Globalstar, Inc. 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 2009. Globalstar, Inc. is a provider of mobile voice and data communications via satellite, serving over 120 countries. The company operates a network of 44 in-orbit satellites and 27 ground stations (gateways). The business is currently transitioning from a first-generation constellation suffering from S-band antenna degradation to a second-generation constellation, with launches scheduled to begin in late 2010. The company focuses on two-way (duplex) voice/data services and one-way (Simplex) data services, including the SPOT satellite GPS messenger.
Key Financial Metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total Revenue | $64.3 million | $86.1 million | (25%) |
| Service Revenue | $50.2 million | $61.8 million | (19%) |
| Subscriber Equipment Sales | $14.1 million | $24.3 million | (42%) |
| Operating Loss | $(53.8) million | $(57.7) million | Improvement |
| Net Loss | $(74.9) million | $(15.2) million | (394%) |
| Long-Term Debt | $463.6 million | $238.3 million | +94% |
| Cash and Cash Equivalents | $67.9 million | $12.4 million | +448% |
| Subscribers (Ending) | 391,000 | 344,000 | +13% |
| Retail ARPU (Monthly) | $25.22 | $35.19 | (28%) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue dropped 25% primarily due to reduced service revenue and equipment sales. Service revenue fell despite a 13% increase in total subscribers, driven by a 28% decrease in Retail Average Revenue Per Unit (ARPU) as the company lowered prices to retain customers amidst service degradation.
- Net Loss Expansion: The net loss widened significantly to $74.9 million from $15.2 million. This was largely due to a $49.0 million gain on debt extinguishment recorded in 2008 that did not recur, combined with a $15.6 million derivative loss in 2009 (vs. $3.3 million in 2008) and lower operating income.
- Debt Increase: Long-term debt increased by $193.9 million to $465.8 million. This resulted from entering a new $586.3 million Facility Agreement in June 2009 to fund the second-generation satellite constellation and issuing $55 million in 8.00% Convertible Senior Notes.
- Acquisition: In December 2009, Globalstar acquired assets of Axonn L.L.C. (provider of Simplex products) for $1.5 million in cash and $5.5 million in stock, with potential earn-out payments up to $10.8 million.
Guidance, Outlook, and Risks
- Second-Generation Constellation: The company expects the first of four launches for its second-generation satellites to occur in late summer 2010, with completion by mid-2011. These satellites are critical to restoring full two-way service capabilities. A major earthquake in Italy in April 2009 delayed satellite delivery, but management believes this will not materially adversely affect operations.
- ATC Strategy: Globalstar is pursuing Ancillary Terrestrial Component (ATC) services to integrate satellite and terrestrial networks. It has an agreement with Open Range Communications to deploy WiMAX services in rural U.S. markets. The company requested an FCC extension for ATC gating deadlines due to satellite launch delays.
- Key Risks:
- Satellite Degradation: S-band antenna amplifier degradation in pre-2007 satellites continues to impair two-way voice and data service availability, limiting revenue growth and forcing price reductions.
- Liquidity and Debt: The company relies heavily on its Facility Agreement and cash reserves to fund capital expenditures (estimated at $1.3 billion through 2013). Failure to meet financial covenants or launch delays could trigger default.
- Regulatory: Ongoing FCC proceedings regarding spectrum sharing and ATC authorization deadlines pose regulatory risks.
- Competition: Intense competition from Inmarsat, Iridium, and terrestrial wireless expansion pressures pricing and market share.
Investor Verification Checklist
- Launch Schedule: Verify the status of the second-generation satellite launches scheduled for late 2010 and the impact of any further delays on the FCC ATC deadlines.
- Liquidity Position: Monitor cash burn rates and the utilization of the $586.3 million Facility Agreement against the $1.3 billion capital expenditure requirement.
- Service Recovery: Assess whether the new satellite constellation successfully restores two-way service reliability and allows for ARPU recovery.
- Debt Covenants: Review compliance with the Facility Agreement's financial covenants, specifically the minimum adjusted consolidated EBITDA and debt service coverage ratios.
- Simplex Growth: Evaluate the growth trajectory of Simplex services (SPOT and Axonn products) as a potential offset to duplex service declines.