What happened

Shares of ORBCOMM (NASDAQ:ORBC) are down 19.7% at 1:45 p.m. EST on Feb. 28, following the release of the company's fourth-quarter and full-year 2018 earnings report and conference call with investors. The company reported revenue of $66.3 million in the quarter, down 13% from last year's fourth quarter, and a $5.6 million net loss -- $0.07 per share -- which was an improvement from last year's $7.5 million -- $0.10 per share -- loss.

So what

ORBCOMM's results badly missed Wall Street analyst estimates on both the top and bottom lines. The consensus for revenue was $76 million, a full 13% higher than the company's result, while its net loss of $0.07 per share was substantially bigger than the $0.02 per share loss analysts were calling for.

Man watches line on a chart falling sharply.

Image source: Getty Images.

Furthermore, the company's revenue result also came up short of the company's own guidance. Last quarter, management said it expected to deliver full-year revenue between $280 million and $290 million but fell short of the low end by $4 million, with total revenue of $276 million for the full year. Furthermore, the revenue guidance miss came after the company had already reduced that guidance by $5 million last quarter.

Now what

While the company fell well short of Wall Street's estimates for the top and bottom lines as well as management's own guidance for revenue, ORBCOMM did reach its guidance for adjusted EBITDA -- earnings before interest, taxes, depreciation, and amortization -- with its $57.1 million coming in just ahead of the bottom end of the range of $55 million to $60 million.

Not only did it come in within expectations on this important profitability measure, but it improved this measure by 27% from last year while also seeing improvements in gross margin.

Furthermore, CEO Marc Eisenberg offered some clarity on what happened with sales:

...over the course of 2018 we replaced nearly every product in our portfolio with a more-featured, less-expensive version. As a result, we've grown our product margins from 13% in Q4 2017 to almost 28% in Q4 2018. ... With these initiatives having a -- a negative short-term effect on the hardware revenues, they're having a significant positive effect on adjusted EBITDA, where we improved Q4 year-over-year by almost 80% despite lower hardware revenues.

And the results bear that out, with the company's net loss shrinking and margins and EBITDA improving, even as revenue slipped slightly. Add it all up, and today's big drop looks to be simply a product of mismatched expectations between Mr. Market and the company, not a particularly bad quarter per se.

Furthermore, the company's balance sheet remains in pretty good shape, with a solid $54 million in cash that's up $19 million over the past year, while its debt balance is unchanged. Combine that with guidance for operating cash flow to increase more than fourfold to $50 million in 2019, and ORBCOMM could be a decent buy at current levels.