Orbcomm Stock is an Overlooked Satellite Industrial IoT Play

Industrial internet-of-things (IoT) provider Orbcomm NASDAQ: ORBC stock has been recovering since the March 2020 pandemic lows. This little-known company is a vertically integrated one-stop IoT shop catering to industrial and government customers providing the satellite networks, hardware, and software under a subscription model. The acceleration of 5G infrastructure buildout, penetration, and rollout can bolster the utilization of IoT throughout multiple industries. Orbcomm is positioned to leverage its assets if management can execute, which has been the big question. Space stocks have enjoyed a surge in momentum and money flow, but reversions are arising as the reality of intensive capex and heavy debt cycles remain a damper on sentiment. Prudent investors seeking exposure in IoT and space tailwinds can watch for opportunistic pullback levels to consider exposure.

Q4 2020 Earnings Release

On Feb. 24, 2021, Orbcomm released its fourth-quarter earnings report for the quarter ending in  December 2020. The Company saw an earnings-per-share (EPS) loss of (-$0.19) or (-$14.7 million) compared to (-$0.03) loss or (-$2.5 million) in the previous year’s Q4, largely due to (-$11.7 million) of debt extinguishment. Revenues grew to $63.8 million compared $61.7 million in the prior year. Service revenues grew 4.8% sequentially to $39.1 million and recurring service revenues were $36.8 million, up 1.1% sequentially. Total billable subscribers were 2.23 million, up 3.8% year-over-year (YoY). Net subscriber additions were 170,000, down (-50,000) from prior year. Product sales rose 12.2% sequentially to $24.7 million. Gross margins were 57%. Operating expenses fell to $31.8 million from $32.9 million in prior year primarily due to lower travel and entertainment expenses. The Company ended the year with $40.4 million in cash and cash equivalents. Full-year 2020 cash flow reached new record highs of $48.4 million, up $18.3 million over prior year 2019. The Company expects to reduce its debt balance by half over the next five years.

Conference Call Takeaways

Orbcomm CEO, Marc Eisenberg set the tone, “We’ve made major strides in the integration of our twelve acquisitions by moving to a single ERP platform, going live on our two customer-facing web platforms, and rationalizing our product portfolio. In addition, we’ve expanded our agreement with Inmarsat extending our partnership expected to last through at least 2035.” The Company completed debt refinancing converting $20 million in annual interest expense down to $8 million and reducing principle by (-$12 million). CEO Eisenberg detailed the 10 and 20 initiatives of achieving 10% organic growth and 20% adjusted EBITDA growth. Orbcomm launched its two next-gen dual-mode telematics devices for a “wide range of IoT applications” composed of satellite-as-an-accessory and full dual-mode telematic device with embedded cellular and satellite connectivity geared towards vessel monitoring, fleet management and improved utilization of utility and construction equipment. The Company has 90 customers developing on the two products. The Company plans to launch multiple products in the coming quarters including the In-Cab video solutions featuring AI driver safety data. Field trials have begin for cargo camera solution and an expanded portfolio of sensors to enable visibility and remote monitoring of cargo assets. The Company gained over 100 new small to medium-sized transportation customers in 2020. The migration to a subscription model that bundles hardware and services costs into a single monthly rate has bolstered demand sequentially each quarter notably in the transportation fleet segment. The transportation market saw new OEM orders in Q4 grow by 98% for trailers and 144% for trucks YoY. Orbcomm typically receives product purchase orders approximately three to six months after vehicle and trailer purchases. This also has bolstered the container market from shipping companies from increased intermodal cargo demand. The Company expects to swap out 60,000 devices in 2021 for the subscription model. Orbcomm won a multi-year $45.6 million from the U.S. Army to provide cellular satellite and dual-mode devices and connectivity for next-gen transponder program to support mission-critical logistics and asset management efforts.

Q1 2021 Guidance

The global component shortage has driven inventory down to three-year lows. The Company has be able to design workarounds for hard to obtain components. The Company has focused on LTE chipsets in North American and Global versions. The hardest has been North American, but it’s engineers have been able to field the Global version for domestic customers. However, approval from regulators and cellular carriers are needed to sell the alternate SKUs depending on the geographies. This will delay approximately $2 million to $3 million in Q1 2021 revenues. The Company expected Q1 2021 revenues in the range of $61 million to $65 million as it monitors the impacts of the pandemic and global component supply shortage, despite high demand for product. Adjusted EBITDA is expected between 21.5% and 22.5%. Prudent investors can watch for opportunistic pullbacks in the underlying share prices as the Company seemingly lowered the bar.

 ORBC Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames enables a more broader view of the price action playing field for ORBC stock. The monthly rifle chart has powered a strong uptrend with a rising 5-period moving average (MA) support around the $6.40 Fibonacci (fib) level and rising 15-period MA at the $4.53 fib level. The monthly upper Bollinger Bands (BBs) sit at the $8.54 fib. The monthly market structure low (MSL) buy triggered above the $3.09. The monthly stochastic mini pup powered the oscillation up the 80-band overbought area, causing a pause that formed a monthly market structure high (MSH) sell trigger under $7.02. The weekly rifle chart has a make or break formation with a falling 5-period MA at $8.02 as the weekly stochastic mini inverse pup caused the stochastic to slip under the 80-band. From here, a weekly 5-period MA crossover down through the weekly 15-period MA can form on the mini inverse pup, or a pup breakout can form above the weekly 5-period MA powered by the weekly stochastic cross up. Prudent investors can watch for opportunistic pullback levels at the $7.02 monthly MSH/fib, $6.40 fib, $5.30 fib, and the $4.53 monthly 15-period MA/fib. The upside trajectories range from the $10.51 fib up to the $16.12 fib level.