ORBCOMM, Inc. (ORBC)

Who is ORBCOMM Inc. (ORBC)?

Orbcomm offers a combination of global satellite
and cellular services designed to track assets in
many key vertical markets including: transportation
and logistics, heavy equipment, oil and gas, maritime,
and government.

With 17 satellites in orbit, Orbcomm is the market
leader in satellite M2M with a 42% share of the market
and it is also the only satellite network and company
100% dedicated to M2M. They currently have 500 employees
in 14 countries including 300 engineers.

The company also plans to expand its market reach to
include security and medical devices. Orbcomm seeks
to broaden its global M2M opportunities through a
combination of lower prices, better satellites and a
truly global network.

Why do I like them?

1) Business model

ORBCOMM is the type of story stock that Wall Street loves
(companies that operate in an infantile industry (IoT)
poised for huge growth over the next decade, while making
life easier for customers).

They currently have 39 patents and 1.6M customers using
their services (many whom may not be aware that they are
indirectly using ORBCOMM’S services).

2) Customer base

Whether it is anti-theft tracking solutions integrated
into shipping containers for Tropicana, fleet monitoring
solutions for Wal-Mart, supply chain optimization for
Lockheed-Martin, or real-time updating of machinery maintenance schedules for Terex,
ORBCOMM has established relationships
with some of the largest global companies.

Presentation worth reading:

http://investors.orbcomm.com/phoenix.zhtml?c=198778&p=ir…

3) Financials starting to turn the corner

Now that the company finalized the 11 satellite launches,
management believes they are entering a “long satellite
CapEx holiday” and can focus on execution of its business plan.

During its most recent quarterly earnings release,
ORBCOMM states they "had another strong quarter
with Q4 total revenues of 45 million, increasing 53%,
or 15.5 million over the prior year. And record high
adjusted EBITDA of 11.9 million increasing a 131%, or
6.7 million over the last year.

Breaking this down further, service revenues in the
quarter increased year-over-year by 79% to 27.1 million
and product sales increased 25% to 17.9 million. Our
subscriber counters subs during the quarter by 239,000
net subs, and include over 200,000 subscribers added
from the WAM acquisition, ending the year at about 1.57
million subs.

For 2015, total revenues were 178.3 million, increasing
85% or 82.1 million over the last year driven by
acquisition and strong organic growth of 17% on a
constant currency basis. Service revenues increased
year-over-year by 67% to 100 million, and product
sales increased 114% to 78.3 million. Adjusted EBITDA
for 2015 was 42.3 million, increasing a 139%, or 24.6
million over the last year."

Risks

  1. The company’s biggest durable competitive advantage
    could become its greatest liability if the company
    experiences unforseen satellite outages and service
    that performs poorly.

  2. While revenues have grown over the last few years,
    the company’s common stock count has increased from
    44M to about 77M shares. Hopefully this will no longer
    continue as management has said their satellite capex
    will decrease dramatically due to the successful
    SpaceX deloyment. The risk of further dilution is always
    present.

In summary, ORBCOMM is company whose services undeniably
improve operations for their business customer base.
Their fully-owned satellites offer them a geographical
asset moat, with major barriers to entry. The company is
somewhat expensive on traditional valuation metrics, but
the story here is compelling to the extent that a long
period of overvaluation is to be expected based on the
“story” of the stock, outlined above.

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