Orbcomm Sets Ambitious Subscriber Goals with IPO

Two-waysatellite messaging provider Orbcomm Inc. has restarted its planned initialpublic stock offering (IP0) and is telling prospective investors that thecompany will reach cash flow break-even status once it has 375,000 subscribersand that it is likely to pass the one-million-subscriber mark by the end of thedecade.

Ft. Lee,N.J.-based Globalstar is expected to conduct its IPO on the U.S. Nasdaq stockexchange the week of Oct. 30. The IPO seeks to raise a net of $108 million fromthe sale of 11.15 million shares of stock at an average price of $12 to $14 pershare.

Inpresentations to investors, Orbcomm's management said none of the company'sofficers, directors or major shareholders would be selling shares in the IPO.The IPO proceeds will be used to invest in Orbcomm's next-generation satellitesystem.

The companysays it will be able to deploy its second-generation satellites for $6 millioneach, including launch. It has six new satellites on order from its formerparent company, Orbital Sciences Corp. of Dulles, Va., with the satellites'platforms and launch provided by shareholder OHB-System of Bremen, Germany. OHB has contracted with Polyot of Omsk, Russia, for the launch of the experimentalsatellite on a Polyot-provided Cosmos rocket.

These sixsatellites are scheduled for launch in 2007, with another 18 satellites in thesecond-generation constellation to be launched starting in 2008.

That launchof the experimental satellite, previously set for late 2006, slipped to early2007 when Orbcomm's IPO, announced in May, was delayed.

Orbcommoperates a fleet of 30 satellites in low Earth orbit used for two-waymessaging, mainly machine-to-machine links, for owners of fixed and mobileassets seeking updates on the health and whereabouts of their goods. Itssatellites cover the entire planet and Orbcomm has operating licenses in 75nations. It recently received U.S. regulatory approval to operate 1 millionterminals in the United States; its previous license permitted 200,000terminals.

Orbcomm reportedthat as of Sept. 30 it had 199,000 fee-paying subscribers, compared to 113,000at the end of 2005. New, lighter-weight and less-expensive terminals built byDelphi Automotive Systems LLC and introduced in late 2005 now sell for $100when purchased in bulk, compared to the $280 units sold in 2003, Orbcomm ChiefMarketing Officer Marc Eisenberg said in a Web cast to investors.

Orbcomm inOctober signed its largest-ever contract with GE Asset Intelligence LLC, adivision of General Electric, for the delivery of up to 412,000 Orbcommsubscriber terminals through 2009, with 270,000 of those under firm contract.According to its Web site, GE owns 1.5 million tractors, trailers, rail carsand marine containers that it leases and rents to customers in more than 30countries. The company uses satellite technology to help its customers monitorand manage those assets.

In an Oct.19 IPO registration with the U.S. Securities and Exchange Commission (SEC),Orbcomm said the GE contract's value is $57 million if the full complement ofterminals is delivered.

MarcEisenberg said that in addition to Orbcomm's 199,000 current subscribers,another 19,900 subscribers have been pre-billed for service that has notstarted. A further 72,000 subscriber modems have been purchased but are not yetin service. Assuming the GE order is fully exercised, that would give Orbcommmore than 700,000 current and planned subscribers, he said.

OrbcommChief Financial Officer Robert Constantini said the company has a goal of 4million subscribers generating $250 million in annual revenues. Ultimately, hesaid, Orbcomm will post gross-profit margins "on a par with the best operatorsin the satellite business," which would mean better than 70 percent. That is along way from where the business is today.

Orbcommreported sales of $15.5 million in 2005 and $12.6 million for the first sixmonths of 2006. Net losses for 2005 were $9.1 million, with a net loss of $5.4million reported for the first half of 2006.

Itsrevenues have been split between sales of equipment and of services, with theservices side expected to grow quickly in the coming years. Orbcomm generates$5 to $6 per month in subscriber revenues.

OrbcommChief Executive Jerry Eisenberg said in the investor Web cast that the marketfor two-way machine-to-machine communications for asset tracking is expected togrow to more than 400 million units by 2012. He said the company could capture10 percent of that market.

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