ORBCOMM CEO Marc Eisenberg on Q1 2014 Results - Earnings Call Transcript

ORBCOMM released its first quarter 2014 financial results and conducted a conference call with financial analysts and investors. This is the transcript.

Executives

Marc J. Eisenberg - Chief Executive Officer

Robert G. Costantini - Executive Vice President and Chief Financial Officer

ORBCOMM Inc. (ORBC) Q1 2014 Earnings Conference Call May 8, 2014 10:30 AM ET

Operator

Good morning, ladies and gentlemen and welcome to ORBCOMM's First Quarter 2014 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions)

A replay of this conference will be available for approximately 12:00 noon Eastern Standard Time today, through 11:59 PM Eastern Standard Time on May 22, 2014. The dial-in details for the replay can be found in today's press release. Additionally, ORBCOMM will have an audio webcast available on its website at www.orbcomm.com. An archive of which will be available for two weeks.

I would now like to turn the call over to Marc Eisenberg, ORBCOMM's Chief Executive Officer. Please go ahead, sir.

Marc J. Eisenberg

Good morning and thank you for joining us. I'm Marc Eisenberg, ORBCOMM's Chief Executive Officer. And with me today is Robert Costantini, ORBCOMM's Chief Financial Officer.

Before we begin, let me remind you that this conference call includes forward-looking statements and that actual results may differ from the expectations reflected in these forward-looking statements. We encourage you to review our press release and SEC filings for a full discussion of the risks and uncertainties that pertain to these statements. I want to remind you that ORBCOMM assumes no duty to update forward-looking statements. In addition, the financial information we'll discuss includes non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in our press release.

We have lot to share with you on this quarter's call, including our most pressing news, the launch of our first OG2 mission, which is scheduled to lift off in less than 48 hours. We're going to spend some extra time today, discussing the launch, as well as the timing and the impact of the new constellation. In addition, the business is continuing to build momentum on many fronts. There's a lot to cover, so let's get started.

Earlier this morning, we issued a press release announcing financial results for the first quarter ending March 31, 2014. For Q1 of 2014, our total revenues were $19.4 million and adjusted EBITDA was $3.6 million when adjusting for the $1.2 million in acquisition related costs.

Service revenues increased year-over-year by 4% to $14.4 million keep in mind last year's quarter included a one-time billing catch up of over $1 million, our service revenues would have been up over 10%. Product sales increased 74% to $4.9 million, total revenues of $19.4 million increased 16% from the same period a year ago.

Net loss for the first quarter was $400,000 or $0.01 a share, compared to net income of $1.1 million, or $0.02 a share in the same period of last year, and again, it includes $1.2 million in acquisition related expenses, where net income would have been positive.

Adjusted EBITDA excluding acquisition related expenses for the first quarter was $3.6 million flat, compared to the prior year. Our subscriber count grew by 26,000 net subscriber communicators or subs, ending the quarter at 889,000. This quarter should have been better, there was about $700,000 of StarTrak products we're expecting to ship, but a component was delayed resulting in these products moving into Q2. Q2 promises to be a pretty substantial quarter for total revenues.

Now on to the launch, our first OG2 launch is finally here, it's scheduled about 47 hours and 15 minutes away according to our countdown clock, which is a pretty amazing feeling considering, we started financing the constellation in 2005. Since then we've created the specification source of the satellites, created the software built completely used out of modems, built complete products contracted with SpaceX and now the kickoff is near.

Since we reported last quarter, there was a little more scheduling drama than we were hoping for. We watched the CRS, or Cargo Re-Supply machine originally scheduled for March 6, delayed due to an issue with Cape Canaveral's tracking radar. This delay created an extremely busy May in terms of demand.

in addition to us, there is the Delta launch scheduled on May 15 and an Atlas launch scheduled on May 22. We tried to squeeze in-between, but could not. so we shipped our satellite the day after the TRS launch, and Saturday it is with its backup on Sunday.

Before I continue on our launch, I mush compliment the team at SpaceX on a perfect CRS-3 launch on a successful dragon docking to the International Space Station, and an incredible test landing over the ocean. What a tremendous set of achievements? We're pleased that SpaceX on the team and are scheduled to launch six OG2 satellites from Cape Canaveral on the morning of Saturday May 10 at 9:47 AM Eastern Standard Time.

After arriving at the Cape, the six satellites were tested to verify proper operation after transit, fueled, attached to the Moog ESPA rings and are now integrated to the SpaceX Falcon 9 launch vehicle, which is vertical and expected to static fire in a couple of hours, that's the last major hurdle, assuming that goes well reflected to get our board.

The weather seems to be cooperating it's expected to be 82 degrees, partly cloudy skies with up to a 10% chance of rain; currently Patrick Air Force Base predicts an 80% chance of the weather being cooperative. The six satellites should quickly have an impact on customers, also approximately 30 days have been checked by Sierra Nevada Corporation, our prime contractor, you will be turned over to the ORBCOMM operations group and we anticipate they will be placed into service within 30 days of being turned over.

This launch will fill a hole in the sky and significantly enhance network coverage and performance, while providing our AIS customers with far more frequent visibility of the vessels that they are tracking in a higher probability objection. We anticipate that this launch will have a significant impact on our financials, both near-term and long-term.

filling the hole in the sky should improve service revenues in Q3, even among our current base of subscribers and when we launch the last 11 satellites as part of the second mission, we will be able provide new OG2 services. I'll be heading down to the Cape right after this call, and we will continue posting updates on our website, for those who that have not seen that there is an OG2 blog in our website under the tab OG2 LAUNCH on our home page.

We will also include a link for anyone who would like to watch the launch real-time on SpaceX on spacex.com or spaceflightnow.com. In addition, we intend to keep the blog going for a few weeks post-launch, as we update the status of our satellites.

In conjunction with our OG2 launch, we are continuing to ship OG2 developers get for new modems. as a reminder, the OG2 modems are 100% backwards compatible and come with the options at an on-board three-axis accelerometer and built in GPS. The OG2 Developer's Kit is designed to reduce development time and expedite the deployment of ORBCOMM solutions in the fields, and we're continuing to see growing interest from system integrators and resellers planning to use the modems to build the OG2 radio applications.

Of course, being ORBCOMM, we tracked our satellites in route by the - to the Cape by installing our solar powered GT 1100 tracking and monitoring device on the trailer and we're able to experience our product first hands, we received to put every 15 minutes, including the exact location and speed of the trailer and knew the minutes of satellites arrived at the Cape. We're happy to say no excessive speed, nor rapid accelerations were noticed. it's pretty new experience to be the user of our own service.

Let's update you with what's happening on solution side of our business. we currently have more than 20 pilots with some of the largest trucking fleets who were testing the GT 1100 device, which now includes a high accuracy cargo center for detecting weather or trailers empty are loaded. many of these companies are looking to replace their telematic provider and we're doing that the GT 1100 self-powered, solar recharging technology and our cost effective large volume messaging plants are the key differentiators for us.

Looking at the competitive landscape, there's nothing exciting about monitoring your assets just once a day, because your battery at the last four years. Customers want to know where their cargo is right now. We're looking to close some of these opportunities in the near-term. Some late breaking news in our cold chain busing, we've been selected by swift transportation. The nation's largest truckload provider and Freymiller, the leading refrigerator trucking company to provide our reefer track, two-way tracking and monitoring solutions on the North American fleets, which combines sort of more than 6,000 refrigerator trailers.

ORBCOMM will provide temperature, fuel management, maintenance and logistics applications services for their temperature control fleets, working with ORBCOMM's with Freymiller will be able to further enhance the level of service, security, and return on investments taken after their customers by providing neat visibility and control of their trailers and routes, from the moment they are loaded to their final destination.

These are a couple of major wins for our team. We're continuing to make good progress on some large opportunities. We completed the installations of the first 500 GT 2300 units for hub group in Q1 and expect to ship in larger quantities in late second quarter, or the beginning of the third quarter. Hub recently announced on our earnings call that they expect to deploy fleet wide, which is over 25,000 containers over the next year and a half.

In addition, they stated that they believe the system is expected to yield $1.5 million to $2 million in savings over the course of 2015, which is the substantial number considering many of their deployments will be installed over the year and they will not get the full year impact. We're also pleased to report that Doosan has placed orders for their initial rollout of our enhanced products in North America, and we expect to begin shipping in June. After launching in North America, Europe is on deck and scheduled for the second half of the year.

As it side note, we have been working diligently on the next generation of our head equipment web platform fleet edge, which will become commercially available late second quarter. and as a result of this effort, we are seeing new OEM activity and expect to sign a second OEM solutions based agreement this summer. In 2013, we closed some great deals that are starting to be deployed in 2014. We're now closing in on additional opportunities in 2014, which we expected to impact 2015.

On the terrestrial partner front, Verizon is certified as GT 1100 and RT 6000 plus devices were used on Verizon, nationwide CDMA network, which opens up a host of co-marketing activity for us to collaborate on within our existing customer base. We've recently enhanced our subscriber management portal to further expand our offerings, as a full service aggregator of both cellular and satellite network services.

This includes not only back off its technical enhancements and offerings for the platform itself, but also the integration of additional satellite and cellular carriers with full provision and capability through our SAT platform and a customized APIs available for future integrations.

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