Quarterly Report (10-q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33118

ORBCOMM INC.

(Exact name of registrant as specified in its charter)

Delaware

41-2118289

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

395 W. Passaic Street, Rochelle Park, New Jersey 07662

(Address of principal executive offices)

703-433-6300

(Registrant’s telephone number)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock as of May 1, 2017 is 71,668,045.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016	3
Condensed Consolidated Statements of Operations (unaudited) for the quarters ended March 31, 2017 and March 31, 2016	4
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the quarters ended March 31, 2017 and March 31, 2016	5
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2017 and March 31, 2016	6
Condensed Consolidated Statements of Changes in Equity (unaudited) for the three months ended March 31, 2017 and March 31, 2016	7
Notes to the Condensed Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures about Market Risks	30
Item 4. Disclosure Controls and Procedures	30
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33
SIGNATURES	34
EXHIBIT INDEX	35

PART I – FINANCI AL INFORMATION

Item 1. Financial Statements

ORBCOMM Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share data)

(Unaudited)

	March 31,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	19,955		$	25,023
Accounts receivable, net of allowance for doubtful accounts of $1,021 and $1,057, respectively		38,453			31,937
Inventories		23,401			23,217
Prepaid expenses and other current assets		6,418			8,031
Total current assets		88,227			88,208
Satellite network and other equipment, net		214,059			215,841
Goodwill		114,033			114,033
Intangible assets, net		80,031			82,545
Other assets		10,323			5,447
Deferred income taxes		86			80
Total assets	$	506,759		$	506,154
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	12,535		$	12,481
Accrued liabilities		32,678			30,431
Current portion of deferred revenue		7,293			7,414
Total current liabilities		52,506			50,326
Note payable - related party		1,218			1,195
Note payable, net of unamortized deferred issuance costs		147,685			147,458
Deferred revenue, net of current portion		2,888			2,978
Deferred tax liabilities		18,799			18,645
Other liabilities		3,401			3,684
Total liabilities		226,497			224,286
Commitments and contingencies
Equity:
ORBCOMM Inc. stockholders' equity
Series A Convertible Preferred Stock, par value $0.001; 1,000,000 shares authorized; 36,466 and 36,466 shares issued and outstanding		364			364
Common stock, par value $0.001; 250,000,000 shares authorized; 71,695,802 and 71,111,863 shares issued at March 31, 2017 and December 31, 2016		72			71
Additional paid-in capital		388,418			386,920
Accumulated other comprehensive income (loss)		(887	)		(1,089	)
Accumulated deficit		(108,292	)		(104,949	)
Less treasury stock, at cost; 29,990 shares at March 31, 2017 and December 31, 2016		(96	)		(96	)
Total ORBCOMM Inc. stockholders' equity		279,579			281,221
Noncontrolling interest		683			647
Total equity		280,262			281,868
Total liabilities and equity	$	506,759		$	506,154

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Revenues:
Service revenues	$	29,512		$	26,914
Product sales		22,409			16,646
Total revenues		51,921			43,560
Cost of revenues, exclusive of depreciation and amortization shown below:
Cost of services		9,569			9,188
Cost of product sales		17,648			11,450
Operating expenses:
Selling, general and administrative		12,241			11,756
Product development		1,588			1,957
Depreciation and amortization		11,022			8,959
Acquisition - related and integration costs		228			364
Loss from operations		(375	)		(114	)
Other income (expense):
Interest income		118			88
Other income (expense)		5			(190	)
Interest expense		(2,426	)		(1,699	)
Total other expense		(2,303	)		(1,801	)
Loss before income taxes		(2,678	)		(1,915	)
Income taxes		623			162
Net loss		(3,301	)		(2,077	)
Less: Net income attributable to the noncontrolling interests		42			19
Net loss attributable to ORBCOMM Inc.	$	(3,343	)	$	(2,096	)
Net loss attributable to ORBCOMM Inc. common stockholders	$	(3,343	)	$	(2,096	)
Per share information-basic:
Net loss attributable to ORBCOMM Inc. common stockholders	$	(0.05	)	$	(0.03	)
Per share information-diluted:
Net loss attributable to ORBCOMM Inc. common stockholders	$	(0.05	)	$	(0.03	)
Weighted average common shares outstanding:
Basic		71,424			70,700
Diluted		71,424			70,700

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited )

	Three Months Ended March 31,
	2017			2016
Net loss	$	(3,301	)	$	(2,077	)
Other comprehensive income (loss) - Foreign currency translation adjustments		196			501
Other comprehensive income		196			501
Comprehensive loss		(3,105	)		(1,576	)
Less: Comprehensive (income) attributable to noncontrolling interests		(36	)		(6	)
Comprehensive loss attributable to ORBCOMM Inc.	$	(3,141	)	$	(1,582	)

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net loss	$	(3,301	)	$	(2,077	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in allowance for doubtful accounts		(36	)		(303	)
Change in the fair value of acquisition-related contingent consideration		(495	)		100
Amortization of the fair value adjustment related to warranty liabilities acquired through acquisitions		—			(8	)
Amortization of deferred financing fees		229			155
Depreciation and amortization		11,022			8,959
Stock-based compensation		1,524			1,386
Foreign exchange (gain) loss		(26	)		351
Deferred income taxes		155			203
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(6,399	)		(1,096	)
Inventories		(151	)		(864	)
Prepaid expenses and other assets		1,768			(969	)
Accounts payable and accrued liabilities		(3,461	)		(877	)
Deferred revenue		(229	)		(1,178	)
Other liabilities		(98	)		(118	)
Net cash provided by operating activities		502			3,664
Cash flows from investing activities:
Capital expenditures		(5,645	)		(9,835	)
Net cash (used in) investing activities		(5,645	)		(9,835	)
Cash flows from financing activities:
Net cash (used in) financing activities		—			—
Effect of exchange rate changes on cash and cash equivalents		75			252
Net decrease in cash and cash equivalents		(5,068	)		(5,919	)
Beginning of period		25,023			27,077
End of period	$	19,955		$	21,158
Supplemental disclosures of cash flow information:
Cash paid for
Interest	$	2,194		$	2,198
Income taxes	$	—		$	138
Supplemental schedule of noncash investing and financing activities
Noncash investing and financing activities:
Capital expenditures incurred not yet paid	$	1,391		$	3,777
Capital expenditure milestone payable incurred not yet paid	$	—		$	5,070
Stock-based compensation related to capital expenditures	$	131		$	66
Series A convertible preferred stock dividend paid in kind	$	—		$	—

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Changes in Equity

Three Months Ended 2017 and 2016

(in thousands, except share data)

(Unaudited)

													Accumulated
	Series A convertible										Additional		other
	Preferred stock						Common stock				paid-in		comprehensive			Accumulated			Treasury stock					Noncontrolling			Total
	Shares			Amount			Shares		Amount		capital		income			deficit			Shares		Amount			interests			equity
Balances, January 1, 2017		36,466		$	364			71,111,863	$	71	$	386,920	$	(1,089	)	$	(104,949	)		29,990	$	(96	)	$	647		$	281,868
Vesting of restricted stock units		—			—			554,469		1		—		—			—			—		—			—			1
Stock-based compensation		—			—			—		—		1,498		—			—			—		—			—			1,498
Exercise of SARs		—			—			29,470		—		—		—			—			—		—			—			—
Net income (loss)		—			—			—		—		—		—			(3,343	)		—		—			42			(3,301	)
Foreign currency translation adjustments		—			—			—		—		—		202			—			—		—			(6	)		196
Balances, March 31, 2017		36,466		$	364			71,695,802	$	72	$	388,418	$	(887	)	$	(108,292	)		29,990	$	(96	)	$	683		$	280,262
Balances, January 1, 2016		35,759		$	357			70,613,642	$	71	$	381,659	$	(1,174	)	$	(81,424	)		29,990	$	(96	)	$	363		$	299,756
Vesting of restricted stock units		—			—			250,859		—		—		—			—			—		—			—			—
Stock-based compensation		—			—			—		—		1,249		—			—			—		—			—			1,249
Conversion of preferred stock to common stock		(586	)		(6	)		976		—		6		—			—			—		—			—			—
Exercise of SARs		—			—			9,740		—		—		—			—			—		—			—			—
Net income (loss)		—			—			—		—		—		—			(2,096	)		—		—			19			(2,077	)
Foreign currency translation adjustments		—			—			—		—		—		514			—			—		—			(13	)		501
Balances, March 31, 2016		35,173		$	351			70,875,217	$	71	$	382,914	$	(660	)	$	(83,520	)		29,990	$	(96	)	$	369		$	299,429

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

ORBCOMM Inc.

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

1. Organization and Business

ORBCOMM Inc. (“ORBCOMM” or the “Company”), a Delaware corporation, is a global provider of Internet of Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. The Company’s IoT products and services are designed to track, monitor, control and enhance security for a variety of assets, such as trailers, trucks, rail cars, sea containers, generators, fluid tanks, marine vessels, diesel or electric powered generators (“gensets”), oil and gas wells, pipeline monitoring equipment, irrigation control systems and utility meters, in industries for transportation & supply chain, heavy equipment, fixed asset monitoring, maritime and government. Additionally, the Company provides satellite Automatic Identification Service (“AIS”) data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide. The Company provides these services using multiple network platforms, including a constellation of low-Earth orbit (“LEO”) satellites and accompanying ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular (Tier One) wireless providers. The Company also offers customer solutions utilizing additional satellite network service options that the Company obtains through service agreements entered into with multiple mobile satellite providers. The Company’s satellite-based customer solution offerings use small, low power, mobile satellite subscriber communicators for remote asset connectivity, and the Company’s terrestrial-based solutions utilize cellular data modems with subscriber identity modules (“SIMS”). The Company also resells service using the two-way Inmarsat satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging the Company’s IsatDataPro (“IDP”) technology. The Company’s customer solutions provide access to data gathered over these systems via connections to other public or private networks, including the Internet. The Company provides what it believes is the most versatile, leading-edge IoT solutions in the Company’s markets to enable its customers to run their business more efficiently.

2. Summary of Significant Accounting Principles

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The accompanying financial statements are unaudited and, in the opinion of management, include all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations, comprehensive income and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and investments in variable interest entities in which the Company is determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The portions of majority-owned subsidiaries that the Company does not own are reflected as noncontrolling interests in the condensed consolidated balance sheets.

Investments

Investments in entities over which the Company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method of accounting. The Company considers several factors in determining whether it has the ability to exercise significant influence with respect to investments, including, but not limited to, direct and indirect ownership level in the voting securities, active participation on the board of directors, approval of operating and budgeting decisions and other participatory and protective rights. Under the equity method, the Company’s proportionate share of the net income or loss of such investee is reflected in the Company’s condensed consolidated results of operations. When the Company does not exercise significant influence over the investee, the investment is accounted for under the cost method.

Although the Company owns interests in companies that it accounts for pursuant to the equity method, the investments in those entities had no carrying value as of March 31, 2017 and December 31, 2016. The Company has no guarantees or other funding obligations to those entities. The Company had no equity in or losses of those investees for the three months March 31, 2017 and 2016.

Acquisition-rela ted and Integration Costs

Acquisition-related and integration costs are expensed as incurred and are presented separately on the condensed consolidated statement of operations. These costs may include professional services expenses and identifiable integration costs directly relating to acquisitions.

Fair Value of Financial Instruments

The Company has no financial assets or liabilities that are measured at fair value on a recurring basis. However, if certain triggering events occur the Company is required to evaluate its non-financial assets for impairment and any resulting asset impairment would require that a non-financial asset be recorded at the fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement Disclosure,” prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1 – unadjusted quoted prices for identical assets or liabilities traded in active markets; Level 2 – inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3 – unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.

The carrying value of the Company’s financial instruments, including cash, accounts receivable and accounts payable approximated their fair value due to the short-term nature of these items. As of March 31, 2017, the carrying value of the Secured Credit Facilities, as defined below, approximated its fair value as the debt is at variable interest rates. The fair value of the Note payable-related party is deminimus.

Concentration of Credit Risk

The Company’s customers are primarily commercial organizations. Accounts receivable are generally unsecured.

Accounts receivable are due in accordance with payment terms included in contracts negotiated with customers. Amounts due from customers are stated net of an allowance for doubtful accounts. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts are past due, the customer’s current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they are deemed uncollectible.

There were no customers with revenues greater than 10% of the Company’s consolidated total revenues for the three months ended March 31, 2017 and 2016.

There were no customers who comprised greater than 10% of the Company’s consolidated accounts receivable as of March 31, 2017. One customer, Caterpillar, Inc., comprised 10.5% of the Company’s consolidated accounts receivable as of December 31, 2016.

As of March 31, 2017, the Company did not maintain in-orbit insurance coverage for its ORBCOMM Generation 1 (“OG1”) or ORBCOMM Generation 2 (“OG2”) satellites to address the risk of potential systemic anomalies, failures or catastrophic events affecting its satellite constellation.

Inventories

Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. At March 31, 2017 and December 31, 2016, inventory consisted primarily of finished goods and purchased parts to be utilized by its contract manufacturer totaling $18,030 and $14,531, respectively, and $5,371 and $8,686, respectively, of raw materials, net of inventory obsolescence. The Company reviews inventory quantities on hand and evaluates the realizability of inventories and adjusts the carrying value as necessary based on forecasted product demand. A provision, recorded in cost of product sales on the Company’s condensed consolidated statement of operations, is made for potential losses on slow moving and obsolete inventories when identified.

Valuation of Long-lived Assets

Property and equipment and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company measures recoverability by comparing the carrying amount to the projected cash flows the assets are expected to generate. An impairment loss is recognized to the extent that carrying value exceeds fair value.

The Company’s satellite constellation and related a ssets are evaluated as a single asset group whenever facts or circumstances indicate that the carrying value may not be recoverable. If indicators of impairment are identified, recoverability of long-lived assets is measured by comparing their carrying amo unt to the projected cash flows the assets are expected to generate.

Determining whether an impairment has occurred typically requires the use of significant estimates and assumptions, including the allocation of cash flows to assets or asset groups and, if required, an estimate of fair value for those assets or asset groups.

If a satellite were to fail while in-orbit, the resulting loss would be charged to expense in the period it is determined that the satellite is not recoverable.

Warranty Costs

The Company accrues for one-year warranty coverage on product sales estimated at the time of sale based on historical costs to repair or replace products for customers compared to historical product revenues. The warranty accrual is included in accrued liabilities on the condensed consolidated balance sheet. Refer to “Note 8 – Accrued Liabilities” for more information.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB deferred the effective date of ASU No. 2014-09 for all entities by one year. As a result, the new standard is effective for the Company on January 1, 2018. Early adoption prior to the original effective date is not permitted. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company will adopt ASU 2014-09 in the first quarter of 2018 and apply the modified retrospective method. The Company is in the process of evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures, if any, and will continue to provide updates during 2017.

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which is effective for the fiscal years beginning after December 15, 2018. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. Early adoption is permitted. The Company is in the process of evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures, if any.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) and is effective beginning with the fiscal year ending December 31, 2020. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The adoption of this standard, which will be applied prospectively, is not expected to have a material impact on the Company’s consolidated financial statements.

3. Acquisitions

Skygistics Ltd.

On May 26, 2016, pursuant to an Asset Purchase Agreement entered into on April 11, 2016 among a wholly owned subsidiary of the Company, Skygistics Propriety Limited and Satconnect Propriety Limited (the “Skygistics Sellers”), the Company completed the acquisition of substantially all of the assets of Skygistics (PTY) Ltd. (“Skygistics”) for a purchase price of $3,835 and additional contingent consideration of up to $954, subject to certain operational milestones (the “Skygistics Acquisition”).

Contingent Consideration

Additional consideration is conditionally due to the Skygistics Sellers upon achievement of certain financial milestones through April 2017. The fair value measurement of the contingent consideration obligation is determined using Level 3 unobservable inputs supported by little or no market activity based on the Company’s own assumptions. The estimated fair value of the contingent consideration was determined based on the Company’s preliminary estimates using the probability-weighted discounted cash flow approach. The financial milestone for this additional consideration are not expected to be met, and therefore, the Company recorded a reduction of the contingent liability of $519 in selling, general and administrative (“SG&A”) expenses in the condensed consolidated statement of operations in the three months ended March 31, 2017.

Euroscan Holding B.V.

On March 11, 2014, pursuant to the Share Purchase Agreement entered into by the Company and MWL Management B.V., R.Q. Management B.V., WBB GmbH, ING Corporate Investments Participaties B.V. and Euroscan Holding B.V., as sellers (the “Share Purchase Agreement”), the Company completed the acquisition of 100% of the outstanding equity of Euroscan Holding B.V., including, indirectly, its wholly-owned subsidiaries Euroscan B.V., Euroscan GmbH Vertrieb Technischer Geräte, Euroscan Technology Ltd. and Ameriscan, Inc. (collectively, the “Euroscan Group” or “Euroscan”) for an aggregate consideration of (i) $29,163, inclusive of net working capital adjustments and net cash (on a debt free, cash free basis); (ii) issuance of 291,230 shares of the Company’s common stock, valued at $7.70 per share, which reflected the Company’s closing price on the acquisition date; and (iii) additional contingent considerations of up to $6,547 (the “Euroscan Acquisition”). The Euroscan Acquisition allowed the Company to complement its North American operations in IoT by adding a significant distribution channel in Europe and other key geographies where Euroscan has market share.

Contingent Consideration

Additional consideration is conditionally due to MWL Management B.V. and R.Q. Management B.V. upon achievement of financial and operational milestones through March 2017. The fair value measurement of the contingent consideration obligation is determined using Level 3 unobservable inputs supported by little or no market activity based on our own assumptions. The estimated fair value of the contingent consideration was determined based on the Company’s preliminary estimates using the probability-weighted discounted cash flow approach. As of March 31, 2017 and December 31, 2016, the Company recorded $680 and $655, respectively, in accrued expenses on the condensed consolidated balance sheet in connection with the contingent consideration. Changes in the fair value of the contingent consideration obligations are recorded in the condensed consolidated statement of operations. For the three months ended March 31, 2017 and 2016, an expense of $25 and $88 were recorded in SG&A in the condensed consolidated statement of operations for accretion associated with the contingent consideration.

4. Stock-based Compensation

On April 20, 2016, the stockholders of the Company approved the ORBCOMM Inc. 2016 Long-Term Incentives Plan (the “2016 LTIP”). The 2016 LTIP replaces the Company’s 2006 Long-Term Incentives Plan (the “2006 LTIP”). The number of shares authorized for delivery under the 2016 LTIP is 6,949,400 shares, including 1,949,400 shares that remained available under the 2006 LTIP as of February 17, 2016, plus any shares previously subject to awards under the 2006 LTIP that are cancelled, forfeited or lapse unexercised since that date. As of March 31, 2017, there were 7,115,859 shares available for grant under the 2016 LTIP.

Total stock-based compensation recorded by the Company for the three months ended March 31, 2017 and 2016 was $1,524 and $1,386, respectively. Total capitalized stock-based compensation for the three months ended March 31, 2017 and 2016 was $131 and $66, respectively.

The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016:

	Three Months Ended
	March 31,
	2017		2016
Cost of services	$	159	$	175
Cost of product sales		23		12
Selling, general and administrative		1,272		1,078
Product development		70		121
Total	$	1,524	$	1,386

As of March 31, 2017, the Company had unrecognized compensation costs for stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) totaling $5,059.

Time-Based Stock Appreciation Rights

A summary of the Company’s time-based SARs for the three months ended March 31, 2017 is as follows:

						Weighted-
						Average		Aggregate
				Weighted-		Remaining		Intrinsic
	Number of			Average		Contractual		Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2017		3,789,394		$	5.23
Granted		90,000			8.58
Exercised		(46,500	)		4.18
Forfeited or expired		—			—
Outstanding at March 31, 2017		3,832,894		$	5.25		4.36	$	18,389
Exercisable at March 31, 2017		3,706,527		$	5.17		4.12	$	18,448
Vested and expected to vest at March 31, 2017		3,832,894		$	5.25		4.36	$	18,389

For the three months ended March 31, 2017 and 2016, the Company recorded stock-based compensation expense of $154 and $94, respectively, relating to these SARs. As of March 31, 2017, $745 of total unrecognized compensation cost related to these SARs is expected to be recognized through August 2018.

The intrinsic value of the time-based SARs exercised during the three months ended March 31, 2017 was $241.

Performance-Based Stock Appreciation Rights

A summary of the Company’s performance-based SARs for the three months ended March 31, 2017 is as follows:

						Weighted-
						Average		Aggregate
				Weighted-		Remaining		Intrinsic
	Number of			Average		Contractual		Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2017		589,424		$	6.06
Granted		—			—
Exercised		(6,800	)		3.06
Forfeited or expired		(44,611	)		11.00
Outstanding at March 31, 2017		538,013		$	5.85		4.46	$	3,262
Exercisable at March 31, 2017		538,013		$	5.85		4.46	$	3,262
Vested and expected to vest at March 31, 2017		538,013		$	5.85		4.46	$	3,262

For the three months ended March 31 2016, the Company recorded stock-based compensation expense of $2 relating to these SARs. As of March 31, 2017, there is no unrecognized compensation cost related to these SARs expected to be recognized.

The intrinsic value of the performance-based SARs exercised during the three months ended March 31, 2017 was $41.

The fair value of each time-based and performance-based SAR award is estimated on the date o f grant using the Black-Scholes option pricing model with the assumptions described below. For the periods indicated, the expected volatility was based on the Company’s historical volatility over the expected terms of the SAR awards. Estimated forfeitures were based on voluntary and involuntary termination behavior, as well as analysis of actual forfeitures. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the SAR grants. The Company d id not grant time-based or performance-based SARs during the three months ended March 31, 2016.

		Three Months Ended March 31,
		2017
Risk-free interest rate		2.10%
Expected life (years)		6.0
Estimated volatility factor		59.85%
Expected dividends		None

Time-based Restricted Stock Units

A summary of the Company’s time-based RSUs for the three months ended March 31, 2017 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2017		691,952		$	8.28
Granted		47,370			8.59
Vested		(342,084	)		6.90
Forfeited or expired		(1,556	)		8.03
Balance at March 31, 2017		395,682		$	9.52

For the three months ended March 31, 2017 and 2016, the Company recorded stock-based compensation expense of $700 and $562, respectively, related to these RSUs. As of March 31, 2017, $2,844 of total unrecognized compensation cost related to these RSUs is expected to be recognized through September 2019.

Performance-based Restricted Stock Units

A summary of the Company’s performance-based RSUs for the three months ended March 31, 2017 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2017		473,608		$	7.80
Granted		—			—
Vested		(214,190	)		6.78
Forfeited or expired		(37,080	)		6.83
Balance at March 31, 2017		222,338		$	8.94

For the three months ended March 31, 2017 and 2016, the Company recorded stock-based compensation expense of $440 and $525, respectively, related to these RSUs. As of March 31, 2017, $1,470 of total unrecognized compensation cost related to these RSUs is expected to be recognized through March 2018.

The fair values of the time-based and performance-based RSU awards are based upon the closing stock price of the Company’s common stock on the date of grant.

Performance Units

The Company grants market performance units (“MPUs”) to its senior executives based on stock price performance over a three-year period measured on December 31 of each year in the performance period. The MPUs will vest at the end of each year in the performance period only if the Company satisfies the stock price performance targets and continued employment by the senior executives through the dates the Compensation Committee has determined that the targets have been achieved. The value of the MPUs that will be earned each year ranges up to 15% of each of the senior executives’ annual base salaries depending on the Company’s stock price performance target for that year. The value of the MPUs can be paid in either cash or common stock or a combination of cash and stock at the Company’s option. The MPUs are classified as a liability and are revalued at the end of each reporting period based on the fair value of the awards over a three-year period.

As the MPUs contain both a performance and service condition, the MPUs have been treated as a series of three separate awards, or tranches, for purposes of recognizing stock-based compensation expense. The Company recognizes stock-based compensation expense on a tranche-by-tranche basis over the requisite service period for that specific tranche. The Company estimated the fair value of the MPUs using a Monte Carlo Simulation Model that used the following assumptions:

	Three Months Ended March 31,
	2017	2016
Risk-free interest rate	0.99% to 1.44%	0.51% to 0.83%
Estimated volatility factor	30.0% to 33.0%	35.0% to 37.0%
Expected dividends	None	None

For the three months ended March 31, 2017 and 2016, the Company recorded stock-based compensation expense of $184 and $203, respectively, relating to these MPUs.

As of March 31, 2017, the Company recorded $352 and $91 in accrued expenses and other non-current liabilities, respectively, in its condensed consolidated balance sheet. As of December 31, 2016, the Company recorded $715 and $260 in accrued expenses and other non-current liabilities, respectively, in its condensed consolidated balance sheet.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the ORBCOMM Inc. Employee Stock Purchase Plan (“ESPP”) on February 16, 2016 and the Company’s shareholders approved the ESPP on April 20, 2016. Under the terms of the ESPP, 5,000,000 shares of the Company’s common stock are available for issuance, and eligible employees may have up to 10% of their gross pay deducted from their payroll up to a maximum of $25 per year to purchase shares of the Company’s common stock at a discount of up to 15% of the common stock’s fair market value, subject to certain conditions and limitations. For the three months ended March 31, 2017, the Company recorded stock-based compensation expense of $46 relating to the ESPP.

5. Net Income (Loss) Attributable to ORBCOMM Inc. Common Stockholde rs

The Company accounts for earnings per share (“EPS”) in accordance with FASB ASC Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. The numerator in calculating basic and diluted EPS is an amount equal to the net income (loss) attributable to ORBCOMM Inc. common stockholders for the periods presented. The denominator in calculating basic EPS is the weighted-average shares outstanding for the respective periods. The denominator in calculating diluted EPS is the weighted-average shares outstanding, plus the dilutive effect of unvested SAR and RSU grants and shares of Series A convertible preferred stock for the respective periods. The following sets forth the basic and diluted calculations of EPS for the three months ended March 31, 2017 and 2016:

	Three Months Ended
	March 31,
	2017			2016
Net loss attributable to ORBCOMM Inc. common stockholders	$	(3,343	)	$	(2,096	)
Weighted average number of common shares outstanding:
Basic number of common shares outstanding		71,424			70,700
Dilutive effect of unvested SARs and RSUs and shares of Series A convertible preferred stock		—			—
Diluted number of common shares outstanding		71,424			70,700
Earnings per share:
Basic	$	(0.05	)	$	(0.03	)
Diluted	$	(0.05	)	$	(0.03	)

The computation of net loss attributable to ORBCOMM Inc. common stockholders for the three months ended March 31, 2017 and 2016 is as follows:

	Three Months Ended
	March 31,
	2017			2016
Net loss attributable to ORBCOMM Inc.	$	(3,343	)	$	(2,096	)
Preferred stock dividends on Series A convertible preferred stock		—			—
Net loss attributable to ORBCOMM Inc. common stockholders	$	(3,343	)	$	(2,096	)

6. Satellite Network and Other Equipment

Satellite network and other equipment consisted of the following:

	March 31,			December 31,
	2017			2016
Land	$	381		$	381
Satellite network		232,228			231,782
Capitalized software		36,056			30,758
Computer hardware		4,767			4,707
Other		7,624			7,522
Assets under construction		11,888			11,284
		292,944			286,434
Less: accumulated depreciation and amortization		(78,885	)		(70,593	)
	$	214,059		$	215,841

During the three months ended March 31, 2017 and 2016, the Company capitalized internal costs attributable to the design, development and enhancements of the Company’s products and services in the amount of $3,097 and $2,188, respectively.

Depreciation and amortization expense for the three months ended March 31, 2017 and 2016 was $8,330 and $5,431, respectively, including amortization of internal-use software of $1,351 and $850, respectively.

For the three months ended March 31, 2017 and 2016, 65% and 67% of depreciation and amortization expense, respectively, relate to cost of services and 8% and 10%, respectively, relate to cost of product sales, as these assets support the Company’s revenue generating activities.

As of March 31, 2017 and December 31, 2016, assets under construction primarily consist of costs associated with acquiring, developing and testing software and hardware for internal and external use that have not yet been placed into service.

During the three months ended March 31, 2016, the Company recorded an impairment loss on one of its leased AIS satellites. The impairment loss of $466 was determined based on the net carrying value of the asset at the time of the impairment and was recorded in depreciation and amortization in the condensed consolidated statement of operations for the three months ended March 31, 2016. In addition, the Company decreased satellite network and other equipment, net and the associated accumulated depreciation on the condensed consolidated balance sheet by $2,374 and $1,908, respectively.

In August 2016, the Company lost communication with one of its OG2 satellites launched on July 14, 2014. The Company recorded a non-cash impairment charge of $10,680 to write-off the net book value of the satellite. In addition, the Company decreased satellite network and other equipment by $13,474 and associated accumulated depreciation by $2,794 to remove the asset as of September 30, 2016.

In December 2016, the Company lost communication with one of its OG1 Plane D satellites. In the year ended December 31, 2016, the Company removed $137 from satellite network and accumulated depreciation, respectively, representing the fully depreciated value of the satellite.

7. Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the estimated fair values of the underlying net tangible and intangible assets.

Goodwill consisted of the following:

	Amount
Balance at January 1, 2017	$	114,033
Additions through acquisitions		—
Other measurement period adjustments		—
Balance at March 31, 2017	$	114,033

Goodwill is allocated to the Company’s one reportable segment, which is its only reporting unit.

The Company’s intangible assets consisted of the following:

		March 31, 2017							December 31, 2016
	Useful life			Accumulated							Accumulated
	(years)	Cost		amortization			Net		Cost		amortization			Net
Customer lists	5-14	$	91,757	$	(22,214	)	$	69,543	$	91,757	$	(20,026	)	$	71,731
Patents and technology	5-10		16,734		(6,428	)		10,306		16,556		(5,990	)		10,566
Trade names and trademarks	1-2		2,885		(2,703	)		182		2,885		(2,637	)		248
		$	111,376	$	(31,345	)	$	80,031	$	111,198	$	(28,653	)	$	82,545

The weighted-average amortization period for the intangible assets is 10.1 years. The weighted-average amortization period for customer lists, patents and technology and trade names and trademarks is 10.5, 9.2 and 1.2 years, respectively.

Amortization expense was $2,692 and $3,062 for the three months ended March 31, 2017 and 2016, respectively.

Estimated annual amortization expense for intangible assets subsequent to March 31, 2017 is as follows:

	Amount
2017 (remaining)	$	8,071
2018		10,508
2019		10,472
2020		10,189
2021		9,727
2022		9,271
Thereafter		21,793
	$	80,031

8. Accrued Liabilities

The Company’s accrued liabilities consisted of the following:

	March 31,		December 31,
	2017		2016
Accrued compensation and benefits	$	8,920	$	7,456
Warranty		2,239		1,842
Corporate income tax payable		499		453
Contingent consideration amount		680		1,174
Accrued satellite network and other equipment		708		497
Accrued inventory purchases		919		4,292
OG2 satellite milestone payable		4,609		4,609
Accrued interest expense		1,009		1,031
Accrued financing fees		4,994		—
Accrued airtime charges		982		994
Other accrued expenses		7,119		8,083
	$	32,678	$	30,431

For the three months ended March 31, 2017 and 2016, changes in accrued warranty obligations consisted of the following:

	March 31,
	2017			2016
Beginning balance	$	1,842		$	2,322
Amortization of fair value adjustment of warranty liabilities acquired through acquisitions		—			(8	)
Reduction of warranty liabilities assumed in connection with acquisitions		(119	)		(29	)
Warranty expense		530			149
Warranty charges		(14	)		(293	)
Ending balance	$	2,239		$	2,141

9. Deferred Revenues

Deferred revenues consisted of the following:

	March 31,			December 31,
	2017			2016
Service activation fees	$	7,326		$	7,594
Prepaid services		2,839			2,777
Prepaid product revenues		—			—
Extended warranty revenues		16			21
		10,181			10,392
Less current portion		(7,293	)		(7,414	)
Long-term portion	$	2,888		$	2,978

10. Note Payable-Related Party

In connection with the acquisition of a majority interest in Satcom International Group plc. in 2005, the Company recorded an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.), a stockholder of the Company. At March 31, 2017 and December 31, 2016, the principal balance of the note payable was €1,138 and it had a carrying value of $1,218 and $1,195, respectively. The carrying value was based on the note’s estimated fair value at the time of acquisition. The difference between the carrying value and principal balance was being amortized to interest expense over the estimated life of the note of six years which ended in September 30, 2011. This note does not bear interest and has no fixed repayment term. Repayment will be made from the distribution profits, as defined in the note agreement, of ORBCOMM Europe LLC, a wholly owned subsidiary of the Company. The note has been classified as long-term and the Company does not expect any repayments to be required prior to March 31, 2018.

11. Note Payable

Secured Credit Facilities

On September 30, 2014, the Company entered into a credit agreement (the “Credit Agreement”) with Macquarie CAF LLC (“Macquarie” or the “Lender”) in order to refinance the Company’s $45,000 9.5% per annum Senior Notes (“Senior Notes”). Pursuant to the Credit Agreement, the Lender provided secured credit facilities (the “Secured Credit Facilities”) in an aggregate amount of $160,000 comprised of (i) a term loan facility in an aggregate principal amount of up to $70,000 (the “Initial Term Loan Facility”); (ii) a $10,000 revolving credit facility (the “Revolving Credit Facility”); (iii) a term loan facility in an aggregate principal amount of up to $10,000 (the “Term B2 Facility”), the proceeds of which were drawn and used on January 16, 2015 to partially finance the InSync Acquisition; and (iv) a term loan facility in an aggregate principal amount of up to $70,000 (the “Term B3 Facility”), the proceeds of which were drawn on December 30, 2014 and used on January 1, 2015 to partially finance the SkyWave Acquisition. Proceeds of the Initial Term Loan Facility and Revolving Credit Facility were funded on October 10, 2014 and were used to repay in full the Company’s Senior Notes and pay certain related fees, expenses and accrued interest, as well as for general corporate purposes.

The Secured Credit Facilities mature five years after the initial fund date of the Initial Term Loan Facility (the “Maturity Date”), but are subject to mandatory prepayments in certain circumstances. The Secured Credit Facilities bear interest, at the Company’s election, of a per annum rate equal to either (a) a base rate plus 3.75% or (b) LIBOR plus 4.75%, with a LIBOR floor of 1.00%.

The Secured Credit Facilities will be secured by a first priority security interest in substantially all of the Company’s and its subsidiaries’ assets. Subject to the terms set forth in the Credit Agreement, the Company may make optional prepayments on the Secured Credit Facilities at any time prior to the Maturity Date. The remaining principal balance is due on the Maturity Date.

The Credit Agreement contains customary representations and warranties, conditions to funding, covenants and events of default. The covenants set forth in the Credit Agreement include, among other things, prohibitions on the Company and its subsidiaries against incurring certain indebtedness and investments (other than permitted acquisitions and other exceptions as specified therein), providing certain guarantees and incurring certain liens. In addition, the Credit Agreement includes a leverage ratio and consolidated liquidity covenant, whereby the Company is permitted to have a maximum consolidated leverage ratio as of the last day of any fiscal quarter of up to 5.00 to 1.00 and a minimum consolidated liquidity of $7,500 as of the last day of any fiscal quarter. The Credit Agreement provides for certain events of default, the occurrence of which could result in the acceleration of the Company’s obligations under the Credit Agreement.

In connection with entering into the Credit Agreement, and the subsequent funding of the Initial Term Loan Facility, Revolving Credit Facility, Term B2 Facility and the Term B3 Facility, the Company incurred debt issuance costs of approximately $4,481. For the three months ended March 31, 2017 and 2016, amortization of the debt issuance costs was $229 and $227, respectively. The Company recorded charges of $2,426 to interest expense on its statement of operations for the three months ended March 31, 2017, related to interest expense and amortization of debt issuance costs associated with the Initial Term Loan Facility, the Term B2 and the Term B3 Facilities.

At March 31, 2017, no amounts were outstanding under the Revolving Credit Facility. The net availability under the Revolving Credit Facility was $10,000 as of March 31, 2017.

As of March 31, 2017, the Company was in compliance with all financial covenants under the Credit Agreement.

12. Stockholders’ Equity

Preferred stock

The Company currently has 50,000,000 shares of preferred stock authorized.

Series A convertible preferred stock

During the three months ended March 31, 2017, the Company did not issue dividends of Series A convertible preferred stock to the holders of the Series A convertible preferred stock. As of March 31, 2017, dividends in arrears were $8.

Common Stock

As of March 31, 2017, the Company has reserved 16,846,151 shares of common stock for future issuances related to employee stock compensation plans.

13. Segment Information

The Company operates in one reportable segment, IoT services. Other than satellites in orbit, goodwill and intangible assets, long-lived assets outside of the United States are not significant. The Company’s foreign exchange exposure is limited as approximately 84% of the Company’s consolidated revenue is collected in US dollars. The following table summarizes revenues on a percentage basis by geographic regions, based on the region in which the customer is located.

	Three Months Ended March 31,
	2017			2016
United States		65	%		60	%
South America		10	%		12	%
Japan		3	%		5	%
Europe		16	%		20	%
Other		6	%		3	%
		100	%		100	%

14. Income taxes

For the three months ended March 31, 2017, the Company’s income tax expense was $623, compared to $162 for the prior year period. The change in the income tax provision for the three months ended March 31, 2017 primarily related to a change in the geographical mix of income which increased taxable non-U.S. earnings before income taxes when compared to the prior year period.

As of March 31, 2017 and December 31, 2016, the Company maintained a valuation allowance against its net deferred tax assets primarily attributable to operations in the United States, as the realization of such assets was not considered more likely than not.

There were no changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2017. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were recognized during the three months ended March 31, 2017.

15. Commitments and Contingencies

Legal Proceedings

ORBCOMM v. CalAmp Corp .

On April 7, 2016, the Company filed a complaint against defendant CalAmp Corp. (“CalAmp”) in the U.S. District Court for the Eastern District of Virginia alleging infringement of five patents, seeking compensatory damages, treble damages, and an injunction.

On May 27, 2016, CalAmp filed a motion to dismiss the Company’s claims on the basis, inter alia, that the Company’s patents are directed at ineligible subject matter and are therefore invalid under 35 U.S.C. § 101. On July 22, 2016, the court denied CalAmp’s motion; however, CalAmp filed a motion for reconsideration of its motion to dismiss. On October 19, 2016, the court denied

CalAmp’s motion for reconsideration with respect to four of the five patent in suits and granted CalAmp’s motion to invalidate one of the Company’s pat ents in-suit as an unpatentable abstract idea.

On July 18, 2016, CalAmp filed its answer to the Company’s complaint and counterclaim for (1) declaratory judgment of unenforceability of ORBCOMM’s patents in-suit; (2) inequitable conduct related to the U.S. Patent and Trademark Office action to correct one of the patents in-suit; and (3) an award of legal fees to CalAmp.

On January 25, 2017, the court ruled on the disputed claim construction issues with respect to the remaining patent in-suit, in which it ruled that the claim term “wireless network” is limited to wireless pager networks. While this claim construction resulted in a stipulation of non-infringement, the Company believes this claim construction to be incorrect and, prior to the global settlement described below, was in the process of filing an appeal which would have requested that this claim construction ruling be reviewed on a de novo basis.

Each of the Company and CalAmp filed motions for summary judgment with respect to CalAmp’s counterclaim for inequitable conduct related to the U.S. Patent and Trademark Office action to correct the one remaining patent-in-suit. CalAmp’s motion requested summary judgment finding inequitable conduct rendering the patent unenforceable and providing a basis to seek an award of its legal fees. The Company’s motion requested summary judgment to dismiss such counterclaim.

CalAmp Wireless Networks Corporation v. ORBCOMM Inc .

On October 26, 2016, a patent infringement lawsuit was filed against the Company by CalAmp Wireless Networks Corporation (“CalAmp Wireless”) in the U.S. District Court for the Eastern District of Virginia. CalAmp Wireless alleged that certain of the Company’s modems, devices and geofencing systems for tracking and monitoring vehicles, machinery, and other assets infringe on two patents asserted by CalAmp Wireless. CalAmp Wireless did not make a specific damages claim, but sought compensatory damages, treble damages, and equitable relief.

On February 9, 2017, the court invalidated the majority of the claims in one of the two patents in-suit brought by CalAmp Wireless.

On April 24, 2017, the Company and CalAmp Wireless entered into a Confidential Settlement, General Release, and License Agreement (the “CalAmp Settlement Agreement”). The CalAmp Settlement Agreement resolves both pending litigation matters between the parties and provides that each of the Company and CalAmp Wireless grant the other royalty free licenses and covenants not to sue for the patents-in-suit described above, as well as general releases. Neither party made a settlement payment to the other party. Each of the Company and CalAmp will bear its own costs and fees associated with the prior litigation.

In addition to the foregoing matters, from time to time, the Company is involved in various litigation claims or matters involving ordinary and routine claims incidental to its business. While the outcome of any such claims or litigation cannot be predicted with certainty, management currently believes that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s business, results of operations or financial condition.

OG2 Satellite Insurance

In April 2014, the Company obtained launch and one year from launch in-orbit insurance for the OG2 satellite program. For the first launch of six satellites, the Company obtained (i) a maximum total of $66,000 of launch plus one year in-orbit insurance coverage; and (ii) $22,000 of launch vehicle flight only insurance coverage (“Launch One”). The total premium cost for Launch One was $9,953. For the second launch of 11 satellites, the Company obtained (i) a maximum total of $120,000 of launch plus one year in-orbit insurance coverage; and (ii) $22,000 of launch vehicle flight only insurance coverage (“Launch Two”). The total premium cost for Launch Two was $16,454. In April 2014, the Company paid the total premium for Launch One and 5% of the total premium for Launch Two, with the balance of the premium cost for Launch Two paid in December 2015. The majority of the premium payments are recorded as satellite network and other equipment, net in the condensed consolidated balance sheet.

The policy had a three satellite deductible across both missions under the launch plus one-year insurance coverage whereby claims are payable in excess of the first three satellites in the aggregate for both Launch One and Launch Two combined that are total losses or constructive total losses during the one-year policy period. The policy is also subject to specified exclusions and material change limitations customary in the industry. These exclusions include losses resulting from war, anti-satellite devices, insurrection, terrorist acts, government confiscation, radioactive contamination, electromagnetic interference, loss of revenue and third party liability.

On July 14, 2015, the Company obtained an additional one year in-orbit insurance for the five Launch One OG2 satellites for a maximum total of $40,000. The additional in-orbit coverage took effect on July 15, 2015, following the end of the coverage period for the initial launch and one year in-orbit insurance for Launch One. This additional policy contains a one satellite deductible across the

five in-orbit OG2 satellite s whereby claims are payable in excess of the first satellite that is a total loss or constructive total loss. The policy is also subject to a specific exclusion for losses that have resulted from an anomaly with the same signatures as the initial OG2 sate llite loss. There are other specified exclusions and material change limitations customary in the industry which include losses resulting from war, antisatellite devices, insurrection, terrorist acts, government confiscation, radioactive contamination, ele ctromagnetic interference, loss of revenue and third party liability. On July 15, 2016, the Company extended the in-orbit insurance policy for the five Launch One OG2 satellites through December 21, 2016, under the same terms, for an additional premium of $179. The Company did not renew this insurance policy after its expiration on December 21, 2016.

Airtime credits

In 2001, in connection with the organization of ORBCOMM Europe and the reorganization of the ORBCOMM business in Europe, the Company agreed to grant certain country representatives in Europe approximately $3,736 in airtime credits. The Company has not recorded the airtime credits as a liability for the following reasons: (i) the Company has no obligation to pay the unused airtime credits if they are not utilized; and (ii) the airtime credits are earned by the country representatives only when the Company generates revenue from the country representatives. The airtime credits have no expiration date. Accordingly, the Company is recording airtime credits as services are rendered and these airtime credits are recorded net of revenues from the country representatives. For the three months ended March 31, 2017 and 2016, airtime credits used totaled approximately $7 and $7, respectively. As of March 31, 2017 and 2016, unused credits granted by the Company were approximately $2,002 and $2,031, respectively.

16. Subsequent Events

On April 10, 2017, the Company issued $250,000 aggregate principal amount of 8.0% senior secured notes due 2024 (the “Senior Secured Notes”). The Senior Secured Notes were issued pursuant to an indenture, dated as of April 10, 2017, among the Company, certain of its domestic subsidiaries party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee and collateral agent (the “Indenture”). The Senior Secured Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and are secured on a first priority basis by (i) pledges of capital stock of certain of the Company’s directly and indirectly owned subsidiaries; and (ii) substantially all of the other property and assets of the Company and the Guarantors, to the extent a first priority security interest is able to be granted or perfected therein, and subject, in all cases, to certain specified exceptions. Interest payments are due on the Senior Secured Notes semi-annually in arrears on April 1 and October 1 beginning October 1, 2017.

The Company will have the option to redeem some or all of the Senior Secured Notes at any time on or after April 1, 2020, at redemption prices set forth in the Indenture plus accrued and unpaid interest, if any, to the date of redemption. The Company will also have the option to redeem some or all of the Senior Secured Notes at any time before April 1, 2020 at a redemption price of 100% of the principal amount of the Senior Secured Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption.

In addition, at any time before April 1, 2020, the Company may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption, with the proceeds from certain equity issuances.

The Indenture contains covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets; subject, in all cases, to certain specified exceptions. Such limitations have various exceptions and baskets as set forth in the Indenture, including the incurrence by the Company and its restricted subsidiaries of indebtedness under potential new credit facilities in the aggregate principal amount at any one time outstanding not to exceed $50,000.

Upon certain change of control events, holders of the Senior Secured Notes will have the right to require the Company to make an offer to purchase each holder’s Senior Secured Notes at a price equal to 101% of the principal amount of the Senior Secured Notes to be repurchased, plus any accrued and unpaid interest to the repurchase date.

Termination of Secured Credit Facilities

On April 10, 2017, a portion of the proceeds of the Senior Secured Notes was used to repay in full the Company’s outstanding obligations under, and to terminate the Company’s existing $150,000 outstanding credit facilities incurred pursuant to, the Credit Agreement, resulting in an early termination penalty of $1,500 and an additional expense associated with the remaining unamortized debt issuance cost, all of which will be reflected in the second quarter of 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995.

Certain statements discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to our plans, estimates, objectives and expectations for future events, as well as, projections, business trends, and other statements that are not historical facts. Such forward-looking statements, are subject to known and unknown risks and uncertainties, some of which are beyond the Company’s control, which may cause the Company’s actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include but are not limited to: demand for and market acceptance of our products and services and our ability to successfully implement our business plan; our dependence on our subsidiary companies (Market Channel Affiliates (“MCAs”)) and third party product and service developers and providers, distributors and resellers (Market Channel Partners (“MCPs”)) to develop, market and sell our products and services, especially in markets outside the United States; substantial losses we have incurred and may continue to incur; the inability to effect suitable investments, alliances and acquisitions, and even if we are able to make acquisitions, the failure to integrate and effectively operate the acquired businesses and the exposure to additional risks, such as unexpected costs, contingent or other liabilities, or weaknesses in internal controls, and issues related to non-compliance with domestic and foreign laws, particularly in acquisitions of foreign businesses; our dependence on significant customers for a substantial portion of our revenues, including key customers such as Caterpillar Inc., Komatsu Ltd., Hub Group, Onixsat and Satlink S.L.; our ability to expand our business outside the United States, including risks related to the economic, political and other conditions in foreign countries in which we do business, including fluctuations in foreign currency exchange rates; our dependence on a few significant vendors, service providers or suppliers, as well as the loss or disruption or slowdown in the supply of products and services from these key vendors, such as our SkyWave business’s dependence on its commercial relationship with Inmarsat plc and the services provided by Inmarsat plc, including the continued availability of Inmarsat plc’s satellites, the supply of subscriber communicators from Sanmina Corporation and Quake Global, or the supply of application specific integrated circuits (ASICs) from S3 Group; competition from existing and potential telecommunications competitors, including terrestrial-based and satellite-based network providers, some of which provide wireless network services to our customers in connection with our products and services; our reliance on intellectual property rights and the risk that we, our MCAs, our MCPs and our customers may infringe on the intellectual property rights of others; inability to operate due to changes or restrictions in the political, legal, regulatory, government, administrative and economic conditions and developments in the United States and other countries and territories in which we provide our services; legal proceedings; the failure of our system or reductions in levels of service due to technological malfunctions or deficiencies or other events, such as in-orbit satellite failures, reduced performance of our existing satellites, or man-made or natural disasters and other extreme events; rapid and significant technological changes, pricing pressures and other competitive factors; cybersecurity risks; our substantial indebtedness, currently $250 million, including the restrictive covenants under the indenture governing our notes, and other terms that could restrict our business activities or our ability to execute our strategic objectives, limit our operating flexibility or adversely affect our financial performance, all of which could be exacerbated if we incur additional indebtedness; and the other risks described in our filings with the Secur ities and Exchange Commission (“SEC”). For more detail on these and other risks, please see our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”). The Company undertakes no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law.

Unless otherwise noted or the context otherwise requires, references in this Form 10-Q to “ORBCOMM,” “the Company,” “our company,” “we,” “us” or “our” refer to ORBCOMM Inc. and its direct and indirect subsidiaries.

Overview

We are a global provider of Internet of Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. These solutions enable optimal business efficiencies, increased asset utilization and reduced asset write-offs, helping customers realize benefits on a worldwide basis. Our IoT products and services are designed to track, monitor, control and enhance security for a variety of assets, such as trailers, trucks, rail cars, sea containers, generators, fluid tanks, marine vessels, diesel or electric powered generators (“gensets”), oil and gas wells, pipeline monitoring equipment, irrigation control systems, and utility meters, in industries for transportation & supply chain, heavy equipment, fixed asset monitoring, maritime and government. Additionally, we provide satellite Automatic Identification Service (“AIS”) data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide. We provide these services using multiple network platforms, including our own constellation of low-Earth orbit (“LEO”) satellites and our accompanying ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular (Tier One) wireless providers. We also offer customer solutions utilizing additional satellite network service options that we obtain through service agreements we have entered into with multiple mobile satellite providers. Our satellite-based customer solution offerings use small, low power, mobile satellite subscriber communicators for remote asset connectivity, and our terrestrial-based solutions utilize cellular data modems with subscriber identity modules (“SIMS”). We also resell service using the two-way Inmarsat satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging our IsatDataPro (“IDP”) technology. Our customer

solutions provide access to data gathered over these systems through connections to other public or private networks, including the Internet. We are dedicated to providing what we believe ar e the most versatile, leading-edge IoT solutions in our markets that enable our customers to run their business operations more efficiently and achieve significant return on investment.

Customers benefiting from our network, products and solutions include original equipment manufacturers, or OEMs, such as Caterpillar Inc., Doosan Infracore America, Hitachi Construction Machinery Co., Ltd., John Deere, Komatsu Ltd., and Volvo Construction Equipment; vertical market technology integrators known as value-added resellers (“VARs”) and international value-added resellers (“IVARs”), such as I.D. Systems, Inc. and inthinc Technology Solutions Inc., and Value-added Solutions Providers (“SPs”), such as Onixsat, Satlink and Sascar (collectively referred to as Market Channel Partners (“MCPs”)); and end-to-end solutions customers such as Carrier Transicold, Thermo King, C&S Wholesale, Canadian National Railways, CR England, Hub Group, Inc., KLLM Transport Services, Marten Transport, Prime Inc., Swift Transportation, Target, Tropicana, Tyson Foods, Walmart and Werner Enterprises.

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources are based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, accounts receivable, accounting for business combinations, goodwill, intangible assets, satellite network and other equipment, long-lived assets, capitalized development costs, income taxes, warranty costs, loss contingencies and the value of securities underlying stock-based compensation. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies and estimates see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. There have been no material changes to our critical accounting policies during 2017.

Revenues

We derive service revenues mostly from monthly fees for IoT connectivity services that consist of subscriber-based, recurring monthly usage fees for each subscriber communicator or SIM activated for use on our satellite network, other satellite networks, and cellular wireless networks that we resell to our customers (i.e., our MCPs, MCAs and direct customers). Usage fees are generally based upon the data transmitted by a customer and the overall number of subscriber communicators and SIMS activated by each customer and whether we provide services through our value-added portal. Service revenues are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection from the customer is not reasonably assured at the time the service is provided. We also generate AIS service revenues from subscription based services supplying AIS data to customers and resellers. In addition, we earn service revenues from extended warranty service agreements extending beyond the initial warranty period of one year, royalty fees from third parties for the use of our proprietary communications protocol charged on a one-time basis for each subscriber communicator connected to our IoT data communications system and fees from providing engineering, technical and management support services to customers.

We derive product revenues primarily from sales of complete IoT telematics devices, modems and cellular wireless SIMS (for our terrestrial-communication services) to our resellers (i.e., our MCPs and MCAs) and direct customers. Revenues generated from product revenues are either recognized when the products are shipped or when customers accept the product depending on the specific contractual terms. Shipping costs billed to customers are included in product sales revenues and the related costs are included as costs of product sales.

Amounts received prior to the performance of services under customer contracts are recognized as deferred revenues and revenue recognition is deferred until such time that all revenue recognition criteria have been met.

The table below presents our revenues for the three months ended March 31, 2017 and 2016, together with the percentage of total r evenue represented by each revenue category (in thousands):

	Three Months Ended March 31,
	2017				2016
Service revenues	$	29,512	56.8	%	$	26,914	61.8	%
Product sales		22,409	43.2	%	$	16,646	38.2	%
	$	51,921	100.0	%	$	43,560	100.0	%

Total revenues for the three months ended March 31, 2017 and 2016 were $51.9 million and $43.6 million, respectively, an increase of 19.0%.

Service revenues

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars		%
Service revenues	$	29,512	$	26,914	$	2,598		9.7	%

The increase in service revenues for the three months ended March 31, 2017, compared to the prior year period, was primarily due to revenue generated from growth in billable subscriber communicators across our services and from our acquisitions.

As of March 31, 2017, we had approximately 1,766,000 billable subscriber communicators compared to approximately 1,608,000 billable subscriber communicators as of March 31, 2016, an increase of 9.8%.

Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of service revenue from these units.

Product sales

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars		%
Product sales	$	22,409	$	16,646	$	5,763		34.6	%

The increase in product sales for the for the three months ended March 31, 2017 was primarily due to shipments to existing customers and significant product shipments to new customers, compared to the prior year period.

Costs of revenues, exclusive of depreciation and amortization

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars		%
Cost of services	$	9,569	$	9,188	$	381		4.1	%
Cost of product sales		17,648		11,450		6,198		54.1	%

Costs of services is comprised of expenses to operate our network, such as payroll and related costs, including stock-based compensation, and usage fees to third-party networks, but exclude depreciation and amortization discussed below . The increase in cost of services for the three months ended March 31, 2017, compared to the prior year period, was primarily due to an increase in service revenues from billable subscribers and our acquisitions.

Costs of product sales includes the purchase price of subscriber communicators and SIMS sold, costs of warranty obligations, shipping charges, as well as operational costs to fulfill customer orders including costs for employees and inventory management. The increase in cost of product sales for the three months ended March 31, 2017, compared to the prior year period, was primarily due to costs associated with increased product sales due to increases in product shipments and initial costs for manufacturing and installation associated with high volume orders.

Selling, general and administrative expenses

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars		%
Selling, general and administrative expenses	$	12,241	$	11,756	$	485		4.1	%

Selling, general and administrative (“SG&A”) expenses relate primarily to expenses for general management, sales and marketing, finance, professional fees and general operating expenses. SG&A expenses for the three months ended March 31, 2017, compared to the prior year period, reflected increases in employee-related costs, contractor and consulting costs for sales and engineering and other operating expenses, offset, in part, by lower foreign exchange losses in the three months ended March 31, 2017, compared to the three months ended March 31, 2016.

Product development expenses

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars			%
Product development	$	1,588	$	1,957	$	(369	)		(18.9	)%

Product development expenses consist primarily of the expenses associated with our engineering efforts, including the cost of third parties to support our current applications. Product development expenses for the three months ended March 31, 2017, compared to the prior year period, decreased due to higher capitalization of costs as we develop new products and services and enhance current product and software for our customers .

Depreciation and amortization

	Three Months Ended March 31,				Change
(In thousands)	2017		2016		Dollars		%
Depreciation and amortization	$	11,022	$	8,959	$	2,063		23.0	%

The increase in depreciation and amortization for the three months ended March 31, 2017, compared to the prior year period, was primarily due to additional depreciation expense associated with the ORBCOMM Generation 2 (“OG2”) satellites placed into service on March 1, 2016.

Acquisition-related and integration costs

Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to our acquisitions. For the three months ended March 31, 2017 and 2016, we incurred acquisition-related and integration costs of $0.2 million and $0.4 million, respectively, reflecting lower acquisition and integration activity in the 2017 period.

Other income (expense)

Other income (expense) is comprised primarily of interest expense, foreign exchange gains and losses and interest income from our cash and cash equivalents.

For the three months ended March 31, 2017, other expense was $2.3 million, which consisted primarily of interest expense of $2.4 million relating to our Secured Credit Facilities, offset, in part, by interest income of $0.1 million. For the three months ended March 31, 2016, other expense was $1.8 million, which consisted primarily of interest expense of $1.7 million relating to our Secured Credit Facilities. The increase in interest expense for the three months ended March 31, 2017, compared to the prior year period, was due to interest expense relating to our Initial Term Loan Facility, as defined below, as we capitalized interest expense and deferred financing fees associated with our Initial Term Loan Facility through March 1, 2016, the date the final 11 OG2 satellites were placed into service. We believe our foreign exchange exposure is limited as a majority of our revenue is collected in U.S. dollars.

Income taxes

F or the three months ended March 31, 2017 , our income tax expense $0.6 million, compared to $0.2 million for the prior year period. The change in the income tax provision for the three months ended March 31, 2017 primarily related to a change in the geographical mix of income which increased taxable non-U.S. earnings before income taxes when compared to the prior year period.

As of March 31, 2017 and 2016, we maintained a valuation allowance against our net deferred tax assets primarily attributable to operations in the United States as the realization of such assets was not considered more likely than not.

Net loss

For the three months ended March 31, 2017, we had a net loss of $3.3 million compared to a net loss of $2.1 million in the prior year period, principally due to the increased depreciation and amortization discussed above.

Noncontrolling interests

Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.

Net loss attributable to ORBCOMM Inc.

For the three months ended March 31, 2017, we had a net loss attributable to our company of $3.3 million compared to a net loss of $2.1 million in the prior year period.

For the three months ended March 31, 2016, the net income attributable to our common stockholders considers dividends of less than $0.1 million paid in shares of Series A convertible preferred stock.

Liquidity and Capital Resources

Overview

Our liquidity requirements arise from our working capital needs, our ability to make scheduled payments of interest on our indebtedness, to fund capital expenditures to support our current operations and to facilitate growth and expansion. We have financed our operations and expansion with cash flows from operating activities, sales of our common stock through public offerings and private placements of debt. At March 31, 2017, we have an accumulated deficit of $108.3 million. Our primary sources of liquidity consist of cash and cash equivalents totaling $19.9 million, as well as cash flows from operating activities and additional funds of approximately $93 million of remaining proceeds from the $250 million 8.0% senior secured notes due 2024 issued on April 10, 2017 after refinancing our existing debt of $150 million under our Credit Agreement, which we believe will be sufficient to provide working capital, support capital expenditures and facilitate growth and expansion for the next twelve months.

Operating activities

Cash provided by our operating activities for the three months ended March 31, 2017 was $0.5 million resulting from a net loss of $3.3 million, offset by non-cash items including $11.0 million for depreciation and amortization and $1.5 million for stock-based compensation. These non-cash add backs were offset, in part, by a working capital use of cash of $8.6 million. Working capital activities primarily consisted of an increase of $6.4 million in accounts receivable relating to timing of receivables and a decrease of $3.5 million in accounts payable and accrued expenses primarily related to timing of payments, offset, in part, by a decrease of $1.8 million in prepaid expenses and other assets.

Cash provided by our operating activities for the three months ended March 31, 2016 was $3.7 million resulting from a net loss of $2.1 million, offset by non-cash items including $9.0 million for depreciation and amortization and $1.4 million for stock-based compensation. These non-cash add backs were offset by a working capital use of cash of $5.1 million. Working capital activities primarily consisted of a net use of cash of $0.9 million from a decrease in accounts payable and accrued expenses largely related to timing of payments, an increase of $1.1 million in accounts receivable related to timing of receivables, an increase of $1.0 million in prepaid expenses and other assets, an increase of $0.9 million in inventories and a decrease of $1.2 million in deferred revenues.

Investing activities

Cash used in our investing activities for the three months ended March 31, 2017 was $5.6 million, resulting from capital expenditures during the period.

Cash used in our investing activities for the three months ended March 31, 2016 was $9.8 million , resulting from capital expenditures , including approximately $5.7 million related to payments for the OG2 program.

Financing activities

We had no cash provided by or used in our financing activities for the three months ended March 31, 2017 and 2016.

Future Liquidity and Capital Resource Requirements

We expect that our existing cash and cash equivalents along with cash flows from operating activities and the remaining proceeds from our $250 million, 8.0%, senior secured notes due 2024 (the “Senior Secured Notes”), issued on April 10, 2017 after refinancing our existing Credit Agreement, as described below, will be sufficient over the next 12 months to provide working capital, cover interest payments on our Senior Secured Notes and fund growth initiatives and capital expenditures.

On September 30, 2014, we entered into a credit agreement (“Credit Agreement”) with Macquarie CAF LLC in order to refinance our $45 million 9.5% per annum Senior Notes (the “Senior Notes”). Pursuant to the Credit Agreement, the Lender provided secured credit facilities in an aggregate amount of $160 million (the “Secured Credit Facilities”) comprised of (i) an initial term loan facility in an aggregate principal amount of up to $70 million (the “Initial Term Loan Facility”); (ii) a $10 million revolving credit facility (the “Revolving Credit Facility”); (iii) the Term B2 loan facility in an aggregate principal amount of up to $10 million, the proceeds of which were used to partially finance the acquisition of InSync; and (iv) the Term B3 loan facility in an aggregate principal amount of up to $70 million, the proceeds of which were used to partially finance the acquisition of SkyWave. Proceeds of the Initial Term Loan Facility and Revolving Credit Facility were used to repay in full our Senior Notes and pay certain related fees, expenses and accrued interest, as well as for general corporate purposes.

The Secured Credit Facilities mature five years after the initial funding date of the Initial Term Loan Facility, but are subject to mandatory prepayments in certain circumstances. The Secured Credit Facilities will bear interest, at our election, at a per annum rate equal to either (a) a base rate plus 3.75% or (b) LIBOR plus 4.75%, with a LIBOR floor of 1.00%.

The Secured Credit Facilities are secured by a first priority security interest in substantially all of our assets and our subsidiaries’ assets. Subject to the terms set forth in the Credit Agreement, we may make optional prepayments on the Secured Credit Facilities at any time prior to the maturity date. The remaining principal balance is due on the maturity date.

The Credit Agreement contains customary representations and warranties, conditions to funding, covenants and events of default. The covenants set forth in the Credit Agreement include, among other things, prohibitions on the Company and our subsidiaries against incurring certain indebtedness and investments (other than permitted acquisitions and other exceptions as specified therein), providing certain guarantees and incurring certain liens. In addition, the Credit Agreement includes a leverage ratio and consolidated liquidity covenant, as defined, whereby we are permitted to have a maximum consolidated leverage ratio as of the last day of any fiscal quarter of up to 5.00 to 1.00 and must maintain a minimum consolidated liquidity of $7.5 million as of the last day of any fiscal quarter. The Credit Agreement provides for certain events of default, the occurrence of which could result in the acceleration of our obligations under the Credit Agreement.

At March 31, 2017, no amounts were outstanding under the Revolving Credit Facility. The net availability under the Revolving Credit Facility was $10.0 million as of March 31, 2017.

As of March 31, 2017, we were in compliance with our covenants under the Secured Credit Facilities.

On May 26, 2016, we completed the acquisition of Skygistics (PTY), Ltd. for cash consideration of $3.8 million and additional contingent consideration of up to $1.0 million, subject to meeting certain operational milestones.

On April 10, 2017, we issued $250 million aggregate principal amount of the Senior Secured Notes. The Senior Secured Notes were issued pursuant to an indenture, dated as of April 10, 2017, among us, certain of our domestic subsidiaries party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee and collateral agent (the “Indenture”). The Senior Secured Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and the Senior Secured Notes are secured on a first priority basis by (i) pledges of capital stock of certain of our directly- and indirectly-owned subsidiaries; and (ii) substantially all of our and our Guarantors’ other property and assets, to the extent a first priority security interest is able to be granted or perfected therein, and subject, in all cases, to certain specified exceptions. Interest payments are due on the Senior Secured Notes semi-annually in arrears on April 1 and October 1 beginning October 1, 2017.

We will have the option to redeem some or all of the Senior Secured Notes at any time on or after April 1, 2020, at redemption prices set forth in the Indenture plus accrued and unpaid interest, if any, to the date of redemption. We will also have the option to redeem some or all of the Senior Secured Notes at any time before April 1, 2020 at a redemption price of 100% of the principal amount of the Senior Secured Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption.

In addition, at any time before April 1, 2020, we may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption, with the proceeds from certain equity issuances.

The Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries’ to: (i) incur or guarantee additional indebtedness; (ii) pay dividends, make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain indebtedness; (iv) make loans and investments; (v) sell, transfer or otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into certain types of transactions with affiliates; (viii) enter into agreements restricting our subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all of their assets; subject, in all cases, to certain specified exceptions. Such limitations have various exceptions and baskets as set forth in the Indenture, including the incurrence by us and our restricted subsidiaries of indebtedness under potential new credit facilities in the aggregate principal amount at any one time outstanding not to exceed $50 million.

Upon certain change of control events, holders of the Senior Secured Notes will have the right to require us to make an offer to purchase each holder’s Senior Secured Notes at a price equal to 101% of the principal amount of the Senior Secured Notes to be repurchased, plus any accrued and unpaid interest to the repurchase date.

On April 10, 2017, a portion of the proceeds of the Senior Secured Notes was used to repay in full our outstanding obligations under, and to terminate our existing $150 million outstanding Secured Credit Facilities incurred pursuant to, the Credit Agreement. resulting in an early termination penalty of $1.5 million and an additional expense associated with the remaining unamortized debt issuance cost, all of which will be reflected in the second quarter of 2017.

EBITDA

EBITDA is defined as earnings attributable to ORBCOMM Inc. before interest income (expense), provision for income taxes and depreciation and amortization. We believe EBITDA is useful to our management and investors in evaluating our operating performance because it is one of the primary measures we use to evaluate the economic productivity of our operations, including our ability to obtain and maintain our customers, our ability to operate our business effectively, the efficiency of our employees and the profitability associated with their performance. It also helps our management and investors to meaningfully evaluate and compare the results of our operations from period to period on a consistent basis by removing the impact of our financing transactions and the depreciation and amortization impact of capital investments from our operating results. In addition, our management uses EBITDA in presentations to our board of directors to enable it to have the same measurement of operating performance used by management and for planning purposes, including the preparation of our annual operating budget.

EBITDA is not a performance measure calculated in accordance with U.S. GAAP. While we consider EBITDA to be an important measure of operating performance, it should be considered in addition to, and not as a substitute for, or superior to, net income or other measures of financial performance prepared in accordance with U.S. GAAP and may be different than EBITDA measures presented by other companies.

The following table reconciles our net loss to EB ITDA for the periods shown:

	Three Months Ended March 31,
(In thousands)	2017			2016
Net loss attributable to ORBCOMM Inc.	$	(3,343	)	$	(2,096	)
Income tax expense		623			162
Interest income		(118	)		(88	)
Interest expense		2,426			1,699
Depreciation and amortization		11,022			8,959
EBITDA	$	10,610		$	8,636

For the first quarter of 2017 compared to the first quarter of 2016, EBITDA increased $2.0 million, while net loss attributable to ORBCOMM Inc. increased $1.2 million. The rate of increase for EBITDA compared to the net loss increase for the three months ended March 31, 2017, compared to the prior year period, primarily reflects higher depreciation associated with the OG2 satellites placed into service on March 1, 2016, as well as increased interest expense associated with our Secured Credit Facilities.

Contractual Obligations

There have been no material changes in our contractual obligations as of March 31, 2017, as previously disclosed in our Annual Report.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

There have been no material changes in our assessment of our sensitivity to market risk as of March 31, 2017, as previously disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risks” in our Annual Report.

Concentration of credit risk

There were no customers with revenues greater than 10% of our consolidated total revenues for the three months ended March 31, 2017 and 2016.

We have floating interest rate debt with our Secured Credit Facilities under our Credit Agreement that are subject to interest rate volatility, which is our principal market risk, with a floor of 1.00%. A 25 basis point change in the interest rate relating to the credit facilities’ balances outstanding as of March 31, 2017, which are subject to variable interest rates based on LIBOR, would yield a change of approximately $0.4 million in annual interest expense. We do not expect our future cash flows to be affected to any significant degree by a sudden change in market interest rates.

Item 4. Disclosure Controls and Procedures

Evaluation of the Company’s disclosure controls and procedures.

The Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2017. Based on their evaluation, the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2017.

Changes in Internal Control over Financial Reporting.

We reviewed our internal control over financial reporting at March 31, 2017. There have been no changes in our internal control over financial reporting identified in an evaluation thereof that occurred during the first quarter of 2017 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHE R INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various litigation claims or matters involving ordinary and routine claims incidental to our business. While the outcome of any such claims or matters cannot be predicted with certainty, we currently believe that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations or financial condition. We record reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.

See “Note 15 – Commitments and Contingencies” to our notes to the condensed consolidated financial statements for the three months ended March 31, 2017 included in this Quarterly Report on Form 10-Q for a description of our significant legal proceedings, which is incorporated by reference herein.

Item 1A. Risk Factors

There have been no material changes in the risk factors as of March 31, 2017 previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report, except that the risk factors under the heading “Risks Related to Our Debt” are replaced in their entirety with the following:

Risks Related to Our Debt

Our substantial indebtedness may adversely affect our business, financial condition and operating results.

As of April 10, 2017, we had $250 million in aggregate principal amount of total debt outstanding under our 8.0% senior secured notes due 2024 (the “Senior Secured Notes”). Our level of indebtedness may have material adverse effects on our business, financial condition and operating results, including to:

•

make it more difficult for us to satisfy our debt service obligations or refinance our indebtedness;

•

require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures and other general operating requirements;

•

limit our ability to obtain additional financing to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service obligations and other general corporate requirements;

•

restrict us from making strategic acquisitions, taking advantage of favorable business opportunities or executing our strategic priorities;

•

place us at a relative competitive disadvantage compared to our competitors that have proportionately less debt;

•

limit our flexibility to plan for, or react to, changes in our businesses and the industries in which we operate, which may adversely affect our operating results and ability to meet our debt service obligations;

•

increase our vulnerability to the current and potentially more severe adverse general economic and industry conditions; and

•

limit our ability, or increase the cost, to refinance our indebtedness.

Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks that we and our subsidiaries face.

As a result of our indebtedness, we may be restricted in pursuing desirable business activities and in our operations, and as a result our business and ability to repay the notes may be adversely affected.

We are subject to restrictive debt covenants under the indenture governing the Senior Secured Notes, which may limit our operating flexibility.

The indenture governing the Senior Secured Notes and our other financing agreements contain covenants that may limit our ability to finance future operations or capital needs or to engage in other business activities, including, among other things, our ability to:

•

incur or guarantee additional indebtedness;

•

pay dividends on, redeem or repurchase our capital stock;

•

create or incur certain liens;

•

transfer or sel l certain assets or make other fundamental changes;

•

make certain restricted payments and investments; and

•

enter into certain transactions with affiliates.

These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest. Our ability to observe these covenants may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to do so.

In addition, we may in the future become subject to agreements that may include stricter covenants than those contained in the indenture governing the notes or require us to meet and maintain certain financial ratios and tests, which may require that we take action to reduce our debt or to act in a manner contrary to our current or future business plans. General business and economic conditions may affect our ability to comply with these covenants or meet those financial ratios and tests.

We may not have enough cash available to service our debt and to sustain our operations.

Our ability to make scheduled payments on the Senior Secured Notes and to meet our other debt service obligations when due and to fund our ongoing operations or to refinance our debt, depends on our future operating and financial performance and our ability to generate cash, which will be affected by our ability to successfully implement our business strategy as well as general economic, financial, competitive, regulatory, legal, technical and other factors, including those discussed in these “Risk Factors,” beyond our control. If we cannot generate sufficient cash to meet our debt service requirements, we may, among other things, need to refinance all or a portion of our debt, including the Senior Secured Notes, obtain additional financing, delay planned capital expenditures or sell assets. If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our obligations with respect to our debt, including the Senior Secured Notes. In that event, borrowings under other debt agreements or instruments that contain cross-default or cross-acceleration provisions may become payable on demand, and we may not have sufficient funds to repay all of our debts, including the Senior Secured Notes.

Our failure to comply with the indenture governing the Senior Secured Notes and any agreements governing any future indebtedness could result in an event of default that could materially and adversely affect our results of operations and our financial condition.

If there were an event of default under the indenture governing the Senior Secured Notes or any agreements relating to our future indebtedness, if any, or, if applicable, a failure to maintain a required ratio or meet a required test thereunder, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under such debt instruments if accelerated upon an event of default. In addition, any event of default or declaration of acceleration under any such debt instrument could also result in an event of default under one or more of other debt instruments.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. E xhibits

3.1		Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.

3.2		Amended Bylaws of the Company, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.

3.3		Certificate of Designation of Series A convertible Preferred Stock of ORBCOMM, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 20, 2011, is incorporated herein by reference.

4.1		Indenture dated as of April 10, 2017 among the Company, the Guarantor party thereto and U.S. Bank National Association, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on April 12, 2017, is incorporated herein by reference.

4.2		Security Agreement dated as of April 10, 2017 by and among the Company, each of the Subsidiary Guarantors and Additional Guarantors party thereto and U.S. Bank National Association, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K on April 12, 2017, incorporated herein by reference.

31.1		Certification of President and Chief Executive Officer required by Rule 13a-14(a).

31.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a).

32.1		Certification of President and Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

32.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ORBCOMM Inc. (Registrant)

Date: May 4, 2017		/s/ Marc J. Eisenberg
		Marc J. Eisenberg,
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: May 4, 2017		/s/ Robert G. Costantini
		Robert G. Costantini,
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: May 4, 2017		/s/ Constantine Milcos
		Constantine Milcos
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description

3.1	Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.

3.2	Amended Bylaws of the Company, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.

3.3	Certificate of Designation of Series A convertible Preferred Stock of ORBCOMM, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 20, 2011, is incorporated herein by reference.

4.1	Indenture dated as of April 10, 2017 among the Company, the Guarantor party thereto and U.S. Bank National Association, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on April 12, 2017, is incorporated herein by reference.

4.2	Security Agreement dated as of April 10, 2017 by and among the Company, each of the Subsidiary Guarantors and Additional Guarantors party thereto and U.S. Bank National Association, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K on April 12, 2017, incorporated herein by reference.

31.1		Certification of President and Chief Executive Officer required by Rule 13a-14(a).

31.2	Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a).

32.1	Certification of Chief Executive Officer and President required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

32.2	Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document