Two-way satellite messaging service provider Orbcomm Inc. is seeking up to $150 million in an initial stock offering (IPO) to help finance the company’s next-generation satellite system, according to the company’s registration statement with the U.S. Securities and Exchange Commission (SEC).
Ft. Lee, N.J.-based Orbcomm has hired investment bankers UBS, Banc of America, Morgan Stanley and Cowen & Co. to take the company public on the Nasdaq stock exchange in the hope of selling Orbcomm as a successful turnaround story.
The original Orbcomm filed for Chapter 11 bankruptcy protection in September 2000 and was purchased in 2001 by a group of investors including Pacific Corporate Group, Ridgewood Satellite LLC and OHB Technology AG of Germany. These investors and others recently reaffirmed their faith in Orbcomm by participating in a fresh round of financing between November 2005 and January 2006.
Orbcomm’s current fleet of 30 satellites, launched between 1997 and 1999, is healthy but will need to be replaced gradually starting in 2008. The six satellites in one of the constellation’s orbital planes are near enough to retirement that Orbcomm has ordered six satellite payloads from Orbital Sciences Corp. of Dulles, Va.
The Orbital Sciences contract is valued at $17 million and includes options for two additional satellite payloads that could bring the value to $24 million, according to Orbcomm.
The provider of the six satellite skeletal structures that will carry these payloads is expected to be decided in the coming weeks. Bremen, Germany-based OHB, using a platform provided by Polyot of Omsk, Russia, is one of several companies bidding for the work.
The OHB-Polyot team has completed construction of an Orbcomm test satellite to be launched in August based on an order for a new Orbcomm service from the U.S. Coast Guard. The satellite will test satellite delivery of the Automatic Identification System (AIS), a shipboard broadcast system that provides the identity and location information that international shipping regulators are requiring for all large seagoing vessels.
Using a satellite link to receive the AIS data will permit the Coast Guard to begin tracking vessels bound for the United States long before they reach the U.S. coastline. OHB founder Manfred Fuchs said in a May 17 interview that the AIS business potential is one reason for OHB’s optimism about Orbcomm’s potential.
In its May 12 IPO registration filed with the SEC, Orbcomm says it will need about $170 million between now and 2011 to build and launch 25 new satellites — the Coast Guard demonstrator to be launched this summer, six new satellites to be ordered immediately and 18 next-generation satellites. The company said it also would need another $30 million to upgrade its network of gateway Earth stations.
A contract for the next-generation fleet of satellites will be signed late this year, according to Orbcomm.
Orbcomm reported total revenues of $15 million in 2005 and had 113,000 fee-paying subscriber terminals active as of Dec. 31, 2005. Net terminal additions in the first three months of 2006 brought the terminal count to 138,000 as of March 31.
Orbcomm’s customer terminals have been coming down in price, with bulk orders now billed at about $100 per terminal compared to $280 per terminal in 2003. Half of Orbcomm’s 2005 revenue was derived from equipment sales.
The company’s subsidiary, Stellar Satellite Communications Ltd., sells terminals built by Delphi Corp., which in October 2005 filed for Chapter 11 bankruptcy protection. Delphi is one of three companies that manufacture Orbcomm subscriber terminals.
To prepare for its growth and to buttress its IPO case, Orbcomm has asked the U.S. Federal Communications Commission to modify its current operating license to permit the company to operate up to 1 million terminals in the United States. The current license limits Orbcomm to 200,000 terminals.
Orbcomm said it expects to receive a response to its license modification request in June.
Tim Farrar, president of Telecom, Media and Finance Associates, a consultancy in Menlo Park, Calif., said a $150 million IPO will be a stretch for Orbcomm given the company’s growth prospects.
“The company has done well in recent months with its new, lower-cost terminal and their prospects appear to justify the investment in a second-generation system,” Farrar said in a May 19 interview. “But we estimate that its customer base will be closer to 1 million than to 1.5 million in 2010, as they are planning expansion into markets that up to now have not used satellite services that much.”