ORBCOMM Inc.
Q1 2014 Earnings Call Transcript

Published: 9 May 2014

[Operator:]

Good morning, ladies and gentlemen and welcome to ORBCOMM’s First Quarter 2014 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 for approximately 12

[Marc J. Eisenberg:]

Good morning and thank you for joining us. I’m 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’ll discuss includes non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in our press release. We have lot to share with you on this quarter’s call, including our most pressing news, the launch of our first OG2 mission, which is scheduled to lift off in less than 48 hours. We’re going to spend some extra time today, discussing the launch, as well as the timing and the impact of the new constellation. In addition, the business is continuing to build momentum on many fronts. There’s a lot to cover, so let’s get started. Earlier this morning, we issued a press release announcing financial results for the first quarter ending March 31, 2014. For Q1 of 2014, our total revenues were $19.4 million and adjusted EBITDA was $3.6 million when adjusting for the $1.2 million in acquisition related costs. Service revenues increased year-over-year by 4% to $14.4 million keep in mind last year’s quarter included a one-time billing catch up of over $1 million, our service revenues would have been up over 10%. Product sales increased 74% to $4.9 million, total revenues of $19.4 million increased 16% from the same period a year ago. Net loss for the first quarter was $400,000 or $0.01 a share, compared to net income of $1.1 million, or $0.02 a share in the same period of last year, and again, it includes $1.2 million in acquisition related expenses, where net income would have been positive. Adjusted EBITDA excluding acquisition related expenses for the first quarter was $3.6 million flat, compared to the prior year. Our subscriber count grew by 26,000 net subscriber communicators or subs, ending the quarter at 889,000. This quarter should have been better, there was about $700,000 of StarTrak products we’re expecting to ship, but a component was delayed resulting in these products moving into Q2. Q2 promises to be a pretty substantial quarter for total revenues. Now on to the launch, our first OG2 launch is finally here, it’s scheduled about 47 hours and 15 minutes away according to our countdown clock, which is a pretty amazing feeling considering, we started financing the constellation in 2005. Since then we’ve created the specification source of the satellites, created the software built completely used out of modems, built complete products contracted with SpaceX and now the kickoff is near. Since we reported last quarter, there was a little more scheduling drama than we were hoping for. We watched the CRS, or Cargo Re-Supply machine originally scheduled for March 6, delayed due to an issue with Cape Canaveral’s tracking radar. This delay created an extremely busy May in terms of demand. in addition to us, there is the Delta launch scheduled on May 15 and an Atlas launch scheduled on May 22. We tried to squeeze in-between, but could not. so we shipped our satellite the day after the TRS launch, and Saturday it is with its backup on Sunday. Before I continue on our launch, I mush compliment the team at SpaceX on a perfect CRS-3 launch on a successful dragon docking to the International Space Station, and an incredible test landing over the ocean. What a tremendous set of achievements? We’re pleased that SpaceX on the team and are scheduled to launch six OG2 satellites from Cape Canaveral on the morning of Saturday May 10 at 9

[Robert G. Costantini:]

Thank you, Marc. ORBCOMM continues to be focused on growth and profitability. First quarter was no exception. We had good growth in service and product revenues. The anticipated rollouts for Hub and Doosan are on the cost of deployment. and after many years of effort, we have the first launch of our OG2 satellite. Both events should lead to accelerating revenue growth. In addition, we completed the Euroscan acquisition in Q1. Both the upcoming OG2 launch and the Euroscan acquisition have led us to make two significant changes in how we will present our financials. And I’d like to take a moment to discuss this. First to provide more clarity and comparability, our statement of operations or income statement will now reflect a separate line item for depreciation and amortization. Previously, depreciation and amortization amounts were included in all the costs and expense categories. This change supports inclusion of a gross profit calculation, assisting comparability of direct cost and cost of services and cost of products sales. The OG2 satellite launch scheduled for May 10 this Saturday will see approximately $70 million in assets under construction, we put into service sometime in Q3. This will drive depreciation higher by approximately $1.8 million per quarter. Second, to better reflect our ongoing operations, we are redefining adjusted EBITDA to head back acquisition related cost and then orbit insurance expense. We believe that most of analysts and investors who follow ORBCOMM do this anyway. Additionally, acquisition related costs will also include any significant identifiable integration costs that are incurred post-acquisition. Although they were none included in the first quarter, we expect to see some of this in future quarters. Although, integration – I’m sorry acquisition integration costs need to be clearly identifiable to reflect integration and not ongoing operations. Lastly, we will be adding back the in-orbit coverage premium for the OG2 satellite that is expensed as a period cost and not capitalized with the satellites. This will make period comparisons easier and the result to adjusted EBITDA will be somewhere that held the premiums for the launch coverage capitalized and depreciated over the lives of the satellites. We will be finalizing the amount of this expense in Q2. In the first quarter total revenue, service revenue and product sales increase generally in line with expectation. The company is posting a small pre-tax loss of over $200,000 equating to roughly $0.00 per share, including taxes mostly for foreign operations, net loss is approximately $400,000 or negative $0.01 per share, included in the quarter was $1.2 million in acquisition related cost equating over $0.02 per share. Adjusted EBITDA as we defined to add back the acquisition related cost was $3.6 million in both the current year and prior year periods. Adjusted EBITDA margin this year, in Q1 was about 19% versus about 22% last year, which benefitted significantly from a satellite revenue back billing adjustment that was our margin. There were several gives and takes this quarter. but going forward, we expect product margins to reset the mid-20% range and a flattening cost curve to bring adjusted EBITDA margins back to anticipated 2014 level in the low-mid 20% range. Focusing on the Q1 2014 income statement line items, total revenues were $19.4 million, compared to $16.7 million in Q1 of 2013, an increase of over 15% over the prior year. Q1 2014 includes the impact of the 2013 acquisitions in two weeks of Euroscan. Service revenues for the quarter were $14.4 million, up $0.5 million or 4% year-over-year, compared to $13.9 million in the first quarter of 2013. Service revenues last year had a one-time benefit from the back billing, adjustment and excluding that service revenue growth in Q1 would have been over 10% higher from the prior year period. The increase in service revenues in Q1 2014 were driven buy organic growth, as well as from acquisitions. We continue to add subscribers to the network, which strengthens our expectation for higher ARPU and service revenues starting in Q3 after the strength of the first OG2 satellites are launched. Again excluding the prior year, billing adjustment, organic network growth was at high-single digit. Gross margins and service revenues this quarter were relatively strong at about 55% and are actually higher than the prior year on a normalized basis. Product sales were also higher in the first quarter increasing 74% year-over-year to $4.9 million, compared to $2.8 million in the first quarter of 2013. The increase this year over the prior year was aided by acquisition as the companies we acquired contribute significant hardware revenues. On an organic growth perspective, product sales that start tracking over $2.2 million were slightly lower than the prior year with growth being hampered as approximately 700,000 of product sales look to the second quarter due to the delay in delivering a key component. On the positive side, there are the strong interest in several new products introduced in 2013 that we believe will continue to drive growth in product sales, notably, the GT 1100 and GT 2300 that was built for Hub. Gross margins and product sales were approximately 18% below our typical margins, which are in the mid-20% range. Charges for phase out inventory acquired through acquisition in some manufacturing ramp up costs, reduced product margins in the period. We expect marginal levels to come back in Q2. Direct cost and operating expenses for the first quarter of 2014 totaled $19.6 million, compared to $15.4 million during the same period of 2013. The increases year-over-year were driven higher by personnel costs for new employees for the four companies acquired over the last 12 months. Our full time equivalent headcount increased significantly to over 230 employees at March 31. Acquisition related costs and depreciation and amortization were also significantly higher this quarter. Selling, general and administrative expenses were $6.8 million in Q1 2014 and $0.7 million higher than the $6.1 million spent in Q1 last year. The main drivers for the additional operating costs related to the acquired companies, including new employees and stock-based compensation. There are also higher costs that typically concentrate in Q1, such as employer payroll packs as the public company expenses, such as audit fees and printing costs. We also relocated our Dulles, Virginia network operation standard to a new facility just down the road from the old one. On the positive side, there were some adjustments lowering reserves related to the acquisitions. We expect SG&A to rise in Q2, as we absorb Euroscan and then start leveling off. Depreciation and amortization increased by over $540,000 in the first quarter of $1.8 million, depreciation and amortization in Q2 should be around $2.4 million and $3.6 million in the quarters thereafter as the first six satellites took place into service. Acquisition related costs were $1.2 million in Q1, compared to $0.4 in Q1 last year. we expect to see some additional costs related to Euroscan in Q2, but not nearly a significant as Q1. Also any integration cost added in Q2 will be noted. We’re reporting a net loss of $.0.4 million in the first quarter of 2014, compared to net income of $1.1 million in Q1 2013. Consistent with our guidance on the last earnings call, this quarter was heavy on the cost side. there were seasonal impacts of higher employee costs, incremental public company expenses, facility move costs, significant acquisition related costs, OG2 preparation costs, as well as supporting major rollout initiatives in which the revenues not contributing Q1, but are expected to be meaningful for the rest of the year. Adjusted EBITDA as reformulated was $3.6 million in the first quarter of 2014 and 2013. Adjusted EBITDA margin was 19% for the first quarter this year, and we anticipate adjusted EBITDA margins over 20% for the remainder of 2014 as revenues grow and cost increases level off. A quick look at the balance sheet cash, cash equivalents and restricted cash is $76.9 million at March 31, 2014, compared to $70.5 million at December 31, increasing $6.3 million. Cash flows operations added $0.6 million and the $37 million in net proceeds received from the public offering of Common Stock were primarily used as payments in Euroscan acquisition and increases in working capital totaling $29 million. Total equity is approximately $233 million at March 31, 2014 and this increased by approximately $39 million due to the public offering of Common Stock in Q1. As we look ahead, we expect Q2 total revenues to be in the $23 million to $25 million range. We anticipate higher annualized revenue levels for the rest of the year and believe revenues could reach $100 million for 2014. We’re driving this growth both organically and through acquisitions. We expect to start seeing revenues pick-up in Q2, as I just mentioned and accelerating in the back half of 2014. So wrapping up, expanding on what Marc said, we have a lot to look forward to. Q1 positions us well it delivered good year in 2014 with revenue growth coming from both service revenues and product sales. Incremental revenues from some of the large deals that we’re closed in 2013 and not reflected in our Q1 numbers, are anticipated to have a meaningful contribution for the rest of the year. StarTrak closed in some new opportunities with industry leaders like Swift and Freymiller. We’re just a few hours away from the launch of our first OG2 satellite and are eager to kick off a new chapter for ORBCOMM, which we expect will have a positive impact on revenues, profitability and margins. It’s an exciting time for us at ORBCOMM. We’re now happy to take your questions.

[Operator:]

(Operator Instructions) And our first question comes from the line of Mike Walkley with Canaccord Genuity. Please go ahead.

[T. Michael Walkley:]

Great, thank you. If that was sort of set for the launches we can certainly look in forward to it, Marc on just the slipped units for StarTrak, can you provide some color on what the component was? And then Robert just included in the guidance, should we expect your product revenue to exceed like $8 million $9 million on the next quarter, given the slippage in some of the new ramps coming on.

[Marc J. Eisenberg:]

The component, wasn’t even an internal component, it was just the bracket that holds the RT 6000 that gets attached to the reaper. So there is multiple different versions of brackets depending on whether it’s a Carrier one or a Thermal King one and, whether it’s an SR3, or an SR4. So the products we’re ready to shift we just have the wrong brackets. So it’s kind of funny, because it’s such a small aspect of the entire unit, but hardware sales are going to go up pretty drastically in Q2.

[Robert G. Costantini:]

Yes, to meet those numbers they would have to be in the ranges they can describe.

[T. Michael Walkley:]

Okay, great. Thanks. And then just Marc congratulations on the two new customers in the cold chain business, I know you have patents in this area and with the Food Safety Modernization Act – are you already seeing – are these two customers that you just want because of that act or had you kind of see feel this market developing overtime and what’s the potential opportunity for ORBCOMM.

[Robert G. Costantini:]

Yes, I think it’s a little bit above I think, we’ve got some pretty solid products and we’re hitting some key price points and I think these guys are certainly seeing the ROI and the product, to not rely on the Food Safety Modernization Act. But maybe what it’s doing is just forcing them to and not that just as you customers the customers in general, forcing them to just move a little quicker than they normally would like to and on the Ameriscan front for some these smaller guys that were struggling to get to. There is an opportunity to sell over the quarters through the OEMs and have that in placed. I think what some of these guys worried about is deploying a branded unit in the field and then the Food Safety Modernization Act passing and having taken it off the road and install something on into a later date. So we’re seeing a little bit of everything. But demand is – as we kind of look at it demand in StarTrak looks pretty strong right now.

[T. Michael Walkley:]

All right and then those 6000 units you talked about those two customers are those going to rollout this calendar year?

[Unidentified Company Representative:]

This calendar year, I think you’ll get a good half of them in this calendar year.

[T. Michael Walkley:]

Okay, great. Thank you and then Rob just one last question on the ARPU for the quarter was a little lower than I expected. Is it really just with a new satellite network it start to come up or some of these larger deals come in on such the Hub Group et cetera new launch equipment, should that also drive ARPU for entire, each quarter for the remainder of the year? Thank you.

[Robert G. Costantini:]

Yeah. Both of those things were going to uplift the ARPU. Satellite, as I said the satellite network really needs to be refreshed and that’s going to help there filling that hole. Certainly the (indiscernible) ARPUs are much higher than the average and then all those are going to uplift the ARPU.

[T. Michael Walkley:]

Okay. I’ll pass it on. Thanks for taking my questions and safe travel down to Florida.

[Unidentified Company Representative:]

Thanks.

[Operator:]

Our next question comes from the line of Mike Malouf with Craig-Hallum. Please go ahead.

[Mike Malouf:]

Great, thanks guys for taking my questions. Just a kind of follow-up on that ARPU question, what was the reason why it was down in this quarter and I would have thought you get a little bit above as you’re going out some of these partnerships?

[Unidentified Company Representative:]

I think there was a couple of things, if you’re looking out let’s say from Q4, there were – it was just a movement from quarter-to-quarter. I mean we just don’t track it in terms of that levels, we’re seeing the mix change a little bit more on the threshold side in terms of the network business, and some of the satellite customers have – leveled off some of their applications. I think the new satellites are going to help to put more data through the network for some of those existing satellite customers, as there was an anyone thing that stood out.

[Mike Malouf:]

Okay, and then with regards to the EBITDA that you talked about, when you say mid or I mean 20% for the reminder of the year, you say like every quarter will sort of be above that level and top edge went higher throughout the year.

[Unidentified Company Representative:]

Yeah. I mean we have to – we’re trying to get into below mid 20s for our full-year – for the full-year. So with that we’re going to – we need to bump it up. And when you see the difference in terms of the total revenue and the hardware revenues to come in at our expected margin levels then you should be able to get that push up in the 20% range.

[Mike Malouf:]

Great, and how long will it take for some of these existing subscribers are maybe they won’t give us. But how long will it take them to – did they have to re-write some of their software to take advantage of the increase in data capacity that you now will have the OG2 satellites?

[Unidentified Company Representative:]

As soon as the satellite gets put into service or maybe even a little bit before as they kind of start jumping in and out of service. What happens today Mike, its – sometimes why it’s a little jumper in terms of our service revenues is you’ve got a hole in the sky and when that hole in the sky passes the satellites that come over head. They get hit by an off a lot of demands from the subscribers. So, it gets tough in those periods to transmit when. The weakest part of the sky becomes the strongest part of the sky. It’s going to have a significant impact on revenues. But, believe it or not from our current subscriber base, the first launch will be more significant than the second one. With the second launch is going to bring us to the ability to sell the new services round the clock is oppose to eight hours a day.

[Mike Malouf:]

Okay, great. Thanks for the color. I appreciate it.

[Marc J. Eisenberg:]

Okay.

[Operator:]

And our next question comes from the line of Jim McIlree with Chardan Capital. Please go ahead.

[Jim P. McIlree:]

Thank you, good morning. Robert, you said that SG&A is going to rise in Q2 because of Euroscan, could you either put a number on that or a range on how much SG&A would rise due to that?

[Robert G. Costantini:]

Yes, so, I think what you probably want a look at taking out depreciation now in SG&A is about $6.8 million. It’s going to be – it’s going to have seven hands alone, it’s going to be probably in the low $7 million range for quarter.

[Jim P. McIlree:]

Okay. And that's..

[Robert G. Costantini:]

Its sounds like 75…

[Jim P. McIlree:]

Right. You – I'm sorry, $7.5 million, you said.

[Robert G. Costantini:]

73 to 75

[Marc J. Eisenberg:]

73 to 75

[Jim P. McIlree:]

I just want to make sure you introduced your answer with something about depreciation. So that's excluding – it's the new presentation, so without depreciation?

[Robert G. Costantini:]

Yes.

[Jim P. McIlree:]

Okay. Are you going to release an 8-K that would have prior quarters restated with the new presentation?

[Robert G. Costantini:]

Yes, yes. Everything will be restated for prior quarter.

[Jim P. McIlree:]

Whether we're going to have to wait for each quarter or are you going to do an 8-K, so it's more available soon?

[Robert G. Costantini:]

Yes, selling back. Let me consider that items that we looking for take it back for, so you can really fresh your…

[Jim P. McIlree:]

Right, exactly.

[Robert G. Costantini:]

Yes, okay.

[Marc J. Eisenberg:]

I promise you won’t be this weekend.

[Robert G. Costantini:]

Yes.

[Jim P. McIlree:]

Really, okay. That's surprising. And then, maybe I'm splitting hairs. But Robert, I think you said revenue could reach $100 million?

[Robert G. Costantini:]

No, no. We were – we just I guess that just like five weeks or six weeks ago, where we are asking.

[Jim P. McIlree:]

Okay. And Marc, it sounded like Doosan and Hub, maybe they were pushed to the right a couple of weeks or months or am I again reading too much into your, the way you phrased it?

[Robert G. Costantini:]

I think, we said that Doosan rolls out in Q2, numerous shipping in Q2. And then, I think its word, the scrip write the same on Hub, trying to get in the end of the second quarter, may spilt to the third quarter were not sure.

[Jim P. McIlree:]

Okay, great. And then, the last one, Iridium has been making a big deal about Caterpillar and heavy equipment and they're not saying ORBCOMM is the company that they're targeting, but it seems pretty clear that ORBCOMM is the company they are targeting. Can you talk a little bit about the heavy equipment market and what you're doing in that space and if you're seeing any sort of – any impact from Iridium being more aggressive there?

[Robert G. Costantini:]

Our heavy equipment growth just seems to be kind of moving right along, just is we’ve expected. The cat numbers continue to be just fine. We certainly see the Iridium guys out there making pitches, but I know that they have made an announcement around Caterpillar, but Hitachi, another one, I know every quarter they say, soon will come in the next quarter. But it really tends to be pretty aggressive and they do that kind of thing. I remember when they announced their first cat announcement; I remember they said I don’t know for 95% or 99% of the business. but it’s a watershed agreement. They came up with all that, but as you kind of look a year later, when someone asked them on the last call. What did you really sign a year ago, and I think well, what we’ve signed was something on large machines and it’s just like I explain to you, something that we didn’t get on. So, I think it has been fairly consistent. I think Iridium is they’re struggling a little bit, rumors are on the road today trying to raise money, they’re certainly aggressive you heard Inmarsat in their release talk about winning a large MSS competitors business and the rumor in the market is that that was Skybitz, which was a already Iridium customer that they claimed to one, 200,000 units year or two ago. I think they’re struggling a little bit and are being pretty aggressive.

[Jim P. McIlree:]

And so far, impact overall impact on ARPU on the market overall, because of that.

[Marc J. Eisenberg:]

I don’t see any impact in the – their prices are higher than ours. I think we’ve more likely to impact their ARPUs and they’re going to impact our ARPU. For ORBCOMM to continue to be successful in the OEM business, we need to launch some satellites. And we’re going to do that hopefully this weekend and kind of in saying that along. And I think once we kind of refresh our network, then those guys have their issues right. I don’t know if you saw the comments made by Rupert at Inmarsat on satellite performance for Iridium, but what are you saying is a fact they’re struggling.

[Jim P. McIlree:]

Okay, and the last one. So, first of all, good luck on the launch. I hope you get it off Saturday. But if for some reason you can’t get it off Saturday or Sunday, that puts you a few weeks from now to launch it or where do you go, you’ve got a bit…?

[Marc J. Eisenberg:]

I think we got a 26, 26.

[Jim P. McIlree:]

Okay, great. Again, yes, good luck on the launch.

[Marc J. Eisenberg:]

Thanks.

[Operator:]

And our next question comes from the line of Chris Quilty, Raymond James. Please go ahead.

[Chris D. Quilty:]

Thanks, gentlemen. Marc, Robert, can you give us a sense of how the AIS also ramps with the new capacity online?

[Marc J. Eisenberg:]

So, AIS will – we have said it was $3.5 million to $4 million business with a couple of satellites that we have. It’s probably a $6 million to $7 million business once we get out market a little bit, when we get the first launch out. But really when the first launch goes you’ve got real-time visibility for shifts about eight hours a day. the other 11 satellites will tell the – the other 16 hours a day and we anticipate it’s a $10 million to $15 million of your business.

[Chris D. Quilty:]

So, we can expect to see a ramp beginning in Q3-Q4? Those numbers should continue to move up?

[Marc J. Eisenberg:]

Yes. I think it will move up over a year to look at the number.

[Chris D. Quilty:]

Got you. And can you talk about the – I mean a decent quarter here in terms of net adds and it sounds like with some slippage in the Q2 that numbers should move up. but when you look out sort of full year with the visibility you have on Hub, the Doosan refrigeration customers. I mean can you kind of size what the units might look like either on a seasonal or quarterly basis and full year?

[Unidentified Company Representative:]

So we’re talking about sub count now, right?

[Chris D. Quilty:]

Correct.

[Unidentified Company Representative:]

I don’t know that we are prepared to give you like an exact number there. We’re in the 20 to 25 range right now with the business that we have. I think Hub and Doosan will add 1000s of units per quarter on top of that. I think in terms of the new services, you’re going to get a couple of million dollars on an annual basis of service revenues, but it’s not going to affect the subscriber count, it’s just going to affect ARPU. And then we think next year when the full constellations in place, certainly the addressable market goes up multiples, but we would be hope to be growing a whole lot quicker than we are right now with a 14-year-old network.

[Chris D. Quilty:]

Got you, and any takeaway on the Japanese market, I mean, the issues in the quarter just simply foreign exchange?

[Unidentified Company Representative:]

Yes. Their business was up from Q1 last year. I think it was just slightly down from Q4. You still have that drag with the exchange. I mean we’re working through it now, I guess sort of annualized at this point, but it still – there is still a delta there taking off a couple of $100,000, I want to exam both products and service revenue, not individually, but combined. I would say that their business is poised like our business; it is ready to go after OG2.

[Chris D. Quilty:]

Great and are you guys still went out shopping for acquisitions?

[Unidentified Company Representative:]

If there is something need that we see and it’s accretive and it’s good for shareholder value, we’ll consider it.

[Chris D. Quilty:]

But are you seeing interesting things by virtue of maybe in closer to the end customer and some of the recent acquisitions?

[Unidentified Company Representative:]

We see a lots of interesting things.

[Chris D. Quilty:]

Great, I hope it’s interesting and successful on Saturday. Thank you.

[Unidentified Company Representative:]

Thank you.

[Operator:]

And our next question comes from the line of Beth Lilly with Gamco. Please go ahead.

[Beth Lilly:]

Good morning. I wanted to ask about two things. Marc, can you walk through again the timing? Let’s just go with the assumption that that some launch occurs Saturday and it’s successful. Can you walk through the timing in terms of the testing of the network and everything and then you know just walk us through – you test it for 30 days and then you turn it over and then you start to bill or how does that work?

[Marc J. Eisenberg:]

So the – from a technical perspective and then I can jump into the financial perspective, but from a technical perspective, the – there is really two vendors that builds our spacecraft

[Beth Lilly:]

Okay. So, then can you talk to me about capital? So you ended the quarter with $76.9 million in cash and you had $45 million in none payable. So, net cash at just $32 million. Talk to me about the capital spending now on this next generation launch, because I’m assuming you’ve now spent all the capital on for the most part, okay, on next first launch.

[Robert G. Costantini:]

Well we start some payments to make on the first launch. We will make payments as satellites are deliver for the next the 11 satellites that would be launch. They are pinch to milestones around the deliveries of satellites. In addition you’ve got some completion payments, to be made with SpaceX, as we go to the next couple of quarter, but company believes it’s fully funded for the program taking our available liquidity cash on hand and cash flow from operations. Taking notes that you just talked about $45 million, which is make interest payment on those there’s one amortization of the principle. So, that’s doesn’t happen until 2018, so would be way on the backend. I would say the companies tell like that programs in hand, we’ve got the source of the liquidity, we have an attractive self registration payment of $100 million, which it really the something we consider for future growth or acquisitions. And then of course, we have the ability to put $15 million our revolving credit facility on top of our senior secured note that would be secured by receivables and inventories. So that’s also available to us. We just choose to put that in place, which we haven’t done at this point, still contemplating that.

[Marc J. Eisenberg:]

Beth, to Roberts’s first point, we haven’t made all the payments on the first launch, but we paid for predominantly most of the second rocket on the second launch. So, it’s balances how pretty close.

[Beth Lilly:]

Okay. So, the bottom, I am go and trying to get at is what you have of a 180 or 190 that just spending in total armies to launch it, what’s you have left spend.

[Unidentified Company Representative:]

So, on the hardware, at the launch on the satellite this got another $55 million that I have to be spent. And on the launch, I’m sorry I enclose the launch. And then you have the insurance piece, which is going to be, first of all, we secured the insurances which is something we should point out. And that’s going to be around another $26 million. So…

[Robert G. Costantini:]

$81 million.

[Marc J. Eisenberg:]

$81 million, $82 million.

[Beth Lilly:]

Right.

[Marc J. Eisenberg:]

Between now and those launch – the end of those launches.

[Beth Lilly:]

Okay. And then, my last question is, Marc, on the last call, you mentioned there might be a chance that you might do this second launch sometime in the next six months. Can you say anymore about that?

[Marc J. Eisenberg:]

It’s currently scheduled for fourth quarter of this year.

[Beth Lilly:]

Fourth quarter. Okay, great, terrific. All right. Well, we'll be…

[Marc J. Eisenberg:]

(Indiscernible) for the fourth quarter.

[Beth Lilly:]

Fourth quarter of this year, of 2014. Yes. All right. And then, SpaceX, if we can't make it to Florida, we can watch the launch on the SpaceX website?

[Marc J. Eisenberg:]

Either spacex.com or satellite, what is it John, spaceflightnow.com, or if you want you can go to the ORBCOMM website and the links are there as well.

[Beth Lilly:]

Oh, good, okay. All right, terrific. Well, good luck on Saturday.

[Marc J. Eisenberg:]

Thank you.

[Operator:]

(Operator Instructions) And our next question comes from the line of Howard Rosencrans with DA. Please go ahead.

[Howard A. Rosencrans:]

Hi, guys. I just wanted to get a better understanding of your – you've suggested that the $100 million number for this year and just trying to get into your mind a little bit about the thinking, is it mostly in increment in ARPU that is the key driver or is it the addition of Doosan and the other major players? What is the key top line driver for that number?

[Marc J. Eisenberg:]

It’s certainly a little bit of above, but when you install hardware, it takes some time to generate the revenue. So I think we can be on a great run rate and service revenues in the fourth quarter between getting these satellites turned on in Q3, plus whatever deployments we do in Q2 and Q3 running there, but the it’s necessary before you can start generating service revenues to get the hardware deployed. So if you look at last year, I think we did something like $74 million in sales, you add Euroscans to that which is adding another $10 million and then you’ve got Doosan, you’ve got Hub, you’ve got ORBCOMM’s normal growth. And I think that’s how you get to the $100 million.

[Howard A. Rosencrans Value Advisory:]

Okay. And so getting into your mode regarding the sort of the Q4 sort of run rate, is that sort of the breakout quarter in your mind? I mean forgetting whether or not the second launch gets pushed to who knows when or it fails, assuming this guy gets off in the next few weeks, months, whatever hopefully Saturday, but in your mind, is Q4 really the representative launch quarter or a game changer here?

[Marc J. Eisenberg:]

No, no Q2 is the quarter. Q2, Q2 you’re going to see significant ramp up in hardware. Q3, we think you’re going to get the big step up in service revenues. And we’re considering a lot, because we believe it’s going to be successful. And then Q4 will just continue to accelerate. I don’t think we’re not selling you on a story that nine months away, April was already the fast first month of the quarter that this company seen.

[Howard A. Rosencrans:]

Okay. And just to go back to like an ARPU comment that you made previously or a – let me say this another way, sort of a missed messaging, the stuff that you guys believed sort of gets lost, was the number about 15% of the messages that just disappear into cyberspace and never get connected because of the hole?

[Marc J. Eisenberg:]

We don’t know exactly that numbers so there is never a number like that that we put out, but imagine we’re a phone company that open 22 hours a day. And when you go into service a 100% of the day and it just picks up. What you don’t know is as the new satellites come over after the whole and there is some congestion how many messages you lose there as well. But we’re pretty certain, it’s going to go up service revenues a couple million bucks a year and with the incremental margin is on that, like a 100%. And it’s going to make a pretty big effect on EBITDA. So back to your original question, from an EBITDA perspective, the contribution could be pretty close between the service revenue and hardware. But from a revenue perspective, we’re going to ship a lot of hardware this year, that’s the plan, a lot of hardware, and then over the course of the next year, you’ll see that starting to generate that – that field of hardware starting to generate service revenues.

[Howard A. Rosencrans:]

Great thanks guys. Well, good luck on Saturday.

[Marc J. Eisenberg:]

Thanks.

[Operator:]

Mr. Eisenberg, there are no further questions at this time. I will turn the floor back to you for any closing remarks. Do apologize, I’m showing we do have another participant in the queue, would you like to take that?

[Marc J. Eisenberg:]

Of course.

[Operator:]

Next question is coming from the line of Tim O'Brien with DG Capital. Please go ahead.

[Tim O'Brien:]

Hey, guys. Thanks for taking the question here. So you've talked about the revenue opportunities you've seen, you talked about margins getting back to a low 20% or a mid 20% range by year-end. Can you just talk about you expect margins to ramp going forward in the out years here as the satellites go up and you see incremental sales?

[Unidentified Company Representative:]

Yeah, so a couple of things, the service revenue margins are higher, so again as service revenues continue to grow and the mix change is there that’s going to lift margins, blended margin. We’re dealing now as these products are being introduced by being manufactured at world-class manufacturing facilities and as we ramp-up and we get up to the scale that will take advantages their ability to buy and produce significant volumes that will continue to help margins. But I think your question is how going forward should we start looking at margins rising? And I think again the hardware will diminish as a percentage of the mix and service revenues will then be in much higher levels, as we talked about the margin and the service revenues in Q1 were 65%, so we’ll see those also scale a little bit as these platforms are leveraged upon and we start adding more subs out to the platforms. So I think that’s Q3 as where you’re going to start to see that change happen.

[Tim O'Brien:]

Okay. And I guess do you have sort of a target margin that we can look towards in the next couple of years?

[Unidentified Company Representative:]

No I would have to think about that and see if I can – the effect of the trend I would be able to describe it.

[Tim O'Brien:]

Okay, great. Thank you.

[Operator:]

And I am showing no further questions in the queue at this time. Please continue.

[Jerome B. Eisenberg:]

Thank you all for joining us today and for your questions. We’ve got a plane to catch. We’re looking forward to speaking to you again next quarter, about SpaceX Falcon and OG2.

[Operator:]

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