S&P lowers Orbcomm view to stable

S&P said it revised the outlook to stable from positive and affirmed the B issuer credit rating and all other ratings on Orbcomm Inc.

The outlook revision reflects a view that earnings may be more volatile than initially expected, as evidenced by the company's performance over the past two years, the agency said.

S&P said it originally expected EBITDA margins of about 30% in 2018, compared with actual performance of 24%, which resulted in a debt-to-EBITDA ratio of about 5x in 2018, compared with previous expectations of less 4.5x.

The primary reason for underperformance was unprofitable hardware contracts with two large customers, the agency explained.

While S&P said it believes management is trying to address these issues by exiting unprofitable installation contracts and carefully scrutinizing new contracts, larger volume deployments could expose the company to accepting concessions with key customers in the future.

The stable outlook reflects an expectation for continued growth in EBITDA, but also incorporates a limited track record that includes significant earnings volatility over the past two years, S&P said.

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