Globalstar, Inc. 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Globalstar, Inc., a provider of mobile voice and data communications services via satellite. The report covers the three and six-month periods ended June 30, 2009. The company operates in a single segment and serves commercial, recreational, and government users in over 120 countries. The reporting period is characterized by significant capital restructuring, including the conversion of substantial debt to equity and the establishment of a new $586.3 million senior secured facility to fund the deployment of a second-generation satellite constellation.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenue | $15,716 | $30,879 |
| Operating Loss | $(12,601) | $(30,242) |
| Net Loss | $(13,762) | $(35,520) |
| Loss Per Share (Basic & Diluted) | $(0.10) | $(0.27) |
| Cash and Cash Equivalents (End of Period) | $16,037 | $16,037 |
| Net Cash from Operating Activities | N/A | $13,068 |
| Total Debt (Current + Long Term) | $151,000 | $151,000 |
Note: Total debt excludes the $180.2 million converted to Series A Preferred Stock in June 2009. The balance sheet reflects a working capital deficit of approximately $111.8 million ($104.7M current assets vs. $216.5M current liabilities).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 32% year-over-year for the six months ended June 30, 2009 ($30.9M vs. $45.1M). Service revenue dropped 28% and subscriber equipment sales dropped 42%. Management attributes this to price reductions necessitated by two-way communication issues caused by satellite S-band antenna degradation.
- Subscriber Growth vs. ARPU: While the total subscriber base increased 18% to approximately 371,000 (driven by Simplex/SPOT product growth), the Average Revenue Per Unit (ARPU) for retail customers fell 36% to $24.44 due to pricing pressure.
- Operating Loss Expansion: Operating loss increased 28% to $30.2 million for the six-month period, primarily due to lower revenues, partially offset by cost-cutting measures that reduced operating expenses by 11%.
- Debt Restructuring: In June 2009, the company converted approximately $180.2 million of secured debt owed to Thermo Funding into one share of Series A Convertible Preferred Stock. Additionally, the company issued $55 million in 8.00% Convertible Senior Unsecured Notes.
Guidance, Outlook, and Risks
Outlook and Capital Plan: The company is heavily focused on deploying its second-generation satellite constellation, with an estimated total capital expenditure of $1.29 billion through 2013. Funding is secured via a new $586.3 million Facility Agreement (95% guaranteed by COFACE), the 8.00% Notes, and a $60 million contingent equity facility with Thermo Funding. The first launches of the new constellation are targeted for 2010.
Management Commentary: Management emphasizes that the current satellite constellation is aging and suffering from S-band amplifier degradation, which limits two-way service availability. The company is relying on the growth of its Simplex (one-way) SPOT satellite messenger products to maintain revenue while the new constellation is built.
Risks and Contingencies:
- Satellite Health: Continued degradation of the first-generation constellation threatens two-way service reliability and revenue.
- Liquidity: The company faces significant capital expenditure requirements and restrictive covenants under the new Facility Agreement, including minimum EBITDA and debt service coverage ratios.
- Legal Proceedings: Ongoing litigation includes an IPO securities class action (settled in principle), a consumer class action regarding service quality, and patent infringement suits from Sorensen Research and YMax Communications.
- Regulatory: Risks related to FCC spectrum sharing decisions and the successful integration of Ancillary Terrestrial Component (ATC) services.
Key Facts for Investor Verification
- Debt Conversion Impact: Verify the accounting treatment and dilution impact of the $180.2 million debt-to-equity swap and the issuance of the Series A Preferred Stock.
- Facility Agreement Covenants: Review the specific financial covenants (EBITDA, liquidity, debt service coverage) in the new $586.3 million Facility Agreement and the company's current compliance status.
- Capital Expenditure Schedule: Confirm the timeline and funding sources for the remaining $1.29 billion required to complete the second-generation satellite constellation.
- SPOT Product Trajectory: Assess the growth rate and profitability of the SPOT Simplex product line as a counterbalance to declining two-way service revenue.
- Legal Settlements: Monitor the finalization of the IPO securities litigation settlement and the status of patent infringement claims.