Globalstar, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Globalstar provides mobile satellite voice and data services, including SPOT and Commercial IoT. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $30.3 | $30.4 | $57.2 | $62.6 |
| Operating loss | $(16.0) | $(15.4) | $(35.3) | $(29.5) |
| Net loss | $(21.4) | $(24.7) | $(57.8) | $(63.0) |
| Net loss per share, basic and diluted | $(0.01) | $(0.01) | $(0.03) | $(0.04) |
| Operating cash flow | Not separately stated for quarter | $55.9 | $8.9 |
- Revenue mix: Q2 service revenue was $25.6 million and equipment sales were $4.7 million. First-half service revenue fell 13% to $48.7 million, while equipment sales rose 30% to $8.5 million.
- Expenses and margins: Operating expenses were $46.3 million in Q2 and $92.5 million for the first half. The filing does not present a headline operating margin; operating losses widened year over year in both periods.
- Cash and liquidity: At June 30, cash and cash equivalents were $15.7 million and restricted cash was $51.0 million. Current assets were $71.9 million versus current liabilities of $60.6 million. The restricted funds are pledged toward the First Lien Facility’s December 2022 maturity and are not ordinary operating cash.
- Debt: Debt carrying value was $313.4 million ($345.7 million principal), down from $385.4 million at year-end 2020. No debt was classified as current at June 30. First Lien principal was $97.8 million, scheduled to mature in December 2022; Second Lien principal was $246.5 million, with a November 2025 maturity and 13.5% blended paid-in-kind interest. The First Lien rate was LIBOR plus 5.25%.
- Cash flow context: First-half operating cash flow included $51.6 million of customer prepayments recorded as deferred revenue. Investing cash flow was $(12.0) million and financing cash flow was $(45.2) million. Cash, cash equivalents and restricted cash together declined $1.3 million to $66.7 million.
Material changes versus prior periods
- Q2 revenue was nearly flat, but first-half revenue fell $5.4 million, mainly reflecting lower Duplex, SPOT and engineering revenue. First-half engineering and other revenue declined $3.8 million, primarily due to contract milestone timing.
- Duplex service revenue fell 15% in Q2 and 14% in the first half, mainly as average subscribers declined. SPOT service revenue fell 4% and 7%, respectively, reflecting lower ARPU; Commercial IoT service revenue rose 5% and 4% as ARPU increased.
- Subscriber equipment sales grew, led by SPOT and Commercial IoT devices. The company recorded a $0.8 million inventory write-down, including Sat-Fi2 materials and defective units.
- First-half net loss improved by $5.2 million, but operating loss increased by $5.8 million. Lower interest expense and improved foreign currency results helped reported net loss; derivative losses partly offset these benefits.
- Operating cash flow rose sharply, principally because of customer advances—not a comparable increase in recurring operating performance. The $37.5 million June advance was used to prepay First Lien debt and is expected to be repaid through services, with any unrepaid portion payable in cash over time.
Outlook, commentary, risks and unusual items
- Management said it expects available liquidity to cover obligations over the next twelve months. The filing gives no specific revenue, earnings or cash-flow guidance.
- Management described recovery in Commercial IoT demand: gross activations increased in consecutive quarters from Q4 2020, and first-half churn was 20% lower than in 2020. SPOT churn had recently stabilized, although lower-priced plans are expected to continue weighing on ARPU.
- The company has temporarily ceased sales and service for certain Duplex devices, including Sat-Fi2, while assessing profitability and network capacity. It is developing a two-way reference design module to expand Commercial IoT offerings.
- The SBA forgave the PPP loan in June. A $5.0 million forgiveness gain was offset by a $2.3 million write-off of First Lien financing costs, leaving a reported $2.7 million gain on extinguishment of debt for Q2 and the first half.
- Globalstar received $43.7 million from warrant exercises in Q1, completing the lenders’ warrant exercises and meeting a required equity-raising condition. The exercises increased common shares outstanding; 1.793 billion shares were outstanding at June 30.
- The company reported compliance with debt covenants at June 30. In August 2021, after quarter-end, senior lenders waived and increased permitted capital expenditure limits. Failure to meet covenants without a cure or waiver could permit acceleration of debt.
- Key risks cited include COVID-19 effects on demand, customer payment capacity and supply chains; execution and acceptance of new products; satellite and gateway performance; spectrum regulation and monetization; foreign currency movements; and refinancing or repayment of debt. The company reported no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- How much of the customer advances will be earned through services versus repaid in cash, and whether future advances are available under the agreement.
- The company’s ability to fund the $97.8 million First Lien maturity in December 2022, including the availability and permitted use of the $51.0 million restricted reserve.
- Whether recurring operating cash flow improves when customer prepayments and working-capital timing effects are excluded.
- Whether Commercial IoT subscriber trends and SPOT activations translate into sustainable service revenue and ARPU, while Duplex subscriber declines continue.
- The effects of the 13.5% paid-in-kind Second Lien debt and variable-rate First Lien borrowing on future principal balances and interest costs.
- Whether gateway expansion, spectrum initiatives and new product development require capital spending beyond current covenant limits or liquidity assumptions.