Globalstar, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Globalstar provides mobile satellite services (MSS), including voice, data, IoT and wholesale network capacity; MSS is its sole reportable segment. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $37.6 million | $32.6 million | $107.2 million | $89.8 million |
| Operating loss | $186.6 million | $14.7 million | $211.7 million | $50.0 million |
| Net loss | $204.4 million | $30.9 million | $251.6 million | $88.7 million |
| Net loss per share, basic and diluted | $0.11 | $0.02 | $0.14 | $0.05 |
| Operating cash flow | Not separately presented for the quarter | $31.7 million | $107.2 million |
Revenue growth was led by wholesale capacity services, which rose to $7.0 million in Q3 from $1.3 million, and by Commercial IoT subscriber services. For the nine-month period, wholesale capacity revenue was $22.6 million versus $4.0 million. Equipment sales fell to $4.3 million in Q3 from $4.8 million; service revenue increased to $33.3 million from $27.8 million.
Q3 operating expenses included a $166.0 million reduction in long-lived asset value and an $8.5 million inventory write-down, primarily following Globalstar’s decision to discontinue second-generation Duplex products and services. These unusual charges drove most of the deterioration in operating and net results. Other Q3 items included a $9.4 million foreign-currency loss and a $1.5 million pension settlement loss. The filing does not provide a clear normalized profit or margin measure excluding these items.
For the first nine months, operating cash flow was $31.7 million, down from $107.2 million. Management attributed the decline mainly to unfavorable working-capital movements; the prior-year period benefited from $95.5 million of customer prepayments under the Service Agreements. Investing cash outflow was $25.3 million and financing cash outflow was $5.9 million. Cash and cash equivalents were $14.7 million at September 30, 2022.
At quarter-end, current assets were $66.0 million and current liabilities were $146.9 million, including $63.8 million of current vendor financing. Debt and vendor financing had a combined carrying value of $325.9 million, compared with $237.9 million at December 31, 2021. The 2019 Facility Agreement had $285.3 million principal outstanding and a 13.5% blended annual interest rate, generally paid in kind. Globalstar reported covenant compliance. Stockholders’ equity was $135.6 million.
Material developments and outlook
- Apple announced satellite-enabled services for certain products on September 7, 2022. Globalstar expected the service launch in Q4 2022 and reported completion of major network upgrades, 10 new gateways and system testing. The Service Agreements require Globalstar to allocate 85% of current and future network capacity to the services and provide priority access and other resources.
- Globalstar expects partner payments to include recurring service fees and reimbursement for certain operating and capital costs. Subject to conditions, the partner is to reimburse 95% of qualifying costs for the new satellite procurement. The agreements also require refinancing of all 2019 Facility Agreement loans around service commencement.
- Globalstar agreed to acquire 17 replacement satellites from MDA for $327.0 million; delivery is expected by 2025 and launches by the end of 2025. As of September 30, $63.8 million was recorded as vendor financing. An October 28 amendment, after quarter-end, provided for two $7.0 million payments, 7% interest on outstanding amounts, and payment of the remaining balance in December 2022. One $7.0 million payment was made October 31.
- Management said it was pursuing additional debt financing for satellite construction and launch costs, targeting completion in Q4 2022. The company must maintain at least $10.0 million of liquidity under the Service Agreements and expected its liquidity sources, including financing not yet arranged, to cover obligations over the following 12 months.
- Globalstar discontinued second-generation Duplex services and wrote down related assets; it plans to continue first-generation Duplex service. Management expects continued decline in Duplex subscribers as it shifts investment toward IoT. SPOT and Commercial IoT product demand was affected by component shortages and back orders; management reported production improvement but ongoing supply constraints.
- Globalstar reported approximately 762,000 subscribers at September 30. Commercial IoT and SPOT subscriber bases grew year over year, while Duplex subscribers declined. Approximately 25,000 subscribers using Russian gateways were removed from the count in Q1 2022 after service was disconnected following Russia’s invasion of Ukraine.
- Principal risks include whether the Service Launch occurs and generates expected revenue, the ability to meet contractual obligations and secure required financing, higher borrowing costs and restricted capital-market access, supply-chain disruption, and macroeconomic and geopolitical uncertainty. The filing reported no legal proceedings and no material off-balance-sheet transactions. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the partner service launched as expected and the timing, conditions and actual cash/revenue economics of Service Agreement payments.
- Whether Globalstar secured the required satellite-construction financing and refinanced the 2019 Facility Agreement; confirm the status and terms of the MDA vendor balance and related payments.
- Cash availability and compliance with the $10.0 million minimum liquidity requirement, given $14.7 million of quarter-end cash and substantial current liabilities.
- Actual cost, delivery and launch schedule for the 17 satellites, and the partner’s reimbursement obligations and conditions.
- Whether supply constraints eased, product back orders were fulfilled, and IoT subscriber growth and service revenue continued.
- The effect of the Duplex asset and inventory impairments on future operating capacity, expenses and cash flows, and whether any further impairments are required.