[Satellite News 02-01-11] Orbcomm’s last remaining functional Automatic Identification System (AIS) low-Earth orbit satellite failed at the end of its 2010 fiscal fourth quarter, temporarily bringing to an end the company’s AIS shipboard broadcast service, which transmits vessel identification, position and other critical data to assist in navigation and improve maritime safety.
    In a conference call, Orbcomm’s management said the company expects the financial impact of this service interruption to be less than $1 million until the company launches replacement satellites in the second quarter of this year.
    Orbcomm initiated its AIS service in late 2008 after orbiting six Quick
Launch satellites equipped with an AIS receiver. However, those satellites began to fail almost immediately after launch. The operator then collected a $44 million settlement from its insurance underwriters.
    Raymond James Analyst Chris Quilty told Satellite News that while the AIS service interruption would cut into the company’s projected 2011 EBDITA estimate, Orbcomm investors need not panic.
    “We view this reduction as temporary in nature, with no lasting impact to estimates in 2012 and beyond. We are reiterating Orbcomm’s outperform rating and one-year price target price to $3.25 per share,” said Quilty. “Orbcomm will generate $68 million of cumulative EBITDA through 2013 that will be plowed into cap-ex and other growth initiatives. In addition, we have taken the liberty of assuming that Orbcomm will place an order for an additional eight satellites to be built and launched in 2014. These satellites, along with any future additions, should be amply funded by the company’s internally-generated cash flows for as far as the eye can see.”
    Despite the AIS service limitation, Quilty points to Orbcomm’s successful buildup of more than a dozen AIS customers over the past two year, which helped the grew revenues in the second quarter of 2010. “AIS revenues likely declined to $600,000 in the following third quarter due to a service termination with the U.S. Coast Guard and we had been projecting revenues of $1.2 million during the first half of 2011. Consequently, we are lowering our 2011 AIS contribution from $2.8 million to about $1.0 million, and shaving a like amount from our 2011 EBITDA forecast. But our forward estimates remain unchanged,” Quilty said.
    Orbcomm is currently scheduled to launch two AIS nanosatellites, beginning in the second quarter, which the company hopes will restore nominal AIS service almost immediately. Orbcomm said it would then launch two of its 18 second-generation OG2 satellites, which will aim to both improve the company’s core data service while adding two additional AIS receivers. The remaining 16 satellites will be gradually placed into service over time.
    Orbcomm contracted Sierra Nevada Corp. to build the OG2 satellites for $117 million. Orbcomm then entered into a $46.6 million fixed-price contract with SpaceX in 2009 to launch the satellites beginning in mid-2011 and extending into 2014.
    During the conference call, Orbcomm CEO Marc Eisenberg said that as of June, the company has made milestone payments to Sierra Neveda and SpaceX totaling $52.2 million. “To fund the remaining $111 million balance, Orbcomm will need to use a combination of cash-on-hand, borrowings, and or internally generated funds,” Eisenberg said.
    Orbcomm currently holds cash and equivalents totaling $88 million, which Quilty said should be sufficient enough to fund more than 80 percent of its outstanding commitment. “The remaining balance of about $22 million can be bridged through a $20 million vendor financing package from Sierra Nevada Corp., but will more likely be paid out of operating cash flows,” he said.