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Edited Transcript of ORBC earnings conference call or presentation 2-Nov-17 12:30pm GMT

Thomson Reuters StreetEvents

Q3 2017 ORBCOMM Inc Earnings Call

Fort Lee Nov 8, 2017 (Thomson StreetEvents) -- Edited Transcript of ORBCOMM Inc earnings conference call or presentation Thursday, November 2, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marc J. Eisenberg

ORBCOMM Inc. - CEO, President & Director

* Michelle Ferris

* Robert G. Costantini

ORBCOMM Inc. - Executive VP & CFO

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Conference Call Participants

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* Andrew Lodovico DeGasperi

Macquarie Research - Analyst

* Christopher David Quilty

Quilty Analytics, Inc. - President

* David William Gearhart

First Analysis Securities Corporation, Research Division - Associate Analyst

* Michael Fawzy Malouf

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Head of Boston Team

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research

* Thomas Michael Walkley

Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to ORBCOMM's Third Quarter 2017 Financial Results Conference Call. (Operator Instructions) A replay of this conference will be available from approximately 1:30 p.m. Eastern today through 1:30 p.m. Eastern on November 16, 2017. The web link service details for the replay can be found in today's press release. Additionally, ORBCOMM will have an audio webcast available on the website at www.orbcomm.com, an archive of which will be available for 2 weeks.

I would now like to turn the call over to Michelle Ferris, ORBCOMM's Director of Corporate Communications. Please go ahead, Michelle.

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Michelle Ferris, [2]

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Good morning. Thank you for joining us. My name is Michelle Ferris, and with me today is Marc Eisenberg, ORBCOMM's Chief Executive Officer; and Robert Costantini, ORBCOMM's Chief Financial Officer.

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. I want to remind you that ORBCOMM assumes no duty to update forward-looking statements. In addition, the financial information we will discuss includes non-GAAP financial measures. A 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.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [3]

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Thanks Michelle. The business is continuing to evolve at a rapid pace, and we are experiencing accelerated growth again this quarter, marked by record-high revenues across the board, including an astounding 105,000 devices shipped, which exceeded last year's third and fourth quarters combined. We'll cover this as well as some exciting developments across the business, our status on large deployments, our latest acquisition and the recent developments on our satellite offerings. At that point, I'll transition the call to Robert to walk you through the financials and wrap up with Q&A. So let's get started.

Earlier this morning, we issued a press release announcing financial results for the third quarter ended September 30, 2017. ORBCOMM is experiencing unprecedented growth as we head into the final quarter of 2017 with Q3 total revenues reaching an all-time high of $69.4 million, a 50% increase over the last year. Both service revenues and product sales have again reached historic highs this quarter at $35 million and $34 million, respectively. This strong revenue performance was achieved predominantly through organic, but also included some revenue through acquisition. Product sales continued to build momentum, and we're seeing faster conversions to the generation of high-margin recurring service revenues. Sequentially, service revenues increased $4 million over just last quarter and are up 9% organically over last year.

Our subscriber count or subs grew in the quarter by over 70,000 net subs, marking our best quarterly number, taking the base to almost 1.9 million subs at the end of September 2017, a 12.5% increase over last year. The compression of overall margins continued in Q3 directly tied to the large volumes deployments with lower hardware margins at key accounts being shipped faster than planned. This downward pressure is a short-term trend that we believe will begin to taper off by Q1. Q3 adjusted EBITDA totaled $11.2 million, which was 16.1% of total revenues. Both the sub numbers and the revenues do not include any contribution from Blue Tree as that acquisition closed at the start of the fourth quarter and will have a full effect at the Q4 results.

I'm not sure the Q3 financials reflect our longer-term outlook. Certainly, while revenues continue to trend significantly higher, margins continue to be weighed down, as I mentioned, by a few major projects, including a couple of significant transportation deployments as well as one of the largest fleet deployments in the oil and gas industry being done at inthinc. Because we record the hardware and installation revenues as well as the corresponding cost upfront, these deployments are negatively affecting margins but only in the near term.

Another way to look at it is, we invested about $3 million in Q3 as well as another $3 million, some of which fell in Q2 and the rest will fall in Q4 2017 into deployments that will add approximately 120,000 subscribers and over $8 million of annual service revenues going forward. Keep in mind, we anticipate an average 8-year life from these deployments. This is certainly a worthwhile investment. Going forward, we've been able to make some design changes that will improve hardware margins of these initiatives starting midway in Q4. And additionally, we anticipate shipments to these customers to dissipate in early Q1 and installations to be completed by late Q1. Since hardware margins excluding these deployments were 24 points in Q3 and with the adjustments we've made on the cost of these products underway, we expect a margin recovery in Q1 and to be back to normalized levels in Q2.

Let's move on toward satellite constellation. As we mentioned last quarter, our investigative team has been working to determine the root cause and associated corrective measures for the 3 OG2 satellites that experienced loss of communication. While we're still making efforts to recover these spacecrafts, at this time, we thought it appropriate to take a financial impairment of $31.2 million in Q3. On a positive note, we have not found a systemic flaw in the OG2 constellation. And we are not experiencing issues on the other OG2 spacecrafts.

Our team was able to narrow down these anomalies to the 2 most likely causes and have developed comprehensive operational procedures and are implementing software enhancements to mitigate these issues from recurring. The resiliency of the entire constellation design and the increased capacity enables us to reposition these satellites in the event of these circumstances, which greatly minimizes the impact on network service. There has been no impact on service revenues.

Long term, the best satellite service we can provide customers is a hybrid approach using multiple networks. When we use our cell phones, we sign up with a single service provider, but in fact, we're sometimes roaming on partner networks as well as accessing multiple platforms such as 2G, 3G and LTE to get the best and most reliable service. ORBCOMM is planning a similar approach, providing a single hardware platform offering the best satellite combination of geographic coverage, the most regulatory authorizations, the fastest service, the largest message payloads. We have made major strides from both a technology and satellite partnership perspective.

Our first spin of the dual-mode radio-frequency integrated circuit, or RFIC, which leverages both the Inmarsat L-bands and OG2 networks looks promising, and we're not anticipating the need for a second spin. That would enable us to start fielding technology with this RFIC in the second half of 2018. Imagine future deployments taking advantage of the Inmarsat L-band constellation's lowest latency in the industry, combined with ORBCOMM's VHF network that is superior in supporting applications that do not have direct sightlines, delivering the best and most reliable service in the industry at the lowest price points.

Competitive networks have risks from a single point of failure, have suspect business plans requiring further capital, require clear line of sight and have significant limitations in bandwidth. We've also expanded our offerings with Inmarsat to incorporate their high-bandwidth BGAN services into our products and are collaborating to develop products leveraging our IoT technology at disruptive price points. This will include a new maritime satellite communication device targeted for a number of marine crafts, including pleasure boats and fishing vessels.

Customers will have access to speeds up to 144 kilobytes per second with hardware and airtime at a fraction of the price of competitive networks with the ability to integrate to either their customized applications or devices built on iOS or Android platforms. We're expecting to begin building BGAN products as early as Q2 2018. Once again, with the stabilization of the OG2 satellites and our access to Inmarsat satellites in which they've invested billions of dollars of capital, including both IEP and high-bandwidth BGAN services, we believe our satellite service offerings will be unparalleled in the industry.

Let's move on to our business highlights. Nearly every aspect of the business showed strong growth in Q3. We'll start with transportation. We're continuing to execute on large deployments with both J.B. Hunt and the AT&T, who we partner with in support of the U.S. Postal Service. At the end of Q3, we had shipped over 47,000 systems to J.B. Hunt with over 35,000 installed. We expect to ship about another 30,000 systems in Q4, which should be well on our way to supplying hardware for the vast majority of their fleet this year. Our installation teams are currently installing about 2,000 systems a week. And as a result, we're continuing to see service revenues build. We're also progressing in our program to the U.S. Postal Service. In Q3, we shipped over 10,000 systems to their third-party haulers. To date, we have shipped more than 25,000 systems and expect to ship 10,000 more over the next couple of quarters to complete the U.S. Postal Service program.

Separate from these large installations, our core business continues to be strong. In Q3, many of our longstanding transportation customers continued to place renewal orders, such as Walmart, Prime, Hirschbach, Werner, Covenant, Tyson Foods, FedEx Custom Critical, Wakefern, Myer, C&S Wholesale, Bob Evans Transportation, Allianz, Fastenal and Canadian National Railway. We've also closed an exceedingly high number of new customer opportunities, including Knight Transportation, LTI Trucking Services, ERB Transport, Direct ChassisLink, A&M Cold Storage, Super T Transport, Russo Brothers, the Kenan Advantage Group, Tim Ables Trucking, Ralph Moyle, Inc., Wayne Smith Trucking and Preferred Meal Systems. It's certainly been a productive quarter for the transportation group.

In October, we completed the acquisition of Blue Tree Systems based in Galway, Ireland, along with its subsidiaries in the United States, Germany and France. Blue Tree provides world-class transportation management solutions across multiple classes of assets that include truck cabs, street trucks as well as refrigerated and dry trailers. Their products meet the demands of transportation companies that are looking to maximize their operations and require complete two-way integration with their operating systems, adding full visibility across all of their mobile assets in a single platform. Blue Tree has about 37,000 subscribers and serves more than 300 customers in North America, the European Union, United Kingdom, Australia and New Zealand.

The acquisition of Blue Tree solidifies ORBCOMM's transportation portfolio by adding in-cab and small refrigerated vehicle solutions to our industry-leading cargo solutions. Blue Tree's market leadership also add strength in distribution in key geographies, such as Europe, the Middle East and Africa. Combined with our acquisition of inthinc in June, Blue Tree enables ORBCOMM to offer customers the most complete integrated transportation offering, making us the clear leader in commercial transportation IoT solutions.

In North America, in-cab telematic solutions is about an $800 million a year market. There are only a couple of significant players in this space. If we can capture even just a fraction of this business, and keep in mind, we have a record of winning market share, this will be a major contributor to future growth. Blue Tree in 2017 is about a $20 million business with a 70-30 mix of hardware to service revenue. We expect sales of Blue Tree's product line to grow significantly in 2018 as we cross-sell the full transportation portfolio into our complementary markets.

We're continuing to make progress with the integration of inthinc and are pleased to report that the significant investments we have made to get the business on track are beginning to pay dividends. inthinc has a strong pipeline and recently announced 2 new large customers in Q3, who provide services to facilitate drilling and fracturing of oil and gas wells. inthinc's devices will be installed on service vehicles to support the ELD mandate for electronic data logging of hours of service as well as enhanced driver safety.

We expect to deliver nearly 5,000 systems just for these 2 opportunities with the majority shipping between now and the end of Q1 2018. Keep in mind, from a service revenue perspective, 1 inthinc sub has the same economics as 8 to 10 cargo deployments. So these 5,000 subs should have the same effects of up to 40,000 to 50,000 on cargo assets. We believe the momentum at inthinc is building and will be a significant contributor going forward.

ORBCOMM and JLG are making progress on our telematics program for their aerial work platforms and telehandlers. This enables JLG and their customers to proactively management and maintain their fleets. JLG is offering the ORBCOMM developed solution as both the factory installed option for their new machines and an aftermarket option to retrofit machines in the fields. To date, we've shipped over 10,000 systems in North America and Europe.

And as they get installed, we expect to see service revenues begin to ramp. JLG expects to begin offering services in the Middle East, Africa and Asia Pacific in Q4. JLG is a subsidiary of Oshkosh and we are expanding into Oshkosh's Airport Products Group, where we are conducting field tests for the airport rescue and firefighting division. ORBCOMM provides Oshkosh with the flexibility and scalability in resources needed to support a successful deployment for their customers around the globe.

In addition to OshKosh and in Q3, ORBCOMM added thousands of subscribers across its space of heavy equipment OEMs, including Caterpillar, Komatsu, Hitachi, Doosan, Kobelco, Hyundai, Sumitomo and Volvo. ORBCOMM is by far the top supplier of satellite connectivity to the heavy equipment market. Our application enablement platform or iApp is continuing to add new customers to our portfolio, where we're leveraging our scale, infrastructure and expertise for faster and more cost-effective operations.

West Fraser, Canada's largest integrated wood product company, is using our RFID inventory tracking and management solution for their sawmills. They deployed the first 2 mills this year and expect to deploy an additional 10 mills through 2018. We have also expanded our opportunity with Lockheed Martin to include our RFID technology for their Sikorsky helicopter group to further improve visibility of their extensive manufacturing process.

Turning to AIS. Q3 set another other record-high with over $2.4 million in revenue. This is the 24th consecutive quarter of revenue growth in our AIS business. We've signed a number of contract renewals with many of our longstanding customers and have added 2 new customers that are using our data to support fisheries management. Vulcan, a Paul Allen company, is focused on supporting ocean health through research, innovation and policy change and is providing government and enforcement agencies with our AIS data, so they can detect and intercept illegal fishing vessels. Satellite Applications Catapult, through its ocean mines business unit, is using our data to improve maritime domain awareness and address illegal and unregulated fishing in South America through the U.K. Space Agency's International Partnership Programme.

Summing up. We are extremely enthusiastic about our position. Investments in large deployments, acquisitions gaining momentum into incremental asset classes and innovation with over 20 new products and features being released over the next few quarters put us on pace for continued growth. While product sales can still be lumpy, we do not expect a fallback in 2018 sales. Even as margins are expected to return to historic levels, we're breaking new records in revenues and are chasing an unprecedented number of opportunities. Despite a setback in our OG2 constellation, we believe the partnership with Inmarsat and the innovation driving the best of both networks together will result in the best space-based IoT products and services in the industry.

At this point, I'll turn the call over to Robert to take you through the financials.

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [4]

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Thank you, Marc. Good morning, everyone. In our third quarter, our third quarter was exceptional for the new highs reached for total revenues, quantitative products shipped and net subscribers. In addition, the acquisition of Blue Tree Systems on October 2 led to the results for Q4.

Looking more closely, total revenues were over $69 million, 50% higher than last year and almost 22% higher than last quarter. Both service revenues and product sales reached record levels of $35 million and $34 million, respectively. Record service revenues were powered by the growing subscriber base across all our service offerings. Service revenues of $35 million increased 22% or $6.2 million in the third quarter over last year with organic growth over 9%. Sequentially, service revenues were $4 million higher over the second quarter due to the largest subscriber base plus some installation revenues of $2.9 million from the second quarter acquisition of inthinc.

Product sales reached an incredible 97% to $34.3 million, the highest quarterly level ever, growing $16.9 million over last year. Products shipped at unprecedented levels with the 105,000 units delivered in the quarter. Most of the growth was organic with about $2.8 million added from the acquisition of inthinc. Q3 margins were lower from higher installation costs and lower pricing of high-volume orders that were delivered in record numbers this quarter. Margins will continue to feel the pressure until the bulk of these orders are shipped and installed. And we expect to combine this impact for the next quarter or 2.

Contribution margins for total revenues of 37.6% were lower with a higher mix of lower margin product sales this quarter. In addition, service contribution margins of 61.1% reflects the push to install these units as quickly as possible for faster conversion to service revenues, lowering margins about 5%. In addition, the quarter included the cost associated with the OG2 investigation, along with added platform costs for the new acquisition, which lowered the margin an additional 1%. Excluding these items, service contribution margins would be in the normalized range of 66% to 67% and trending higher than last year at 66.1%. Similar to Q2, the underlying service contribution margin is increasing from scale in other parts of the business, in line with our long-term view.

Also similar to Q2, product contribution margins of 13.5% in Q3 are lower from the higher percentage of shipments of lower margin product sales and higher production and delivery costs. Excluding these product sales to a few customers, the remaining product sales have 24 point margins. The items that are lowering margins overall are linked to and represent short-term activity costs that will repeat in Q4 and start to taper off in Q1 next year before normalized margin levels resume. Getting these shipments and installations completed as quickly as possible is the goal to start reaping the long-term benefits of higher margin service revenues.

Overall, this quarter, adjusted EBITDA totaled $11.2 million, lower than last year by about $800,000 or 6.7% with adjusted EBITDA margin of Q3 at 16.1% of total revenues, down from 25.8% in the prior year period. Excluding the impacts on the margins previously discussed, adjusted EBITDA would have been approximately $13.5 million in the quarter. Net subscribers added in Q3 were over 70,000, reflecting the outstanding demand. Our total billable subscriber base grew to nearly 1.9 million at September 30, a 12.5% increase over the 1.7 million at the end of September last year.

In the third quarter of 2017, the company had a net loss of $39.7 million compared to a net loss of $14 million for the same period last year. The expanded loss this year over last year was largely due to the $31.2 million satellite impairment loss this quarter. Q3 this year also included higher operating expenses and interest expense versus Q3 of 2016. Operating expenses were up over last year due to the new acquisition, higher depreciation and amortization and acquisition-related and integration costs. Additionally, third quarter operating expenses included an impairment loss of $31.2 million related to the 3 OG2 satellites that lost communication. The loss of these 3 satellites is not expected to have a material effect on communication services or revenues. There was no in-orbit insurance coverage for these satellites.

Interest expense for Q3 2017 was $2.5 million versus -- interest expense for Q3 2017 was $5.2 million versus $2.5 million in the prior year, including the amortization in debt fees, reflecting a full quarter of interest on the new bond offering in Q2 this year. Acquisition-related and integration costs are $0.8 million, relating to the acquisitions of inthinc and Blue Tree that was completed on October 7, 2017. This compares with the $0.2 million in Q3 of 2016. Acquisition-related and integration activities are expected to be about $1.5 million in Q4.

Looking at the balances sheet. Cash totaled approximately $37.4 million at September 30, 2017, compared to $25 million at December 31, 2016, increasing $12.4 million. On September 30, 2017, $34.5 million of cash was held for acquisition of Blue Tree Systems. Net cash used in operations was $7.2 million, reflecting increased working capital, higher receivables from increased product sales and increased inventories to meet product demand. For the remainder of 2017, we expect to see increases in working capital from higher product sales as well as to support the growth of the new acquisitions.

In investing activities, we acquired inthinc for $34.2 million, $34.5 million was earmarked for the Blue Tree acquisition and $21.4 million was invested in capital expenditures. The capital expenditures of $21.4 million included: $3.9 million for the final OG2 milestone payment; $6.1 million of sustaining CapEx; and approximately $11.4 million of investment CapEx for new products and services. For the rest of 2017, capital expenditures will run about $6 million in the quarter with about $1 million for sustaining and $5 million for investment CapEx. Our total debt outstanding at September 30 is $246.3 million net of debt issuance costs.

Moving on to Q4 guidance. We expect total revenues to exceed $70 million, split relative evenly between service revenues and product sales. Contribution margins and adjusted EBITDA margin as a percentage of total revenues are expected to start to recover from Q3 lows. For 2018, we're working through our plans as we speak, and we will provide more detailed guidance on our next call.

So wrapping up, the third quarter of 2017 showed unprecedented growth in revenues, shipment volumes, demonstrating our growing momentum in IoT solutions. We deliver and install high volumes of products and solutions for world-class global customers that have been compelling the business to new highs, investing in market-leading products and acquiring companies that expand our offerings are key to our strategy to grow the top line, leading to higher profitability. This is highlighted by our recent acquisitions into the fleet management arena, which are expected to contribute significantly in 2018 and beyond.

This now concludes our remarks for the call, and we're happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question, it comes from Richard Prentiss with Raymond James.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [2]

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Obviously, a lot of moving parts here, a lot of running with revenues and units shipped, so that's good stuff. The focus though on the financial world really is on the margins. You guys have done a good job talking a little bit to it. I want to probe a little deeper, if I could. Robert, I think you mentioned the OG2 investigation and the M&A had some impacts in the quarter that if you normalized out, service margins would have been 66% to 67%. Can you kind of break those apart for us? How much was the OG2 investigation? And how much was the M&A?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [3]

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Well, the M&A, both of those things combined were a little over 1%. So you can probably say there 1/3 for the M&A and the rest of it, for just what I'd say the scalability of the platforms that we're adding. So as we synergize those and we get those to a higher scale level and they're improving like inthinc is improving every day, as we work on that, that would be roughly the breakdown of that 1 point. But the big impact obviously was the installation cost.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [4]

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Sure. And then as Blue Tree comes in, how should we think about that impacting the numbers, both within -- on revenue and on EBITDA within the quarter?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [5]

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Yes, I'll take the EBITDA. I mean, Blue Tree in Q4 will probably be neutral to EBITDA, the top line. But the margin should be decent in terms of our historical margins, so I don't see that suffering from the same scalability issues. We will have some SG&A and some other costs that we need to layer in. And that's why we're signaling right now, it will probably be neutral in the quarter.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [6]

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We think it will be accretive next year. But we need to get this thing integrated. And there is -- almost like inthinc, there's a large sales pipeline there. And there were a couple of opportunities we were just kind of hoping to get over the line here even before this call. But we're really close to some really promising opportunities over there at Blue Tree. What we were hearing in the markets, this integrated solution, putting all this stuff together is the experience that we've had so far is much better than we'd even anticipated. From the other business that we're integrating, which was inthinc, inthinc just about broke even from an EBITDA perspective in Q3. And that is sooner than we expected and the revenues at inthinc. So let's take a look at the $4 million. So we're up $4 million quarter-over-quarter in service revenues. And you might say that just between $1 million and $1.1 million was organic. And that's where we've been trending and that's true. But part of that is inthinc from a run rate when -- first of all, you get the benefits of a full quarter as opposed to just 3 weeks. But inthinc was a $1 million a month contributor in service revenues. And by Q3, it had already grown to $1.2 million a month contributor in service revenues. So there is another $600,000 there in service revenue growth that we got from inthinc, which gee, that's exciting and it's coming on really strong.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [7]

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Okay. And then back to Blue Tree, what do you think the revenue incremental would be in the quarter just when you look at the guidance of over $70 million? How much of that is coming from Blue Tree?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [8]

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They've been trending about $4 million -- they've been trending $5 million a quarter. And we're going to see if we can push it to $5.5 million, could be [a little] more. Ric, we think we're going to exceed $70 million. We just don't know by how much.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [9]

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Sure, that makes sense. And then back to the satellite one. We do get a lot of questions on that. You mentioned that they think that they've got it narrowed down to 2 causes. Can you give us any insight as to what those causes are? And then you mentioned that the -- no material effect to the network or the revenues. Is there any effect to the expense if you have to offload more traffic on to other networks?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [10]

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Yes. Well, let's talk about the satellites that are up there. The first thing that we noticed is we were getting a flash memory corruption. So on average, about once every couple of months, a single or double bit of flash memory gets corrupted. And if it happens at a specific location, it could lead to a loss of contact. And then when you reboot it, you typically get it back. And in those, we don't believe that it came back from that corruption. So the measure is every 24 hours, we check the flash memory. And if there is, we fix the corruption before the reboot. So that one was relatively easy. We're also focused on the payload part stresses. There is a possibility that the payload was through their repower cycling with increased part stresses. So we implemented new procedures to power cycling when we reboot to reduce the potential part stress. So those are the 2 things that we worked on. And we have not experienced another issue with a satellite now. So these 3 issues, as we mentioned last quarter, they're months old. And in the last 6 months, we haven't experienced anything further. In terms of moving stuff on to other networks, the current 700,000 or 800,000 subscribers that are on the ORBCOMM network, between the 12 OG2 spacecraft and the 17 OG1 spacecraft, they're pretty well serviced. And going forward in 2018, we made these investments years ago on this RFIC. But the new deployments in the second half of this year will be sharing both networks. So the OG2 can help when it will help and the Inmarsat network is sitting there in a fixed position, overhead all the time. And that is the -- that's the performance levels our customers are looking for. It's the contracts that we're selling with our OEMs based on both networks. And then the low-latency stuff over the last 3 years, predominantly the low-latency stuff, the safety stuff in Brazil, Africa is on the SkyWave network, which uses Inmarsat.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [11]

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And so it looks like the positioning for 2018 is margin improvement as you get through the installation and shipping of the big owners and then the ramping of service revenue and should be getting back to that mid to higher 60 levels as you get through the (inaudible).

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [12]

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Yes. It's funny, I mean, we're, let's say, in the year we invest that $6 million for 120,000 subs that will generate $8 million in service and probably generate $5 million or $6 million of EBITDA. The value of that to ORBCOMM, if we were to acquire that company, that company that does 120,000 but $9 million in business, the value of that company in the market is roughly something like $90 million. So you look at the investment ORBCOMM wanted starting these things off and winning this business and at $6 million you're like, ooh, cheap what a great investment. And I think, the question that you have is, what's going to stop you from doing it again? And how do I model this? And we've invested an awful lot into this hardware, and these platforms are now available at lower costs to the customers that are beyond [tough] and beyond J.B. Hunt, and the deployments that we had. And we just don't see it, and the bids that we have in the market right now, we just don't see that investment needed. So we think we're going to return to the mid-20s on hardware margins and, Rick, you model us very closely. You pull out (inaudible). We can keep the hardware going at the same volumes at the higher margins. From a profitability perspective, in 2018, this thing really [sinks].

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Operator [13]

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We will take our next question from Mike Walkley with Canaccord Genuity.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [14]

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Just following up on Ric's questions here. Just wanted to kind of talk through ARPU trends, how you see those progressing over the next several quarters. We saw a nice step up this quarter. Obviously, helped with a full quarter of inthinc, but as you layer in Blue Tree, as you get the J.B. Hunt deployed and you look at some of your cross-selling opportunities. How do you see kind of that trajectory of ARPU? And then how do you see kind of that sequential growth on an organic basis, now, on your services revenue as you look through the next several quarters?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [15]

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So let's talk about the short term and then we'll talk about the long-term, right. So you're bringing on 37,000 Blue Tree subs at roughly $14 ARPUs and the in-cab is much higher and the cargo stuff is much lower. But it trends to 14, so you've got -- I don't know, what are you tracking us at? Somewhere in the 6 range? Everyone figures it differently.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [16]

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Yes, I'm using the 6 range with AIS included.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [17]

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So if you're in the 6 range, it's going to help, right? So you should get another little step up in Q4. Q4, [while] we're going to turn on a lot of subs. So Blue Tree may be just a fraction of the sub. Subs look really good for Q4, but you're going to get a lot of cargo ones as well, which may offset it a little bit. But you're not getting get a decline, short-term, in -- you're not going to get a decline, short-term, in ARPUs. In addition to that, the inthinc subs are among the highest ARPUs that we have. And we kind of gave you the metrics that we're going to turn on a lot of inthinc subs in Q4. And those inthinc subs, each one kind of is the same economics as 8 or 10 cargo subs. So that should kind of rightsize, the cargo shipments or offset nicely. I don't know, if I were you, I would trend ARPUs flat to slightly up in 2018.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [18]

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Flat to slightly up just from the run rate to run a sequential basis?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [19]

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Since it (inaudible) back in Q4 because you're going to get help from Blue Tree. And then, I think ARPU is going to be up next year, I do. The only way ARPUs are down next year, Mike, is if we do some crazy number of subscribers, we do 300,000 to 400,000 more net subs in these cargo solutions. But in which case, your fine because you're not modeling that many.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [20]

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Got you. I understand, it's still accretive to margins because you add more subs.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [21]

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Yes.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [22]

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And just to clarify the margin, thanks for backing it out without the 2 large installations, particularly J.B. Hunt. Is there anything with the Blue Tree acquisition and just your overall cost of putting together all these platforms that create a lower services gross margin or should we see, maybe, high '60s still going to 70 as you scale the business longer-term?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [23]

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Yes. Yes, getting off its next quarter coming up, but we do a pretty quick job trying to get to it. An example I would point out would be where you've had (inaudible) be with (inaudible). I didn't know how fast we were going to get there, and we did pretty well. Yes, so I would say it should start -- 2018 is really where I would start looking to get back to those normalized levels.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [24]

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And then, Mark, just wanted to delve in one more time. As you look at your pipeline for 2018, you're certainly signaling another strong year in hardware. Can you just walk us through your expectations, kind of what you learned from some of these big installations? Is there still that worry from investors that you could be another big J.B. Hunt, where you have a big impact to margins for good long-term business? But can you kind of walk us through your pipeline and your scale and maybe how you avoid a step down in margins like we saw this year?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [25]

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Yes. We've done it through product innovation, and we've done it from not relying on 1 or 2 customers but building strong core businesses going forward that can eat up these potential hardware shortfalls on just those 2 customers. And if you look at the companies that we've acquired, inthinc is in the 25-point margin range on hardware and Blue Tree is even a little higher. So they're not going to hurt hardware, they're going to help hardware, and they're growing pretty quickly as well. Some of the big stuff we're looking at, the margins could fall to the low teens, just on those particular deployments, but there's nothing that we're looking at that currently is negative. So here's the good part and the bad part of it. Your numbers for next year that we looked at, meaning the analyst community, in that 250s range without Blue Tree and adding Blue Tree on top of it, we can get there without those types of margins. From those healthy margins that we're talking about returning to, we can get there. If the company goes over and above that. If we're talking about 3 [handfuls], $300 million or $325 million. And something massive comes along that requires another investment, if it makes sense and it models it, we're building a business for the next 10 years not for the next 2 quarters, we'll do it. Now, I don't see it but we would do it, just like we did it this time. We're looking at shareholder value over the next couple of years not the next quarter or 2. We're going to make the right decision, long term, for the company every time.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [26]

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And a last question for me, Robert, just more housekeeping items. I missed the AIS number, can you give me that? And then, what's the satellite write-down, just for modeling purposes? How should we think about quarterly run rates for depreciation and then amortization with some of the acquisitions?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [27]

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Yes, $2.4 million in the quarter for AIS. So it's trending into that $10 million annual rate that we've pointed to. Depreciation will come down because of the impairment by about $1 million per quarter.

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Thomas Michael Walkley, Canaccord Genuity Limited, Research Division - MD and Senior Equity Analyst [28]

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And amortization, with some of the acquisitions, is that going up?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [29]

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Yes, that's going to go up slightly. I don't have a number there for you, but I can get it to you.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [30]

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I [should] say $6 million in Q4.

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [31]

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(inaudible). Sorry, Mike. That was -- that's CapEx that we were talking about. I figured you were asking about amortization, it'll be slightly up (inaudible).

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Operator [32]

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Our next question will come from Andrew DeGasperi with Macquarie.

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Andrew Lodovico DeGasperi, Macquarie Research - Analyst [33]

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First, maybe can you expand on that (inaudible) and Inmarsat deal? And can you maybe quantify how big that opportunity is at the leisure and fishing fleet? And then secondly, you've made quite a few acquisitions so far this year. Just curious to know, what do you see yourself doing strategy-wise at this point? Do you see additional acquisitions coming in the near-term? Or do you think you're likely to absorb and centrally integrate them properly?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [34]

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Sure. Let's start with the acquisition one and then we'll talk about the (inaudible). From an acquisition perspective, Blue Tree and inthinc serves asset classes that we think we need. So Andrew, it's my belief and maybe yours but certainly everyone in the room I'm sitting in, that these integrated offerings make the entire ORBCOMM business better. So in other words, our reefer business got better when we added dry vans. And if you look at like what we did on a dry van, I don't know the exact number but maybe we went half. But if we bid on a dry van business that also has reefers, we think we win 80% or 90% of those because it's an integrated offering and it just makes the whole business better. And we've been adding containers and we've been -- and that was a build and a little bit of a buy at WAM on sea containers. And we've been adding all these assets to build these fully integrated offerings. And then inthinc and -- which added fleet vehicles and Blue Tree that adds the in-cab aspect to our cargo assets. We thought, long-term, that is what our customers wanted. They wanted 1 integrated offering. They didn't want to deal with 5 vendors. They just wanted it to work. They wanted all the integration. They didn't want 10 IT teams in there integrating to their platforms. And that is what the business needed. So we filled those holes in the markets. And right now, at least on the transportation side. As we check off every asset that our customers are looking us to -- to support, we're nearly there. So there's no have-to-buy from a strategic perspective that we're looking at right now. And I think the company continued to be -- can continue to be entrepreneurial in looking at acquisitions. I think if you're expecting one in the next quarter or 2, you're not going to see it. I don't think so. I think, we bought 2 big ones. We are so thrilled with how they're being integrated. I mean, inthinc is doing so well and growing so quickly. And either of the -- Blue Tree -- gee, Blue Tree is half in Ireland and half in the U.S. We're working to get that integrated. We've got lots of opportunities that we're closing in on. We've got 20 new products coming into the market in the next couple of quarters. We're bidding on -- I don't know it's -- when we finished Hub, we're like now we've got J.B. Hunt and that's even bigger. How do you replace that? There's 8 more of those that we're working on. So there's lots of opportunity to close. And the company should [be busy]. So busy that we're going to focus on closing what's on the table as opposed to focusing on M&A in the next couple of quarters. If something super-entrepreneurial comes up that makes sense for our shareholders. We'll look at it. I don't know but I'm not saying we're throwing up but the mouth is full, right, with the M&A that we did. So that's giving it to you the way I see it. The BGAN thing. Wow, is this exciting, right? So it started out as like an M2M ground-based thing and turned into a marine thing in that, the mining guys, they don't want 1,000-byte packages -- packets. They want to open up a channel and send megabytes or gigabytes of data. And these machines have awful bigger packets, and we were losing market share on some of these larger machines. And I'm going to get to marine in a second. But -- so we go and we go down this BGAN route to develop solutions that support that and it's comical. So we are fighting [4.8] with [144]. This thing is cool. And gee, we're going to be fielding these units and it started out as like a mining equipment thing. And then, as we build it, and it's using all the same components that are in IDP. So as we start building it, we're saying to the Inmarsat marine guys, we think there's a product there. It's not the product that goes on the Maersk steamships, but a product for some of these small vessels where some of the other guys, and you know who they are, are winning share, are selling units out there that are 3,000, 4,000, 5,000, 6,000, 7,000 and $80 a month, solutions. And they're being incredibly successful and [will work on] scale. We want a retail product out there in the market, sub-$1000, and no one's ever seen that before. And how many of these ships are there, tens of thousands of them. And they're being poorly served, and we think there's a market there. We think the service at the 144 is going to just awesome and better than they've ever seen. And you could do data, you could do Voice-over-IP, really cool and typical to ORBCOMM. Instead of forcing you to use hardware, ORBCOMM wants you to use your iPad in iOS or Android. As opposed to buying these big sophisticated units, just use your laptop. So really cool. A super market. It's going to be multiples of what ORBCOMM ARPUs are. And we have been kind of working at this quietly for the last 1.5 years. And the goal is an April launch date, it may slip to May, but it's not going to be December.

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Andrew Lodovico DeGasperi, Macquarie Research - Analyst [35]

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Got it. And just a follow-up to that. I mean, obviously, I would see some equipment benefit, but would you share on the services airtime side, too?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [36]

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Yes, the airtime should be closer to an inthinc sub than to an on a cargo sub.

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Operator [37]

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(Operator Instructions) We'll move next to Michael Malouf with Craig-Hallum Capital Group.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Head of Boston Team [38]

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Just a quick follow-up on the product revenue next year. Obviously, it went up well over 50% in product revenue this calendar year. And as you look into next year, I would have thought that you would see some pullback there, but you're sort of saying that we're going to maintain this high level. With some of these very large deployments driving this year, are you saying that, basically, you're going to be a -- sort of a much more singles and doubles this following calendar year to make up that, call it, $115 million or so, $110 million $115 million revenue? Or do you for see some big deployments sort of driving 2018 as well?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [39]

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So we see a lot, right? So number one, we see new acquisitions that are taking off from very low foundations of hardware. We see 7 or 8 opportunities, I don't know that we're going to close them all. And I don't know the weight that they are going to deploy, just like I didn't know the rate that J.B. Hunt was going to deploy last year. We see more singles and doubles. I mean, did you hear how many deals we closed in those singles and doubles and transportation is core. I mean, you've never heard me reel off 10 of them before. And we've got new products. We've got BGAN coming out. We've got a product we're hoping to get on Amazon from a retail perspective. At the end of this month, we've got 20 new products coming out. We've thrown everything at it. We've thrown tens of millions of dollars in development. We've thrown tens of millions of dollars in acquisition. Our sales teams are out there closing more big deals. There is a ton of activity in the reefer container space. After Maersk, we closed Crowley and we closed TOTE, but there's 4 or 5 that are out there looking that we hope to follow-on to. Listen, Mike, I don't think everything is going to close. I mean, if everything closes next year gets crazy. If we were to close it all and install it in 1 year, I mean, you wouldn't be talking $300 million, you'd be talking a lot more. But we're throwing a lot at it, hoping we get a good portion of it to keep the hardware on track. But if we can keep the hardware on track but do it at 8 or 9 points higher in margins and then increase the service revenues to the lows 60s that you guys -- I'm sorry, that's EDITDA, increase EBITDA to the low 60s that you guys are pointing to by increasing service revenues another 10% or 15% year-over-year, we think this plan comes together really super nice.

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Operator [40]

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Our next question will come from David Gearhart with First Analysis.

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [41]

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My first question is, I think you kind of touched on it a little bit with the BGAN offering at the $1000 a unit and higher ARPU. I wanted to ask a little bit about the Hali AIS, and I think it's somewhat of a related product just given the maritime focus. But I'm wondering if you can give us an update on the Hali AIS offering?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [42]

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Sure. So when we did the Hali thing, we started off by building roughly 700 or 800 first-run units to begin and we've sold every one we had. So now we're taking what we've learned, we're refining it, and we think that's going to be thousands of units next year, not tens of thousands but thousands. And the ARPUs there are more like the (inaudible).

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [43]

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You said the teens?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [44]

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Mid-teens.

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [45]

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And then, a while ago you gave targeted levels for adjusted EBITDA at $300 million and $500 million. I think it was 35 to 38 and 41 to 43. When you layer on the acquisitions and the growth, you're going to be a lot closer to $300 million next year, but it looks like the adjusted EBITDA is going to be short of those targets. So I was wondering if you could adjust -- or readjust our expectations or your targets on -- revving up those levels and where adjusted EBITDA will be. Or when you would expect to hit the adjusted EBITDA margins if it's at a high revenue level, which it seems to be?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [46]

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Yes. So those models that were done were presuming a certain revenue mix between service and hardware plus -- I don't know if it was organic or (inaudible).

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [47]

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And the date was out because it was all organic growth, and we're close to getting there 1.5 or 2 years sooner with the acquisitions.

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [48]

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And if you just look at existing platform growth, then you're seeing your high 60/20 margins moving up maybe right into the 70-point range, which would be necessary to see the scale go (inaudible). So we do have platforms that are scaling that way, but as we keep on adding platforms, it doesn't make sense for us to keep on adding platforms, so we try to bring them up to scale that's going to change that dynamic. You can see on the SG&A and below-the-line OpEx costs, I think our modeling is still pretty much in check there. So I think the big difference, the big difference in terms of what those expectations would be would just be the mix of the top line between the 2 components and then how many platforms you really have to run to get there.

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [49]

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And then just wondering if you could give us a quick update on Brazil and the dynamics there and how it looks from a trajectory prospective, just given some of the headwinds that you've seen in the past and the improvements, how is it progressing at this point?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [50]

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(inaudible). You know that Brazil, from a hardware perspective and new deployments, at one point, had gotten to nearly 0. So we're enjoying the benefits of -- we bounced this year. It is nowhere near the levels where they were in '14 and '15, but we are shipping thousands of units into Brazil and the SkyWave group is having a really good year. It's funny, every aspect of ORBCOMM is up. We went and looked at it at our, as we were doing our board meeting, every business unit is up. And SkyWave is out there leading the charge. SkyWave is shipping tens of thousands of assets. And the SkyWave network, actually, is outpacing the ORBCOMM network in sales and subscribers pretty handily right now.

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [51]

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And the last one from me, just going back to OG2 network and your ability to offload, either leveraging SkyWave on Inmarsat or Inmarsat. Since the RFIC is going to be available second half of '18 for commercial service, if you need to use Inmarsat or are you just using your Inmarsat modem in your hardware and are you dropping it down to a comparable latency to what OG2 is in order to maintain the price points? Just kind want a little more color there.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [52]

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So once you build the RFIC, the neat thing is, an ORBCOMM modem a SkyWave modem or a dual-mode modem, it's the same modem. So...

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David William Gearhart, First Analysis Securities Corporation, Research Division - Associate Analyst [53]

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But up until that point.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [54]

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Oh, up until that point, you've got 29 satellites. We're going to have -- we have 29 satellites and we think we're going to have satellites for the next 15 years. And then if we see a need where we need to launch more satellites, satellites to replenish this constellation, it's not another $200 million, maybe you do another $4 million to $6 million, and it's $40 million or $30 million. So we're working through what the next generation needs to do and we're watching really closely how these fixes have worked on the current OG2 spacecraft, and so far, knock on wood, everything has gone real well. But there's so many choices going forward. But the 29 spacecraft is delivering pretty damn good service today.

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Operator [55]

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Our next question will come from Mike Latimore with Northland Capital Markets.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [56]

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You had mentioned, with regard to the fourth quarter, you start to see some EBITDA margin improvement, I guess. Can you put a little but more of a range around that, potentially?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [57]

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It's just going to be -- it's going to be fractions of a point moving in the right direction where you're probably going to see something between the 16% and 17% range for Q4. We don't want to get out ahead of ourselves until we can get the integration of Blue Tree under our belt. So that's the -- sort of the unknown at this point.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [58]

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Makes sense. I mean, obviously, you guys announced a number of deals in the third quarter. How many subs are sort of embedded in the deals you've won in third quarter?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [59]

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Oh boy, there's lots of deals in the third quarter. But let's just say, we think, fourth quarter, we'll make a decent improvement on 70,000 subs. Keep in mind, we went from -- we were doing high 30s a year ago, so low 40s at the beginning of the year, 70,000 this quarter, and I think we're going to be north of 70,000, I don't know if its 75,000, 80,000 or 100,000, but there's lots of subs coming this quarter.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [60]

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And then you mentioned there are other -- maybe 7 or 8 very large deals in the pipeline. I guess, just given normal sales cycles and those sort of things, will the prospects be making decisions in the next 6 months, let's say, on some of those?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [61]

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Yes, when you're bidding on 10 deals, you win 3, you lose 3 and 4 push. Something like that.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [62]

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And just last on -- I know you haven't really finalized the plans for '18, but any thought on just CapEx? Is it similar to this year or up, down?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [63]

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Yes, with the exception obviously of the final OG2 payment. So you are looking in the $20 million range.

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Operator [64]

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And our next question will come from Chris Quilty with Quilty Analytics.

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Christopher David Quilty, Quilty Analytics, Inc. - President [65]

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Just following on that last question. Robert, how much of that $20 million would be the sort of growth CapEx?

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [66]

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$14 million. I'd want to say there's -- right now, we're trending on the sustaining, a little bit higher than I thought we'd be. I thought we'd be like 5 to 6 this year, we we're like in 6 to 7. We've started some things around that, that will be related to the investigation that was with helping the other satellites. So that will come off. So, I think, $14 million would be in the gross arena.

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Christopher David Quilty, Quilty Analytics, Inc. - President [67]

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Okay. And do you think that sort of $14 million a year, with the pipeline of things that you have, is something that you're going to end up spending every year for the next couple of years?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [68]

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Assuming no further acquisitions that require more investment and more product, yes.

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Robert G. Costantini, ORBCOMM Inc. - Executive VP & CFO [69]

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And a lot of amazing opportunities.

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Christopher David Quilty, Quilty Analytics, Inc. - President [70]

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Got you. So, shifting to the BGAN, I mean, the BGAN product has been around for 10 years. It hasn't actually been kind of a world killer for most of the vendors out there. Is your edge on it simply about the price point that you're hitting. And the second question, if you're going after the maritime market, that's be a pretty vulcanized new market, how do you go to market to actually reach the customers?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [71]

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Yes, first of all, to say that BGAN hasn't been successful, I mean, that's -- BGAN itself is 4x the size of ORBCOMM. So that may be relative to something else you're looking at, but these are pretty full satellites. The advantage that we have is purely price. And Inmarsat doesn't chase small boats that are -- they don't really chase small boats because they don't hit price points. And those are the markets that we're chasing, just leveraging the technology that we have. I think it'll be more of a retail looking offering. It'll go through the [west] marines and the other guys out there. That's the only way to (inaudible) -- to find lots of small crafts, as opposed to with the current Inmarsat business, which is a finite amount of large craft.

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Christopher David Quilty, Quilty Analytics, Inc. - President [72]

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Got you. And just a final question on the product path with Inmarsat, does the new RFIC integrate the new I-6 satellites? And where dose that bringing in terms of capability?

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [73]

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We're learning that. So ORBCOMM has been invited to the Inmarsat team designing, not the satellites but the protocol on those satellites. So both teams are working together on that. The first thing that I-6 gives you is some crazy number like 20 more years of life, so that's pretty exciting. And we'll see what we can do around speeds and power and efficiencies in terms of generating more traffic through limited amounts of spectrum.

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Christopher David Quilty, Quilty Analytics, Inc. - President [74]

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So faster speeds, bigger packets and same coverage.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [75]

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Definitely. Definitely. So the augmentation to their coverage is the OG2, which will get you north of that 65 degrees.

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Operator [76]

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And Mr. Eisenberg there are no further questions at this time. I will now turn the floor back to you for any closing remarks.

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Marc J. Eisenberg, ORBCOMM Inc. - CEO, President & Director [77]

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So thank you so much for your questions and for participating on our call. We look forward to speaking to you again when we report our Q4 and full year 2017 results in the first quarter.