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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

 

41-2118289

(State or other jurisdiction of

incorporation of organization)

 

(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:

(703433-6300

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class:

 

Trading Symbols(s)

 

Name of Each Exchange on Which Registered:

Common stock, par value $0.001 per share

 

ORBC

 

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

 

 

Accelerated filer

 

 

 

 

 

 

Non-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

 

 

 

 

 

Page

 

 

PART I

 

 

Item 1.

 

Business

 

2

Item 1A.

 

Risk Factors

 

16

Item 1B.

 

Unresolved Staff Comments

 

33

Item 2.

 

Properties

 

34

Item 3.

 

Legal Proceedings

 

34

Item 4.

 

Mine Safety Disclosures

 

34

 

 

 

 

 

 

 

PART II

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

35

Item 6.

 

Selected Consolidated Financial Data

 

37

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

39

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risks

 

58

Item 8.

 

Financial Statements and Supplementary Data

 

58

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

58

Item 9A.

 

Controls and Procedures

 

58

Item 9B.

 

Other Information

 

61

 

 

 

 

 

 

 

PART III

 

 

Item 10.

 

Directors and Executive Officers of the Registrant and Corporate Governance

 

62

Item 11.

 

Executive Compensation

 

62

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

62

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

62

Item 14.

 

Principal Accountant Fees and Services

 

62

 

 

 

 

 

 

 

PART IV

 

 

Item 15.

 

Exhibits and Financial Statements Schedules

 

63

SIGNATURES

 

66

 

 

 


 

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


 

PART I

Item 1.

Business

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.

5


 

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:

 

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.

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.

 

3.

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.

 

4.

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:

6


 

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 trademarks, 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.

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

 

Age

 

Position(s)

Marc J. Eisenberg

 

53

 

Chief Executive Officer and President

Constantine Milcos

 

54

 

Executive Vice President and Chief Financial Officer

Christian G. Le Brun

 

52

 

Executive Vice President and General Counsel

Craig Malone

 

57

 

Executive Vice President, Product Development

John J. Stolte, Jr.

 

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:

 

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.

18


 

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:

 

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:

 

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:

 

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.

19


 

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.

20


 

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:

 

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:

 

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:

 

Mechanical and electrical failures due to manufacturing error or defect, including:

 

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.

 

Equipment degradation during the satellite’s lifetime, including:

 

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:

 

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.

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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.

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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.

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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:

 

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.

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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:

 

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:

 

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


 

 

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

 

Real Property Owned or Leased

 

Lease Expiration

Rochelle Park, New Jersey

 

Leased

 

March 2027

Sterling, Virginia

 

Leased

 

November 2025

Ottawa, Canada

 

Leased

 

February 2031

Kowloon, Hong Kong

 

Leased

 

January 2021

San Jose, California

 

Leased

 

January 2022

Hyderabad, India

 

Leased

 

June 2025

Pune, India

 

Leased

 

June 2020

Utica, New York

 

Leased

 

May 2024

Hoensbroek, The Netherlands

 

Leased

 

May 2022

Bonn, Germany

 

Leased

 

December 2024

Centurion, South Africa

 

Leased

 

February 2020

Galway, Ireland

 

Leased

 

September 2022

Salt Lake City, Utah

 

Leased

 

July 2021

Boca Raton, Florida

 

Leased

 

December 2027

Tokyo, Japan

 

Leased

 

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

 

Real Property Owned or Leased

 

Lease Expiration  

St. John’s, Arizona

 

Owned

 

n/a

Arcade, New York

 

Owned

 

n/a

Curaçao

 

Owned

 

n/a

Rutherglen Vic, Australia

 

Owned

 

n/a

East Wenatchee, Washington

 

Leased

 

Month to Month

Ocilla, Georgia

 

Leased

 

May 2033

Kijal, Malaysia

 

Leased

 

August 2022

Hartebeesthoek, South Africa

 

Leased

 

December 2020

Kitaura-town, Japan

 

Leased

 

March 2023

Zona Franca de Justo Daract, Argentina

 

Leased

 

May 2022

Itaborai, Brazil

 

Leased

 

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.

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

 

Total Number of

Shares Purchased

 

 

Average Price Paid

Per Share (2)

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

Maximum

Approximate

Dollar Value of

Shares that May

Yet Be Purchased

Under the Plans

or Programs

 

Balances at September 30, 2019

 

 

 

 

 

 

 

 

 

 

1,582,029

 

 

$

17,123,934

 

October 1 to October 31, 2019

 

 

258,579

 

 

$

4.67

 

 

 

1,840,608

 

 

$

15,907,726

 

November 1 to November 30, 2019

 

 

43,903

 

 

$

3.92

 

 

 

1,884,511

 

 

$

15,734,142

 

December 1 to December 31, 2019

 

 

45,903

 

 

$

3.84

 

 

 

1,930,414

 

 

$

15,556,383

 

Fourth quarter 2019 totals

 

 

348,385

 

 

$

4.47

 

 

 

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.

 

 

36


 

(Amounts in dollars) 

 

 

 

12/14

 

 

12/15

 

 

12/16

 

 

12/17

 

 

12/18

 

 

12/19

 

ORBCOMM Inc.

 

 

100.00

 

 

 

110.70

 

 

 

126.45

 

 

 

155.66

 

 

 

126.30

 

 

 

64.37

 

Russell 2000

 

 

100.00

 

 

 

95.59

 

 

 

115.95

 

 

 

132.94

 

 

 

118.30

 

 

 

148.49

 

NASDAQ Telecommunications

 

 

100.00

 

 

 

97.52

 

 

 

102.36

 

 

 

127.62

 

 

 

127.16

 

 

 

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.

 

 

 

Year Ended December 31,

 

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

 

$

160,594

 

 

$

153,589

 

 

$

134,938

 

 

$

112,881

 

 

$

99,973

 

Product sales

 

 

111,419

 

 

 

122,551

 

 

 

119,282

 

 

 

73,863

 

 

 

78,320

 

Total revenues

 

 

272,013

 

 

 

276,140

 

 

 

254,220

 

 

 

186,744

 

 

 

178,293

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

52,264

 

 

 

53,184

 

 

 

50,548

 

 

 

37,913

 

 

 

34,109

 

Cost of product sales

 

 

78,377

 

 

 

93,444

 

 

 

99,640

 

 

 

55,037

 

 

 

56,413

 

Selling, general and administrative

 

 

69,590

 

 

 

66,988

 

 

 

55,753

 

 

 

46,915

 

 

 

44,395

 

Product development

 

 

14,720

 

 

 

13,405

 

 

 

8,941

 

 

 

6,252

 

 

 

6,469

 

Impairment charges

 

 

 

 

 

 

 

 

31,224

 

 

 

10,680

 

 

 

12,748

 

Depreciation and amortization

 

 

50,702

 

 

 

49,684

 

 

 

45,681

 

 

 

42,803

 

 

 

26,571

 

Acquisition-related and integration costs

 

 

788

 

 

 

1,624

 

 

 

3,315

 

 

 

1,630

 

 

 

4,803

 

Total costs and expenses

 

 

266,441

 

 

 

278,329

 

 

 

295,102

 

 

 

201,230

 

 

 

185,508

 

Income (loss) from operations

 

 

5,572

 

 

 

(2,189

)

 

 

(40,882

)

 

 

(14,486

)

 

 

(7,215

)

Other expense

 

 

(19,321

)

 

 

(19,092

)

 

 

(20,722

)

 

 

(8,223

)

 

 

(4,559

)

Loss from continuing operations before income

   taxes

 

 

(13,749

)

 

 

(21,281

)

 

 

(61,604

)

 

 

(22,709

)

 

 

(11,774

)

Income taxes

 

 

4,383

 

 

 

4,658

 

 

 

(409

)

 

 

517

 

 

 

1,225

 

Net loss

 

 

(18,132

)

 

 

(25,939

)

 

 

(61,195

)

 

 

(23,226

)

 

 

(12,999

)

Less: Net income attributable to the

   noncontrolling interests

 

 

291

 

 

 

305

 

 

 

89

 

 

 

285

 

 

 

252

 

Net loss attributable to ORBCOMM Inc.

 

$

(18,423

)

 

$

(26,244

)

 

$

(61,284

)

 

$

(23,511

)

 

$

(13,251

)

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(18,435

)

 

$

(26,262

)

 

$

(61,296

)

 

$

(23,525

)

 

$

(13,287

)

Per share information-basic: