Globalstar, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Globalstar provides mobile satellite voice and data services, subscriber equipment, and wholesale network capacity. Its sole reportable segment is Mobile Satellite Services (MSS). Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $55.1 | $36.8 | $113.7 | $69.6 |
| Operating income (loss) | $2.6 | $(11.4) | $9.8 | $(25.1) |
| Operating margin | 4.8% | (30.9%) | 8.6% | (36.0%) |
| Net income (loss) | $0.009 | $(26.8) | $(3.5) | $(47.2) |
| Net loss attributable to common shareholders | $(2.6) | $(26.8) | $(8.7) | $(47.2) |
| Operating cash flow | Not separately provided in the filing’s quarterly cash flow statement | $43.0 | $20.8 |
- Q2 service revenue was $48.6 million and equipment sales were $6.4 million. Wholesale capacity services generated $25.5 million in Q2 and $55.9 million in the first half, primarily under the Partner Service Agreements. Six-month revenue included $6.5 million recognized in Q1 for prior-period performance obligations.
- Q2 operating expenses were $52.5 million, including $21.9 million of depreciation, amortization and accretion. The filing does not provide a consolidated gross margin measure.
- Cash and cash equivalents were $65.3 million at June 30, 2023, up from $32.1 million at year-end 2022. Current assets were $121.0 million versus current liabilities of $173.8 million.
- Debt and vendor financing carrying value was $336.6 million, compared with $191.7 million at year-end. The balance included $200 million principal of 13% senior notes due 2029, and Partner funding agreements recorded as debt. Preferred shares carry a 7% cumulative dividend; $6.6 million of dividends were paid in the first half.
- Six-month investing cash outflow was $124.6 million, including $108.7 million of satellite procurement payments. Financing cash inflow was $114.8 million, including proceeds from the notes and Partner funding; cash rose by $33.3 million overall.
Material changes versus the comparable period
- Revenue rose 50% in Q2 and 63% in the first half year over year, driven mainly by wholesale capacity revenue following launch of Partner services in November 2022. Equipment revenue also increased as supply constraints eased.
- Subscriber services were mixed: Commercial IoT revenue grew, while Duplex and SPOT service revenue declined. Average subscriber counts increased for Commercial IoT but decreased for Duplex and SPOT.
- Operating results improved substantially from prior-year losses, while the first-half net loss included a $10.4 million loss on extinguishment of debt. Q2 net income was nearly breakeven before preferred dividends; common shareholders had a $2.6 million loss for the quarter.
- Operating cash flow more than doubled year over year, but higher satellite construction spending drove investing outflows. The Company completed repayment of the 2019 Facility Agreement and MDA vendor financing, and issued the 2023 13% Notes.
- An amendment to the Service Agreements caused $88.0 million previously presented as deferred revenue to be re-characterized as debt in Q2. The filing also revised presentation of certain satellite-related receivables and deferred revenue; it states this presentation change did not affect Partner’s funding obligation or expected revenue.
Outlook, commitments and risks
- No quantified company-wide revenue or earnings guidance is provided. Management expects SPOT and Commercial IoT equipment sales to continue increasing year over year as products return to ordinary production levels.
- Globalstar expects 17 replacement satellites under its $327 million MDA procurement agreement to be delivered by 2025 and launched by the end of 2025. The Company expects to fund the remaining satellite costs from operating cash flows, alongside Partner funding of up to $252 million for specified costs.
- Partner represented 49% of first-half 2023 revenue, versus 22% in the comparable 2022 period; no other customer exceeded 10%. The Service Agreements require allocating 85% of current and future network capacity to the Services and include service, resource and liquidity commitments.
- Funding agreements require a minimum cash balance of $30 million and impose financial and other covenants. Partner funding is expected to be recouped from future service payments, beginning no later than Q3 2025 for the 2023 agreement. The Company also must use best efforts to obtain a standby letter of credit by December 31, 2023, subject to the agreement’s terms.
- The 13% notes are senior unsecured obligations, with a stated 4% cash interest component and 9% payable in cash or in kind under the indenture; the Company’s agreement with Partner provides for 6.5% cash and 6.5% in-kind interest. Series A preferred dividends are cumulative and create additional cash requirements.
- Thermo’s guarantee of certain 2023 Funding Agreement obligations was approved by shareholders and was expected to become effective in Q3 2023. In connection with it, Globalstar expects to issue Thermo warrants for up to 10 million common shares.
- Management cites risks including satellite construction, launch and continuity, regulatory and spectrum matters, foreign currency movements, and execution of the Service Agreements. It reported no material changes to the risk factors in its 2022 Form 10-K and no legal proceedings in this filing.
Important facts for investors to verify
- Progress, cost, timing and funding of the 17-satellite replacement program, including launch plans and Partner reimbursements.
- Partner concentration, Service Agreement revenue recognition, capacity obligations and the extent to which advances will be recouped from future service fees.
- Debt service, 13% notes’ cash versus in-kind interest, funding-agreement covenants, minimum-liquidity compliance and preferred dividend obligations.
- Whether operating cash flow can support remaining capital spending and scheduled financing obligations without additional funding.
- Subscriber trends, equipment availability and growth in Commercial IoT, as well as the sustainability of wholesale capacity revenue growth.
- Effectiveness and terms of Thermo’s guarantee and associated warrants, and any subsequent changes in financing or regulatory conditions.