Globalstar, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Globalstar provides global mobile satellite voice and data services, including Duplex, SPOT and Commercial IoT, using a low-Earth-orbit satellite constellation and ground network.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $131.7 million | $130.1 million |
| Operating loss | $64.0 million | $47.4 million |
| Net income (loss) | $15.3 million | ($6.5 million) |
| Net cash from operating activities | $3.0 million | $5.9 million |
| Cash and cash equivalents at year-end | $7.6 million | $15.2 million |
| Restricted cash at year-end | $51.5 million | $60.3 million |
| Debt principal at year-end | $528.4 million | $510.5 million |
Revenue was 85% service and 15% equipment sales. Service revenue reported in the financial statements was $113.4 million; equipment revenue was $18.3 million. The company recorded a $3.9 million out-of-period ASC 606 adjustment that increased 2019 service revenue. Excluding that adjustment, management said revenue decreased $2.3 million from 2018.
Service trends were mixed: Commercial IoT service revenue rose 26% to $17.0 million, while SPOT revenue fell 4% to $50.5 million and Duplex revenue, excluding the accounting adjustment, declined 3%. Average subscribers increased to approximately 766,000 from 744,000, primarily reflecting Commercial IoT growth; Duplex and SPOT average subscriber counts declined.
Operating expenses increased to $195.8 million, and the operating loss widened. Comparability was affected by a $20.5 million 2018 reduction in expenses when the Thales contract termination liability was removed. Depreciation, amortization and accretion rose to $95.8 million. Net income included a $145.1 million noncash derivative gain, largely related to the expected conversion of Thermo debt; it should not be read as evidence of improved underlying operating profitability. Basic EPS was $0.01, while diluted EPS was a loss of $0.07, reflecting the accounting effect of assumed conversions.
Operating cash flow was positive but declined year over year; investing activities used $11.5 million and financing activities used $7.9 million. The filing does not provide a clear standalone gross-margin measure.
Material changes, financing and liquidity
- In November 2019, Globalstar amended its senior Facility Agreement and obtained a $199.0 million second-lien term loan, carrying a blended 13.5% paid-in-kind interest rate. The financing repaid a $62.0 million subordinated loan and funded a $151.6 million prepayment of senior debt.
- The senior Facility Agreement was extended to December 2022, with a revised payment schedule and a final scheduled payment of $109.5 million at maturity. It bears floating interest at LIBOR plus 4.25% at year-end, rising under the agreement to a maximum margin of 5.75%.
- Debt principal was $528.4 million; its balance-sheet carrying value, net of discounts and financing costs, was $464.2 million. The $51.5 million restricted-cash reserve is pledged for debt service and is not generally available for operations. Unrestricted cash was $7.6 million.
- The senior agreement requires at least $45 million of equity proceeds by March 31, 2021, primarily through cash exercise of warrants, to be applied to scheduled principal. Both debt facilities impose financial and operational covenants; the company reported compliance at December 31, 2019.
- On February 19, 2020, Thermo converted its $135.1 million principal balance under its loan agreement into 200.1 million common shares. This subsequent event reduced debt but increased share count and Thermo’s ownership.
Outlook, risks and unusual items
- No quantified revenue, earnings or cash-flow guidance is provided. Management describes development initiatives in Commercial IoT, automotive connectivity and Sat-Fi derivatives, and is pursuing terrestrial broadband use of licensed spectrum. Commercial success depends on regulatory approvals, partners, equipment certification and market adoption.
- In February 2020, Globalstar signed a conditional agreement with a potential customer to assess a service using company assets and capacity. Material payments or obligations depend on technical milestones; the customer may terminate at its discretion. The filing does not establish a committed commercial launch or material revenue stream.
- Key risks include satellite or gateway outages, aging infrastructure and the cost and timing of satellite replacement; substantial leverage, high interest costs and covenant constraints; limited liquidity and dependence on future financing; competition and uncertain demand; and regulatory, spectrum, foreign-currency and international operating risks.
- A U.S. Customs ruling applied a 25% tariff to certain China-imported products. Globalstar recorded $1.2 million of tariff expense and an approximately $1.8 million payable, and plans to protest the classification; a favorable outcome is not assured.
- Other notable items included a $1.1 million impairment for a former Nicaragua gateway classified as held for sale, and a $1.7 million insurance-recovery gain related to settled shareholder litigation. A Brazil investigation concerning certain employees followed a gateway licensing matter; the outcome was uncertain. Management stated it believed other pending matters would not materially affect financial condition, results or liquidity.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor gave an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Underlying revenue and subscriber trends after separating the $3.9 million ASC 606 adjustment, particularly Duplex and SPOT churn versus Commercial IoT growth.
- Cash available for operations versus restricted debt-service reserves, and the company’s ability to meet operating needs, debt service and the $45 million equity requirement by March 2021.
- Debt terms, covenant headroom, variable-rate exposure and the economics and dilution associated with the second-lien warrants and Thermo conversion.
- Whether satellite and ground-network capacity remains reliable and whether planned terrestrial-spectrum and product initiatives secure approvals, partners and paying customers.
- Resolution of the tariff protest and Brazil regulatory investigation, and any resulting cash, cost or operating impacts.