plan to initiate action that would precipitate the payment of income taxes thereon. It is not practicable to estimate the amount of
additional tax that might be payable on these undistributed earnings.
F-33
The following table is a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
Balance at January 1, ................................................................ $
Additions for tax positions related to prior years......................
Additions for tax positions related to current year....................
Reductions for tax positions of prior years ...............................
Settlements ................................................................................
Balance at December 31, .......................................................... $
1,202 $
9
—
(355)
(33)
823 $
856 $
398
—
(52)
—
1,202 $
856
—
—
—
—
856
2019
2018
2017
No interest and penalties related to unrecognized tax benefits were accrued during the years ended December 31, 2019, 2018,
and 2017. Interest and penalties are not reflected in the table above and are included in income tax expense.
As of December 31, 2019, $775 of the unrecognized tax benefits have been recorded as a reduction to the Company’s federal
and state net operating loss carryforwards in deferred tax assets. Due to the existence of the Company’s valuation allowance, these
unrecognized tax benefits, if recognized, would not impact the Company’s effective income tax rate. The Company is also subject to
examinations in its material non-U.S. jurisdictions for 2015 and later years. The Company does not expect any significant changes to
its unrecognized tax positions during the next twelve months.
Note 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.
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 $3,736 in airtime credits. The Company
has not recorded the airtime credits as a liability for the following reasons: (i) the Company has no obligation to pay the unused
airtime credits if they are not utilized; and (ii) the airtime credits are earned by the country representatives only when the Company
generates revenue from the country representatives. The airtime credits have no expiration date. Accordingly, the Company is
recording airtime credits as services are rendered and these airtime credits are recorded net of revenues from the country
representatives. For the years ended December 31, 2019, 2018 and 2017, airtime credits used totaled approximately $30, $30, and $31,
respectively. As of December 31, 2019 and 2018, unused credits granted by the Company were approximately $1,918 and $1,948,
respectively.
Agreements with carrier data providers
The Company has contractual minimum payments under the terms of its agreements with certain carrier data providers. Based
on the number of subscribers as of December 31, 2019, future minimum payments for the years ending December 31, 2020, 2021,
2022 and 2023 are $8,091, $5,944, $6,093 and $6,245, respectively.
Note 15. Leases
In February 2016, the FASB issued ASU 2016-02, which is effective for fiscal years beginning after December 15, 2018. The
Company adopted ASU 2016-02 prospectively as of January 1, 2019, the date of initial application, and therefore prior comparative
periods were not adjusted. Rent expense for the years ended December 31, 2018 and 2017 was approximately $4,020 and $3,401,
respectively, and was recognized on a straight-line basis over the lease term under ASC Topic 840 “Leases.”
F-34
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 one year to 13 years, some of which include options to extend the lease term for up to five years, and some of which
include options to terminate the lease within one year. The Company considered these options in determining the lease term used to
establish the Company’s right-of use assets and lease liabilities. The Company’s lease agreements do not contain any material residual
value guarantees or material restrictive covenants.
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:
Operating lease cost....................................................................... $
3,925
Year Ended
December 31,
2019
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 consolidated statements of
operations during the year ended December 31, 2019, are not material.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:
Year Ended
December 31,
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 .... $
4,178
18,659
Supplemental balance sheet information related to the Company’s operating leases is as follows:
Right-of-use assets
Current lease liabilities
Non-current lease liabilities
Balance Sheet Classification
Other assets ................................................ $
Accrued liabilities ......................................
Other liabilities...........................................
December 31,
2019
15,894
2,608
16,266
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
Weighted-average remaining lease term (in years).......................
Weighted-average discount rate....................................................
7.11
8.0%
December 31,
2019
F-35
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:
December 31,
2019
2020............................................................................................... $
2021...............................................................................................
2022...............................................................................................
2023...............................................................................................
2024...............................................................................................
Thereafter ......................................................................................
Total lease payments .....................................................................
Less: Imputed interest ...................................................................
Present value of lease liabilities .................................................... $
3,972
3,854
3,458
3,309
3,129
7,244
24,966
(6,092)
18,874
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 five years, with payment generally collected in monthly installments. Refer to “Note 2 – Summary
of Significant Accounting Policies” for more information.
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.
Note 16. Employee Incentive Plan
The Company maintains a 401(k) plan. All employees who have been employed for three months or longer are eligible to
participate in the plan. Employees may contribute up to 15% of eligible compensation to the plan, subject to certain limitations. The
Company has the option of matching up to 50% of the amount contributed by each employee, up to 6% of the employee’s
compensation. In addition, the plan contains a discretionary contribution component pursuant to which the Company may make an
additional annual contribution. Contributions vest over a five-year period from the employee’s date of employment. For the years
ended December 31, 2019, 2018 and 2017, the Company made contributions of $1,189, $1,104 and $766, respectively.
Note 17. Supplemental Disclosure of Noncash Investing and Financing Activities
Investing activities:
Acquisition-related contingent consideration ........................... $
Common stock issued in connection with the acquisition of
businesses...............................................................................
Capital expenditures incurred not yet paid ...............................
Stock-based compensation included in capital expenditures ....
Financing activities:
Common stock issued as form of payment for MPUs ..............
Common stock issued as payment for contingent
consideration ..........................................................................
Series A convertible preferred stock dividend paid-in-kind .....
Year Ended December 31,
2018
2017
2019
— $
— $
10,611
—
1,082
650
—
344
502
503
827
—
12
—
18
2,764
755
453
—
347
12
F-36
Note 18. Quarterly Financial Data (Unaudited)
2019
Revenues.................................................................................. $
Income (loss) from operations.................................................
Net loss attributable to ORBCOMM Inc.................................
Net loss per common share-basic:
Net loss attributable to ORBCOMM Inc.................................
Net loss per common share-diluted:
Net loss attributable to ORBCOMM Inc.................................
Weighted-average shares outstanding (in thousands):
Basic ........................................................................................
Diluted .....................................................................................
2018
Revenues.................................................................................. $
Income (loss) from operations.................................................
Net loss attributable to ORBCOMM Inc.................................
Net loss per common share-basic:
Net loss attributable to ORBCOMM Inc.................................
Net loss per common share-diluted:
Net loss attributable to ORBCOMM Inc.................................
Weighted-average shares outstanding (in thousands):
Basic ........................................................................................
Diluted .....................................................................................
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
66,035 $
(79)
(5,490)
67,103 $
(196)
(6,419)
69,193 $
2,290
(4,013)
69,682
3,557
(2,501)
(0.07)
(0.08)
(0.05)
(0.03)
(0.07)
(0.08)
(0.05)
(0.03)
79,387
79,387
79,688
79,688
79,695
79,695
78,275
78,275
67,973 $
(4,228)
(10,086)
70,788 $
(1,184)
(7,222)
71,042 $
2,484
(3,295)
66,337
739
(5,641)
(0.13)
(0.09)
(0.04)
(0.07)
(0.13)
(0.09)
(0.04)
(0.07)
74,729
74,729
78,079
78,079
78,649
78,649
78,895
78,895
F-37
Description
Schedule II — Valuation and Qualifying Accounts
Col. B
Balance at
Beginning of
the Period
Col. C
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Col. D
Deductions
Col. E
Balance at
End of the
Period
(Amounts in thousands)
Year ended December 31, 2019
Allowance for doubtful receivables....................................... $
Deferred tax asset valuation allowance ................................. $
Year ended December 31, 2018
Allowance for doubtful receivables....................................... $
Deferred tax asset valuation allowance ................................. $
Year ended December 31, 2017
Allowance for doubtful receivables....................................... $
Deferred tax asset valuation allowance ................................. $
4,072
46,471
2,008
2,499
1,600 (1)
—
—
$
— (2) $
4,480
48,970
400
40,347
3,426
6,124
(246) (1)
—
$
—
— (2) $
4,072
46,471
1,057
32,550
85
6,458
742 (1)
—
—
$
1,339 (2) $
400
40,347
(1) Amounts relate to write-offs net of recoveries.
(2) Amounts relate to deferred tax assets acquired in acquisitions.
F-38
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc J. Eisenberg, certify that:
1. I have reviewed this annual report on Form 10-K of ORBCOMM Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Marc J. Eisenberg
Marc J. Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2020
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Constantine Milcos, certify that:
1. I have reviewed this annual report on Form 10-K of ORBCOMM Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Constantine Milcos
Constantine Milcos
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Date: February 28, 2020
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of ORBCOMM Inc. for the year ended December 31, 2019 as filed with
the Securities and Exchange Commission on the date hereof, Marc J. Eisenberg, as President and Chief Executive Officer and
Constantine Milcos, as Executive Vice President and Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Annual Report on Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of ORBCOMM Inc.
/s/ Marc J. Eisenberg
Marc J. Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2020
/s/ Constantine Milcos
Constantine Milcos
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Date: February 28, 2020
[THIS PAGE INTENTIONALLY LEFT BLANK]
Dear Fellow Shareholders,
With more than 25 years of experience in delivering breakthrough
technology, products and services that connect the world’s assets,
ORBCOMM is a leader and innovator in driving the digital transformation
of industry. In 2019 we solidified our position as the vendor of choice
in the Industrial Internet of Things (IIoT), providing our customers with
advanced solutions that extend beyond track and trace to help them be
more competitive, efficient and profitable. By offering customers around
the globe a Cloud-based platform that is built for the future, integrating
multiple asset types, unique feature sets as well as incremental value
through data analytics, we have a differentiated IIoT portfolio positioned to
drive growth in 2020.
2019 was driven largely by our integration efforts,
enabling a more efficient financial close process,
focused on building efficiency and scalability
improved inventory turns and simplified billing.
across the Company and consolidating our existing
Overall, as a result of these initiatives, we believe
products and platforms that we gained through our
ORBCOMM will emerge as a fully integrated, better
13 acquisitions. We are in the process of converging
scaled and more productive company. Our focus in
redundant hardware, overlapping web platforms and
2020 can now turn to advancing our technology and
multiple accounting systems to increase efficiencies
better serving our customers, leading to faster growth
across the business. These efforts have already
and further cash generation, all of which are key to the
resulted in lowering the number of hardware product
future success of the Company.
lines from our high of 160 down to 53 and, in the
process, have reduced inventory levels by more than
From a financial perspective, our integration efforts
20 percent and improved hardware margins by 25
led to significant margin expansion across service,
percent. We expect further consolidation in 2020
product and Adjusted EBITDA, as well as improved
leading to just 40 hardware product lines. We are also
cash flow generation. While ORBCOMM has a
in the process of converging over 20 web platforms
history of strong organic revenue growth, 2019 Total
across our various solutions with the goal of just
Revenues of $272 million were in the same range
two, thereby reducing integrations across multiple
as 2018. Revenues were impacted by a difficult U.S.
platforms and better utilizing our resources to focus
transportation macro environment with heightened
on innovation. In addition, we have implemented a
global trade tensions. Despite nearly flat revenues, our
global Enterprise Resource Planning (ERP) System
efforts to deploy new cost-optimized products and
to integrate all 13 acquisitions on a single platform,
improve overall service margins resulted in achieving
2019
CORPORATE OFFICERS
Marc J. Eisenberg
Chief Executive Officer and President
Constantine “Dean” Milcos
Executive Vice President and Chief Financial Officer
Christian G. Le Brun
Executive Vice President and General Counsel
Craig E. Malone
Executive Vice President, Product Development
John J. Stolte, Jr.
Executive Vice President, Technology
and Operations
BOARD OF DIRECTORS
Jerome B. Eisenberg
Chairman of the Board
Marc J. Eisenberg
Chief Executive Officer and President
Marco Fuchs
Chief Executive Officer and Chairman of
the Managing Board of OHB SE
Denise Gibson
Co-Founder and Chairman of Ice Mobility
Karen Gould
Executive Vice President and Chief Financial Officer
of The Turner Corporation
Timothy Kelleher
Managing Partner of Silver Canyon Group, LLC
John Major
President of MTSG
GENERAL INFORMATION
Company Contact Information:
395 W. Passaic Street, Third Floor
Rochelle Park, NJ 07662
US toll-free: 800-ORBCOMM
Outside the US: +1-703-433-6300
www.orbcomm.com
Transfer Agent and Registrar:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
US toll-free: 800-522-6645
Outside the US: +1-201-680-6578
www.computershare.com/investor
Stock Exchange:
Common Stock (Symbol: ORBC)
NASDAQ Global Market
Independent Registered Public Accounting Firm:
Grant Thornton LLP
757 Third Avenue
New York, NY 10017
www.grantthornton.com
Annual Meeting:
The company’s annual meeting of shareholders will
be held at its Florida office:
2700 North Military Trail, Suite 410
Boca Raton, FL 33431
at 8:00 a.m., on Wednesday, April 22, 2020.