Globalstar, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Globalstar provides global mobile satellite voice and data services, including SPOT and commercial IoT, and reports one segment. Comparisons are with Q1 2021 unless stated otherwise. Amounts are in U.S. dollars.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Service revenue | $29.3 million | $23.1 million | +27% |
| Subscriber equipment sales | $3.4 million | $3.8 million | -11% |
| Total revenue | $32.8 million | $26.9 million | +22% |
| Operating expenses | $46.5 million | $46.2 million | +1% |
| Operating loss | $(13.7) million | $(19.3) million | Loss narrowed |
| Net loss | $(20.5) million | $(36.3) million | Loss narrowed |
| Operating cash flow | $7.6 million | $4.5 million | +$3.1 million |
| Capital investment cash outflow | $(10.5) million | $(5.0) million | Outflow increased |
Operating margin was approximately negative 41.8%, versus negative 71.5% in Q1 2021, calculated from reported revenue and operating loss. Net loss per share was $0.01, compared with $0.02. Adjusted EBITDA is not clearly provided in the filing text.
Service revenue growth included $6.8 million recognized for work under the Terms Agreement, primarily engineering and gateway and network work. Foreign-currency results also improved substantially: a $3.2 million gain versus a $4.3 million loss a year earlier. The filing attributes much of the lower net loss to this swing, higher revenue, lower interest expense, and lower derivative losses.
Liquidity, debt, and investment
- Cash and cash equivalents were $11.5 million at March 31, 2022, down from $14.3 million at year-end 2021. Operating cash flow was more than offset by investing outflows; cash decreased $2.8 million during the quarter.
- Debt carrying value was $246.8 million, compared with $237.9 million at December 31, 2021. The 2019 Facility Agreement had $272.7 million principal outstanding, bears 13.5% blended interest paid in kind or, subject to restrictions, in cash, and matures in November 2025. The company reported compliance with its covenants.
- Globalstar entered a satellite procurement agreement for 17 satellites at a total contract price of $327 million. The customer under the Terms Agreement is expected, subject to conditions, to reimburse 95% of capital expenditures and certain other costs.
- At March 31, $32.7 million of satellite procurement milestones was recorded as short-term vendor financing. The filing says approximately $74 million of deferred payments are expected to become due in August 2022; Globalstar intended to complete a senior secured financing to fund construction and launch, and also expected to refinance the 2019 facility.
- Management stated that expected liquidity sources should cover obligations over the next 12 months. This outlook depends in part on completing the planned financing and refinancing.
Material changes and management commentary
- SPOT service revenue rose 2% and Commercial IoT service revenue rose 4%, supported by subscriber growth and lower churn. Duplex service revenue declined 8%; management expects the Duplex subscriber base to continue declining as demand shifts toward IoT.
- Equipment sales fell amid component shortages and back orders, including shortages affecting SPOT and IoT devices. The company expected supply constraints to persist at least through Q2 2022 and anticipated resuming SmartOne production in the coming weeks.
- The reported average subscriber count was approximately 757,000 for the quarter. Separately, the company said it disconnected Russian gateways following Russia’s invasion of Ukraine, removing approximately 25,000 subscribers from its count.
- In Q1, holders converted the remaining $1.4 million principal of the 2013 8.00% notes into approximately 2.3 million common shares at $0.69 per share. The notes were no longer outstanding at quarter-end.
- The company released a $1.0 million accrual for professional services related to 2018 shareholder litigation, reducing Q1 general and administrative expense. The filing reports no current legal proceedings.
- A new ERP system went live in January 2022. Management said related changes to reporting processes and controls did not materially adversely affect internal control over financial reporting; disclosure controls were assessed as effective.
Risks and contingencies
- Financing execution and timing are significant near-term considerations given the August vendor-payment deadline, planned satellite spending, low cash balance, and expectation to refinance existing debt. The filing does not establish that the planned financing has been completed.
- The satellite procurement agreement involves a $327 million commitment, with reimbursement dependent on the Terms Agreement and its conditions; unreimbursed costs or delays could affect liquidity.
- Supply-chain interruptions, component shortages, inflation, interest rates, capital availability, and geopolitical developments could affect operations and financial performance. The company cited potential adverse effects from the Russia-Ukraine conflict and related sanctions and disconnected service to Russian gateways.
- Foreign-currency fluctuations affect results; the company stated that it does not currently purchase currency hedges. Derivative valuations also involve significant unobservable inputs.
- The Terms Agreement requires repayment of advance payments to the extent the company does not provide the contracted services.
- Globalstar is controlled by its principal owner, Thermo, which is also a lender under the 2019 Facility Agreement. The filing reports related-party transactions and accrued Thermo debt interest.
Important facts for investors to verify
- Whether the intended senior secured financing was completed by the August 2022 milestone-payment deadline, its terms, and the status of the 2019 facility refinancing.
- The timing, conditions, and collection of the customer’s 95% reimbursement of satellite and related costs, as well as the company’s remaining net funding obligation.
- Subsequent cash balances, operating cash generation, capital spending, and any mandatory excess-cash-flow debt prepayments.
- Whether component shortages and back orders eased, and the resulting effects on device sales, subscriber growth, churn, and service revenue.
- Progress and costs for satellite manufacture, launch, and gateway upgrades, including any changes to contract milestones or expected launch timing.