Globalstar, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 4, 2021. This is an annual report, not a standalone fourth-quarter financial report. Globalstar provides mobile satellite voice and data services, SPOT products, Commercial IoT connectivity, and engineering services. It reported approximately 745,000 subscribers at year-end and operates a single MSS business segment.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $128.5 million | $131.7 million |
| Service revenue | $113.2 million | $113.4 million |
| Equipment revenue | $15.3 million | $18.3 million |
| Operating expenses | $187.7 million | $195.8 million |
| Operating loss | $59.2 million | $64.0 million |
| Net income (loss) | $(109.6) million | $15.3 million |
| Net cash from operations | $22.2 million | $3.0 million |
| Capital spending / investing cash outflow | $14.5 million | $11.5 million |
Revenue declined about 2.5%. Net results swung to a substantial loss, primarily reflecting the absence of the unusually large 2019 derivative gain ($145.1 million versus $2.9 million in 2020), rather than a comparable change in operating performance. Depreciation, amortization and accretion remained high at $96.8 million. Cash and cash equivalents were $13.3 million; restricted cash was $54.7 million, including $51.1 million pledged to the first-lien debt reserve. Debt principal totaled $423.9 million; its balance-sheet carrying value was $385.4 million. No cash dividends are expected, and debt agreements restrict their payment.
Business trends and material changes
- Duplex service revenue fell 15%, reflecting lower average subscribers and lower ARPU; SPOT service revenue fell 8%, with elevated churn and lower ARPU. Commercial IoT service revenue rose 1%, despite year-end subscriber declines following COVID-related churn.
- Engineering and other service revenue rose to $15.7 million from $2.3 million, including $10.0 million from contract milestones. Equipment sales fell 17%, mainly due to a 45% decline in Commercial IoT equipment sales.
- Operating expenses decreased 4%, led by lower service, equipment, and marketing/general/administrative costs. The company recorded a $0.7 million inventory write-down, including inventory related to discontinuing a second-generation Duplex device.
- Operating cash flow improved to $22.2 million, but was affected by working-capital movements, including higher receivables and lower deferred revenue. Investing cash outflow mainly supported gateway antennas, the billing system, and product development.
- In February 2020, controlling shareholder Thermo converted $137.4 million of debt, including accrued interest, into 200.1 million common shares. The conversion reduced debt but increased the share count.
Outlook, risks and unusual items
- COVID-19 reduced subscriber-equipment demand, particularly among oil and gas customers; the company also reported pricing concessions and collection risks. Management said the extent and duration of the impact remained uncertain.
- Management expected liquidity sources over the following 12 months to be sufficient, but the first-lien agreement required at least $45.0 million of equity proceeds by March 30, 2021. Globalstar expected to meet this requirement primarily through lender warrant exercises, with capital-market access as a potential backstop. Proceeds were intended for scheduled 2021 principal payments.
- The company applied for forgiveness of its $5.0 million PPP loan and expected forgiveness, but noted approval was not assured; any unforgiven balance could require accelerated repayment under lender terms.
- Debt and covenant risks are significant: first- and second-lien facilities had principal balances of $187.0 million and $230.6 million, respectively. The first-lien facility matures in December 2022; the second-lien facility carries 13.5% paid-in-kind interest and matures in November 2025. The company reported covenant compliance at year-end, while warning that failure to maintain compliance could permit lenders to accelerate debt.
- Commercialization of terrestrial spectrum (Band 53/n53) depends on partners, regulatory approvals, device adoption and further ecosystem development. Satellite or gateway failures, spectrum regulation, competition, foreign exchange and tariffs, and dependence on aging ground equipment are additional risks.
- In Q4 2020, Globalstar recognized $2.9 million of previously deferred revenue after terminating a 2007 Nigeria gateway contract due to the partner’s lack of performance; the amount was noncash revenue. It also recorded $0.4 million of long-lived-asset impairments, including the Nicaragua property held for sale.
- The company reported no pending litigation it believed would materially affect its financial condition, results or liquidity. Ernst & Young issued an unqualified audit opinion and an unqualified opinion on internal control over financial reporting.
Investor verification priorities
- Confirm completion and proceeds of the required $45.0 million equity raise, including warrant exercises, and the application of proceeds to debt payments.
- Check PPP loan forgiveness status and any resulting repayment obligation.
- Track covenant compliance, cash generation, debt-service requirements and the availability of unrestricted liquidity; restricted cash is not generally available for operations.
- Assess whether oil and gas demand, equipment sales, subscriber churn and receivable collections recover, and whether ST100 and other products generate expected demand.
- Verify progress in terrestrial spectrum commercialization, partner commitments and regulatory approvals, alongside satellite and gateway operating health.