Item 1. Financial Statements
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(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 industrial Internet of Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. The Company’s industrial 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, power 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 the transportation and supply chain, heavy equipment, fixed asset monitoring and maritime industries, as well as for governments. 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 also has vehicle fleet management, as well as in-cab and vehicle fleet solutions in its transportation solution portfolio. The Company provides its services using multiple network platforms, including its own constellation of low-Earth orbit 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 plc satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging the Company’s IsatDataPro 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 is dedicated to providing what it believes are the most versatile, leading-edge industrial IoT solutions in its markets to enable its customers to run their businesses more efficiently.
2. Summary of Significant Accounting Policies
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 condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 on 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, its 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 investees 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.
9
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 June 30, 2021 and December 31, 2020. The Company has no guarantees or other funding obligations to those entities and the Company had no equity in the earnings or losses of those investees for the quarters and six months ended June 30, 2021 and 2020.
Acquisition-Related and Integration Costs
Acquisition-related and integration costs include professional services expenses and identifiable integration costs directly attributable to acquisitions and the planned merger, as described in “Note 15 – Merger Transaction.”
Revenue Recognition
The Company derives recurring service revenues primarily from monthly fees for industrial IoT connectivity services that consist of subscriber-based and recurring monthly usage fees for each subscriber communicator or SIM activated for use on its satellite network, other satellite networks and cellular wireless networks that the Company resells to its resellers, Market Channel Partners (“MCPs”) and Market Channel Affiliates (“MCAs”), and direct customers. In addition, the Company earns recurring service revenues from subscription-based services providing recurring AIS data services to government and commercial customers worldwide. The Company also earns recurring service revenues from activations of subscriber communicators and SIMs, optional separately-priced extended warranty service agreements extending beyond the initial warranty period of typically one year, which are billed to the customer upon shipment of a subscriber communicator, and royalty fees relating to the manufacture of subscriber communicators under a manufacturing agreement.
Service revenues derived from usage fees are generally based upon the data transmitted by a customer, the overall number of subscriber communicators and/or SIMs activated by each customer, and whether the Company provides services through its value-added portal. Using the output method, these service revenues are recognized over time, as services are rendered, or at a point in time, based on the contract terms. AIS service revenues are generated over time from monthly subscription-based services supplying AIS data services to government and commercial customers worldwide, using the output method. Revenues from the activation of both subscriber communicators and SIMs are initially recorded as deferred revenues and are thereafter recognized on a ratable basis using a time-based output method, generally over three years, the estimated life of the subscriber communicator. Revenues from separately-priced extended warranty service agreements extending beyond the initial warranty period of typically one year, are initially recorded as deferred revenues and are thereafter recognized on a ratable basis using a time-based output method, generally over two to five years.
The Company earns other service revenues from installation services and engineering, technical and management support services. Revenues generated from installation services are recognized at a point in time when the services are completed. Revenues generated from engineering, technical and management support services to customers are recognized over time as the services are provided. The Company also generates other service revenues through the sale of software licenses to its customers, which are recognized at a point in time when the license is provided to the customer.
Product sales are derived from sales of complete industrial IoT subscriber communicators, including telematics devices, modems or cellular wireless SIMs (for the Company’s terrestrial-communication services) to the Company’s resellers (i.e., MCPs and MCAs) and direct customers. Product sales are recognized at a point in time when title transfers, when the products are shipped or when customers accept the products, depending on the specific contractual terms. Sales of subscriber communicators and SIMs are not subject to return, and title and risk of loss pass to the customer generally at the time of shipment.
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. Deferred revenue as of June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Service activation fees
|
|
$
|
2,165
|
|
|
$
|
2,094
|
|
|
Prepaid services
|
|
|
6,798
|
|
|
|
6,123
|
|
|
Extended warranty revenues
|
|
|
1,143
|
|
|
|
1,179
|
|
|
|
|
|
10,106
|
|
|
|
9,396
|
|
|
Less current portion
|
|
|
(5,470
|
)
|
|
|
(5,238
|
)
|
|
Long-term portion
|
|
$
|
4,636
|
|
|
$
|
4,158
|
|
During the quarter and six months ended June 30, 2021, the Company recognized revenue of $1,126 and $3,119 which was included as deferred revenue as of December 31, 2020, respectively.
During 2019, the Company was notified that its program with Maersk Lines, through its contract with AT&T Services, Inc., would expire on December 31, 2019. The remaining deferred revenues of approximately $1,900 associated with this contract was recognized during the six months ended June 30, 2020 as an immaterial prior period adjustment. The contract was assumed as part of the WAM Technologies, LLC acquisition in 2015.
10
Shipping costs billed to customers are included in product sales and the related costs are included as cost of product sales.
The Company generates revenue from leasing arrangements of subscriber communicators, under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842 “Leases” (“ASC 842”), using the estimated selling prices for each of the deliverables recognized. Product and installation revenues associated with these arrangements are recognized upon shipment or installation of the subscriber communicator, depending on the specific contractual terms. Service and warranty 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.
The following table summarizes the components of revenue from contracts with customers, as well as revenue recognized under ASC 842:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring service revenues
|
|
$
|
36,355
|
|
|
$
|
37,006
|
|
|
$
|
72,596
|
|
|
$
|
76,859
|
|
|
Other service revenues
|
|
|
1,187
|
|
|
|
1,423
|
|
|
|
2,696
|
|
|
|
2,094
|
|
|
Total service revenues
|
|
|
37,542
|
|
|
|
38,429
|
|
|
|
75,292
|
|
|
|
78,953
|
|
|
Product sales
|
|
|
27,811
|
|
|
|
17,601
|
|
|
|
51,996
|
|
|
|
43,050
|
|
|
Total revenue from contracts with customers
|
|
|
65,353
|
|
|
|
56,030
|
|
|
|
127,288
|
|
|
|
122,003
|
|
|
Revenue recognized under ASC 842
|
|
|
575
|
|
|
|
702
|
|
|
|
2,335
|
|
|
|
908
|
|
|
Total revenues
|
|
$
|
65,928
|
|
|
$
|
56,732
|
|
|
$
|
129,623
|
|
|
$
|
122,911
|
|
Revenue Recognition for Arrangements with Multiple Performance Obligations
The Company enters into contracts with its customers that include multiple performance obligations, which typically include subscriber communicators, monthly usage fees and optional extended warranty service agreements. The Company evaluates each item to determine whether it represents a promise to transfer a distinct good or service to the customer and therefore is a separate performance obligation under Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers.” If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative stand-alone selling price of each performance obligation. The Company uses an observable price to determine the stand-alone selling price for each separate performance obligation when sold on its own or a cost-plus margin approach when an observable price is not available.
If an arrangement provided to a customer has a significant and incremental discount on future revenue, such material right is considered a performance obligation and a proportionate amount of the discount would be allocated to each element based on the relative stand-alone selling price of each element, regardless of the discount. The Company has determined that arrangements provided to its customers do not include significant and incremental discounts.
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 the non-financial assets for impairment and any resulting asset impairment would require that a non-financial asset be recorded at fair value. FASB 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 amounts of the Company’s financial instruments, including cash, accounts receivable and accounts payable approximated their fair values due to the short-term nature of these items. The carrying value of the Company’s Term Facility, as defined below, approximated its fair value as the debt is at variable interest rates. The fair value of the Senior Secured Notes, as defined below, was based on observable relevant market information. Fluctuation between the carrying amount and the fair value of the Senior Secured Notes for the period presented was associated with changes in market interest rates. On December 2, 2020, the Company redeemed all $220,000 outstanding principal amount of its Senior Secured Notes. Refer to “Note 9 – Notes Payable” for more information.
The fair value of the note payable - related party, $1,352 book value as of June 30, 2021, had a de minimis value.
11
Concentration of Risk
The Company’s customers are primarily commercial organizations. Accounts receivable are generally unsecured.
Accounts receivable are due in accordance with payment terms set forth 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. Receivables are considered impaired and written off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. The Company writes off accounts receivable when they are deemed uncollectible.
One customer, Carrier Global Corporation, generated 11.4% and 12.0%, of the Company’s consolidated total revenues for the quarter and six months ended June 30, 2021, respectively. There were no customers who generated revenues greater than 10% of the Company’s consolidated total revenues for the quarter and six months ended June 30, 2020.
One customer, Carrier Global Corporation, generated 11.3% and 10.8% of the Company’s consolidated accounts receivable as of June 30, 2021 and December 31, 2020, respectively.
The Company is dependent on one vendor, Sanmina Corporation (“Sanmina”), a contract manufacturer with significant operations in Mexico, for the manufacture of subscriber communicators that the Company designs and sells. For the quarters ended June 30, 2021 and 2020, approximately $22,057 (or 77.7%) and $16,902 (or 92.3%) respectively, of the Company’s product sales was generated from the sale of the Company’s core products produced by Sanmina. For the six months ended June 30, 2021 and 2020, approximately $44,491 (or 81.9%) and $38,894 (or 88.5%) respectively, of the Company’s product sales were generated from the sale of the Company’s core products produced by Sanmina.
As of June 30, 2021, the Company did not maintain in-orbit insurance coverage for its ORBCOMM Generation 1 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 net realizable value, determined on a weighted-average cost basis. At June 30, 2021 and December 31, 2020, inventory, net of inventory obsolescence, consisted primarily of finished goods and purchased parts to be utilized by its contract manufacturer totaling $20,565 and $23,529, respectively, and raw materials totaling $5,718 and $6,458, respectively. The Company reviews inventory quantities on hand, 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 statements 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 their carrying amounts may not be recoverable. The Company measures recoverability by comparing the carrying amounts of the assets to the projected undiscounted cash flows the assets are expected to generate. An impairment loss is recognized to the extent the carrying values exceed the fair values.
The Company’s satellite constellation and related assets are evaluated as a single asset group whenever facts or circumstances indicate that their carrying values may not be recoverable. If indicators of impairment are identified, recoverability of long-lived assets is measured by comparing their carrying amounts 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, estimates of fair values 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. An impairment loss of $6,656 related to one of the Company’s OG2 satellites was recorded in the six months ended June 30, 2021. Refer to “Note 5 – Satellite Network and Other Equipment, Net” for more information.
Warranty Costs
The Company accrues for 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 sales. The warranty accrual is included in accrued liabilities on the Company’s condensed consolidated balance sheets.
12
Separately-priced extended warranty coverage is recorded as warranty revenue over the term of the extended warranty coverage and the related warranty costs are recorded as incurred during the coverage period.
Warranty coverage that includes additional services, such as repairs and maintenance of the product is treated as a separate performance obligation and the related warranty and repairs/maintenance costs are recorded as incurred.
Refer to “Note 7 – Accrued Liabilities” for more information.
Recent Accounting Pronouncements
In January 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-01 “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which refines the scope of ASC 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate reform activities. ASU 2021-01 is intended to reduce diversity in practice related to accounting for (1) modifications to the terms of affected derivatives and (2) existing hedging relationships in which the affected derivatives are designated as hedging instruments. Additionally, ASU 2021-01 expands the scope of ASC 848 “Reference Rate Reform” to include all affected derivatives and give market participants the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. The adoption of this standard does not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
3. Stock-Based Compensation
On April 20, 2021, the stockholders of the Company approved the ORBCOMM Inc. Amended and Restated 2016 Long-Term Incentives Plan (the “Amended 2016 LTIP”). The Amended 2016 LTIP replaces the Company’s 2016 Long-Term Incentive Plan (the “2016 LTIP”). The number of shares authorized for delivery under the Amended 2016 LTIP is 8,215,099 shares, including 490,099 shares that remained available under the 2016 LTIP as of March 1, 2021, plus any shares previously subject to awards under the 2016 LTIP that are cancelled or forfeited, or lapse unexercised since that date. As of June 30, 2021, there were 8,537,056 shares available for grant under the Amended 2016 LTIP.
Total stock-based compensation recorded by the Company for the quarters ended June 30, 2021 and 2020 was $1,487 and $1,471, respectively, and for the six months ended June 30, 2021 and 2020 was $3,248 and $3,150, respectively. Total capitalized stock-based compensation for the quarters ended June 30, 2021 and 2020 was $142 and $134, respectively, and for the six months ended June 30, 2021 and 2020 was $237 and $247, respectively.
The following table summarizes the components of stock-based compensation expense on the condensed consolidated statements of operations for the quarters and six months ended June 30, 2021 and 2020:
|
|
|
Quarters Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Cost of services
|
|
$
|
15
|
|
|
$
|
130
|
|
|
$
|
137
|
|
|
$
|
301
|
|
|
Cost of product sales
|
|
|
42
|
|
|
|
32
|
|
|
|
84
|
|
|
|
65
|
|
|
Selling, general and administrative
|
|
|
1,213
|
|
|
|
1,051
|
|
|
|
2,520
|
|
|
|
2,218
|
|
|
Product development
|
|
|
217
|
|
|
|
258
|
|
|
|
507
|
|
|
|
566
|
|
|
Total
|
|
$
|
1,487
|
|
|
$
|
1,471
|
|
|
$
|
3,248
|
|
|
$
|
3,150
|
|
As of June 30, 2021, the Company had unrecognized compensation costs for all share-based payment arrangements totaling $3,202.
13
Time-Based Stock Appreciation Rights
A summary of the Company’s time-based stock appreciation rights (“SARs”) for the six months ended June 30, 2021 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, 2021
|
|
|
1,802,844
|
|
|
$
|
5.79
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(151,967
|
)
|
|
|
4.88
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(32,500
|
)
|
|
|
3.05
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
1,618,377
|
|
|
$
|
4.86
|
|
|
|
2.13
|
|
|
$
|
9,208
|
|
|
Exercisable at June 30, 2021
|
|
|
1,618,377
|
|
|
$
|
4.86
|
|
|
|
2.13
|
|
|
$
|
9,817
|
|
|
Vested and expected to vest at June 30, 2021
|
|
|
1,618,377
|
|
|
$
|
4.86
|
|
|
|
2.13
|
|
|
$
|
9,208
|
|
For the quarters and six months ended June 30, 2021 and 2020, the Company did not record any stock-based compensation expense related to these time-based SARs. As of June 30, 2021, there was no unrecognized compensation cost related to these SARs expected to be recognized.
The intrinsic value of the time-based SARs exercised during the six months ended June 30, 2021 was $847.
Performance-Based Stock Appreciation Rights
A summary of the Company’s performance-based SARs for the six months ended June 30, 2021 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, 2021
|
|
|
78,921
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(37,750
|
)
|
|
|
3.30
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
41,171
|
|
|
$
|
3.38
|
|
|
|
1.59
|
|
|
$
|
1,382
|
|
|
Exercisable at June 30, 2021
|
|
|
41,171
|
|
|
$
|
3.38
|
|
|
|
1.59
|
|
|
$
|
1,382
|
|
|
Vested and expected to vest at June 30, 2021
|
|
|
41,171
|
|
|
$
|
3.38
|
|
|
|
1.59
|
|
|
$
|
1,382
|
|
For the quarters and six months ended June 30, 2021 and 2020, the Company did not record any stock-based compensation expense related to these performance-based SARs. As of June 30, 2021, there was no unrecognized compensation cost related to these SARs expected to be recognized.
The intrinsic value of the performance-based SARs exercised during the six months ended June 30, 2021 was $275.
The fair value of each time-based and performance-based SAR award is estimated on the date of grant using the Black-Scholes option pricing model with various assumptions. 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 an 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 awards. The Company did not grant time-based or performance-based SARs during the quarters and six months ended June 30, 2021 and 2020.
14
Time-Based Restricted Stock Units
A summary of the Company’s time-based restricted stock units (“RSUs”) for the six months ended June 30, 2021 is as follows:
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
Balance at January 1, 2021
|
|
|
1,297,273
|
|
|
$
|
4.90
|
|
|
Granted
|
|
|
97,302
|
|
|
|
7.06
|
|
|
Vested
|
|
|
(802,698
|
)
|
|
|
4.03
|
|
|
Forfeited or expired
|
|
|
(37,287
|
)
|
|
|
8.94
|
|
|
Balance at June 30, 2021
|
|
|
554,590
|
|
|
$
|
6.30
|
|
For the quarters ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these time-based RSUs of $593 and $796, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these time-based RSUs of $1,385 and $1,625, respectively. As of June 30, 2021, $1,518 of total unrecognized compensation cost related to these RSUs is expected to be recognized through September 2023.
Performance-Based Restricted Stock Units
A summary of the Company’s performance-based RSUs for the six months ended June 30, 2021 is as follows:
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
Balance at January 1, 2021
|
|
|
1,150,912
|
|
|
$
|
4.70
|
|
|
Granted
|
|
|
2,025
|
|
|
|
7.27
|
|
|
Vested
|
|
|
(327,289
|
)
|
|
|
3.92
|
|
|
Forfeited or expired
|
|
|
(371,534
|
)
|
|
|
3.99
|
|
|
Balance at June 30, 2021
|
|
|
454,114
|
|
|
$
|
6.17
|
|
For the quarters ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these performance-based RSUs of $560 and $541, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these performance-based RSUs of $1,314 and $1,305, respectively. As of June 30, 2021, $1,684 of total unrecognized compensation cost related to these RSUs is expected to be recognized through March 2022.
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.
Market 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 in equal installments at the end of each year in the performance period only if the Company satisfies the stock price performance targets and the senior executives continue their employment 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 executive’s base salaries in the year of the grant depending on the Company’s stock price performance target for that year. The value of the MPUs can be paid in either cash, common stock or a combination of cash and common stock, at the Company’s discretion. The MPUs are classified as a liability on the condensed consolidated balance sheets and are revalued at the end of each reporting period based on the awards’ fair value over a three-year period.
15
As the MPUs contain both performance and service conditions, they 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 each specific tranche. The Company estimated the fair values of the MPUs using a Monte Carlo simulation model that used the following assumptions:
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
Risk-free interest rate
|
|
0.06% to 0.36%
|
|
0.16% to 0.18%
|
|
Estimated volatility factor
|
|
75.0% to 87.0%
|
|
66.0% to 118.0%
|
|
Expected dividends
|
|
None
|
|
None
|
For the quarters ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these MPUs of $299 and $69, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to these MPUs of $455 and $87, respectively.
As of June 30, 2021, the Company recorded $347 and $127 in accrued liabilities and other non-current liabilities related to the MPUs, respectively, on its condensed consolidated balance sheet. As of December 31, 2020, the Company recorded $352 and $72 in accrued liabilities and other non-current liabilities related to these MPUs, respectively, on its condensed consolidated balance sheet.
In January 2021, the Company issued 47,404 shares of common stock as payment in connection with MPUs for achieving the fiscal year 2020 MPU awards’ stock performance targets with respect to the 2020 performance year.
Employee Stock Purchase Plan
On February 16, 2016, the Company’s Board of Directors adopted the ORBCOMM Inc. Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s shareholders 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 common stock at a discount of up to 15% of its fair market value, subject to certain conditions and limitations. Purchases of shares of common stock under the ESPP are made twice a year at six-month intervals. For the quarters ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to the ESPP of $35 and $65, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded stock-based compensation expense related to the ESPP of $94 and $133, respectively. During the six months ended June 30, 2021, 101,732 shares of the Company’s common stock were purchased under the ESPP at a price of $5.24 per share. During the six months ended June 30, 2020, 166,580 shares of the Company’s common stock were purchased under the ESPP at a price of $2.58 per share. In accordance with the terms of the Merger Agreement, as defined below, the Company suspended the ESPP at the conclusion of the ESPP subscription period ended May 31, 2021 and will terminate the ESPP concurrently with the consummation of the Merger, as defined below.
16
4. Net Income (Loss) Attributable to ORBCOMM Inc. Common Stockholders
The Company accounts for earnings per share (“EPS”) in accordance with ASC Topic 260 “Earnings Per Share” 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 stock option grants, unvested SAR and RSU grants and shares of Series A convertible preferred stock for the respective periods. The following table sets forth the basic and diluted EPS calculations for the quarters and six months ended June 30, 2021 and 2020:
|
|
|
Quarters Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net loss attributable to ORBCOMM Inc. common
stockholders
|
|
$
|
(7,658
|
)
|
|
$
|
(6,670
|
)
|
|
$
|
(18,232
|
)
|
|
$
|
(13,645
|
)
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding
|
|
|
79,547
|
|
|
|
78,071
|
|
|
|
79,311
|
|
|
|
78,192
|
|
|
Dilutive effect of grants of stock options, unvested SARs
and RSUs and shares of Series A convertible preferred
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Diluted number of common shares outstanding
|
|
|
79,547
|
|
|
|
78,071
|
|
|
|
79,311
|
|
|
|
78,192
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.17
|
)
|
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.17
|
)
|
The computations of net loss attributable to ORBCOMM Inc. common stockholders for the quarters and six months ended June 30, 2021 and 2020 are as follows:
|
|
|
Quarters Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(7,641
|
)
|
|
$
|
(6,670
|
)
|
|
$
|
(18,203
|
)
|
|
$
|
(13,645
|
)
|
|
Preferred stock dividends on Series A convertible preferred
stock
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
Net loss attributable to ORBCOMM Inc. common
stockholders
|
|
$
|
(7,658
|
)
|
|
$
|
(6,670
|
)
|
|
$
|
(18,232
|
)
|
|
$
|
(13,645
|
)
|
5. Satellite Network and Other Equipment, Net
Satellite network and other equipment, net consisted of the following:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Land
|
|
$
|
381
|
|
|
$
|
381
|
|
|
Satellite network
|
|
|
187,877
|
|
|
|
200,279
|
|
|
Capitalized software
|
|
|
101,793
|
|
|
|
96,261
|
|
|
Computer hardware
|
|
|
7,697
|
|
|
|
7,351
|
|
|
Other
|
|
|
21,104
|
|
|
|
17,816
|
|
|
Assets under construction
|
|
|
16,024
|
|
|
|
12,745
|
|
|
|
|
|
334,876
|
|
|
|
334,833
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(218,622
|
)
|
|
|
(207,296
|
)
|
|
|
|
$
|
116,254
|
|
|
$
|
127,537
|
|
During the quarters ended June 30, 2021 and 2020, the Company capitalized internal costs attributable to the design, development and enhancement of the Company’s products and services that have not yet been placed into service and internal-use software in the amounts of $3,722 and $4,371, respectively. During the six months ended June 30, 2021 and 2020, the Company capitalized internal costs attributable to the design, development and enhancement of the Company’s products and services that have not yet been placed into service and internal-use software in the amounts of $7,142 and $7,857, respectively.
17
Depreciation and amortization expense for the quarters ended June 30, 2021 and 2020 was $8,673 and $9,225, respectively, including amortization of internal-use software of $913 and $726, respectively. Depreciation and amortization expense for the six months ended June 30, 2021 and 2020 was $17,737 and $19,405, respectively, including amortization of internal-use software of $1,867 and $1,465, respectively.
For the quarters ended June 30, 2021 and 2020, $3,895 and $4,188 of depreciation and amortization expense, respectively, relate to cost of services and $373 and $521, respectively, relate to cost of product sales, as these assets support the Company’s revenue generating activities. For the six months ended June 30, 2021 and 2020, $8,282 and $8,467 of depreciation and amortization expense, respectively, relate to cost of services and $724 and $1,030, respectively, relate to cost of product sales, as these assets support the Company’s revenue generating activities.
As of June 30, 2021 and December 31, 2020, assets under construction primarily consisted of costs associated with acquiring, developing, enhancing and testing software and hardware for internal and external use that have not yet been placed into service.
In October 2018, the Company briefly lost communication with one OG2 satellite. This satellite remained under the Company’s operational control while its engineering team was developing new software in an attempt to regain this satellite’s messaging and/or AIS capability. In November 2020, the Company again lost communication with this OG2 satellite and while the Company briefly regained communication with it in February 2021, the Company has not reestablished communication with this OG2 satellite since February 2021.
On April 27, 2021, the Company’s Audit Committee of the Board of Directors concluded, based on management’s recommendation and the information provided by the investigative team, that a non-cash impairment charge of $6,656 should be recorded as a recognized subsequent event in accordance with FASB ASC Topic 855 “Subsequent Events” to write off the net book value of this OG2 satellite in the quarter ended March 31, 2021 and decreased satellite network and other equipment by $13,187 and associated accumulated depreciation by $6,531 to remove the asset as of March 31, 2021. The impairment charge is reflected in the accompanying condensed consolidated financial statements. No amount of the impairment charge represents a cash expenditure.
6. 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 is allocated to the Company’s one reportable segment, which is its only reporting unit.
The Company’s intangible assets, net consisted of the following:
|
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Useful life
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
(years)
|
|
Cost
|
|
|
amortization
|
|
|
Net
|
|
|
Cost
|
|
|
amortization
|
|
|
Net
|
|
|
Customer lists
|
|
5 - 15
|
|
$
|
113,357
|
|
|
$
|
(66,113
|
)
|
|
$
|
47,244
|
|
|
$
|
113,357
|
|
|
$
|
(60,934
|
)
|
|
$
|
52,423
|
|
|
Patents and
technology
|
|
3 - 10
|
|
|
23,424
|
|
|
|
(16,332
|
)
|
|
|
7,092
|
|
|
|
23,424
|
|
|
|
(15,288
|
)
|
|
|
8,136
|
|
|
Trade names and
trademarks
|
|
1 - 2
|
|
|
3,003
|
|
|
|
(3,003
|
)
|
|
|
—
|
|
|
|
3,003
|
|
|
|
(3,003
|
)
|
|
|
—
|
|
|
|
|
|
|
$
|
139,784
|
|
|
$
|
(85,448
|
)
|
|
$
|
54,336
|
|
|
$
|
139,784
|
|
|
$
|
(79,225
|
)
|
|
$
|
60,559
|
|
At June 30, 2021, the weighted-average amortization period for the intangible assets was 10.5 years. At June 30, 2021, the weighted-average amortization periods for customer lists, patents and technology and trade names and trademarks were 10.9, 9.3 and 1.2 years, respectively.
Amortization expense was $3,055 and $3,184 for the quarters ended June 30, 2021 and 2020, respectively. Amortization expense was $6,223 and $6,368 for the six months ended June 30, 2021 and 2020, respectively.
18
Estimated future amortization expense for intangible assets as of June 30, 2021 was as follows:
|
|
|
Amount
|
|
|
2021 (remaining)
|
|
$
|
5,973
|
|
|
2022
|
|
|
11,686
|
|
|
2023
|
|
|
11,408
|
|
|
2024
|
|
|
11,122
|
|
|
2025
|
|
|
4,472
|
|
|
2026
|
|
|
3,138
|
|
|
Thereafter
|
|
|
6,537
|
|
|
|
|
$
|
54,336
|
|
7. Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Accrued compensation and benefits
|
|
$
|
6,866
|
|
|
$
|
9,486
|
|
|
Accrued warranty obligations
|
|
|
6,751
|
|
|
|
6,398
|
|
|
Corporate income tax payable
|
|
|
586
|
|
|
|
386
|
|
|
Accrued VAT payable
|
|
|
1,909
|
|
|
|
2,189
|
|
|
Accrued satellite network and other equipment
|
|
|
499
|
|
|
|
591
|
|
|
Accrued inventory purchases
|
|
|
328
|
|
|
|
298
|
|
|
Accrued professional fees
|
|
|
555
|
|
|
|
393
|
|
|
Accrued airtime charges
|
|
|
531
|
|
|
|
812
|
|
|
Short-term lease liability
|
|
|
2,744
|
|
|
|
2,736
|
|
|
Other accrued expenses
|
|
|
8,243
|
|
|
|
8,618
|
|
|
|
|
$
|
29,012
|
|
|
$
|
31,907
|
|
Changes in accrued warranty obligations consisted of the following:
|
|
|
2021
|
|
|
2020
|
|
|
Balance at January 1,
|
|
$
|
6,398
|
|
|
$
|
6,526
|
|
|
Warranty expense
|
|
|
1,555
|
|
|
|
1,192
|
|
|
Warranty charges
|
|
|
(1,202
|
)
|
|
|
(1,298
|
)
|
|
Balance at June 30,
|
|
$
|
6,751
|
|
|
$
|
6,420
|
|
8. 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. As of June 30, 2021 and December 31, 2020, the principal balance of the note payable was €1,138, with a carrying value of $1,352 and $1,400, 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 amortized to interest expense over the six-year estimated life, which ended on September 30, 2011. This note does not bear interest and has no fixed repayment term. Repayment of the note 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, as the Company does not expect any repayments to be required prior to June 30, 2022.
9. Notes Payable
Credit Agreement
On December 2, 2020, the Company and certain of its subsidiaries entered into a restated and amended credit agreement (the “Credit Agreement”) with JPMorgan Chase, N.A. (“JPMorgan Chase”), as administrative agent and collateral agent, and with the other
19
lenders thereto (the “Lenders”), in connection with the refinancing of the Company’s Senior Secured Notes (as defined below). The Credit Agreement superseded and replaced the Company’s prior credit agreement providing for a $25,000 revolving credit facility described under “Prior Revolving Credit Facility” below. Pursuant to the Credit Agreement, the Lenders provided a senior revolving credit facility (the “Revolving Facility”) in an aggregate amount of up to $50,000 and a senior term loan facility (the “Term Facility”) in the aggregate amount of $200,000 (the “Term Facility,” and together with the Revolving Facility, collectively the “Facilities”). The proceeds of the Facilities, along with cash on hand, were used to redeem all $220,000 outstanding principal amount of the Senior Secured Notes and pay certain related fees, expenses and accrued interest.
The Facilities mature on December 2, 2025 (the “Maturity Date”). At the Company’s election, loans under the Facilities will bear interest at an alternative base rate or an adjusted London Interbank Offered Rate (“LIBOR”), plus an applicable margin subject to a set pricing grid, with respect to the Revolving Facility and the Term Facility.
The Facilities are secured by a first-priority security interest in substantially all the Company’s and its subsidiaries’ assets under an Amended and Restated Security Agreement among the Company, its subsidiaries and JPMorgan Chase (the “Security Agreement”). The Revolving Facility has no scheduled principal amortization until the Maturity Date. The Term Facility has quarterly installments of principal amortization in an aggregate amount specified for each 12-month period following December 2, 2020, as set forth in the Credit Agreement.
Subject to the terms set forth in the Credit Agreement, the Company may borrow, repay and reborrow the Revolving Facility at any time prior to the Maturity Date and may prepay the Term Facility at any time without penalty or premium, subject to limitations as to minimum amounts of prepayments and customary indemnification for breakage costs in the case of prepayment of Eurodollar Loans other than on the last day of a related interest period.
The Credit Agreement contains customary representations and warranties, conditions to funding, covenants and events of default. The Credit Agreement contains covenants that, among other things, limit the Company and its 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 baskets as set forth in the Credit Agreement.
On December 2, 2020, the $200,000 proceeds of the Term Facility, the $20,000 borrowings under the Revolving Facility and cash on hand were used to redeem all $220,000 outstanding principal amount of the Senior Secured Notes due 2024, as defined below, at a price equal to (a) 104% of the principal amount of Securities being redeemed plus (b) accrued and unpaid interest, resulting in a call premium fee of $8,800 and an additional expense associated with the remaining unamortized debt issuance cost of $2,942.
In connection with entering into the Credit Agreement, the Company incurred debt issuance costs of approximately $3,155. For the quarter and six months ended June 30, 2021, amortization of the debt issuance costs was $158 and $316, respectively. The Company recorded charges of $2,185 and $4,405 to interest expense on its condensed consolidated statements of operations for the quarter and six months ended June 30, 2021, respectively, related to interest expense and amortization of debt issuance costs associated with the Facilities.
At June 30, 2021, the Company had $195,000 outstanding under the Term Facility and $10,000 outstanding under the Revolving Facility. As of June 30, 2021, the Company was in compliance with all financial covenants under the Credit Agreement.
Paycheck Protection Program
During the quarter ended June 30, 2020, the Company received proceeds from a loan in the amount of $7,588 (the “PPP Loan”) from JPMorgan Chase, as lender, pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company believes that it qualified to apply for and receive the PPP Loan pursuant to the PPP under the provisions of the CARES Act and the Small Business Administration (“SBA”) guidance in effect at that time. In light of the Company entering into the amendment to its Prior Revolving Credit Facility, defined below, to provide it with access to additional liquidity, its improved outlook on its ability to generate cash from operations in the quarter ended June 30, 2020, and the evolving requirements and new guidance issued by the SBA subsequent to its receipt of the PPP Loan, the Company repaid the full amount of the PPP Loan proceeds received and any accrued interest on June 25, 2020. The PPP Loan was prepayable at any time prior to the maturity date without any prepayment penalties.
20
Senior Secured Notes
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 were unconditionally guaranteed on a senior secured basis by the Guarantors, and were 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 was able to be granted or perfected therein, and subject, in all cases, to certain specified exceptions, and an intercreditor agreement with the collateral agent for the Company’s Prior Revolving Credit Facility described below. Interest payments were due on the Senior Secured Notes semi-annually in arrears on April 1 and October 1, beginning October 1, 2017.
The Company had 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 also had 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 had the right to 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 contained covenants that, among other things, limited 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 had 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.
In connection with the issuance of the Senior Secured Notes, the Company incurred debt issuance costs of approximately $5,431. For the quarter and six months ended June 30, 2020, amortization of the debt issuance costs was $194 and $388, respectively. The Company recorded charges of $5,194 and $10,388 to interest expense on its condensed consolidated statements of operations for the quarter and six months ended June 30, 2020, respectively, related to interest expense and amortization of debt issuance costs associated with the Senior Secured Notes.
Prior Revolving Credit Facility
On December 18, 2017, the Company and certain of its subsidiaries entered into a senior secured revolving credit agreement, as amended on June 25, 2020 (the “Prior Revolving Credit Agreement”) with JPMorgan Chase, as administrative agent and collateral agent. The Prior Revolving Credit Agreement provided for a revolving credit facility (the “Prior Revolving Credit Facility”) in an aggregate principal amount of up to $25,000 for working capital and general corporate purposes and would mature on December 18, 2022. The Prior Revolving Credit Facility bore interest at an alternative base rate or an adjusted LIBOR, plus an applicable margin of 2.50% in the case of alternative base rate loans and 3.50% in the case of adjusted LIBOR loans. The Prior Revolving Credit Facility was secured by a first-priority security interest in substantially all of the Company’s and its subsidiaries’ assets under a security agreement among the Company, its subsidiaries and JPMorgan Chase, subject to an intercreditor agreement with the indenture trustee for the Senior Secured Notes. The Prior Revolving Credit Facility had no scheduled principal amortization until the maturity date. Subject to the terms set forth in the Prior Revolving Credit Agreement, the Company could borrow, repay and reborrow amounts under the Prior Revolving Credit Facility at any time prior to the maturity date.
The Prior Revolving Credit Agreement contained customary representations and warranties, conditions to funding, covenants and events of default. The Prior Revolving Credit Agreement contained covenants that, among other things, limited 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 had various baskets as set forth in the Prior Revolving Credit Agreement.
21
As of June 30, 2021, scheduled mandatory repayments of long-term debt in each of the five years ending December 31, 2021 through 2025 were as follows:
|
|
|
Amount
|
|
|
2021 (remaining)
|
|
$
|
5,000
|
|
|
2022
|
|
|
15,000
|
|
|
2023
|
|
|
15,000
|
|
|
2024
|
|
|
20,000
|
|
|
2025
|
|
|
150,000
|
|
|
|
|
$
|
205,000
|
|
10. Stockholders’ Equity
Preferred Stock
The Company currently has 50,000,000 shares of preferred stock authorized.
Series A Convertible Preferred Stock
During the quarter and six months ended June 30, 2021, the Company issued dividends to the holders of the Series A convertible preferred stock in the amount of 1,686 and 2,906 shares of Series A convertible preferred stock, respectively. As of June 30, 2021, dividends in arrears were $4.
Common Stock
As of June 30, 2021, the Company has reserved 12,741,338 shares of common stock for future issuances related to employee stock compensation plans. Under the Merger Agreement, as defined below, the Company is no longer authorized to issue additional awards of shares under the Amended 2016 LTIP.
On August 5, 2019, the Company’s Board of Directors authorized a stock repurchase program under which the Company could repurchase up to $25,000 of the Company’s outstanding shares of common stock through open market transactions and privately negotiated transactions, until August 5, 2020. In addition, open market repurchases of common stock could be made pursuant to applicable securities laws and regulations, including Rule 10b-18, as well as Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the six months ended June 30, 2020, the Company repurchased 836,904 shares at an average share price of $2.98. As of June 30, 2020, authorization for approximately $13,112 of the Company’s common stock remained available for future purchases under the repurchase program. In mid-March 2020, the Company suspended further purchases given the economic uncertainty resulting from the novel coronavirus (“COVID-19”) pandemic.
11. Segment Information
The Company operates in one reportable segment, industrial 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 73% of the Company’s consolidated revenue is collected in U.S. dollars. The following table summarizes revenues on a percentage basis by geographic region, based on the region in which the customer is located.
|
|
|
Quarters Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
United States
|
|
|
58
|
%
|
|
|
52
|
%
|
|
|
56
|
%
|
|
|
53
|
%
|
|
South America
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
|
Japan
|
|
|
5
|
%
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
Europe
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
17
|
%
|
|
|
18
|
%
|
|
Other
|
|
|
11
|
%
|
|
|
16
|
%
|
|
|
12
|
%
|
|
|
14
|
%
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
22
12. Income Taxes
For the quarters ended June 30, 2021 and 2020, the Company had an income tax expense of $778 and an income tax benefit of $554, respectively. For the six months ended June 30, 2021 and 2020, the Company had an income tax expense of $1,441 and an income tax benefit of $1, respectively. The increase in the income tax provision for the quarter and six months ended June 30, 2021 primarily related to amended tax filings and provision to tax return true-ups for multiple international entities filed in prior years. This resulted in an international tax benefit recorded in these periods. In addition, the change in geographical mix of income increased taxable non-U.S. earnings before income taxes when compared to the prior year periods.
As of June 30, 2021 and December 31, 2020, the Company maintained a valuation allowance against all of its net deferred tax assets, excluding goodwill, attributable to operations in the United States, as the realization was not considered more likely than not.
There were no changes to the Company’s unrecognized tax benefits during the six months ended June 30, 2021. 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 six months ended June 30, 2021.
13. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition-related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters 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 its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
Sanmina Commitment
The Company is dependent on Sanmina, a contract manufacturer with significant operations in Mexico, for the manufacture of subscriber communicators that the Company designs and sells. If Sanmina has excess components on hand with no demand for a 90-day period following the end of each calendar quarter, the Company is obligated to purchase these components. The value of these components would be included in the Company’s inventory balance during the period purchased.
COVID-19
COVID-19 surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. The effects of the COVID-19 pandemic are expected to adversely affect the Company’s business, financial condition and results of operations. The magnitude of the impact of COVID-19 is unpredictable; consequently, the impact it will have on the Company’s future results is uncertain.
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 both the quarters ended June 30, 2021 and 2020, airtime credits used totaled approximately $7. For the six months ended June 30, 2021 and 2020, airtime credits used totaled approximately $14 and $15, respectively. As of June 30, 2021 and 2020, unused credits granted by the Company were approximately $1,874 and $1,903, respectively.
23
14. Leases
Lessee
The Company determines whether an arrangement is a lease at inception. The Company has operating leases for land, office space, data centers and storage facilities, as well as office equipment and vehicles. The Company’s leases have remaining lease terms of less than one year to 12 years, some of which include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish the Company’s right-of use assets and lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The operating lease ROU assets also include any lease payments made in advance of lease commencements and exclude lease incentives. The lease terms used in the calculations of the operating ROU assets and operating lease liabilities include options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
The Company has lease agreements with lease and non-lease components, which are generally not accounted for separately.
Components of lease expense are as follows:
|
|
|
Six Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Operating lease cost
|
|
$
|
1,865
|
|
|
$
|
1,821
|
|
The Company has lease arrangements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. In addition, the Company has variable lease costs associated with certain leases. Lease costs associated with the short-term leases and variable lease components, included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations during the six months ended June 30, 2021, were not material.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:
|
|
|
Six Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Operating cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
2,068
|
|
|
$
|
1,944
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
$
|
1,115
|
|
|
$
|
117
|
|
Supplemental balance sheet information related to the Company’s operating leases is as follows:
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Balance Sheet Classification
|
|
2021
|
|
|
2020
|
|
|
Right-of-use assets
|
Other assets
|
|
$
|
13,334
|
|
|
$
|
13,485
|
|
|
Current lease liabilities
|
Accrued liabilities
|
|
|
2,744
|
|
|
|
2,736
|
|
|
Non-current lease liabilities
|
Other liabilities
|
|
|
13,035
|
|
|
|
13,400
|
|
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Weighted-average remaining lease term (in years)
|
|
|
6.24
|
|
|
|
6.76
|
|
|
Weighted-average discount rate
|
|
|
7.4
|
%
|
|
|
8.0
|
%
|
24
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2021 (remaining)
|
|
$
|
1,881
|
|
|
2022
|
|
|
3,496
|
|
|
2023
|
|
|
3,325
|
|
|
2024
|
|
|
3,154
|
|
|
2025
|
|
|
2,624
|
|
|
Thereafter
|
|
|
5,416
|
|
|
Total lease payments
|
|
|
19,896
|
|
|
Less: Imputed interest
|
|
|
(4,117
|
)
|
|
Present value of lease liabilities
|
|
$
|
15,779
|
|
Lessor
Although most of the Company’s revenue from its product sales comes from the sale of subscriber communicators, the Company also leases some subscriber communicators to certain customers. The Company determines the existence of a lease when the customer controls the use of the identified product for a period of time defined in the lease agreement. The Company’s leases range in duration between three to five years, with payment generally collected in monthly installments. Refer to “Note 2 – Summary of Significant Accounting Policies” for more information.
The Company classifies these leases as sales-type leases and recognizes revenue and cost of product sales upon delivery or installation, depending on the specific contractual terms. The Company’s leases include certain termination fees, as defined in the lease agreements, and do not typically include purchase rights at the end of the lease.
15. Merger Transaction
On April 7, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GI DI Orion Acquisition Inc. (“Parent”) and GI DI Orion Merger Sub Inc., a wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Parent. Parent and Merger Sub are affiliates of GI Partners (“GI Partners”).
Merger Agreement
As a result of the Merger, (i) each share of the Company’s common stock outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than shares of common stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware and shares of common stock held by Parent or Merger Sub or their parent entities at the Effective Time) will, at the Effective Time, be automatically cancelled and converted into the right to receive $11.50 in cash, without interest, subject to applicable withholding taxes (the “Common Stock Merger Consideration”) and (ii) each share of issued and outstanding Series A convertible preferred stock will automatically be cancelled and converted into the right to receive an amount in cash equal to the sum of (1) the product of (x) the Common Stock Merger Consideration multiplied by (y) 1.66611 plus (2) an amount equal to (x) the number of shares of Series A convertible preferred stock issuable in respect of any accrued and unpaid dividends thereon as of the Effective Time, multiplied by (y) the Common Stock Merger Consideration multiplied by (z) 1.66611, without interest, subject to applicable withholding taxes.
If the Merger is consummated, the Company’s common stock will be delisted from the Nasdaq Stock Market, LLC and deregistered under the Exchange Act.
25
Conditions to the Merger and Closing
Completion of the Merger is subject to customary closing conditions, including (1) the adoption of the Merger Agreement by an affirmative vote of the holders of a majority of the voting power of the outstanding Company stock entitled to vote thereon (which was obtained on July 8, 2021), (2) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (which expired on June 14, 2021), (3) the absence of an order, injunction or law prohibiting the Merger, (4) the receipt of approval of the committee on foreign investment in the United States, (5) the consent to the transfer of control of the Company’s communications licenses by the Federal Communications Commission, (6) the receipt of certain other Required Governmental Approvals (as defined in the Merger Agreement) from Foreign Telecommunication Regulators and non-U.S. Governmental Entities relating to investment and national security approvals, (7) the accuracy of the other party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement, (8) compliance in all material respects with the other party’s obligations under the Merger Agreement and (9) no Company Material Adverse Effect (as defined in the Merger Agreement) having occurred since the date of the Merger Agreement. The parties expect the transaction to close in the second half of 2021.
Go Shop; No Solicitation
During the period from April 8, 2021 and continuing until 11:59 p.m. (New York time) on May 7, 2021 (the “Go Shop Period”), the Company had the right to, among other things, (1) initiate, solicit, or knowingly facilitate or knowingly encourage any inquiries, discussions or requests or with respect to or the making of any proposal or offer that constitutes or would reasonably be expected to lead to an acquisition proposal and (2) provide access to the Company’s properties, books and records and non-public information to a party pursuant to an acceptable confidentiality agreement.
After the expiration of the Go Shop Period, the Company must comply with customary non-solicitation restrictions, except that the Company may continue to engage in discussions and negotiations with any Excluded Party. An “Excluded Party” is a party from which the Company received a written competing acquisition proposal during the Go Shop Period that the Board determined, before the later to occur of (x) three business days after receipt of the proposal and (y) May 10, 2021, would reasonably be expected to lead to a Superior Proposal (as defined in the Merger Agreement), provided that a party will cease to be an Excluded Party if either (A) at any time after the expiration of the Go Shop Period, no acquisition proposal made by such party is outstanding, or (B) the Company has not provided Parent with a notice of change of recommendation/termination stating that it intends to terminate the Merger Agreement to enter into a transaction with such party on or prior to the tenth (10th) business day following the expiration of the Go Shop Period.
Termination and Fees
Either the Company or Parent may terminate the Merger Agreement in certain circumstances, including if (1) the Merger is not completed by January 7, 2022, subject to a 90-day extension if all conditions have been satisfied (or are capable of being satisfied at closing) except for receipt of Required Governmental Approvals and/or existence of an injunction or order prohibiting the Merger, (2) if the stockholders meeting shall have been held and the stockholder approval shall not have been obtained, or (3) if the Merger is permanently enjoined by a governmental entity. Parent and the Company may also terminate the Merger Agreement by mutual written consent.
The Company is also entitled to terminate the Merger Agreement and receive a termination fee of $51,800 from Parent if (1) the Marketing Period for the debt financing has ended and all conditions to closing have been satisfied or waived, (2) Parent and Merger Sub fail to timely consummate the Merger, (3) the Company irrevocably confirms to Parent that it is ready, willing and able to consummate the Merger and remains so for 3 business days and (4) Parent and Merger Sub fail to effect the Merger during such 3 business day period.
If the Merger Agreement is terminated because (1) the Merger Agreement is terminated by Parent as a result of (a) entry by the Company into an alternative acquisition agreement with a third party or (b) a change of recommendation by the Company’s Board with respect to the Merger, or (2) the Merger Agreement is terminated by the Company in order to enter into a definitive agreement providing for a Superior Proposal, or (c) (x) the Merger Agreement is terminated as a result of (i) Closing not having occurred prior to the Termination Date, (ii) failure to obtain Stockholder Approval or (iii) the Company’s material breach of its non-solicitation obligations or other material uncured breach of its representations, warranties or covenants, (y) an acquisition proposal to acquire 50% or more of the Company has been made prior to such time, and (z) the Company consummates such an acquisition proposal within 12 months of termination or signs a definitive agreement for such an acquisition proposal that is later consummated, the termination fee payable by the Company to Parent will be $32,900; provided that a lower fee of $16,500 will apply if the Merger Agreement is terminated by the Company in order to enter into an alternative acquisition agreement with an Excluded Party that made a Superior Proposal.
26
Other Terms of the Merger Agreement
The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to use commercially reasonable efforts to conduct its business in all material respects in the ordinary course consistent with past practice during the period between the date of the Merger Agreement and the closing and to not engage in specified types of transactions during this period, subject to certain exceptions.
The parties have agreed to use reasonable best efforts to take all actions necessary to consummate the Merger, including cooperating to obtain antitrust clearance under the HSR Act, receipt of the Required Governmental Approvals (as defined in the Merger Agreement) and defending against any lawsuits challenging the Merger.
The Company held a special stockholders’ meeting on July 8, 2021 in connection with the proposed transaction, at which meeting the Company’s stockholders approved the adoption of the Merger Agreement.
27