Globalstar, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Globalstar provides global mobile satellite services (MSS), including Duplex, SPOT, Commercial IoT and engineering services. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $36.8 million | $30.3 million | $69.6 million | $57.2 million |
| Operating loss | $11.4 million | $16.0 million | $25.1 million | $35.3 million |
| Net loss | $26.8 million | $21.4 million | $47.2 million | $57.8 million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $20.8 million | $55.9 million |
| Cash and cash equivalents | $13.1 million at June 30, 2022 | — | $13.1 million at June 30, 2022 | — |
Q2 operating margin was approximately negative 31%, compared with negative 53% a year earlier; first-half operating margin was approximately negative 36%, compared with negative 62%. The company remained loss-making. Q2 net loss increased despite revenue growth, principally reflecting a $7.1 million foreign-currency loss, versus a $4.4 million gain in Q2 2021.
Revenue and operating trends
- Q2 service revenue rose 29% to $33.0 million; equipment sales fell 20% to $3.8 million. First-half total revenue increased 22% to $69.6 million.
- Engineering and other service revenue increased to $9.5 million in Q2 from $2.7 million, and to $16.8 million for the first half from $3.7 million. The increase primarily reflects work and performance obligations under the Terms Agreement; related revenue included $8.8 million in Q2 and $15.7 million for the first half.
- Subscriber-driven trends were mixed: SPOT and Commercial IoT service revenue grew, while Duplex service revenue declined. Management attributed Duplex weakness to fewer subscribers and expects that decline to continue as investment shifts toward IoT.
- Equipment sales were constrained by component shortages and back orders. Globalstar expected production issues affecting key SPOT and Commercial IoT products to be resolved in Q3 2022; this is an expectation, not a reported outcome.
- Operating expenses were $48.2 million in Q2, up from $46.3 million. A $0.5 million write-off of spectrum licensing work in progress was recorded in Q2. First-half operating cash flow fell year over year, partly because the prior-year period included $51.6 million of customer prepayments under the Terms Agreement.
Financial position, debt and liquidity
- At June 30, 2022, current assets were $69.7 million and current liabilities were $140.0 million, including $73.6 million of vendor financing due in August 2022. Cash was $13.1 million.
- Long-term debt had a carrying value of $257.5 million; principal outstanding was $282.0 million, including payment-in-kind interest. The 2019 Facility Agreement carries a blended 13.5% annual rate, generally paid in kind, and matures in November 2025. Globalstar reported a $6.0 million mandatory excess-cash-flow prepayment expected in August 2022.
- The company said it intended to seek an extension of the satellite vendor payment deadline and was pursuing new debt financing for satellite construction and launch costs. It stated that, with this financing, expected liquidity sources should cover obligations over the next twelve months; financing had not yet been arranged in the reported filing.
- First-half investing cash outflow was $22.4 million, mainly for network upgrades and the spare satellite launch. First-half financing cash flow was $0.4 million.
- Globalstar agreed to acquire 17 replacement satellites for $327 million, with delivery expected by 2025 and launches planned by year-end 2025. The Terms Agreement counterparty is required, subject to conditions, to reimburse 95% of capital expenditures and certain related costs. A June 2022 launch placed the company’s on-ground spare satellite into orbit as a spare.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance was provided. Management described its liquidity outlook as dependent in part on obtaining new financing and addressing the vendor financing maturity.
- Key disclosed risks include financing availability, high debt costs, foreign-currency exposure, supply-chain constraints, macroeconomic and geopolitical uncertainty, and execution of the satellite replacement and gateway upgrade programs. The company had disconnected service through Russian independent gateways following Russia’s invasion of Ukraine, removing approximately 25,000 subscribers from its count.
- Other notable items include Q2 foreign-currency loss of $7.1 million, first-half loss of $3.9 million, and a $0.5 million long-lived-asset write-off. The company also reported a capital-expenditure covenant issue under the 2019 facility; lenders provided a waiver in August 2022 increasing permitted 2022 capital expenditures.
- Management reported effective disclosure controls as of June 30, 2022. A new ERP system was implemented in Q1; management said the transition did not materially adversely affect internal control over financial reporting.
Important facts for investors to verify
- Whether Globalstar obtained financing or an extension for the $73.6 million vendor balance due in August 2022, and the terms and cost of any financing.
- Whether the expected $6.0 million debt prepayment was made and whether the August 2022 capital-expenditure waiver adequately addressed covenant requirements.
- Actual satellite procurement, launch and gateway-upgrade spending, reimbursement timing under the Terms Agreement, and any conditions attached to the 95% reimbursement commitment.
- Whether component shortages and back orders improved as management expected, and how these affected subscriber additions, equipment revenue and cash generation.
- Revenue composition and concentration: how much future growth depends on Terms Agreement engineering revenue versus recurring subscriber services, and whether SPOT and Commercial IoT growth offsets ongoing Duplex declines.