ORBCOMM INC. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements discussed in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to our plans, estimates, objectives and expectations for future events, as well as projections, business trends and other statements that are not historical facts. Such forward-looking statements are subject to known and unknown risks and uncertainties, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. With respect to the business and operations ofORBCOMM , 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 outsidethe United States ; substantial losses we have incurred and may continue to incur; substantial competition in the telecommunications, Automatic Identification Service ("AIS") data and industrial Internet of Things ("IoT") industries; the inability to effect suitable investments, alliances and acquisitions or the inability to successfully integrate acquired businesses 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 asJB Hunt Transport Services, Inc. , Caterpillar Inc., Komatsu Ltd.,Carrier Corporation andSatlink S.L .; our ability to expand our business outsidethe United States and risks related to the economic, political and other conditions in foreign countries in which we do business; 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 ourORBCOMM 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 byInmarsat plc ; risks related to the novel coronavirus ("COVID-19") pandemic; 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 the credit agreement for our$200.0 million term loan facility and our$50.0 million revolving credit facility, that could restrict our business activities or our ability to execute our strategic objectives or adversely affect our financial performance; risks related to an investment in our common stock, including volatility due to our quarterly performance; and the other risks described in our filings with theSecurities and Exchange Commission ("SEC"). With respect to our pending merger transaction withGI Partners , these risks and uncertainties include but are not limited to: the risk that the merger transaction may not be consummated in a timely manner, if at all; the risk that the merger transaction may not be consummated as a result of buyer's failure to comply with its covenants and that, in certain circumstances, we may not be entitled to a termination fee; the risk that the definitive merger agreement may be terminated in circumstances that require us to pay the buyer a termination fee; risks related to the diversion of management's attention from our ongoing business operations; risks regarding the failure of the buyer to obtain the necessary financing to complete the merger transaction; the effect of the announcement of the merger transaction on our business relationships (including, without limitation, customers), operating results and business generally; risks related to obtaining the requisite approvals and consents to the merger transaction, including, without limitation, the timing (including possible delays) and receipt of regulatory approvals from governmental entities (including any conditions, limitations or restrictions placed on these approvals); and the risk that one or more governmental entities may deny approval or consent. For more detail on these and other risks, please see our Annual Report on Form 10-K for the year endedDecember 31, 2020 ("Annual Report"), and other documents we file with theSEC . We undertake no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law. Unless otherwise noted or the context otherwise requires, references in this Form 10-Q to "ORBCOMM ," "the Company," "our company," "we," "us" or "our" refer toORBCOMM Inc. and its direct and indirect subsidiaries. 28 --------------------------------------------------------------------------------
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. We also have
vehicle fleet management, as well as in-cab and vehicle fleet solutions in 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 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
business operations more efficiently and achieve significant returns 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 Corporation , C&S Wholesale,
Canadian National Railways , CR England, Hub Group, Inc., JB Hunt Transport
Services, Inc. , KLLM Transport Services , Marten Transport, Prime Inc. , Swift
Transportation, Target, Tropicana, Tyson Foods, Walmart and Werner Enterprises.
On April 7, 2021 , we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with GI DI Orion Acquisition Inc. ("Parent") and GI DI Orion Merger
Sub Inc. , a wholly-owned subsidiary of Parent ("Merger Sub"), pursuant to which,
subject to the terms and conditions set forth in the Merger Agreement, Merger
Sub will merge with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation and as a wholly-owned subsidiary of
Parent. Parent and Merger Sub are affiliates of GI Partners ("GI Partners "). In
the Merger, our stockholders will receive $11.50 in cash per outstanding share
of common stock. The parties expect the transaction to close in the second half
of 2021. See "Note 15 - Merger Transaction" in our Notes to the Condensed
Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations, liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in conformity with accounting principles generally accepted inthe United States ("GAAP"). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accounts receivable, accounting for business combinations, goodwill, intangible assets, satellite network and other equipment, long-lived assets, capitalized development costs, income taxes, warranty costs, loss contingencies and the value of securities underlying stock-based compensation. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies and estimates, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report. There have been no material changes to our critical accounting policies during 2021.
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). We also generate recurring AIS service revenues from
subscription-based services supplying recurring AIS data services to customers
and
29
-------------------------------------------------------------------------------- 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. 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 contract initiation. Amounts received prior to the performance of services under customer contracts are recognized as deferred revenues and revenue recognition is deferred until such time that all revenue recognition criteria have been met.
The table below presents our revenues for the quarters and six months ended
Quarters Ended June 30,
(In thousands) 2021 2020
Service revenues $ 37,542 56.9 % $ 38,429 67.7 %
Product sales 28,386 43.1 % 18,303 32.3 %
$ 65,928 100.0 % $ 56,732 100.0 %
Six Months Ended June 30,
(In thousands) 2021 2020
Service revenues $ 75,292 58.1 % $ 78,953 64.2 %
Product sales 54,331 41.9 % 43,958 35.8 %
$ 129,623 100.0 % $ 122,911 100.0 %
Total revenues for the quarters ended June 30, 2021 and 2020 were $65.9 million
and $56.7 million , respectively, an increase of 16.2%. Total revenues for the
six months ended June 30, 2021 and 2020 were $129.6 million and $122.9 million ,
respectively, an increase of 5.5%.
Service Revenues
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Recurring service revenues
(1.8 )% Other service revenues 1,187 1,423 (236 ) (16.6 )% Total service revenues$ 37,542 $ 38,429 $ (887 ) (2.3 )% Six Months Ended June 30, Change (In thousands) 2021 2020 Dollars % Recurring service revenues$ 72,596 $ 76,859 $ (4,263 ) (5.5 )% Other service revenues 2,696 2,094 602 28.7 % Total service revenues$ 75,292 $ 78,953 $ (3,661 ) (4.6 )% We derive recurring service revenues from monthly fees from industrial IoT connectivity services that consist of subscriber-based, recurring monthly usage fees for each subscriber communicator or SIM activated for use on our satellite network, other satellite networks, and cellular wireless networks that we resell to our customers and AIS service revenues from subscription-based services supplying AIS data to customers and resellers. In addition, we derive recurring service revenues from extended warranty service 30 -------------------------------------------------------------------------------- agreements extending beyond the initial warranty period of typically one year, 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 activations of subscriber communicators and SIMs. We derive other service revenues from installation services, fees from providing engineering, technical and management support services to customers and the sale of software licenses to our customers. The decrease in recurring service revenues for the quarter endedJune 30, 2021 , compared to the prior year period, was primarily due to decreases in satellite data usage with heavy equipment customers, offset, in part, by increases inNorth America transportation solution subscribers. The decrease in recurring service revenues for the six months endedJune 30, 2021 , compared to the prior year period, was primarily due to the inclusion in the 2020 period of the remaining deferred revenues of approximately$1.9 million associated with theAT&T Services, Inc. contract, providing our services to Maersk Lines, which was recognized during the three months endedMarch 31, 2020 as an immaterial prior period adjustment, as well as decreases in satellite data usage with heavy equipment customers and the economic downturn in the oil and gas industry, offset, in part, by increases inNorth America transportation solution subscribers.
As of
Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of service revenue from these units, as well as the mix of new subscriber activations in the period.
Product Sales
Quarters Ended June 30 , Change(In thousands) 2021 2020 Dollars % Product sales$ 28,386 $ 18,303 $ 10,083 55.1 % Six Months Ended June 30, Change (In thousands) 2021 2020 Dollars % Product sales$ 54,331 $ 43,958 $ 10,373 23.6 % We derive product revenues primarily from sales of industrial IoT subscriber communicators, including telematics devices, modems and cellular wireless SIMs to our resellers and direct customers, as well as through leasing arrangements of subscriber communicators. The increases in product revenues for the quarter and six months endedJune 30, 2021 , compared to the prior year periods, were primarily due to timing of shipments which were impacted in the 2020 period by the COVID-19 pandemic and the downturn in the oil and gas industry.
Cost of Revenues, Exclusive of Depreciation and Amortization
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Cost of services $ 12,783 $ 12,559 $ 224 1.8 %
Cost of product sales 22,525 13,211 9,314 70.5 %
Six Months Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Cost of services $ 25,469 $ 25,640 $ (171 ) (0.7 )%
Cost of product sales 42,135 30,492 11,643 38.2 %
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. Cost of services were relatively flat for the
quarter and six months ended
Cost of product sales includes the purchase price of subscriber communicators and SIMs sold, costs of warranty obligations and shipping charges, as well as operational costs to fulfill customer orders, including costs for employees and inventory management. The increase in cost of product sales for the quarter and six months endedJune 30, 2021 , was primarily due to the increase in product sales, the increasing cost of electronic components, as well as the mix of products shipped as compared to the prior year periods. 31 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Selling, general and administrative expenses $ 17,706 $ 17,474 $ 232 1.3 %
Six Months Ended June 30, Change
(In thousands) 2021 2020
Dollars %
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses relate primarily to
expenses for general management, sales and marketing, finance, audit and legal
fees and general operating expenses. SG&A expenses were relatively flat for the
quarter ended June 30, 2021 , compared to the prior year period. The decrease in
SG&A expenses for the six months ended June 30, 2021 , compared to the prior year
period, was primarily due to reduced bad debt, as well as reduced travel and
entertainment costs.
Product Development Expenses
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Product development $ 3,218 $ 2,784 $ 434 15.6 %
Six Months Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Product development $ 6,609 $ 6,604 $ 5 0.1 %
Product development expenses consist primarily of the expenses associated with
our engineering efforts, including the cost of third parties to support our
current applications. Product development expenses for the quarter ended
June 30, 2021 increased, compared to the prior year period, reflecting slightly
higher employee costs and other operating expenses associated with our continued
development of new solutions and services for our customers. Product development
expenses for the six months ended June 30, 2021 were relatively flat compared to
the prior year period.
Depreciation and Amortization
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Depreciation and amortization $ 11,728 $ 12,409 $ (681 ) (5.5 )%
Six Months Ended June 30, Change
(In thousands) 2021 2020
Dollars %
Depreciation and amortization
Depreciation and amortization expense is primarily associated with our capitalized costs attributable to the design, development and enhancements of the products and services sold to our customers and our internally developed software. The decrease in depreciation and amortization expense for the quarter endedJune 30, 2021 , compared to the prior year period, was primarily due to lower depreciation associated with our satellite network after the impairment of one ORBCOMM Generation 2 ("OG2") satellite during the 2021 period, as described below. The decrease in depreciation and amortization expense for the six months endedJune 30, 2021 , compared to the prior year period, was primarily due to higher depreciation in the prior year period related to a one-time catch-up related to assets placed into service in 2019, as well as lower depreciation in 2021 associated with our satellite network after the impairment of one OG2 satellite during the 2021 period, as described below.
Impairment loss - satellite network
Six Months Ended June 30 , Change
(In thousands) 2021 2020 Dollars % Impairment loss - satellite network $ 6,656 $ - $
6,656 NM
There were no impairment losses during the quarters ended
32
--------------------------------------------------------------------------------
In October 2018 , we briefly lost communication with one OG2 satellite. This
satellite remained under our operational control while our engineering team was
developing new software in an attempt to regain this satellite's messaging
and/or AIS capability. In November 2020 , we again lost communication with this
OG2 satellite and while we briefly regained communication with it in February
2021 , we have not reestablished communication with this OG2 satellite since
February 2021 .
On April 27, 2021 , the Company's Audit Committee of the Board of Directors
concluded, based on management's recommendation and the information provided by
the investigative team, that a non-cash impairment charge of $6.7 million should
be recorded as a recognized subsequent event in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 855
"Subsequent Events" to write off the net book value of this OG2 satellite in the
quarter ended March 31, 2021 and decrease satellite network and other equipment
by $13.2 million and associated accumulated depreciation by $6.5 million to
remove the assets as of March 31, 2021 . The impairment charge is reflected in
the accompanying condensed consolidated financial statements. No amount of the
impairment charge represents a cash expenditure.
Acquisition-Related and Integration Costs
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Acquisition-related and integration costs $ 2,653 $ 111 $ 2,542 NM
Six Months Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Acquisition-related and integration costs $ 3,241
NM
Acquisition-related and integration costs include professional services expenses
and identifiable integration costs directly attributable to our acquisitions.
The increase in acquisition-related and integration costs relates to expenses
associated with the pending Merger Agreement as described in "Note 15 - Merger
Transaction" in our Notes to the Condensed Consolidated Financial Statements.
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
Quarters Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Interest income $ 167 $ 265 $ (98 ) (37.0 )%
Other income (expense) (121 ) (234 ) 113 (48.3 )%
Interest expense (2,192 ) (5,410 ) 3,218 (59.5 )%
Total other expense $ (2,146 ) $ (5,379 ) $ 3,233 (60.1 )%
Six Months Ended June 30, Change
(In thousands) 2021 2020 Dollars %
Interest income $ 404 $ 681 $ (277 ) (40.7 )%
Other income (expense) 875 (500 ) 1,375 NM
Interest expense (4,420 ) (10,656 ) 6,236 (58.5 )%
Total other expense $ (3,141 ) $ (10,475 ) $ 7,334 (70.0 )%
The decrease in other expense for the quarter ended June 30, 2021 , compared to
the prior year period, was primarily due to lower interest expense related to
the lower interest rate and debt balance under our current Credit Agreement, as
described below. The decrease in other expense for the six months ended June 30,
2021 , compared to the prior year period, was primarily due to lower interest
expense due to the lower interest rate and debt balance under our current Credit
Agreement, as described below, and increases in other income in 2021, related to
foreign currency gains. We believe our foreign exchange exposure is limited as a
majority of our revenue is collected in U.S. dollars.
Income Taxes
For the quarter endedJune 30, 2021 , our income tax expense was$0.8 million , compared to an income tax benefit of$0.6 million for the prior year period. For the six months endedJune 30, 2021 , our income tax expense was$1.4 million , compared to an income tax benefit of less than$0.1 million for the prior year period. The increase in the income tax provision for the quarter and six months endedJune 30, 2021 primarily related to amended tax filings and provision to tax return true-ups for multiple international entities filed in prior years. This resulted in an international tax benefit recorded in these periods. In addition, the change in geographical mix of income increased taxable non-U.S. earnings before income taxes when compared to the prior year periods. 33 -------------------------------------------------------------------------------- As ofJune 30, 2021 andDecember 31, 2020 , we maintained a valuation allowance against our net deferred tax assets primarily attributable to operations inthe United States , as the realization of such assets was not considered more likely than not. Net Loss
For the quarter ended
For the six months endedJune 30, 2021 , we had a net loss of$18.0 million compared to a net loss of$13.5 million in the prior year period, primarily due to the satellite impairment loss, offset, in part, by decreased SG&A costs, as described above. Noncontrolling Interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.
Net Loss Attributable to
For the quarter endedJune 30, 2021 , we had a net loss attributable to our Company of$7.6 million compared to a net loss of$6.7 million in the prior year period. For the six months endedJune 30, 2021 , we had a net loss attributable to our Company of$18.2 million , compared to a net loss of$13.6 million in the prior year period.
Liquidity and Capital Resources
Overview
Our liquidity requirements arise from our working capital needs, our obligation to make scheduled payments of interest on our indebtedness and our need to fund growth initiatives and make 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, bank debt, sales of our common stock through public offerings and private placements of debt. AtJune 30, 2021 , we had an accumulated deficit of$263.1 million . Our primary source of liquidity consists of cash and cash equivalents totaling$29.6 million atJune 30, 2021 and$40.0 million remaining under our Revolving Facility under the Credit Agreement, 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. During the quarter endedJune 30, 2020 , we received proceeds from a loan in the amount of$7.6 million (the "PPP Loan") fromJPMorgan Chase Bank, N.A . ("JPMorgan Chase"), as lender, pursuant to the Paycheck Protection Program (the "PPP") of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). We believe that we qualified to apply for and receive the PPP Loan pursuant to the PPP under the provisions of the CARES Act and theSmall Business Administration ("SBA") guidance in effect at that time. In light of our entering into the amendment to our revolving credit facility described below under "-Future Liquidity and Capital Resource Requirements" to provide us with access to additional liquidity, our improved outlook on our ability to generate cash from operations in the quarter endedJune 30, 2020 , and the evolving requirements and new guidance issued by the SBA subsequent to our receipt of the PPP Loan, we repaid the full amount of the PPP Loan proceeds received and any accrued interest onJune 25, 2020 . The PPP Loan was prepayable at any time prior to the maturity date without any prepayment penalties.
Operating Activities
Cash provided by our operating activities for the six months endedJune 30, 2021 was$16.6 million , resulting from a net loss of$18.0 million , offset by non-cash items including$24.0 million for depreciation and amortization,$6.7 million for an impairment loss on our satellite network, and$3.2 million for stock-based compensation. Working capital activities for the six months endedJune 30, 2021 provided cash of$0.9 million , primarily due to a decrease of$2.5 million in accounts receivable relating to timing of receivables and a decrease of$3.7 million in inventories, offset, in part, by a decrease of$1.7 million in accounts payable and accrued liabilities primarily related to timing of payments and an increase of$2.9 million in prepaid expenses and other assets. 34 -------------------------------------------------------------------------------- Cash provided by our operating activities for the six months endedJune 30, 2020 was$20.8 million , resulting from a net loss of$13.5 million , offset by non-cash items including$25.8 million for depreciation and amortization and$3.2 million for stock-based compensation. Working capital activities for the six months endedJune 30, 2020 provided cash of$0.9 million , primarily due to a decrease of$9.3 million in accounts receivable related to decreased revenues and timing of receivables, a decrease of$1.8 million in prepaid expenses and other assets and a decrease of$1.6 million in inventories, offset by a decrease of$9.4 million in accounts payable and accrued liabilities primarily related to timing of payments, a decrease of$1.3 million in deferred revenue and a decrease of$1.1 million in other liabilities.
Investing Activities
Cash used in our investing activities for the six months ended
Cash used in our investing activities for the six months ended
Financing Activities
Cash used in our financing activities for the six months endedJune 30, 2021 was$14.5 million , due to repayments of our Revolving Facility and our Term Facility, as described below, offset, in part, by$0.5 million from the sale of common stock under our employee stock purchase plan. Cash used in our financing activities for the six months endedJune 30, 2020 was$2.1 million , due to payments of$2.5 million for purchases of common stock under our share repurchase program, offset, in part, by$0.4 million from the sale of common stock under our employee stock purchase plan.
Future Liquidity and Capital Resource Requirements
We believe that our existing cash and cash equivalents, along with expected cash flows from operating activities and funds available under our Revolving Facility described below (subject to applicable covenant limitations), will be sufficient to provide working capital, make interest payments and fund growth initiatives and make capital expenditures to support operations and facilitate growth and expansion for the next twelve months. We continuously evaluate our capital structure to ensure the most appropriate and optimal structure and may, from time to time, retire, repurchase, exchange, or redeem outstanding indebtedness or common stock, issue new equity or debt securities or enter into new lending arrangements if conditions warrant. Any repurchases or exchanges, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Credit Agreement and Security Agreement
OnDecember 2, 2020 , we and certain of our subsidiaries entered into a senior secured Amended and Restated Credit Agreement (the "Credit Agreement") with JPMorgan Chase, as administrative agent and collateral agent, and with the other lenders thereto (the "Lenders"), in connection with the refinancing of our$250.0 million aggregate principal amount of 8.0% Senior Secured Notes due 2024 (the "Senior Secured Notes"). The Credit Agreement superseded and replaced our prior credit agreement providing for a$25.0 million revolving credit facility. Pursuant to the Credit Agreement, the Lenders provided a senior revolving credit facility in an aggregate amount of up to$50.0 million (the "Revolving Facility") and a senior term loan facility in the aggregate amount of$200.0 million (the "Term Facility," and together with the Revolving Facility, collectively the "Facilities"). The proceeds of the Facilities, along with cash on hand, were used to redeem all$220.0 million outstanding principal amount of our Senior Secured Notes and pay certain related fees, expenses and accrued interest. The Facilities mature onDecember 2, 2025 . At our election, loans under the Facilities will bear interest at an alternative base rate or an adjustedLondon Interbank Offered Rate ("LIBOR"), plus an applicable margin subject to a set pricing grid, with respect to the Revolving Facility and the Term Facility. The Facilities are secured by a first-priority security interest in substantially all our and our subsidiaries' assets under an Amended and Restated Security Agreement among us, our subsidiaries and JPMorgan Chase (the "Security Agreement"). The Revolving Facility has no scheduled principal amortization until the maturity date. The Term Facility has quarterly installments of principal amortization in an aggregate amount specified for each 12-month period following the closing date as set forth in the Credit Agreement. 35 -------------------------------------------------------------------------------- Subject to the terms set forth in the Credit Agreement, we may borrow, repay and reborrow the Revolving Facility at any time prior to the maturity date and may prepay the Term Facility at any time without penalty or premium, subject to limitations as to minimum amounts of prepayments and customary indemnification for breakage costs in the case of prepayment of Eurodollar Loans other than on the last day of a related interest period. The Credit Agreement contains customary representations and warranties, conditions to funding, covenants and events of default. The Credit Agreement contains covenants that, among other things, limit us and our 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 Credit Agreement. OnDecember 2, 2020 , we redeemed all$220.0 million outstanding principal amount of our Senior Secured Notes at a price equal to (a) 104% of the principal amount of the Senior Secured Notes being redeemed plus (b) accrued and unpaid interest, resulting in a call premium fee of$8.8 million and an additional expense associated with the remaining unamortized debt issuance cost of$2.9 million . OnDecember 2, 2020 , we borrowed$200.0 million under the Term Facility and$20.0 million under the Revolving Facility to fund, in part, the redemption of the Senior Secured Notes. OnJune 30, 2021 , we had$195.0 million outstanding under the Term Facility and$10.0 million outstanding under the Revolving Facility. As ofJune 30, 2021 , we were in compliance with all financial covenants under the Credit Agreement.
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
EBITDA is defined as earnings attributable toORBCOMM 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 condensed consolidated statements of operations. EBITDA and Adjusted EBITDA are not performance measures calculated in accordance withU.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 withU.S. GAAP and may be different than EBITDA and Adjusted EBITDA measures presented by other companies. 36 --------------------------------------------------------------------------------
The following table reconciles our net loss attributable to
Quarters Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands) (In thousands)
Net loss attributable to ORBCOMM Inc. $ (7,641 ) $ (6,670 ) $ (18,203 ) $ (13,645 )
Income tax expense 778 (554 ) 1,441 (1 )
Interest income (167 ) (265 ) (404 ) (681 )
Interest expense 2,192 5,410 4,420 10,656
Depreciation and amortization 11,728 12,409 23,960 25,773
EBITDA 6,890 10,330 11,214 22,102
Stock-based compensation 1,487 1,471 3,248 3,150
Net income attributable to
noncontrolling interests 32 29 203 167
Impairment loss - satellite network - - 6,656 -
Acquisition-related and integration
costs 2,653 111 3,241 202
Adjusted EBITDA $ 11,062 $ 11,941 $ 24,562 $ 25,621 For the quarter ended
For the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , EBITDA decreased$10.9 million , while net loss attributable toORBCOMM Inc. increased$4.6 million and Adjusted EBITDA decreased$1.1 million .
Non-GAAP Gross Margin
Non-GAAP Service Gross Margin is defined as Non-GAAP Service gross profit divided by service revenues. Non-GAAP Service gross profit is defined as service revenues, minus cost of services (including depreciation and amortization expense) plus depreciation and amortization expense. Non-GAAP Product Gross Margin is defined as Non-GAAP Product gross profit divided by product sales. Non-GAAP Product gross profit is defined as product sales, minus cost of product sales (including depreciation and amortization expense) plus depreciation and amortization expense. We believe that Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are useful to evaluate and compare the results of our operations from period to period on a consistent basis by removing the depreciation and amortization impact of capital investments from our operating results. Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin are not performance measures calculated in accordance withU.S. GAAP. While we consider Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin to be important measures of operating performance, they should be considered in addition to, and not as substitutes for, or superior to, measures of financial performance prepared in accordance withU.S. GAAP and may be different than Non-GAAP Service Gross Margin and Non-GAAP Product Gross Margin measures presented by other companies. The following tables reconcile GAAP Service Gross Margin to Non-GAAP Service Gross Margin and GAAP Product Gross Margin to Non-GAAP Product Gross Margin for the periods shown: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (In thousands, except margin data) Service revenues$ 37,542 $ 38,429 $ 75,292 $ 78,953 Minus - Cost of services, including depreciation and amortization expense 16,678 16,747 33,751 34,107 GAAP Service gross profit$ 20,864 $ 21,682 $ 41,541 $ 44,846 Plus - Depreciation and amortization expense 3,895 4,188 8,282 8,467 Non-GAAP Service gross profit$ 24,759 $ 25,870 $ 49,823 $ 53,313 GAAP Service gross margin 55.6 % 56.4 % 55.2 % 56.8 % Non-GAAP Service gross margin 66.0 % 67.3 % 66.2 % 67.5 % 37
--------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands, except margin data)
Product sales $ 28,386 $ 18,303 $ 54,331 $ 43,958
Minus - Cost of product sales, including
depreciation
and amortization expense 22,898 13,732 42,859 31,522
GAAP Product gross profit $ 5,488 $ 4,571 $ 11,472 $ 12,436
Plus - Depreciation and amortization
expense 373 521 724 1,030
Non-GAAP Product gross profit $ 5,861 $ 5,092 $ 12,196 $ 13,466
GAAP Product gross margin 19.3 % 25.0 % 21.1 % 28.3 %
Non-GAAP Product gross margin 20.6 % 27.8 % 22.4 % 30.6 %
GAAP Service Gross Margin, inclusive of depreciation and amortization expense,
was 55.6% in the second quarter of 2021, compared to 56.4% in the prior year
period. Non-GAAP Service Gross Margin, excluding depreciation and amortization
expense, was 66.0% in the second quarter of 2021, compared to 67.3% in the prior
year period. The aforementioned decreases were primarily due a larger number of
installations that occurred in the second quarter of 2021 at relatively low
margins, compared to the prior year period. GAAP Service Gross Margin, inclusive
of depreciation and amortization expense, was 55.2% in the six months ended
June 30, 2021 , compared to 56.8% in the prior year period. Non-GAAP Service
Gross Margin, excluding depreciation and amortization expense, was 66.2% in the
six months ended June 30, 2021 , compared to 67.5% in the prior year period. The
aforementioned decreases were primarily due to $1.9 million of deferred service
revenue recognized in 2020 and, to a lesser extent, a larger number of
installations that occurred in the six months ended June 30, 2021 at relatively
low margins, compared to the prior year period.
GAAP Product Gross Margin, inclusive of depreciation and amortization expense,
was 19.3% in the second quarter of 2021, compared to 25.0% in the prior year
period. Non-GAAP Product Gross Margin, excluding depreciation and amortization
expense, was 20.6% in the second quarter of 2021, compared to 27.8% in the prior
year period. GAAP Product Gross Margin, inclusive of depreciation and
amortization expense, was 21.1% in the six months ended June 30, 2021 , compared
to 28.3% in the prior year period. Non-GAAP Product Gross Margin, excluding
depreciation and amortization expense, was 22.4% in the six months ended
June 30, 2021 , compared to 30.6% in the prior year period. The aforementioned
decreases were primarily due to higher component costs as a result of the global
supply shortage and higher shipping costs, and to a lesser extent a mix of lower
margin product sales in the quarter and six months ended June 30, 2021 , compared
to the prior year periods.
Contractual Obligations
As of
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
38--------------------------------------------------------------------------------
© Edgar Online, source
