ORBCOMM Inc.

Good morning and thank you for joining us. Today, I'm joined by Marc Eisenberg, ORBCOMM's Chief Executive Officer; and Dean Milcos, ORBCOMM's Chief Financial Officer.

On today's call, Marc will provide some highlights on the quarter and give a strategic update on the business. Dean will then review the company's quarterly financial results and outlook.

Following our prepared remarks, we will open the line for your questions. Before we begin, let me remind you that today's conference call includes forward-looking statements and that actual results may differ from the expectations reflected in these statements.

We encourage you to review our press release and SEC filings for a full discussion of the risks and uncertainties that pertain to these statements. ORBCOMM assumes no duty to update forward-looking statements.

Furthermore, the financial information we will discuss include non-GAAP financial measures. Reconciliation of these non-GAAP measures to GAAP measures is included in our press release.

At this point, I'll turn the call over to Marc Eisenberg.

Thanks, Aly, and good morning everyone. It's been an extremely active quarter.

The company has made a number of strides across the business, ranging from our extension with Inmarsat for L-band satellite service through 2035, and a minimum, as well as kicking off OGx, a groundbreaking new service expected to hit the market sometime in 2022. We've taken large leaps getting through our integration efforts, and have a number of new products currently being released to the market.

We've been generating a good deal of cash and in the fourth quarter and have purchased $30 million of our high yield notes. We've extended our contracts with Carrier North America truck trailer group.

And in addition, we've won some meaningful new deals. We're seeing recovery in many of our markets.

And through it all, we had a pretty good financial quarter. So let's get into it.

Earlier this morning, we issued a press release announcing our financial results for the third quarter ending September 30, 2020. We're pleased that we delivered another consecutive quarter where our results beat analysts' consensus for both revenue and adjusted EBITDA.

Total revenue for the third quarter was $61.7 million, up sequentially from Q2 and at the high end of our guidance. Our cost reduction initiatives continued to deliver savings in Q3 with year-to-date savings surpassing our target for the year.

These contributions lead to adjusted EBITDA of $14.3 million or a 23.2% margin, a 220 basis point improvement from last quarter and ahead of guidance. The improvements in revenue and adjusted EBITDA resulted in another strong quarter of cash flow generation.

In Q3, our operating cash flow was $18.7 million. This is an increase of over $6 million from the prior quarter, and about $9 million more than last year's third quarter.

As a result, we ended the quarter with over $76 million in cash, a $22 million increase year-to-date are higher than in previous years despite one of the most difficult environments in recent history. We believe our momentum of increasing cash flow demonstrates not only that our business is resilient, but also tracking towards strategies we continue to integrate and synergize.

In the fourth quarter, the company purchased $30 million of ORBCOMM's 8% senior notes with cash on hand that was yielding negligible interest income, setting us up for a potential upcoming debt refinancing. ORBCOMM's business supports the stay at home economy, helping customers operate during these unprecedented times.

Our IoT and telematics technology offer the flexibility needed for organizations to quickly pivot and transition as needed, providing command, control and visibility of their assets dispersed across large geographies. Companies who do not have IoT deployments need to travel to locate, diagnose, and preset conditions on their assets.

ORBCOMM customers can do it from their office or from their home with just a few clicks. What we're experiencing are customers who have not considered IoT solutions in the past are substantially underperforming and are likely to reconsider investing in IoT in the future.

This should contribute to growth well beyond the pandemic. Since investor focus is now turned to 2021.

I'd like to discuss strategy, both where we are today as well as where we're headed. As a reminder, prior to our multiple acquisitions, we were purely a connectivity company that sold through a number of value added resellers, we saw an opportunity to acquire a number of subscale resellers to hit price points at asset classes to create a complete offering, and accumulate technical depth to continually innovate to meet the needs of the industry, and the imagination of our customers.

Since then, we've acquired 12 companies. And our main focus has been centered around integrating these assets to create a more comprehensive offering, as well as a more efficient organization.

As part of this integration plan, we embarked on a number of strategic initiatives focused on product rationalization, the consolidation of platforms, moving to one ERP system, and expanding cross selling opportunities. So where are we today?

Well, we've realized that 75% reduction in our skew camps belong with a 30% cost reduction after reengineering our product portfolio, leading to significantly better inventory management and significantly improve product margins. We've enhanced our distribution channels, which has enabled us to win incremental customer opportunities through double and triple play offerings.

We consolidated 13 different accounting systems into one ERP system enabling a faster monthly closed process, significant cost efficiencies, simplified billing, as well as a better experience for customers. The ORBCOMM and OEM platforms which are the result of consolidating 25 customer facing web portals are nearing completion and onboarding new and existing customers on a daily basis.

Not only to these two platforms provide customers' visibility to multiple asset types using a single sign on. But with the increased processing power, data bandwidth, and scalability, they could support a 5G video based IoT ecosystem.

As a matter of fact, the ORBCOMM platform was recognized with the 2020 IoT edge computing Excellence Award from IoT evolution world as an innovative solution. Overall, as a result of our integration plan, the company has begun to realize enhance efficiencies, greater scale, and improve digital adjusted EBITDA margins, and increased cash generation.

While we have improved nearly every key metric that the company tracks, it is not yet led to strong organic growth. We have now transition to the next phase of our strategy, which are centered around innovation for growth.

Recently, we discussed long term targets focused on organic revenue growth of 10% with adjusted EBITDA of 20%. We call these targets our 10 and 20 plan, which includes a number of key strategic initiatives, many of which have already been in the works for some time, and are just beginning to yield results.

Our strategic initiatives are centered around launching new innovative products, adding new channels to market and developing incremental service offerings. Starting with product innovation, we anticipate launching several new products over the next few quarters, many of which leverage ORBCOMM skill sets in multiple forms of connectivity, creating multimode opportunities, a strong competitive advantage to ORBCOMM.

Historically, companies who were utilizing cellular connectivity to their IoT applications and wanted the expanded coverage and value capabilities that satellite provides had to pay nearly double for both hardware and airtime, making dual mode a niche offering. To advanced dual mode to a mainstream offering, we built our satellite as an accessory device which combines the satellite modem with the external antenna, thereby enabling satellite connectivity through a very simple plug and play connection by lowering costs, resulting in significantly lowering pricing to the market.

Customers can cost effectively at dual mode connectivity to almost any work come telematics or third party device. By this time next year, we expect nearly all of our product lines to have the capability to add satellite as an accessory, making it a far larger share of ORBCOMM deployments over time.

Some other innovative products and development include adding video to both cargo and in-cab assets to help customers improve security, lower risk and enhance utilization. We're also improving our sensor portfolio adding visibility around tire pressure, identifying tractors and trailers, sensing cargo and refrigerated assets, along with multiple other projects.

Our portable AIS device, which product sizes our AIS service making it affordable and bi directional for small vessels. As well as many of the products we just listed are planned for launch in just a few months.

These products investments and innovation were made over the last few years and are now coming to fruition. Most of these products are delivering little to no revenue today and represent Greenfield opportunities to capture incremental market share and drive organic growth.

Turning to new channels to market, we've engaged in multiple strategic partnerships with both distribution and integration partners that are starting to bear fruit. Yesterday, we announced that we extended and enhanced our agreement with Inmarsat, the world leader in global mobile satellite communications through at least 2035.

This agreement also kicks off our next generation satellite offering while expanding our distribution through Inmarsat channels. We'll talk about our partnership with Inmarsat in greater detail in just a few moments.

We've also enhanced our strategic partnership with Carrier and extended our telematics agreement for a minimum of three years, we're continuing to evolve the customized OEM solution for their refrigerated truck and trailer systems, which is comprised of a full suite of ORBCOMM products, using our cellular and dual mode connectivity, as well as a state of the art reporting and analytics platform. Our agreement with Carriers solidifies our long-term partnership and creates an exciting opportunity to continue to deliver full-service solution that provides complete cargo transparency, from origin to destination.

In addition, we're working on a number of partner integrations that enable us to integrate our telematics data with their safety, maintenance and workflow management systems, enabling greater functionality, maximum asset utilization, and better customer service. Another channel to market is through our inside sales team, which we're building out to focus on selling to small fleets that represent a large portion of the addressable market.

Lastly, we're developing incremental service offerings to enhance the experience of our customers and continue to make us an integral part of their business operations. Now that we built a strong foundation for our robust ORBCOMM and OEM platforms, we can utilize the incremental bandwidth processing power and scalability to deliver additional value to our customers.

Our new service offerings will leverage advanced telematics, business intelligence tools, and industry benchmarking tools, coupled with our deep industry expertise, to help customers operate more efficiently and unlock incremental ROI. In addition, we're focused on expanding our subscription model offering, which combines the hardware and service into a single monthly rate.

We kicked off our subscription offering this year and with demand substantially increasing in the third quarter. We believe customer demand for the subscription model will continue to rise, leading to incremental recurring service revenues and future growth.

To wrap up our strategic discussion, we're seeing the tail end of the integration phase of our strategy and we're now focused on driving innovation and long-term growth. Moving on to transportation starting with an overview of the market, new truck and trailer orders rebounded in Q3 after hitting lows in Q2.

According to ACT research, and FTR transportation intelligence, new OEM orders increased 124% for trucks, and 146% for trailers in Q3 compared to prior year. This improvement is partially due to a large pent-up demand stemming from last year's weakened transportation market, combined with the late orders for new assets this year, as factories steer through the pandemic.

In addition, we're seeing the rise in freight rates. As a result of all of these factors the transportation market appears to be recovering.

Deployments in our transportation group took a positive step in the third quarter, as we're seeing a mix of growing demand for many of our large, long standing customers, as well as a number of new projects. Any of our existing customers who already use or come to manage one asset site are looking to expand to additional assets and consolidate vendors.

The majority of the opportunities we're working on today are double and triple plays involving two or more different asset classes. That could include refrigerated trailers, dry vans, trucks, gensets, and chassis.

As the number of asset classes a company looks at, continues to go up, so do our close counts, two great triple-play opportunities we close this quarter are TBM carriers and demand truck lines, both of which began deploying our in-cap refrigerated and driving solutions in the third quarter. We also signed a double-play opportunity with Transgourmet, a European food and beverage wholesale company who is using our in-cab and refrigerated solutions.

In Q3, our fleet management group that previously focused almost exclusively on oil and gas shipped 2,800 units far above the recent norms as they continue to transition to more diverse markets including ambulance, commercial vehicle and over the road transportation. A great example of our development work supporting the upcoming Canadian ELD mandate, as well as the integration of the feature sets from multiple platforms to the ORBCOMM platform is our win with Reimer Express lines, a large Canadian truckload carrier, which will begin deploying our in-cab in Q4 on their fleet of 1,500 trucks.

As previously discussed, one of our new channels to market are through subscription models. In Q3, we closed several subscription opportunities representing about 6,000 devices, of which roughly 2,500 shifts within the quarter, making it our largest subscription quarter-to-date.

As the devices get installed, revenue will be recognized as recurring service over the life of the contract. Let's move on to our container programs.

Our project with Carriers container group in support of a major shipping line customer continues to progress. In Q3, we delivered approximately 9,000 devices, bringing the total to date to about 67,000 of the total 150,000 units deployment.

We anticipate shipping the majority of the balance throughout 2021. Supportive an additional shipping line customer we delivered the remaining 3,000 devices in Q3, with total 7000 units deployment.

There are many other pilots in process, and we hope to build on our momentum in this market for IoT penetration is growing rapidly. Turning to AIS revenues in Q3 were $2.7 million a tick down for last quarter as some large customers extended their long-term contracts at slightly over rates.

We renewed our multiyear contract with IHS market to continue to use our AIS data to enable commodity trading applications. We also signed a contract extension with marine traffic through 2023.

In addition, we were awarded a new three-year deal with a leader in geospatial mapping, who will integrate our AIS data into their cloud-based platform for big data analytics and visualization. As previously announced, we're partnering with Clyde Space who will build, launch and operate our two next generation AIS CubeSats expected to expand coverage of ORBCOMM constellation, increase visibility to smaller class B ships and extend our polar footprint.

Clyde Space has started integrating the satellite components and we're targeting the initial launch in the first half of next year. And in some recent news we're collaborating with Inmarsat on a next generation global IoT service called OGx to offer the best in class combination of high bandwidth data packets with low cost terminals.

The first offering is a higher data rate service designed to be about 40 times faster than the current IDP service, allowing for much larger messages and faster delivery times. ORBCOMM's current generation IDP deployments can be seamlessly upgraded over the air to the OGx service, so customers can start development and integration now to ensure their solutions are market ready when OGx is expected to become available in 2022.

ORBCOMM and Inmarsat are designing a second OGx offering, which is extremely power efficient, and can support a daily message for multiple years on a satellite terminal utilizing a single double A battery. This capability is ideal for remote monitoring and environmental sensing applications.

Both OGx offerings will be supported by Inmarsat's current I-4 and forthcoming I-6 ORBCOMM constellations, providing the most sophisticated data payload and lowest latency of any L band satellite store and forward service. Inmarsat will also distribute ORBCOMM's portfolio of OGx telematics devices globally through its extensive commercial and government sales channels.

By extending our long-term successful partnership through 2035 at a minimum, we can leverage our synergies with Inmarsat and continue to deliver the industry's best satellite offering with the broadest geographic coverage, the most regulatory authorizations and the best value to customers. For those who are as excited about this partnership as I am, Rupert Pearce, Inmarsat's CEO and I are participating in a video interview hosted by satellite expert, Tim Parar of TMF Associates, a recording of which will be available on both company's websites by Monday November 2.

Wrapping up, we are pleased with the quarter and where we were headed. I think this quarter had a positive story for nearly all shareholders.

For those who are focused on quarterly financials and want to see a quick turnaround from COVID-19, we're moving in the right direction. For those focused on delevering, there's a great story here.

For those focused on execution, we've taken large strides in our integration efforts, and our Inmarsat relationship really cements our satellite business for many years. For those focused on growth, we hope you're as excited as we are about our 10 and 20 plan comprised of product, service and distribution initiatives.

We're clearly making strides across the organization. With that, I'll turn the call over to Dean to take you through the financials.

Thank you, Mark. Good morning, everyone.

I'm pleased that our Q3 financial performance came in better than expected, and we look forward to making progress on our strategic growth initiatives in place. Let's start with review of the company's third quarter financial results.

Total revenue for Q3 was $61.7 million, up nearly 9% sequentially from Q2 and at the high end of our guidance. Q3 service revenues were $39.7 million, slightly down compared to the prior year but up sequentially.

The current service revenues for the quarter were $36.4 million, compared to $39.2 million a year ago. About two thirds of this decline in the current service revenues is due to expired AT&T contracts supporting Maersk.

The other one third of this decline relates to continued customer disruptions resulting from the ongoing COVID-19 pandemic. Good portion of the headwinds we face today should just pay for the next year as we pass the anniversary of the AT&T contract revenue, began to see stabilization in the oil and gas market as businesses overall recover.

Other service revenues in Q3 were $3.3 million, up about $2 million from the prior year period, driven largely by one-time software license revenues. Product sales in the third quarter were $22 million, an increase of $3.7 million from the prior quarter, as several of our large and existing transportation customers increased order volumes in Q3.

In total, we shipped over 66,000 devices in the quarter, which were 10,000 more than we shipped in Q2. As Mark mentioned earlier, we're seeing our transportation business pick up alongside the market improvement and anticipate customer deployments to continue gaining momentum as we finish the year and enter 2021.

Let's move on to our billable subscribers, which ended up the third quarter at 2.17 million subs. Our subscriber count had two one-time adjustments in the quarter.

The first was results of the GPS Epic issue with a large construction OEM customer that dates back to 2018, involving hardware they purchased from a third party. As a reminder, the GPS Epic issue caused some assets, which utilize time measures to use GPS functionality to lose track of time.

Over the past two years, this OEM has been updating its modems, either over the air or replacing the hardware on these assets. While the customer did address the majority of their fleet, about 40,000 subscribers were shut off in Q3, that were not able to be serviced, most of which were non-revenue generating subs to ORBCOMM in 2020.

Our OEM customer will continue to adjust these remaining units as they come in for maintenance. So some of these might come back over time.

The second adjustment was result of our integration from various platforms to the ORBCOMM platform, designed to get us far better visibility into subscriber metrics than the legacy platforms, helping us to identify and shut off about 50,000 subs that we're continuing to incur costs with little or no associated recurring revenue. But we've improved visibility to our subscribers, we will continue to monitor them best optimize costs, revenue and profitability.

Apart from these one-off adjustments, we added approximately 40,000 net subscribers, which is more than double the number we added in Q2, as customer demand for our IoT solutions increased. Turning to gross profit margin; the company realized a margin of 53.7% of their quarter, up 20 basis points compared to the prior year period.

The revenue mix has roughly two thirds service at high margins and one third products. Service margin in Q3 remains strong at 67.4%, up slightly from the quarter - from the prior quarter.

Product margin in Q3 was 29%, an improvement over Q2 still down from last year's 31.4%. The decline from the prior year period was primarily due to lower product revenue and the fixed costs associated with our hardware business.

Third quarter operating expenses were $32.5 million, a decrease of $2.2 million compared to the prior year period. The year-over-year improvement was primarily driven by reductions in travel and entertainment, professional fees, labor cost and marketing expense, as well as lower product development cost.

We did record $1.5 million of bad debt expense in Q3, which is higher than the quarterly $600,000 average last year prior to the pandemic, but lower than the $1.9 million in the prior quarter. Excluding incremental bad debt expense, operating expenses decreased to $3 million year-over-year for the quarter.

This year's reduction in operating expenses surpasses the reductions we achieved from last year saving initiative and already sees a full year 2020 reduction plan targets after only nine months. These cost reductions have contributed to adjusted EBITDA in Q3 of $14.3 million, a 23.2% margin and above our guidance.

Sequentially from Q2, its performance was up $2.4 million or 220 basis point improvements on adjusted EBITDA margin largely driven by higher revenues and reduced operating expenses. Looking at our cash flow statement; Q3 cash flow from operations was a record $18.7 million, nearly double the $9.9 million generating the prior year period.

FX for the quarter was $4.9 million, a decrease of $800,000 compared to Q3 of last year, as our spend on integration activities begins to diminish. As part of the CapEx in the quarter, we invested nearly $700,000 in our new subscription service model.

While we are seeing customer demand increase for this type of offering; we believe our standing to support the subscription model this year will be between $2 million and $3 million and investments next year would likely be about $8 million. Turning to the balance sheet.

The company ended Q3 with $76.3 million in cash. This is an increase of $14 million from the end of June and $22 million increase from the end of 2019.

Our cash position has continued to grow this year despite facing a difficult economic environment. As Mark noted earlier, we repurchased $30 million of our senior secured notes in October bringing our principal balance outstanding down to $220 million.

With negligible interest income being earned on the cash, we believe paying down some of our 8% senior notes and reducing our overall debt and interest expense is that right financial decision. With the interest rates at historical levels and our business generating consistent free cash flow, we are actively reviewing our options for refinancing our remaining debt.

Let's move on to the outlook for Q4. As you are all well aware, many areas around the world are seeing a rise in COVID-19 cases, making it difficult to anticipate future business trends and forecast revenues.

We also consider how customer demand for subscription model affects the hardware sales in the short to benefits service revenues in the long run. Taking these factors into consideration, we expect total revenues in Q4 to be between $60 million and $64 million.

We anticipate adjusted EBITDA margin in Q4 to be between 22.5% and 23.5%. We intend to provide first quarter 2021 guidance during the next earnings conference call in late February.

In closing, we are pleased with our Q3 performance with total revenues, adjusted EBITDA and cash generation exceeding expectations. We've been able to deliver significant cost reductions throughout the year, surpassing our original savings target, which has contributed to increased cash flows.

We look forward to closing the year on an upward trend and carrying this momentum into 2021 as we execute our strategic initiatives to deliver long term revenue growth. This concludes our remarks for the call and we will now take your questions.

Thank you. Congratulations on the strong cash flow and margin levels.

First question for me just on the Q4 outlook, thanks for giving it a shot that a lot of your competitors are seeing a lot more subs come off and not providing guidance. But can you just help us imbedded in your guidance?

Think about the net subscriber outlook, Dean or Mark, do you think there's more deactivating of some subs as they move to a new platform. Do you also see some struggling verticals like oils; customers still turning off subs and just trying to get an idea of maybe net subs implied in your guidance and how to think about service revenue sequentially.

So from a subscriber standpoint, we're not seeing customers deactivating units, what we're seeing is, as we move to the ORBCOMM network better visibility of the subs around the switch. So as an example, when we inherited the inthinc subscriber base, there were more cellular connections on the network than there were trucks; and it was difficult to rationalize and shut those down.

Because the old platform didn't have the tools to say, okay, this is a subscriber that's not being used, let's shut it off without affecting people's operations. So as we get integrated into a far more evolved platform, and we have more visibility, we're going to continue to make the best choices when it comes to cash, and shutting off these subscribers, I think it's a $200,000 a year savings between, in costs against, no revenues.

So, of course, anyone would do that. From a service revenue perspective, we're seeing growth, we're seeing the subscription model, and it's been offset by two things.

The first is you've got AT&T Maersk number that at its peak was $6 million a year now it's a zero. So that is one the headwinds in the comp numbers that will get to the bottom of in another couple of quarters.

And the second is at its peak, the oil and gas industry, was at about $16 million, now it's at about $5 million. So that's about $11 million of headwinds over the last two years, as oil and gas continued to contract.

And I think we've got some good news there in that, as you kind of look forward, listen, the Maersk thing is zero, it's not going to go to negative. So you've kind of written that one out, and that's great news.

And then oil and gas. We didn't lose these customers, but you've got a big customer that has a fleet of 6,000.

And they've laid off employees and now they have a fleet of 3,000. So you didn't lose the customer.

But the fleets have drastically shrunk. And I think in addition you had two bankruptcies in our markets, which affected services as well.

So we don't think it's going to go lower than $5 million, but if it does, maybe it's four, but it's most likely not going to go to zero. On the positive side of that business, we shipped 2,800 units in the quarter, and not one of them was oil and gas, we were in the ambulance business, this Reimer Express deal was, which is an in-cap deal using inthinc in the cab and Blue Tree in the platform.

All of these deals are outside of that but I think the largest impact on service revenues to give you a feel for how one time it was from Q2 to Q3 was, we took a dip down in Q2 because of COVID. And then Q3, you got the whole quarter impact of it, as opposed to the way it came in and pieces in Q2.

Got you. That makes a lot of sense.

And just with a really strong cash flow generation and paying down some of the debt, what are the next steps in terms of refinancing? Is there any time horizon that you have to get through?

Or is it just ongoing negotiations and how to refinance that debt? And what kind of interest rates are you seeing from the market?

Yes, so the market isn't what we expected the market to be. So to start, it is unlikely that we go back down the tradable high yield market, it's unlikely.

And the reason it's unlikely is originally, the company was on a different path, when a few years ago, we went that route that, when you have these bonds, you can keep adding on to them. And as you continue to acquire companies, it can get bigger and bigger.

And having purchased everything we needed to purchase, and having all the right asset classes, getting it all integrated, M&A is not really a focus, at this time. So we don't really need that kind of, we don't really need that kind of instrument, and as you kind of look at these notes that we have now, there was a May call until April, we were interested in trading it out then and, boom, COVID hits, and we never really had an opportunity to test the markets.

And then as we started looking at other types of opportunities, mostly, term loans and stuff like that. Number one, we were really impressed with the rates that we were getting there, significant savings versus where we are now, but to get that pulled off, you needed a good Q3 and a rebound and to show that you're generating a good deal of cash.

And where ORBCOMM goes and has a record quarter for cash and kind of bolstering our ability to get this done. And now it's just the computation, right?

So you're going to get a savings. It's, I don't know, if we're going to be paying half the interest that we were, but it could be half the interest or so.

And now you've got a 104 call. And in April, it goes to 102 calls, and we're working through that math.

And butt I think overall, Mike, it's a great market to get this done or it has been, we'll see what happens over the next couple of weeks. But it's been a great market to get this done.

And we're investigating; it's running forward, as quick as we can. I don't know if it's April or now or May but we are working on it.

Great. Thanks Mark.

And last question for me, and I'll pass it on. It's great to see the cost savings come through and appreciate the 2021 overview with the 1020 view.

I know you've worked really hard on a bunch of new products and sales channels, can you maybe help us rank order or any feedback on which new products that your salesforce or your clients are most excited about in terms of helping augment that growth?

So this Inmarsat thing was, wow, it was complicated. We set off three years ago to extend our agreement, and it just started at an extension for IDP and as we kind of took a look at the trends in the market, knowing that we're making a deal through a minimum of 2035.

We start looking at what the markets can you need not now, but in 2035. And the best way to optimize their satellites, and everything else, and we wanted to future proof the network, make it scalable, make it efficient from a satellite resource perspective.

And then there is dual mode, right. So we wanted to make dual mode central to everything ORBCOMM does.

And I know a couple things, right. I know that the market for dual mode, when it costs double, is about 5% of our market.

And I know, the market, if it was free, and you gave away the hardware would be 100%. So getting the hardware costs down to ST 2100, gets you something like a two handle in terms of the increase in price points.

So from broad perspective, I know it's going to be go from somewhere between five and 100. But I think safely, we could say it's, 25% or 30% of our deployments, instead of something like 5% of our deployments, so I think that's super exciting.

And then as you change that, the deal within Maersk, you need to price the airtime, and to change the revenue share, where they're just selling you a component of a solution and not the whole solution. So you needed to figure out a way to make dual mode reality from a cost point, and that was a big part of the Inmarsat negotiations.

So getting the dual mode product together with the pricing together with the Inmarsat deal together with the extension through 2035, together with the improved revenue sharing dual mode products, a lot of things had to come together, and it's all deploying this quarter, so exciting and I think next quarter, we're going to get on the phone and say, here's four great companies that have switched to dual mode. So I'm looking forward to having that call to stop talking about technology, or talking about deals.

So that one where we're super, super excited, and then the, my next favorite is this conversion to video, right? So you're moving from, data I mean gee if you go back to when I started, you're going from blips and a map, and then you're moving from there to diagnostics, and then you're, I'm sorry, alarms, and then diagnostics and the data bandwidth, continues to get heavier end customers are getting more utility out of our applications, and we're a quarter away from video.

So as opposed to a diagnostic read or a location, or in addition to it, I should say, not just where's my truck, here is my truck, and this is what it's doing. And this is the person that's entered my truck, and it's not just empty or full, but it's this fall, and these are the products that we're holding, and so cool that we're going to be able to, add video to cargo and video to in-cap.

And these deals are so cool or these products. Because this isn't like dollar and a dream, we have real customers that are waiting for us to deploy this, and, demoing it real time and excited about this.

And these are ORBCOMM's big customers, and you can kind of guess who they are. And if you look at what you're able to achieve from a revenue standpoint, customer by customer, you can double or triple the revenues to current customers by adding video, and that's really cool.

But I think that the coolest part about it, really is the ability to give the customer everything that they want, it's so exciting to complete their product offering and give them that experience. I always say that, we're - our goal isn't to keep up with our competition, our goal is to keep up with the imagination of our customers.

And I think video goes a long way to go there. The AIS device is very, very cool.

And that we've never really productize this before, we just kind of open up this spigot and poured data over customers. And there's a new market for the small shifts, that will soon or have started requiring AIS, not just transmit but the ability to see AIS, and you're going to see our first attempt to providing hardware for that business.

But it's also a satellite play in that, these are dual mode devices that receive and transmit over AIS, but also can send alarm status through the ORBCOMM network, because they're almost in the exact same frequency. So really adding safety and security to small shifts, and SOS alarms and stuff like that, there are big and small I mean, in terms of new products, there's 10s.

But in terms of new products and features, there's hundreds. So, gee, I can kind of go on all day.

If you look at like services, I'm sorry; I'm running a little bit But, if you look at services, our inside sales group did a couple of hundred thousand dollars; I think it was $180,000 in Q1 selling to small fleets. By Q4, we're expecting it to be between $500,000 and $600,000.

So again, it's often very small scale, butt look at how it's growing, just exciting especially transportation begins to recover.

Thanks. Good morning, guys.

I want to focus on cash flow, obviously, a good part of the story nice momentum there. On the cost of debt, how should we think about how much cash you need to run the business?

How you might size the, as it turns into the term loan? And where you might want leverage to be as we think of that component of cash flow?

Sure, Dean you want to take that one? We are in different locations.

I apologize.

Yes. Hey, Rick.

We really look at cash on hand of about $25 million to $30 million from the business; we do have a number of international locations, which also need to have some cash on hand. So that's why that total is where it is.

So in terms of leverage, I think we're going to end this quarter at about 3.5x net leverage, we would like to get that leverage down below 3, and we're targeting in a couple years to get that down closer to 2. So I think some kind of debt refinanced with an amortizing a loan is something we are interested in to go ahead and use that excess cash and positive cash flow to delever the balance sheet over the next couple years.

That's one of the options we are looking at, Rick.

Okay, makes sense. And then CapEx, obviously another part of the free cash flow story.

You mentioned $3 million to $3 million of CapEx this year from the subscription model maybe goes up to about $8 million next year. But how should we think of the components of CapEx?

What's kind of the maintenance CapEx? The subscription CapEx?

I think your integration is done. And then Mark, I think the Inmarsat deal probably also keeps CapEx down when we think about funding needs for future salaries, but to help us think through the CapEx trends over the coming years?

CapEx has stepped down incrementally over the past few years; we're going to be close to $20 million. And this is separate from a subscription deals, we will be close to $21 million this year, and expected to step down a little bit further next year to get through some of these final integration activities with ORBCOMM platform.

Yes, as far as maintenance CapEx, we struggle with defining it a little bit, Rick, because we do have, we're always working on the next product churn and platform functionality. But we do probably need to spend somewhere in the $12 million to $15 million range to continue to maintain and innovate on what we have.

And then for the subscription model, we were thinking something an $8 million range next year, I think we've said in the past, 5 to 10 would be probably where we get end up when we get this thing fully rolled out. The customers that really are applicable for this model, some of our big customers like a Walmart, JB Hunt would not choose this model and some of our prior customers internationally would not be choosing this model either.

So there's only a small part of the business that would be looking at this model. So if you add up, the 15 and the eight, we might end up at a run rate of $23 million total invested capital in the next year or two.

I'm sorry, just wanted to follow up on your question before on the cash balance. I think, Dean took your question to mean, what's the minimum amount of cash that he's comfortable running the company with?

But, let's say, after the $30 million we end this quarter between $45 million and $50 million in a cash, and we've got a $25 million revolver that's completely untapped. Obviously, we don't have cash concerns.

Right. And then as far as satellite CapEx, how much are the nanos?

It was probably pretty low and any needs longer term to invest in a satellite network or is there plenty of capacity out there, particularly the Inmarsat deal.

For the AIS CubeSats, we've talked about; it's about as close to $2 million, we've already paid more than half of that. So we only have a little more than a million to go, that'll happen next year, when the satellite is launched.

And there's still a plan that we're looking at for satellite going forward, we haven't made any final decisions. I don't know, Mark, if you want to comment on the thoughts on the satellite network long term?

Yes, I think, we'll continue to evaluate what the markets are. And there's a couple ways that we can go, number one, we've already started deploying modems that have both satellites technology on it.

So going forward, you can move subscribers from network to network. And we're evaluating hybrid plans where you launch a couple more OG2 satellites, to extend the life of the network, another five or 10 years but these are good issues to have.

I mean, these are decisions is that we have to make in years, not months.

Okay, well, last one for me, when we think of the deactivations. When did that come up?

Was at the beginning of the quarter, the end of the quarter? And then how should we think about what the ARPU trend would be now that those subs are gone?

I think, Mark, you said the cost savings maybe is $200,000. But how should we think about deactivations, timing, ARPU trends, and then even broader, just what are the trends look like?

So starting with the OEM, those issues started coming up in 2018. But you don't really know, right?

I mean, what we do for them is we're transmitting data and whether that data is jibberish because the units lost track of time, or whether it's the data that they're looking for, it's not our solution, we have no idea. So we've seen those units, this customer pays on a price per byte.

So as these units have stopped transmitting; and they've been shutting them off. Over the last couple years, it's been a headwind that we didn't know was a headwind.

Since 2018, we're just like, wow, data usage has gone down a little bit. And what's been happening behind the scenes is these guys have been trying to upgrade it over the air, which difficult to do when the unit doesn't know what time it is, and when to wake up.

And also has been doing a hard switch in the field, swapping out the hardware, and they didn't get to most of them. But this has been going on being behind the scenes and, just being the telecommunications provider, we're just kind of watching this, right, we're not actively contributing.

The other aspect of it is part of the integration plan, right? You're taking these subscribers from these 25 platforms, and you're pulling them into the ORBCOMM platform with better visibility and, gee is kind of feels like doing a lot of things of LEGOs, you know that after you put it all back together, there's a couple of pieces left and what you're experiencing there is, these are the couple of pieces left so, if you're saying gee, now that you've done this, does it happen every quarter?

No, it's one-time integration. And as you pull the platform in that's the new way you run your business and you got better visibility, you do better job.

And ARPU trends for the overall business?

Gee, I think what you've had is the oil and gas customers are high ARPU and that $16 million has gone down to $5 million, on roughly, 20.000 or 30,000 subscribers that get shut off. That's painful from an ARPU perspective.

And so ARPU is may have trimmed down a little over the last couple of quarters. But going forward, the subscription model is the real, kind of flames to the fire on ARPU, that's going to drastically expand it and this conversion from the inthinc business, which is, again, a very high ARPU business.

So that conversion to the other subs, even though that's been painful to watch kind of, they're moving in the opposite direction now and one of the fastest growing parts of our business. So I think that'll be a positive effect on ARPU too.

But as these units start to get installed, I could see ARPU is going up.

Rick, kind of year-over-year, yes, those are definitely helped. In-cap, ARPUs are high, but year-over-year ARPUs are up from Q3 last year to Q3 this year, about 9%.

We did lose low ARPU AT&T and Maersk subs. That was offset somewhat by some of the higher ARPU, oil and gas subs, but it is up year-over-year, I would expect it to go up incrementally if we continue to build on the subscription model.

Hi, Mark and Dean. Mike, congrats as well in your strong free cash flow.

Mark if I could follow up on your comment and try to flush out any more color from you. You talked about many pilot trials in process.

Can you give us any more color in terms of number of those trials size? What kind of opportunity?

Do you think it would lead for ORBCOMM? And then, secondly due to the COVID as some of your customers are coming up for renewal?

Are you seeing any requests for change of prices? Or is it having any impact at all on a longer-term pricing?

Thank you.

Yes. The AIS thing is unique because there's no hardware component of it.

But we are in a full out sprint because of COVID, where a bunch of our 3G to LTE trade outs have been delayed because you need access to these assets. And which requires travels for the customer and travel for us.

So there are big hardware movements that are going to happen between now and the end of next year to swap those out. So that's the bigger issue than anything else.

I think, are we getting some renegotiation, I guess, you're always being negotiated, right. That's life.

But it hasn't been material overall. So not so much but, I think that work is really just really just started.

What was your first question that you asked?

Your comment about any several trials going on.

Yes. So we saw a, our high point for pilots was 2018.

And 2018 was a very good year for transportation. And then, whether it was the tax rules, or I'm not sure what created that transportation glut, I think there were a lot of factors, but 2019 was a slowdown in the transportation market to a point where, here we are the quarter after COVID.

And we're up in truck sales 142% over last year, a non COVID year, I mean if that number isn't like shocking the heck out of you, that I don't know what will. But every unit starts with a pilot, and every pilot starts to a smaller, leads to a smaller rollout and then a complete fleet wide rollout.

But maybe I'm fielding triple the pilots but I was at this time last year to give you a feel for just how strong it is. I sit on the critical pilots call with my team, every single week, and the call that used to take 15 minutes is taken an hour and a half.

So we're super excited about that.

Hey, good morning. Thanks for taking my question.

Nice job guys in difficult operating environment, particularly on the cash flow front. So just to follow up on a couple of questions you've provided some color in terms of the mix of business as it relates to oil and gas.

I was wondering if you give us an idea about heavy equipment as well. There have been some headwinds on that front that you called out, how big is that business, and is that bottoming as well?

And as part of that, sounds like transportation is starting to come back, you're seeing that from various LMI indexes and otherwise in utilization and pricing. I want to confirm if that was up sequentially.

And then as we are looking into the fourth quarter, it sounds like you put it all together, recurrent services should be sequentially, just want to confirm that.

Yes, that's our thought, I think, as we as you kind of look at the numbers, you look at recurring service from, Q2 and Q3, you say, oh, I get last quarter, why stand a little bit this quarter. And I think it really is that full quarter's worth of last quarter's effect.

And service revenues are a little slower to go up. But here's great news, they're really slow to go down, which is why we're generating so much cash.

So I think it's going to bounce back and go up. I mean, listen, COVID are some crazy times.

But I don't know that recurring service has gone down in 10 years. So maybe you could pick out one quarter, but I don't think so.

So just to give you a feel for how stable that model is, why we think, we're in a really good path, and why those headwinds behind us. I got good news and bad news for you in heavy equipment, right.

In terms of heavy equipment over the last quarter, the industry is down in terms of units about 26% year-over-year, but ORBCOMM is on an awful lot more model lines than we were last year, making heavy equipment look kind of flat. Now what kind of stinks about that is here we were expecting this, large increase, because look at these great new model lines that, we're getting on at Terex and JLG and super exciting stuff, and then it kind of looks like flat business, because some of those core models that we've been on for a while, aren't selling as much, but we're not getting like this massive drain in heavy equipment, it kind of looks kind of looks flat.

Heavy equipment can be a little bit lumpy in terms of hardware shipments, because they don't sell tobacco and then order a sub, I'm sorry, order a piece of hardware, they keep a huge amount of hardware on hand. And then when COVID hits, they stopped buying and hardware shipments can drastically slow down, but they're still eating away at the inventory they have and then, at the end of it eventually comes in other shipments.

So over the course of the year, you're fine. But it can be a little lumpy by quarter.

Got you. And if I could just follow up on the new targets of 10, 20 top line growth EBITDA growth.

Looks like next year right we're starting to set up for recovery and easier comps, got a lot of new products coming. When do you start to think you hit that model, you certainly do need OGx in 2022 to get to that type of a top line growth, particularly on the recurring front?

And as well on the new product, a hardware front, just want to confirm you guys are still targeting the same gross margin targets of 30%. Thanks.

Scott, we looked at your model and your model kind of looks like 10 and 20 next year. You're already there, aren't you?

So, at this point, I wouldn't change my model at all. So I think we've got tailwinds, tailwinds at the new products and the new services and you've also got a natural recovery from COVID maybe Q1 looks kind of flattish, but Q2, we're going to be up, right?

Unless there's one hell of a second or third wave. So you've got that tailwind, you've got new products.

You've got one little headwinds, which is really isn't a headwind in the business. It's just a headwind in the 10 and 20 in that the subscription model pulls hardware sales and recognizes it as service over three or four years.

So if you do a $8 million of subscription with, when we say a $8 million, we're talking about the cost of the hardware that we're capitalizing, we're looking at it the way a finance guy would not the way a marketing guy would right, that $8 million but that $8 million, also kind of pulls from your hardware sales, and recognizes it. So that's the one little headwind in terms of 10% organic growth.

But I think is your kind of way, the tailwinds with the headwinds, we think the 10 and 20 is something that starts in 2021. You don't need OGx although that will certainly help in the future.

Hey, guys, lots of questions have been answered. But Mark, maybe one big picture one for you.

You talked about the complicated nature of your dealings with Inmarsat. What's your longer-range view for the company?

Did it ever make sense in those conversations for Inmarsat just to buy you guys? Or how do you look at where the company goes from here?

You have to ask that to Inmarsat, right? No, we never considered Inmarsat buying us.

And as you look at their current strategy, I don't know that they could or would it make sense. So not a consideration, but as you kind of look at Inmarsat business plan and ORBCOMM business plan, there are some incredibly complimentary skill sets there, where they understand satellites, they understand their satellite resources, they understand government channels a whole lot better than we do.

And what ORBCOMM understands is IoT, and hardware and battery efficiency and ROI from a customer perspective. So us building this private network, that kind of lives on board their satellites made perfect sense.

And if you look at IDP, even though we kind of partner and pay them for it, it was not the partnership that we have with Inmarsat today, in that ORBCOMM had our access to IDP and did our thing and they did their thing, and there was very little overlap. Looking at the way the relationship looks now with Inmarsat, there's one set of hardware for OGx, it's ORBCOMM hardware, we both have access to it, we both enjoy and share in the scale.

And when they win a sub, there's upside for both of us, when we win a sub, there's upside for both of us. And it's quite a well struck marriage and took three years to kind of dream it out, and how we deal with dual mode subscribers, and how we deal with solution subs, and, how we deal with hardware sales and how we sell through their channels.

And it came out and we like, where we are right now, and I don't know that I would change that relationship at all, if you have a little time on Monday, you can get a little more from that. In terms of where the company, evolves, and should there be some sort of acquire?

Well, we're a public company, we are an IoT company, we are a satellite company, what all those things have in common, eventually, and they do get acquired. I think the struggle that some of the people have with ORBCOMM is the satellite guys look at the satellite assets and the IoT guys look at the IoT assets.

And the way we're kind of baked into one is, is a little bit odd, compared to other companies out there, but more and more every day, gee, we're kind of looking like an asset, like, IoT software company, aren't we? So maybe moving in that direction, but I don't focus on that.

What I focus on is improving my share price for my investors, among 51 employees and a million things you don't want to hear about, but as you kind of worry about or comment at share price and everything else, there's three ways, I can affect the business, right? We trade on a multiple of EBITDA.

So from a multiple perspective, the largest contributor to the multiple is growth, and we're going to show you growth. That's the goal.

We're going to show you growth. We've always grown.

We took a year off to integrate. We, it was - it got even more complicated because of the transportation slowdown.

And we're going to grow and we think that'll affect the multiple, we're a multiple of EBITDA, so we need to continue to grow EBITDA. And that's what we're, that's what we do.

And we do it almost every year, there'll be maybe a little ticked down this year because of COVID. But we can, we can show you rising EBITDA whether we do it through costs, we do it through margins, we do it through growth that will get EBITDA.

And then the third thing we can do, or we are doing to affect our share price is a we're going to create our market cap, closer to our enterprise value by delevering the company. And I don't think we've talked a whole lot about that in the past, but it's been very central to this call, and because the world changed, right, the market has changed.

ORBCOMM's ability to generate cash has changed, the way banks look at ORBCOMM has changed. And we're in the process of delevering with some questions, gee, what is your use for this capital, this $30 million?

And I guess my answer is we have an opportunity to take cash on our balance sheet, that doesn't even generate a percent, generate fractions of a percent and I have an ability to take down 8% notes, certainly you do it, right. And especially in an M&A light environment, strategically.

So that's the future of ORBCOMM the way I see it.