Business context and reporting period
Globalstar, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. It provides mobile satellite voice and data services, IoT connectivity, and wholesale network capacity; MSS is its only reportable segment. The Service Agreements’ wholesale-capacity customer accounted for 49% of revenue in the first nine months of 2023. Globalstar reported approximately 773,000 subscribers at quarter-end.
Financial performance and position
Amounts below are in millions of dollars except per-share data and where noted.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $57.7 | $37.6 | $171.4 | $107.2 |
| Operating income (loss) | $2.0 | $(186.6) | $11.8 | $(211.7) |
| Net income (loss) | $(6.2) | $(204.4) | $(9.6) | $(251.6) |
| Operating margin | 3.5% | Negative | 6.9% | Negative |
| Net loss per common share | $0.00, rounded | $(0.11) | $(0.01) | $(0.14) |
Revenue increased 53% in Q3 and 60% for the nine-month period. Wholesale-capacity revenue rose to $27.5 million for Q3 from $7.0 million and to $83.4 million for the nine months from $22.6 million, primarily reflecting the Service Agreements. Commercial IoT service revenue increased 36% in Q3 and 17% year to date; Duplex and SPOT service revenue declined. Nine-month operating results benefited substantially from the absence of 2022 impairment charges: $166.5 million for long-lived assets and $8.6 million for inventory. Q3 2023 included a $4.4 million Service Agreements bonus; nine-month revenue also included $6.5 million related to performance obligations completed in prior periods.
Cash and cash equivalents were $64.1 million at September 30, 2023, versus $32.1 million at year-end 2022. For the first nine months, operating cash flow was $68.6 million, investing cash outflow was $142.4 million, and financing cash inflow was $105.9 million; cash increased by $32.1 million. Satellite procurement and related investing included $110.2 million of payments to MDA and $8.8 million of capitalized-interest payments.
Debt principal was $375.4 million at September 30, 2023, compared with $202.8 million at December 31, 2022; reported carrying value, net of discounts and financing costs, was $339.3 million. The balance included $206.0 million principal on 13% Senior Notes, $81.7 million under the 2021 Funding Agreement, and $87.7 million under the 2023 Funding Agreement. The 13% Notes mature in 2029; the company’s Service Agreements provide for 6.5% cash and 6.5% PIK interest. Preferred-stock dividends approved for the nine months totaled $7.9 million.
Material changes versus the prior comparable period
- Growth was driven chiefly by wholesale capacity under the Service Agreements, which began in November 2022; the arrangement represented 49% of nine-month revenue versus 21% a year earlier.
- Operating results improved sharply against 2022’s substantial asset and inventory write-downs. Excluding those unusual prior-year charges, the comparison is less pronounced; the company still recorded a net loss in 2023.
- Debt financing changed materially: Globalstar issued $200 million principal of 13% Notes, drew $87.7 million under the 2023 Funding Agreement, and reclassified the 2021 Funding Agreement from deferred revenue to debt. It repaid the remaining approximately $148 million under the 2019 Facility Agreement and cleared MDA vendor financing.
- Common shares issued rose to approximately 1.876 billion from 1.811 billion at year-end 2022, including approximately 60.6 million shares issued in the XCOM transaction.
Outlook, risks, contingencies, and unusual items
The filing provides no numerical revenue or earnings guidance. Management expects liquidity from cash, operating cash flows, and Service Agreements funding to support operations, capital spending, and financing obligations. The company expects to acquire at least 17 and up to 26 replacement satellites under an initial $327 million MDA contract, with initial delivery expected in 2025; a 2025 launch window is provided for the first set. The Service Agreements are expected to fund 95% of approved satellite and launch capital expenditures, paid over the satellites’ useful lives beginning in the Phase 2 Service Period. Remaining satellite costs are expected to be funded from operating cash flows and the 2023 Funding Agreement.
The 2023 Funding Agreement provides for up to $252 million, subject to conditions, to fund 50% of specified satellite, launch, insurance, and related costs. Repayment is expected through Service Agreement recoupments over 16 quarters beginning no later than Q3 2025. While amounts remain outstanding, covenants include a minimum $30 million cash balance and financial ratios and other restrictions. Thermo’s guarantee was expected to become effective in Q4 2023; consideration includes warrants for 10 million shares at a $2.00 exercise price, subject to vesting terms.
Globalstar identifies risks that it may not achieve the strategic benefits of the XCOM license or successfully integrate the technology, and that its new CEO may not deliver growth or execute the business plan. Other disclosed exposures include satellite procurement and launch execution, reliance on a major wholesale customer, regulatory and spectrum matters, foreign currency movements (the company does not hedge foreign currencies), and debt covenants and financing obligations. The company reported no material off-balance-sheet transactions and no legal proceedings. XCOM consideration was valued at $70.4 million, including $58.5 million for the acquisition and transaction-cost reimbursement and $11.9 million prepaid for support services; the purchase-price allocation remained provisional. It also granted 44.5 million performance-based RSUs with a grant-date fair value of $39.5 million.
Important facts for investors to verify
- How much of revenue growth and future cash generation depends on the Service Agreements’ single wholesale customer, and how their service, bonus, and construction-related revenue develops.
- Cash-flow capacity to fund the satellite program and meet debt service, preferred dividends, and the $30 million minimum-cash covenant; confirm the terms and status of future funding draws and Thermo’s guarantee.
- Satellite construction, delivery, and 2025 launch timing, including total project costs and the timing and recognition of related customer reimbursements.
- Whether XCOM technology is integrated successfully and produces commercial returns sufficient to justify the stock consideration, ongoing support costs, and potential dilution.
- Share-count and dilution effects from the XCOM issuance, performance RSUs, Service Agreement warrants, and the contemplated Thermo warrants.