Globalstar, Inc. 10-Q Summary: Period Ended June 30, 2011
Business Context and Reporting Period
This report covers the quarterly and six-month periods ended June 30, 2011. Globalstar, Inc. is a provider of mobile voice and data communications via satellite. The company is currently transitioning from a deteriorating first-generation constellation to a second-generation constellation of 24 satellites. As of the reporting date, 12 of the 24 second-generation satellites had been launched, with two remaining launches scheduled for late 2011. The company serves approximately 454,000 subscribers globally.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 6/30/11 | 6 Months Ended 6/30/11 | 6 Months Ended 6/30/10 |
|---|---|---|---|
| Total Revenues | $18,999 | $37,253 | $33,193 |
| Net Loss | $(14,068) | $(20,534) | $(54,891) |
| Loss Per Share (Basic/Diluted) | $(0.05) | $(0.07) | $(0.20) |
| Operating Cash Flow | N/A | $(5,485) | $(6,232) |
| Investing Cash Flow | N/A | $(65,228) | $(130,777) |
| Financing Cash Flow | N/A | $61,454 | $155,409 |
| Cash and Equivalents (End of Period) | $24,088 | $24,088 | $87,188 |
| Total Debt (Long-term + Current) | $706,966 | $706,966 | $664,543 |
Note: Margins are not explicitly calculated in the filing due to operating losses; however, operating expenses exceeded revenues by $16.8 million for the quarter and $29.6 million for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 8% ($1.4M) for the quarter and 12% ($4.1M) for the six months compared to the prior year. This was driven by higher Simplex equipment sales and growth in SPOT and Simplex service subscribers.
- Improved Net Loss: The net loss narrowed significantly to $20.5 million for the six months ended June 30, 2011, compared to $54.9 million in the same period in 2010. This improvement was largely due to a $43.3 million swing in derivative gains/losses (from a $33M loss to a $10.3M gain) driven by decreases in the company's stock price.
- Expense Increases: Operating expenses rose 32% year-over-year for the six-month period, primarily due to a 97% increase in depreciation, amortization, and accretion ($23.4M vs $11.9M) as new second-generation satellites came into service.
- Subscriber Trends: Total subscribers increased 10% year-over-year. SPOT subscribers grew 42%, while Duplex subscribers declined 5% due to ongoing two-way communication issues with the aging first-generation constellation.
Guidance, Outlook, and Risks
- Liquidity Warning: Management explicitly states that based on currently available cash and financing commitments, the company does not have sufficient liquidity to meet existing contractual obligations and funding requirements over the next twelve months. Additional financing is required.
- Capital Expenditures: The company plans to complete the launch of the remaining 12 second-generation satellites by the end of 2011. Estimated future capital expenditures for the 24-satellite constellation total approximately $931 million, with $48 million expected in the remainder of 2011.
- Regulatory Risk: The company requires a conditional permanent U.S. license to be in full force by August 31, 2011, to comply with its Facility Agreement. This depends on satellite registration by France. Failure to obtain this license constitutes an event of default.
- Technical Risks: One second-generation satellite launched in October 2010 is in "safe hold" mode due to momentum wheel anomalies and is not providing service. Another satellite has a similar anomaly but remains operational. Failure to resolve these issues could result in impairment charges.
- Contractual Disputes: The company is in arbitration with Thales Alenia Space regarding the price and quantity of additional satellites. Thales is seeking termination charges of €60.5 million.
- Financing Activity: In June 2011, the company raised $38 million through the sale of 5.0% Convertible Senior Notes. Investors have the right to purchase an additional $12 million of notes by September 15, 2011.
Investor Verification Checklist
- Liquidity Runway: Verify the status of the $60 million contingent equity account and the timeline for securing the additional financing required to meet the 12-month funding gap.
- License Status: Confirm whether the conditional permanent U.S. license was obtained by the August 31, 2011 deadline to avoid an event of default under the Facility Agreement.
- Satellite Anomalies: Monitor updates on the "safe hold" satellite and the resolution of momentum wheel issues to assess potential impairment charges.
- Thales Arbitration: Track the outcome of the arbitration regarding additional satellite procurement and potential termination charges.
- Contractual Payments: Review the status of negotiations with Hughes and Oceus regarding deferred milestone payments and potential contract modifications.