Orbcomm Acquisitions Starting To Pay off with New Contracts

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PONTE VEDRA, Fla. — Mobile machine-to-machine (M2M) satellite messaging services provider Orbcomm on Aug. 8 said its four relatively small acquisitions in the past two years are paying off with new contracts including a big recent win with heavy-equipment manufacturer Doosan of South Korea.

Rochelle Park, N.J.-based Orbcomm said it is still hoping for a launch of eight second-generation M2M satellites late this year aboard an upgraded Falcon 9 rocket operated by Space Exploration Technologies Corp. (SpaceX). 

But the launch may well slip into early 2014 as Hawthorne, Calif.-based SpaceX introduces the new rocket. Three Falcon 9 launches are scheduled before the Orbcomm mission. 

The Orbcomm launch has slipped by several months as SpaceX prepares the new Falcon 9, whose inaugural flight is tentatively set for early September.

Orbcomm has 17 second-generation M2M satellites under construction by Sierra Nevada Corp. of Sparks, Nev. The remaining nine satellites could be launched aboard a Falcon 9 in 2014 depending on how quickly Orbcomm determines that the first eight are working as specified.

In addition to increasing the speed and capacity of Orbcomm’s current M2M services, the second-generation satellites all carry Automatic Identification System (AIS) terminals to deliver to coastal authorities information on ships. The second-generation satellites will be backward compatible with Orbcomm’s current ground terminals and subscriber gear.

Orbcomm currently has two AIS-equipped microsatellites in orbit and reported about $700,000 in AIS-related revenue in the three months ending June 30, up 39 percent from a year ago.

In a conference call with investors, Orbcomm Chief Executive Marc J. Eisenberg said the company is on a rapid growth trajectory in part because it is leveraging the niche expertise of the four companies it has purchased.

The most recent example, Eisenberg said, is the potentially large contract with Doosan. Doosan had a limited relationship with MobileTrak, which Orbcomm purchased in April. The contract signed with Orbcomm includes Orbcomm-provided M2M hardware for Doosan heavy equipment, plus a communications link using Orbcomm satellites and Orbcomm-provided terrestrial cellular service and access to Orbcomm’s management portal.

Some major heavy-equipment builders have their own self-generated telematics solutions into which the Orbcomm M2M service is fitted. 

Orbcomm’s two biggest customers, Caterpillar Inc. and Komatsu Ltd., together accounted for 28.2 percent of Orbcomm’s total revenue for the three months ending June 30.

But Doosan is outsourcing a large portion of its M2M requirements to Orbcomm. The contract points the way to Orbcomm’s future direction as a full, end-to-end provider of telematics solutions for companies with a global requirement.

Orbcomm operates 25 satellites in low Earth orbit in addition to the two AIS-dedicated spacecraft.

Orbcomm Chief Financial Officer Robert G. Costantini said during the call that the company will need to incur higher costs in the coming months as it adds staff to accommodate the new business and prepares for the launch of its second-generation satellites. This will put pressure on profitability.

Other mobile satellite operators, many of them much larger than Orbcomm, have targeted M2M as a growth opportunity, but judging from the financial results Orbcomm reported Aug. 8, the company is not suffering from the competitive pressure.

For the three months ending June 30, Orbcomm reported total revenue of $18.5 million, up 13.7 percent from the same period a year ago. Higher-margin services revenue was $13.5 million, up 9 percent from a year ago and 6.4 percent after stripping out the contribution to service revenue of Orbcomm’s acquisitions and other one-time effects.