Orbcomm Says Second-generation Satellites Will Provide Quick Revenue Boost

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PARIS — Satellite machine-to-machine (M2M) messaging service and hardware provider Orbcomm expects to see a near-immediate effect on its revenue from the upcoming launch of the company’s first six second-generation satellites.

The launch, delayed from May 10 following an unexplained issue that turned up during a May 9 static test fire of the Space Exploration Technologies Corp. Falcon 9 rocket on its launch pad, has been tentatively rescheduled for late May.

For Rochelle Park, New Jersey-based Orbcomm, the launch cannot come soon enough. The company said its first-generation constellation has a service gap of several hours per day because of what Orbcomm Chief Executive Marc J. Eisenberg called “a hole in the sky.”

In addition to rendering Orbcomm unable to provide service until the gap in the constellation passes over users, the hole creates pent-up demand for messaging services that then overload the satellites that come into view first.

In a May 8 conference call with investors, Eisenberg said that during these periods, when a demand surge hits the constellation, some messages are lost.

With the six new satellites in orbit to fill the gap, service continuity will improve, driving up revenue as soon as the satellites enter service.

“When you close the hole in the sky, [customers] just ship more bytes through the network, and the bills go up,” Eisenberg said during the conference call. “So really nothing needs to be done other than launch the satellites” into their intended orbit. “That will have a large effect” on revenue, he said.

“And for some customers that are on a certain usage plan, when you fill the hole in the sky, they will have to be moved up to a higher billing plan,” Eisenberg said.

Orbcomm expects that following a successful launch and deployment of the satellites into low Earth orbit, it will take satellite prime contractor Sierra Nevada Corp. about a month to validate their functioning and turn them over to Orbcomm.

Another 30 days will be spent by Orbcomm testing operations and the satellites’ integration into the existing network. The satellites are compatible with Orbcomm’s existing user terminals.

A launch by early June would translate into service revenue beginning in August and increasing service revenue showing up in Orbcomm’s third-quarter accounts and even more in the fall as subscribers are moved to higher-usage plans.

“All in all it should have a material impact this year,” Eisenberg said.

A second launch of the 11 remaining second-generation Orbcomm satellites is tentatively scheduled for late this year, also aboard a SpaceX Falcon 9.

While the eight-hour gap in coverage will be filled with the six satellites, customers waiting for second-generation services, including faster transmission speeds and larger message files, will have only eight hours per day of enhanced service covered by the new spacecraft. The remaining 16 hours will await the entry into service of the remaining 11 satellites.

In addition to its core M2M business allowing companies to track the status of assets including verification of temperature for cold-chain maintenance on refrigerated rail and truck transport networks, Orbcomm is developing a business to track maritime traffic.

The Automatic Information Service, or AIS, receives messages from terminals on board ships when the vessels are beyond the reach of coastal radars that normally handle the messages.

Orbcomm and exactEarth of Canada are both building constellations of satellites to service this market. All 17 second-generation Orbcomm satellites are fitted with AIS transceivers.

The first six satellites will expand Orbcomm’s existing ship-monitoring ability. Orbcomm reported slightly more than $900,000 in AIS revenue during the three months ending March 31, or an annualized $3.6 million. Eisenberg said that should rise to $6 million per year with the six new satellites, and then gradually rise to around $10 million to $15 million per year.

Orbcomm Chief Financial Officer Robert G. Costantini said during the call that the company had secured an insurance policy for the launch of the 17 second-generation satellites, and will be paying a premium of $26 million for the policy. Added to that figure is around $55 million in payments still to be made this year to SpaceX and Sierra Nevada for the remaining satellites once they are delivered and launched.

Orbcomm reported revenue of $19.4 million in the three months ending March 31, up 16 percent over the same period a year ago. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was $3.6 million after adjusting for the costs of an acquisition.