Globalstar, Inc. 10-Q Summary: Period Ended June 30, 2012
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Globalstar, Inc., a provider of mobile voice and data communications via satellite, for the period ended June 30, 2012. The company is in the process of deploying a second-generation satellite constellation to replace its aging first-generation system. As of June 30, 2012, the company served approximately 530,000 subscribers, a 17% increase from the prior year. The company faces significant liquidity constraints and is actively seeking additional financing to complete satellite launches and meet contractual obligations.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 |
|---|---|---|
| Total Revenue | $19,981 | $36,719 |
| Net Loss | $(27,533) | $(52,058) |
| Loss Per Share (Basic/Diluted) | $(0.07) | $(0.14) |
| Operating Cash Flow | N/A | $1,808 |
| Cash and Cash Equivalents | $4,820 | $4,820 |
| Total Debt (Principal) | $794,207 | $794,207 |
| Current Ratio | 0.38x | 0.38x |
Note: Operating cash flow for the three-month period is not explicitly provided in the summary tables, but the six-month figure shows a positive flow of $1.8 million.
Material Changes vs. Prior Period
- Revenue: Total revenue increased 5% year-over-year for the quarter ($19.98M vs. $19.00M) but decreased 1% for the six-month period ($36.72M vs. $37.25M). Growth in SPOT and Simplex service revenues was offset by a decline in Duplex service revenue due to ongoing two-way communication issues with the first-generation constellation.
- Operating Expenses: Expenses surged 77% for the quarter and 42% for the six months. This increase is primarily driven by two non-recurring items: a $22.0 million contract termination charge related to a settlement with Thales regarding satellite construction, and a $7.1 million impairment charge on first-generation assets.
- Net Loss: The net loss widened significantly to $27.5 million for the quarter and $52.1 million for the six months, compared to $14.1 million and $20.5 million in the prior year periods, respectively.
- Liquidity: Cash and cash equivalents decreased from $9.95 million at year-end 2011 to $4.82 million at June 30, 2012. The company drew $23.0 million from its contingent equity account during the six-month period.
Guidance, Outlook, and Risks
- Management Plan: The company is executing a plan to reduce operating expenses, launch the remaining six second-generation satellites in late 2012, and secure additional financing. Management expects improved cash flows once the new constellation is fully operational.
- Liquidity Risk: The company explicitly states it does not have sufficient cash on hand or cash flows from operations to meet contractual obligations over the next 12 months without additional external financing. It is seeking amendments to its Facility Agreement and other debt obligations.
- Contractual Disputes: The company settled a dispute with Thales regarding Phase 3 satellites, agreeing to a termination charge and a new contract for six additional satellites. It also faces potential default risks with Arianespace regarding launch payments and has deferred payments to Hughes and Ericsson for ground infrastructure.
- Covenant Compliance: Due to launch delays, the company expects it may not be in compliance with certain financial covenants in its Facility Agreement and is seeking waivers or amendments. Failure to comply could trigger an event of default and acceleration of debt.
- Derivative Gains: The company recorded significant derivative gains ($20.4M for the quarter) primarily due to decreases in its stock price, which reduced the fair value of certain warrant liabilities.
Key Facts for Investor Verification
- Financing Status: Verify the status of negotiations for additional external financing and amendments to the Facility Agreement, as the company's ability to continue operations depends on these.
- Satellite Launch Schedule: Confirm the timeline for the launch of the remaining six second-generation satellites, as this is critical to resolving Duplex service issues and improving revenue.
- Contractual Obligations: Review the terms of the deferred payment agreements with Hughes and Ericsson and the potential termination costs associated with these contracts.
- Debt Covenants: Monitor the company's ability to meet or obtain waivers for the financial covenants in its Facility Agreement to avoid an event of default.
- Inventory Levels: Assess the $41.2 million inventory balance, a significant portion of which consists of Duplex products that may be difficult to sell until the new satellite constellation is fully operational.