Globalstar, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; compared with Q1 2019. Globalstar provides mobile satellite voice and data services, equipment, and related engineering services. Financial statements are unaudited.
Financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $32.2 million | $30.1 million |
| Operating loss | $14.1 million | $18.3 million |
| Net income (loss) | $(38.2) million | $25.8 million |
| Operating cash flow | $4.6 million | $1.3 million |
| Investing cash flow | $(1.6) million | $(2.3) million |
| Cash, cash equivalents and restricted cash at period end | $61.6 million | $74.3 million |
Revenue rose 7%, led by engineering and other service revenue, which increased $4.2 million and included $4.0 million from completed contract milestones. Commercial IoT service revenue increased 17%; Duplex and SPOT service revenue declined. Equipment sales fell 18% to $3.3 million. Operating expenses decreased 4% to $46.3 million. The reported operating loss improved, but net results swung to a loss largely because Q1 2019 included a $57.0 million derivative gain, versus a $0.8 million derivative loss in Q1 2020, and Q1 2020 included a $9.0 million foreign-currency loss.
Net loss per common share was $(0.02) basic and diluted in Q1 2020. The filing reports Q1 2019 basic earnings per share of $0.02 and diluted loss per share of $(0.02), reflecting its diluted EPS calculation.
Debt, liquidity and capital
- Long-term debt carrying value was $356.0 million at March 31, down from $464.2 million at year-end. The principal balance was $399.9 million; there was no current portion reported.
- The reduction primarily reflects Thermo’s February conversion of $137.4 million principal into 200.1 million common shares. Shares outstanding increased from 1.465 billion at December 31 to 1.668 billion at March 31.
- Cash and cash equivalents were $10.5 million; restricted cash was $51.1 million, pledged to the first-lien facility’s debt-service reserve and generally reserved for its December 2022 maturity payment.
- Management said it expected liquidity to cover obligations and expected covenant compliance over the next 12 months. The first-lien agreement requires at least $45 million of equity proceeds by March 31, 2021, expected by the company from warrant exercises; if proceeds are insufficient, additional funding may be needed.
- In April 2020, after quarter-end, Globalstar received a $5 million CARES Act payroll-protection loan. The company expects to seek forgiveness; any unforgiven amount carries 1% interest and repayment terms, and lenders can require accelerated repayment.
Outlook, risks and unusual items
- COVID-19 had not materially affected reported Q1 results overall, but the company reported lower equipment demand, customer requests for pricing concessions, and collection concerns, particularly among retail and oil-and-gas customers. It expected those pressures could continue; the duration and total impact were uncertain.
- COVID-19 risks include weaker demand and subscriber activations, customer payment difficulties, supply-chain disruption (with significant sourcing in China), remote operations, and delays in international regulatory work. Management’s projections assumed temporary operating cash-flow reductions; it reported no impairment indicator and expected covenant compliance, while noting substantial uncertainty.
- Management described Commercial IoT subscriber and ARPU growth, but anticipated COVID-related pricing pressure for some oil-and-gas customers. Average subscribers were 768,893 versus 761,461; Commercial IoT subscribers grew while Duplex and SPOT subscriber counts declined.
- Other notable items included $0.2 million of equipment tariffs in Q1, a $1.7 million opening-equity reduction from adopting the expected-credit-loss standard, and $5.3 million of positive foreign-currency translation in other comprehensive income.
- The company reported compliance with its debt covenants at March 31, no material off-balance-sheet transactions, and no legal proceedings. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19 demand, pricing concessions, receivable collections and China-related supply constraints worsen or persist.
- Whether the company generates the required $45 million of equity proceeds by March 31, 2021, including whether warrants are exercised at the $0.38 strike price.
- Whether covenant compliance and liquidity remain adequate as operating conditions change, and whether the $5 million payroll-protection loan is forgiven.
- How much future revenue depends on non-recurring engineering milestones, and whether recurring service growth can offset Duplex and SPOT declines.
- Changes in debt costs and foreign-exchange exposure; the filing estimates a 1% interest-rate change would alter annual interest expense by approximately $1.9 million.