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Q3 2008 Earnings Call Transcript

November 10, 2008, 10:30 am ET


Lucas Binder – VP, Business Development & IR

Marc Eisenberg – President and CEO

Robert Costantini – EVP and CFO


Michael Bowman – Piper Jaffray

Chris Quilty – Raymond James & Associates



Good morning. My name is Kalia [ph] and I will be your conference operator today. At this time I would like to welcome everyone to the ORBCOMM third quarter 2008 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 session (Operator instructions) Thank you. Mr. Lucas Binder, you may begin your conference

Lucas Binder

Thank you very much and for clarification this is our third quarter 2008 financial results conference call. Good morning and thank you all for joining us.

Let me start with a few housekeeping items. Earlier this morning we issued a press release announcing the financial results for the third quarter of 2008.

A replay of this conference call will be available beginning at 12 noon Eastern Time today until next Monday, November 17th at 12 noon. We have an accompanying audio webcast available on our Web site at www.orbcomm.com, an archive of which will be available for the week.

With me today are Marc Eisenberg, ORBCOMM's Chief Executive Officer and Robert Costantini, ORBCOMM's Chief Financial Officer.

Before we begin I also want to point out that during the course of this conference call we will be making a number of forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. Some of these factors are described in our SEC filings including the risk factor section of our Form 10-K.

I want to remind you that ORBCOMM assumes no duty to update any forward-looking statements. The financial information we will discuss today includes non-GAAP financial measures such as EBITDA and adjusted EBITDA. The company believes that these financial measures provide an enhanced understanding of our underlying operating performance, reconciliation of EBITDA and adjusted EBITDA to net loss on a GAAP basis is included in our earnings release, a copy of which is available on our Web site. With that aside I'll hand it over to Marc.

Marc Eisenberg

Thank you, Lucas. Good morning, everyone and thank you for joining us today.

Let's start with just a quick overview of the third quarter results. In the third quarter, we increased both our service revenue and total revenue compared to the third quarter of 2007. In addition, we achieved positive adjusted EBITDA for the fourth consecutive quarter. Over the last four quarters we have generated $2.7 million in positive adjusted EBITDA which equates to a 9% margin to total revenues over the past four quarters.

Additionally, ORBCOMM has generated $4.6 million in cash flow from operations year-to-date. At the end of the third quarter our total billable subscriber base was approximately 442,000, a disappointing increase of 5% over our base as of June 30th 2008.

We will discuss some of the factors that affected billable subscriber growth during the quarter and where we see the opportunities going forward later on this call. Despite slower billable subscriber growth our service revenues increased 10.1% over the second quarter, driven predominantly by stabilizing ARPUs. Billable subscriber communicators growth and slightly aided by the commencement of AIS related activities during the third quarter.

The third quarter financial results demonstrate the effective business model at ORBCOMM, specifically our operating leverage. Over the last four quarters adjusted EBITDA has improved to a $2.7 million gain. This demonstrates the progress we are making in executing on our business strategy and driving greater adjusted EBITDA margins. Robert will take you through the numbers in more detail shortly.

I'd like to take this opportunity to update you on ORBCOMM's Quick Launch satellites. Currently, the satellites are still being positioned optimally to augment the existing ORBCOMM constellation. Spacing of these satellites is taking longer than expected due to some reaction (inaudible) that affects the satellite strategy control or affects pointing. However, over the last several weeks proper spacing has accelerated.

Additionally, we have begun offering regular ORBCOMM message services over the United States on three of the four – I'm sorry, three of the six Quick Launch satellites. Once properly spaced and placed in full service Quick Launch satellites are expected to provide additional capacity and improved message delivery speeds for current and future ORBCOMM users.

As we have mentioned these satellites are also equipped with the Automatic Identification System or AIS payloads which enable them to receive and report AIS transmission use of tracking of ships. All six of our new satellites are successfully receiving and transmitting AIS data.

Let's discuss the AIS business in a little more detail. The AIS capability on board, the recently launched satellites make ORBCOMM the only company capable of providing space based worldwide commercial AIS data services.

In early October, the U.S. Coast Guard amended its agreement with ORBCOMM to elect the high usage option for AIS data from one of the new satellites. These amendments added almost 500,000 in services to be delivered over the next 12 months to the existing agreement which we began recognizing in August of this year.

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