ORBCOMM Inc.
Q3 2013 Earnings Call Transcript

Published: 7 Nov 2013

[Operator:]

Good morning, ladies and gentlemen and welcome to ORBCOMM’s Third Quarter 2013 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions) A replay of this conference will be available from approximately 12 o’clock noon Eastern Time today through 11

[Marc Eisenberg:]

Good morning and thank you for joining us. I am Marc Eisenberg, ORBCOMM’s Chief Executive Officer. And with me today is Robert Costantini, ORBCOMM’s Chief Financial Officer. Before we begin, let me remind you that this conference call includes forward-looking statements and that actual results may differ from the expectations reflected in these forward-looking statements. We encourage you to review our press release and SEC filings for a full discussion of the risks and uncertainties that pertain to these statements. I want to remind you that ORBCOMM assumes no duty to update forward-looking statements. In addition, the financial information we will discuss today includes non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in our press release. This is the key quarter for ORBCOMM in a number of fronts. On the network side of the business, ORBCOMM has made great strides in creating the most complete offering by partnering with some of the leading networks in both satellite and cellular. In our end-to-end solutions business, we have closed some major opportunities with key customers and see our momentum rising. We achieved milestones which brings closer to the launch of OG2, ORBCOMM’s next generation satellite constellation. And finally, we had a pretty good quarter. So let’s get started. Earlier this morning, we issued a press release announcing financial results for the third quarter ending September 30, 2013. On this call, I will summarize the financial results; provide some detail on our third quarter business highlights; update you on the recent acquisition of the SENS Asset Tracking Operation; give some further thoughts on our strategic alliance with Inmarsat and discuss the status of OG2. Robert will then take you through the detailed financials. The third quarter was marked by new revenue heights. We achieved $19.7 million in total revenues and $13.8 million in service revenues. In the third quarter, our service revenues increased year-over-year by 8.3% and total revenues increased 22%. Net income for the third quarter was $1 million or $0.02 a share compared to $2.3 million or $0.05 a share in the same period last year. Adjusted EBITDA for the third quarter was $3.5 million, $800,000 lower than the same period last year. However, the quarter had a large non-recurring cost of $800,000. In acquisition-related expenses, our adjusted EBITDA would have been at $4.3 million and in line with last year. Our subscriber count grew by 27,000 net subscriber communicators or subs ending the quarter at 827,000. Revenue from product sales was $5.9 million, up 75% compared to the same period last year, while the devaluation of the Japanese yen continues to negatively affect comparisons. Growth at StarTrak and the contribution of GlobalTrak and MobileNet led to strong overall product sales. Summing up our financial performance, we are seeing some nice growth in our business, but it’s being offset the cost line as the company is investing in future growth. We have grown from a company in 2010 with less than 100 people that focused strictly on the wholesale network services into a full solutions company in 2013 with nearly 200 people. As you see from our press releases, we have closed opportunities with Ryder, Doosan, John Christner Trucking and others and we anticipate we will add tens of millions of revenues over the coming years. To support these opportunities, we have built unique hardware configurations, adopted new network partners customized our application web portals interfaced with customer management systems. And in the financials we are reporting today, nearly none of the associated revenue from these deals are apparent. We will talk about these opportunities in more detail in a moment. Let’s talk about our most recent news first. Earlier this week, we announced a strategic partnership with Inmarsat. Inmarsat is the largest player in the mobile satellite services or MSS business by far with over $1.2 billion in annual revenues. The partnership accomplishes some key strategic objectives for both companies. The first is to collaborate on joint product development and distribution for the satellite M2M industry and the second is to investigate opportunities for future network expansion and integration. This partnership brings together the largest MSS provider with the largest satellite M2M player and together we expect to set the standard for satellite solutions in M2M. The satellite based M2M environment today is a fragmented one due to the lack of standards, expensive hardware and support models that are not in tune with the requirements that are demanded by the market. Our goal at this alliance is to create the optimal offering for the M2M industry while creating a standard M2M platform on which to develop innovative, scalable and economical satellite solutions. By that, I mean, we want to make it easy for M2M companies to use the most appropriate network for their unique application needs without having to invest huge amounts of man hours and expense behind each capabilities. The development time of an M2M application can be significant and this addresses that concern. To accomplish these goals, we are in the process of building multiple newly identical modems, our OG2 VHF-enabled modem, which is about to hit the market and an Inmarsat L-band enabled modem, which will follow in 2014. Both modems were expected to have the same footprint connectors, power input, programming environment, fueling our provisioning portal, fueling engine and access to multimode offerings. Manufacturers and partners will be able to snap in the appropriate modem based on geographies, the message size and delivery speeds. The networks will be interchangeable for unrivaled ease of use and flexibility. Given the compelling strength in coverage whether technical or regulatory, response time and message size, the combined offering, quality of service and geographic footprint will be unmatched. In addition, we are building a third conforming modem to take advantage of the Globalstar one-way network. ORBCOMM obtained some of that technology through the acquisition of the SENS Asset Tracking Operation, which we will talk about in more detail later. Imagine three quarters of the MSS industry focused on M2M will have access to the same standard. Our longtime partner, Quake Global is also supporting this project by enabling their products on this multi-network platform. Quake, ORBCOMM and Inmarsat are in the process of engaging new customers who want to build on this platform as well as current customers who want to extend their deployments to markets, not currently supported from a regulatory standpoint. These new products offerings meet the demands of the M2M industry head on. The solution will be offered a compelling price points, have multimode optionality and is expected to open up markets not reachable in the past like China and Russia. For the second part of our relationship both ORBCOMM and Inmarsat will look at opportunities and operations to leverage the combined networks. We will begin a detailed analysis that determined the best way to service the M2M, the MSS markets whether it be looking at current or future space crafts, grounds infrastructure, operations or distribution. This process is just beginning and we anticipate it will take some time to see how large the opportunity is and how best to tackle it. We are very excited to engage with Inmarsat leverage our shared spirit of innovation. Now on to our business highlights, as we have reported over the last couple of quarters, there have been several major opportunities burling in our solutions business, which have closed in Q3. Let’s discuss some of these opportunities. StarTrak is kicking off sales of our award winning GT 1100 asset tracking solution. The GT 1100 is self-powered with solar recharging technology for lower power consumption, efficient messaging and long service life in the field. Following a strong pre-marketing push through an integrated advertising and e-mail campaign in Q3, we announced the commercial launch of the GT 1100 to the transportation and distribution industry at the American Trucking Association Management Conference and Exhibition in Orlando in mid-October. We already have several GT 1100 units in pilot with 15 StarTrak customers and plan to sell thousands of units in 2014. We expect this unit shipping lightly in Q4 and ramping up in Q1 of next year. The GT 1100 is one of a suite of vertically aligned asset tracking and monitoring solutions ORBCOMM now brings to the market. Our portfolio of transportation solutions covers multiple markets from reefer monitoring, intermodal container security and dry van tracking. We are carving on our position in the marketplace for building highly customized M2M telematic solutions for large scale companies like Ryder. Speaking of Ryder, let’s spend a few moments to talk about our recently announced deal with Ryder, which leverages both our trailer tracking and reefer monitoring solutions for their fleet of more than 30,000 dry van, refrigerated and flatbed trailers. We will provide Ryder with a comprehensive telematic solution that includes network service, state-of-the-art hardware and a robust web-based analytics platform for fleet management on both the lease and rental sides of their business. Ryder is using our GT 1100 for its dry van and flatbed trailers, which will help their customers maximize asset visibility and utilization. For its refrigerated trailers, Ryder will use our RT 6000 plus, which helps Ryder’s cold chain customers improve quality, mitigate product spoilage and ensure compliance with new food safety regulations. Ryder is a leader and technology innovator in the commercial transportation market and a great lead customer in taking advantage of our industry leading end-to-end telematic solutions to help their business run smarter and more efficiently. Ryder is started to deploy our solutions as they just replenish their fleet. They are also looking at some retrofits in 2014, but we are not able to size that at this time. In the cold chain market, John Christner Trucking, a large player in refrigerated transportation recently selected ORBCOMM to provide a two-way tracking and monitoring solution for its nationwide fleet of refrigerated rail and over-the-road trailers. John Christner will use StarTrak to provide comprehensive temperature, fuel management, maintenance and logistics application services for their temperature-controlled cargo. We will also provide our web application with advanced data reporting and analytics capabilities to help them increase in-transit visibility and efficiency. This is a great win for us as StarTrak continues to lead the cold chain space. I’d like to give you an update on another one of our large customers in the heavy equipment market, Doosan. As we have announced in September, our MobileNet team is providing Doosan with a full hardware solution, service from our satellite network and our Tier 1 wireless partners, as well as our advanced management portals to track and monitor their global fleet of construction equipment. We have spent the last few months fine-tuning the hardware, software and customizing Doosan’s back office platform in preparation for global rollout. Last month, we introduced our telematic solutions to Doosan’s top 500 dealers and customers in Europe during their week long demo based conference. We expect the first field test units to rollout November for Doosan’s excavator and wheel loaders, which are the two primary machines that will be outfitted with our solution. Following the field tests, we anticipate shipping hardware in Q1 to support a full European launch. On an additional note, the Doosan team plans to launch our solution in Asia-Pacific on their Tier 2 and Tier 3 machines, which will increase volume and market expansion in late 2014. In North America, Doosan continues to deploy current MobileNet hardware and software and we expect them to migrate to the new telematic solution in early 2014 as well. On the government side of the business, our GlobalTrak team has completed the installation of its state-of-the-art fuel monitoring system in Afghanistan, which is designed to prevent test of mission-critical fuel transported for the U.S. Defense Logistics Agency, or DLA and used by U.S and NATO forces. The system which features unique fuel sensors in an advanced tracking and monitoring technology utilizes ORBCOMM’s GT 3100 device to deliver new real-time location, fuel level and security status of DLA contracted fuel tankers. There are currently five transportation companies using this system in Afghanistan. The implementation of the operational network is progressing well and we expect full mission readiness by the end of this year. We are confident that this project will have an impact as the major deterrents of fuel at both military and commercial applications worldwide. GlobalTrak has also entered into a strategic partnership with Savi Technology, a leading provider of sensor-based analytics and RFID solutions to provide advanced location based monitoring solutions to government and commercial markets. ORBCOMM and Savi have submitted a proposal in response to the U.S. Army RFID IV project, which will provide both RFID tags and satellite solutions for military logistics support. By leveraging our complementary technologies, we believe we will bring the right blend of technology platforms and industry expertise to the RFID IV proposal. We plan to work with Savi to develop best-of-breed asset tracking and monitoring solutions or other global opportunities in the near future. We plan to update you on the progress of this proposal over the next couple of quarters. As I mentioned earlier, we continue to expand our offerings with the acquisition of Comtech Mobile Datacom, SENS Asset Tracking Operation on October 1, 2013. SENS is a market leader in providing one-way satellite products and services utilizing the Globalstar network. SENS brings a strong customer base including industry leaders like Assetlink, (indiscernible) and BlackBird Technologies. The acquisition adds over 20,000 subscribers to our network and supports our growth strategy by broadening our portfolio of services with SENS one-way satellite hardware, network technology and web platforms and expanding our reach in key markets such as government, oil and gas, transportation and logistics. In addition, this opportunity complements our GlobalTrak business which uses SENS technology for its military container tracking applications in Pakistan and Afghanistan is DLA fuel monitoring program as well as other global deployments. We see SENS as an important catalyst of future strengthening ORBCOMM’s position as the leading multi-network provider of satellite and cellular communications for the global M2M industry. As a reminder, we now offer connectivity services for three global satellite networks ORBCOMM, Inmarsat and Globalstar as well as seven Tier 1 cellular networks, AT&T, T-Mobile, Telefonica, Telenor, Rogers, Verizon and Vodafone. Service revenues from our Automatic Identification System for vessel tracking or AIS were approximately $750,000 in Q3. During the quarter we signed two new reseller contracts and issued 11 new licenses and also received a direct contract with SPAWAR of the U.S. Navy. ORBCOMM service currently provides access to vessel tracking information from well over 115,000 unique vessels on a daily basis. As a reminder when OG2 launches, ship detections will go from a couple of times a day to near real-time visibility. Next I would like to update you on the status of OG2. A few weeks ago SpaceX successfully launched Canada’s Cassiope satellite on the upgraded Falcon 9 Version 1.1 rocket. This is the same rocket we are scheduled to fly. The success of this launch is a significant milestone towards our first OG2 launch as it demonstrated the new rockets upgrades including higher performance engines, larger tanks and a fairing that the tech satellites during the launch vehicle ascent. The next Falcon 9 lunch is scheduled for late November carrying a geostationary communications satellite for SCS. ORBCOMM is either third or fourth on the manifest depending on the timing of the space station cargo resupply machine. We are expecting a launch in the March or April 2014 timeframe. On the spacecraft side Boeing has completed environmental testing of all eight payloads necessary for the first OG2 mission. Sierra Nevada Corporation is continuing with spacecraft integration, system level environmental testing and resolving any remaining issues. The first spacecraft, which typically undergoes more extensive testing has completed the critical environmental test including thermal vacuum and fulguration testing. We have also received the satellite dispensers and harnessing from (indiscernible) and are continuing to make strong progress and preparation for the launch. On the OG2 hardware side of the business the beta version modems completed the full suite of verification tests and the first production unit to be manufactured. These first production units are expected to be distributed to several of our customers for field testing this quarter. Before I turn it over to Robert I would like to give you some insight on Q4. For Q4 we anticipate hardware sales declining approximately $1 million versus Q3. In Q3 we moved quickly to finalize our DLA installations in Afghanistan prior to the uncertainty with U.S. Government at the end of the quarter. This led to approximately $500,000 of hardware in Q3, which was expected to be realized in Q4. The addition of defense business closed the first day of Q4, so it did not factor in Q3, but should add about $300,000 to $400,000 of service revenue in Q4. There is typically a hardware component of SENS as well, but there was little finished inventory at the time of the acquisition and the build cycle will extend beyond Q4. So we do not expect it to contribute significantly to hardware sales in Q4. Going beyond Q4 we expect SENS to contribute a few hundred thousand dollars of product sales per quarter. The SENS acquisition is also expected to add over 20,000 subs in Q4. So we expect to close the year in the $870,000 sub neighborhood. With that I would like to turn the call over to Robert to take you through the financials.

[Robert Costantini:]

Thank you, Mark. Financially Q3 2013 was a robust quarter for ORBCOMM. The business is performing well and many of the developments Mark discussed are giving us positive outlook. But the revenues are not yet reflected in our financials such as the SENS acquisition on October 1 and the several large deals signed in Q3 with Doosan, Ryder and John Christner Trucking. Overall the third quarter of 2013 total revenues were $19.7 million compared to $16.1 million during the same period of 2012, an increase of 22% over the prior year. And revenues increased 6% sequentially over Q2 this year. The third quarter of 2013 included 8% growth in service revenues to $13.8 million and 75% growth in product sales of $5.9 million. Product sales were strong with StarTrak increasing 31% and Japan increasing 14% over the third quarter of 2012. Robust product sales indicate strong market acceptance for our solutions and our leading indicator of future service revenues. ORBCOMM’s net income for the third quarter was $1 million or $0.02 a share compared to $2.3 million or $0.05 per share in a comparable period last year. The company is maintaining profitability as we continue to make acquisitions and pursued large customer opportunities to fill our pipeline. Acquisition related transaction costs were approximately $800,000 equating to roughly $0.02 per share in the quarter. Adjusted EBITDA for the third quarter of 2013 was $3.5 million and as I just mentioned included about $0.8 million in acquisition-related costs. As the company has been engaged in a number of projects, the company continues to incur costs to execute on multiple large opportunities, the cost of which are leading revenues and continue to have an effect on net income and adjusted EBITDA. We are signing deals and expect some revenues from these activities to commence in 2014. Our comparative results are still being weighed down by the current Japanese yen exchange rate versus the U.S. dollar affecting comparisons of a reported revenue and profitability on a constant currency basis. Revenues would have been higher by almost $0.5 million in the quarter and $1 million year-to-date. Looking at the income statement in a bit more detail, service revenues for the third quarter of 2013 were up 8% year-over-year to $13.8 million, an increase of $1.1 million compared to $12.7 million in the third quarter of 2012. Approximately 2% of this growth came from the acquisitions of GlobalTrak and MobileNet with the remaining 6% coming from organic growth adjusted for the yen on a constant currency basis. All components of our service business were up this quarter. Product sales were also higher during the third quarter of 2013, increasing 75% year-over-year compared $5.9 million – I am sorry year-over-year to $5.9 million compared to the $3.4 million in the third quarter of 2012. The year-over-year increase in product sales included an organic increase of 36%, which StarTrak increasing 31% over the prior year period. And then adjusting for the yen on a constant currency basis Japan increased 44%. Product sales in the third quarter were negatively impacted by $300,000 due to the weaker yen exchange rate on a constant currency basis. Product sales for the 2013 acquisitions added $1.6 million, non-including SENS which we acquired on October 1 that will start contributing revenues in the fourth quarter as Mark explained. To recap, total revenues for the quarter ended September 30, 2013, were $19.7 million compared to $16.1 million during the same period of 2012, an increase of 22%. On the cost side, over the last couple of quarterly earnings calls we indicated additional spending is occurring to pursue large customer opportunities. Some of which are only obtainable to us by the acquisitions we’ve done. While we are currently incurring the cost to deliver customized solutions, we don’t expect to see any significant revenue streams to offset these costs until 2014. On a positive note the sequential quarter-over-quarter increase in Q3 from Q2 has moderated to that 10% excluding direct costs of services and products. Sequentially, SG&A costs slightly declined from Q2 by six tenth of a percent overall. And organically excluding the acquisitions SG&A declined by about 4% in Q3 from Q2. We continue to remain focused on controlling costs. Cost of services were $6.2 million in the third quarter, up from $5.1 million in the prior year, an increase of $1.1 million. Slightly higher labor costs are driving increases in organic expense growth. But most of the increase is due to operating costs and new employees to run the acquired companies. Cost of products were $4.1 million in the third quarter, up from $2.3 million in the prior year, an increase of $1.8 million. The increase is mainly due to higher product sales in the third quarter, but is also impacted by the weaker yen as described, increasing supply costs in Japan denominated in U.S. dollars. The yen exchange rate increased costs and lowered its hardware profitability in the third quarter of 2013 on a transactional basis by approximately $100,000. Gross margins 30% returned to normal levels in the third quarter of 2013, up from lower levels in Q2 2013. Selling, general and administrative expenses were $6.7 million for the third quarter of 2013, and $1.3 million higher than the $5.4 million spent in the third quarter last year mainly due to additional operating costs from the acquisitions including new employees, spending on new initiatives and cost and anticipation of the OG2 launch. Product development costs were $700,000 in the third quarter of 2013 and $100,000 higher than last year mainly due to new product initiatives for customers the expected OG2 service in 2014 and our Inmarsat partnership. Product development costs were also higher, thank you to 2013 by over $200,000. For the recent shutdown lines income from operations was $1.2 million or $1.4 million lower in the third quarter of 2013 compared to $2.6 million in Q3 of 2012. The Q4 2013 some costs will continue to add slightly higher reflecting the integration of the SENS business. I expect we will see quarterly cost of service in the low $6 million range, quarterly SG&A to range around the mid $6 million amount and quarterly product development ranging around $600,000. Income taxes for the third quarter of 2013 was $0.3 million and were comparable to the third quarter of 2012 for foreign taxes reflecting our profitable operations in Japan. Net income was $1 million for the three months ended September 30, 2013 compared to $2.3 million for the same period in 2012. Earnings per share were $0.02 per share for the three months ended September 30, 2013 and $0.05 per share for the same three-month period in 2012. The impact of acquisition related costs were $0.02 per share in the quarter compared to nil in the prior year period. EBITDA for the third quarter of 2013 was $2.8 million compared to $3.9 million in the third quarter of 2012. Adjusted EBITDA for the third quarter of 2013 was $3.5 million compared to $4.3 million in last year’s third quarter lower by about $0.8 million which is what we spend on acquisition-related costs in Q3. Excluding the acquisition-related costs, adjusted EBITDA would have been $4.3 million in line with last year’s Q3. Adjusted EBITDA margin was 17.8% for the third quarter of 2013 compared to 26.6% in the prior year period lowered by acquisition related cost, the yen exchange rate and spending to invest and growing our businesses as discussed earlier. Looking at the balance sheet, cash, cash equivalents, restricted cash and remarkable securities were $79.7 million as of September 30, 2013 decreasing by $0.5 million from June 30. In the third quarter, we spent $4.4 million on capital expenditures, which was offset by cash provided by operating activities of $3.3 million in Q3. Overall, cash from operating activities was $5.5 million for the nine months ended September 30, 2013. Total equities approximately I think $90.2 million as of September 30, 2013. Wrapping up, ORBCOMM’s third quarter results continue to reflect strong growth in revenues, subscribers and profitability and net income and adjusted EBITDA. We have remained profitable while investing to acquire and integrate new companies, prepare the business for our next generation of satellites and pursue major customer opportunities that will start paying off in 2014. Recent announcements involving Inmarsat, Doosan, Ryder and John Christner Trucking validate our strategy giving us strong momentum headed into the fourth quarter and 2014 and we are seeing many more opportunities in the market. With that, we’ll now be happy to take your questions.

[Operator:]

(Operator Instructions) And our first question comes from the line of Mike Malouf with Craig-Hallum Group. Please go ahead.

[Mike Malouf:]

Great, thanks for taking my question. Can you talk just a little bit about the 27,000 subscribers and just give us a sense of the mix. I would actually thought that given some of the acquisitions you’ve made that the mix would actually helped the ARPU, the second one down a little bit.

[Marc Eisenberg:]

Yes, the 27,000 was predominately the – it was predominately OEM and I would say probably something like 15% to 20% of the new subs came what were subscribers from the acquisitions that we made. We think going forward these guys as long as during that range if you think that just about 15% of our subs are aftermarket subs, ARPUs would stay relatively flat because they are kind of growing at a similar rate, but next year we see a pretty sizable rise in the aftermarket business is some of those deals have already closed in their – they are not coming to operation in terms of revenue at.

[Mike Malouf:]

And do you think you are going to breakout the aftermarket business from the traditional business may be in 2014.

[Marc Eisenberg:]

I think from a revenue standpoint is something that we quite possibly will look at in Q1.

[Mike Malouf:]

Okay great and then with regards to the gross margin on the service side I know you touched on it a little bit but is that kind of a new level that we have to leverage that now over just a larger revenue base or is there any kind of one-time issue I just we haven’t seen 33% cost of service in a long time?

[Marc Eisenberg:]

There is some additional leveling that’s going to happen there in their cost line we’re starting to moderate as we had those businesses, the solutions businesses slightly incrementally lower margins still very high, I mean, still high 56% incremental margins on that service revenue compared to the satellite side. So I – it has come down a little bit, but I think we should start seeing the cost stabilized and as we continue to grow revenues should see start to go backup.

[Mike Malouf:]

Okay. And then just a quick question on the acquisition cost, should we – is that pretty much behind us now obviously assuming there is no further acquisition or do we have some more cost in subsequent quarters?

[Marc Eisenberg:]

I think you are seeing most of the cost for the acquisitions that we’ve done that we surprised you with the new one obviously we’ll go up again, but for SENS for most of the subsets out there it was realized in Q3.

[Mike Malouf:]

Okay, great, thanks a lot. I appreciate it.

[Operator:]

Thank you. Our next question comes from the line of (indiscernible). Please go ahead.

[Unidentified Analyst:]

Thanks a lot and good morning.

[Marc Eisenberg:]

Good morning.

[Unidentified Analyst:]

Hey, Mark. Can you just ballpark what I don’t know how you are going to describe it but is called the wholesale versus the solutions or the aftermarket versus the OEM. Can you just kind of ballpark where you are?

[Marc Eisenberg:]

With our base or with our growth?

[Unidentified Analyst:]

With your base, right as of the end of Q3?

[Marc Eisenberg:]

I’m thinking that our solutions business is somewhere in the 90,000 sub range.

[Unidentified Analyst:]

And how about on the revenue basis either dollars or percent of services.

[Marc Eisenberg:]

Either base, the average about $15 of ARPU so if you kind of give the math, you can get a feel for where it is.

[Unidentified Analyst:]

Okay, that’s helpful, thanks.

[Marc Eisenberg:]

It’s not just require, I just hang on the math.

[Unidentified Analyst:]

No, that’s right. I can (indiscernible) that’s something. And then relative to the all of the things that you have in the pipeline how much of that is dependent upon successful OG2 launch and deployment?

[Marc Eisenberg:]

How much of the solutions pipeline?

[Unidentified Analyst:]

Everything, I mean, you’ve talked about a lot of things that had been sports are signed over the past six months and you talked about you spend money to get things rolling in 2014 and so highlight in its totality how dependent are you on the – all the stuff coming to provision on the successful OG2 launch in deployment.

[Marc Eisenberg:]

Not that dependent surprisingly I mean a good portion of it – if there would to be an issue with the first launch we would trying move up as quickly as we can and get the second launch done so I don’t know that it’s – that dependent on that in terms of the pipeline that we talked about, I think if we look at OEM business which is part of our kind of our core business there. Those are the guys that are really looking for these launches. We’ve talked about guys (indiscernible) and others in the past and they build machines that last for 10 years and they have liked to see launches but the solutions business is a little less dependent on it.

[Unidentified Analyst:]

Okay, great, thanks and Robert can you update what you think the CapEx profile is going to be for the remainder of this quarter and then for next year in 2015?

[Robert Costantini:]

Yes, so with the updates and schedules we are anticipating that $10 million of additional spends for the rest of this year and then next year it will be in the $50 million to $60 million range with the balance in 2015 depending on the timing of that follow on March.

[Unidentified Analyst:]

Right, okay, great. Thanks a lot. I appreciate it.

[Operator:]

Thank you. Our next question comes from the line of Chris Quilty with Raymond James. Please go ahead.

[Chris Quilty:]

Thanks, Robert. Just a follow-up when you say 55 to 50 next year that assume that the second launch goes in ‘14 or it does in the ‘15 march.

[Robert Costantini:]

If we are going to launch in Q1 I mean, I think our working assumption is like nine month centers on that so, it’s going to be very closed – it’s Q4 closed to the end of the year so that’s were sort of modeling on but again that will be whatever it is.

[Chris Quilty:]

You’re prepaying for the launch on a percentage of completion so your timing whether it shifts the quarter or two, it doesn’t make a huge shift in that 55 to 60?

[Marc Eisenberg:]

I think I understand your question to be that under the launch site, we are going to be mostly prepaid. On the satellite build site, it’s on delivery of satellite so there is some timing there and then there is terms.

[Robert Costantini:]

And the deliveries usually 30 to 60 days before you launch.

[Marc Eisenberg:]

Yes.

[Chris Quilty:]

Got you. Do you know the timing of the DOD or finally a word and they stated the date yet?

[Marc Eisenberg:]

Prior to this whole mess with the government, it was supposed to be some time towards the end of this quarter, but maybe it slipped into Q1 of next year, but it is coming relatively soon, we understand, if we’ve taken a look at that, the size, the scope of it.

[Chris Quilty:]

Yes, I am familiar with that, it’s a program.

[Marc Eisenberg:]

Yes, okay.

[Chris Quilty:]

It’s like the $200 million program and it could be broken up into multiple vendors and will be broken up into RFID parts and also satellite parts and as part of the Savi, part of the bid where the satellite part. So it could be some subset of that $200 million. Sorry to jump on this because. This is to Marc, Correct me if I am wrong, the satellite piece is a new element but a fourth of ideal work, correct.

[Marc Eisenberg:]

It is, it is historically we’ve just or if idea and you work was larger and I think because it was missing satellite. Do you think we have barely taken down. I think it was like a $500 million contract, and only $40 million was taken down.

[Chris Quilty:]

Marc can you give us a sense of how your OEM business is trending there has been some hits in this region heavy equipment industry in the last year?

[Marc Eisenberg:]

I am sorry go ahead, in terms of what.

[Chris Quilty:]

I was just going to say in terms of their production and sales, and how that impacts you with possible inventory in the channel and what are the things that trended up down, so many blips in orders?

[Marc Eisenberg:]

Yeah, let me think of how to size that for you. The best quarter in terms of OEM sub that I kind of remember just before everything kind of blew up in 2008 it was like a 30 something mid-30,000 sub number. And at that point ORBCOMM was putting on something like either 8000 OEM subs per month and when things were really struggling that went down to just a few thousand subs a month. Here we are in that 27,000 number for this quarter of which maybe like $18,000 or $19000 of our OEM substantial. So we are nowhere near the top but we are nowhere near the bottom either. And but that’s not quite an apples-for-apples number because we have added more OEMs and yet the number is smaller. So, if ‘08, the early ‘08 was 10 out of 10, and the end of ‘08 was 1 out of 10, we are kind of floating in there like the 5 to 6 range.

[Chris Quilty:]

Naturally. So, clearly some upside potential.

[Marc Eisenberg:]

Yes, I think so. I think so. And I think we continue to add OEMs. These time deal is very large because now we have the units are large, but it’s more retail application and there is a hardware components of it. So we are pretty excited about our OEM business and this Inmarsat project I mean really hits to the heart of our OEM business where we are kind of selling into two-thirds of the world and they have got regulatory approvals in places that we don’t and we think that the business can grow that way too. I mean first we’ve got to complete our modem and we have got some work to do but we have certainly drastically increased the size of the market.

[Chris Quilty:]

Great. And have we seen ARPU impact of global fact at this point?

[Marc Eisenberg:]

No, no, you haven’t. if you have seen a very, very smaller piece of it. So the installs just finished at the end of the last quarter and right now it was a like a mad rush at the end of last quarter to get all the hardware out and get these things installed. And we are so uncertain at the time and the way our contract works is these guys they go they get it installed and then the fuel companies kind of submit those and they get repaid by PLA and there is a mad rush to make sure that they get paid. So we rush forward those installs but most of them aren’t generating service yet. They have just been on the process of getting turned on or even the ones that were turns on, you didn’t get a full quarter’s worth. So now I think you’ve got some upside there.

[Chris Quilty:]

Got you. And you gave a number earlier in script when you talked about the number of subs at the end of Q4, and I think I missed that can you repeat it?

[Marc Eisenberg:]

You have taken the 870 area, that you are going to have like 20,000 for SENS and then we are thinking it’s 23, 24 I mean that’s a guess. We just kind of took our 27 number and said energy both quarters usually over the last third quarter it’s usually 10% or 15% less, kind of assume business is usual. And that’s kind of what we were seeing in October, so I think 870 seems like a good number for you to model.

[Chris Quilty:]

Right, even with global track coming on in Q4 that’s kind of not going to be enough to move the ARPU upward, but that could have an impact as going in to 2014.

[Marc Eisenberg:]

I think you could get a small lift in Q4. I wouldn’t be surprised if Q4 was a decent APRU quarter. There is an outlook I have gone on, October looked okay. So we tend to ship a lot of hardware especially the last quarter, the end of the quarter and so you didn’t see any service revenue for the portion of those subscribers. So let’s hope we start seeing those in Q4, but as soon as you get to 2014 you’ve got due to some rolling in you’ve got writer rolling in. I think by fall we are going to be one of the largest retailer and we are going to do that below the mid-teen range for APRU. So I think APRU is going to raise, and we got a whole lot. So I guess I kind of went on the last quarter and said hey there are six things we are trying to close and I think we saw a bunch of them and deals lead to more deals and I think we’ve got some more exciting stuff in Q4 that we need to share with you.

[Chris Quilty:]

That was my next question was just the opportunity pipeline if you would characterize it today versus six months ago, are you seeing more activity and clearly you just had a big move through the price in terms of the six deals, but is the activity continuing to stay strong.

[Marc Eisenberg:]

Definitely because once you kind of establish yourself as that leader especially in cargo things we are clearly the leader out there in terms of what we can do with reefers and containers. And I am telling half the story, there is more coming. It is coming in Q4, but there is definitely more to that story, but we are seeing our momentum rising. And the struggle that we’ve is we would love to quantify for you, maybe we can kind of quantify for you over a bunch of years, but that pipeline that you talked about between what we have closed and what we think we are about to close, I mean it’s a big number. We think it’s like $80 million to $100 million over the next five years. And you read to whatever come there today and we are telling you none of the revenues are there yet, that’s growing. And I think we are kind of where we are in the market and what we do well is we are really good at finding these large fortune companies and kind of working them through their processes and helping them with just their security needs. We are good at integrating to their custom solutions kind of the side about that, that’s difficult is it makes it so hard to time some of these projects are year in a work and there is so sophisticated it leads to us drastically increasing our staff. We’ve got over 70 engineers running around now. I think on the application side if you go back a few years it was like four. So I think we are really morphing into something different and where we are also great start and the momentum is rising. It was a really long winded answer to your question.

[Chris Quilty:]

Just to clarify Mark, $80 million to $100 million over five years in revenue contribution from the stuff you close, not the new stuff that you are pursuing?

[Marc Eisenberg:]

There is stuff we are closing and there is one deal that we haven’t announced yet so, yes.

[Chris Quilty:]

Okay, looking forward to Q4. Congratulations on the quarter.

[Marc Eisenberg:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Jeff (indiscernible) with UBS. Please go ahead.

[Unidentified Analyst:]

Alright, good morning gentlemen and thank you for taking my question. Marc, I may have missed it earlier, but did you indicate that the OG2 satellite would be launched in the first quarter?

[Marc Eisenberg:]

We said in March or April and we are really watching – we are watching basics very closely. So November 22 as of yesterday was the launch date for SES. Now that guy goes off November 22, then it could be a first quarter launch if not it could like an April launch, but I think we are starting to count basins that are months now.

[Unidentified Analyst:]

Okay. If I remember correctly in the previous quarter’s call, when you select the launch might be by the end of the year, you didn’t see a real conflict though you said this certainly could be pushed back by a couple of months, but the Falcon 9 now has been successfully launched, I assume you feel more confident about a late first quarter or April launch for the OG2?

[Marc Eisenberg:]

Absolutely. I think what I said last quarter was something like yes, we are scheduled Q4, but it really looks like Q1 and we are watching that Cassiope launch pretty intently. So I don’t think anything changed other than we have had a successful launch and our confidence is growing.

[Unidentified Analyst:]

Terrific, thanks very much.

[Marc Eisenberg:]

Sure.

[Operator:]

Thank you. (Operator Instructions) And our next question is a follow-up question from (indiscernible). Please go ahead.

[Unidentified Analyst:]

Yes, thanks again. What was the AIS revenues in the quarter and thus the launch of OG2 getting to push to the end of Q1, may be early Q2 is that have an impact on any existing AIS revenues are there performance agreements that you better into that could be impacted by the launch?

[Marc Eisenberg:]

I don’t know that I mean there is a drastic difference in service between what we have today and what we’ll have in OG2 launches. Being able to price two views a day versus every 15 minutes, we think it’s going to be dramatically different, but there is no service levels or anything like that we haven’t, I think if what we are at – we reported 750,000, I think that was in the script for this quarter. So it’s like every $1 million, it’s a $3 million run rate. The commercial business seems to be rising, but the government business with this question everything is at one point it was down to nearly nothing. So the commercial business is rising and the government business is shrinking and then you are seeing kind of slow growth instead of the more drastic growth that you were used to seeing. I think some of the good news that we have seen in the end of the third quarter is we have announced SPAWAR, we didn’t announce it, but IHS closed our deal with Transcom. So we are seeing the U.S. business starting to come back, it’s not like to the big 17 satellite deal but for areas like the coasts of Africa where they absolutely needed some visibility they are back at the table buying at data and we think AIS can go up somewhat may be 850,000 or 900,000 in Q4.

[Unidentified Analyst:]

Great, okay, thanks a lot. I appreciate it.

[Operator:]

Thank you. Mr. Eisenberg, there are no further questions at this time. I will turn the floor back to you for any closing remarks.

[Marc Eisenberg:]

Thank you. Thank you. It’s been an exciting time for ORBCOMM. There are so many projects underway. We are expanding our capabilities with opportunities like our alliance with Inmarsat or acquisition of SENS. We’ve got a new constellation to launch, which will materially improve our service offering. We are about to rollout multiple new initiatives with significant industry leading customers. We are looking to execute on these opportunities over the coming months and look forward to speaking to you again in March. Thank you all for joining us today and thank you for your questions.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.