Globalstar, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with Q1 2020. Globalstar provides global mobile satellite voice and data services, equipment, and related engineering services. Its only reportable segment is Mobile Satellite Services.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $26.9 million | $32.2 million | Down 16% |
| Service revenue | $23.1 million | $28.9 million | Down 20% |
| Equipment sales | $3.8 million | $3.3 million | Up 18% |
| Operating loss | $19.3 million | $14.1 million | Loss widened |
| Net loss | $36.3 million | $38.2 million | Loss narrowed |
| Net loss per share, diluted | $0.02 | $0.02 | Unchanged |
| Operating cash flow | $4.5 million | $4.6 million | Slightly lower |
| Investing cash flow | $(5.0) million | $(1.6) million | Higher investment |
Operating expenses were nearly flat at $46.2 million. Lower G&A and interest expense, and a smaller foreign-currency loss, helped reduce the net loss; lower revenue nevertheless widened the operating loss. Q1 2021 included a $1.1 million derivative loss and a $4.3 million foreign-currency loss. Cash paid for interest was $0.04 million, while reported interest expense includes noncash financing costs and accretion.
Business trends and comparison
- Service revenue fell mainly because engineering and other revenue declined $3.9 million; Q1 2020 included $4.0 million from completed contract milestones that did not recur.
- Duplex service revenue fell 13%, with average subscribers down 12%. SPOT service revenue fell 9% amid lower ARPU and average subscribers; management said SPOT churn had stabilized recently. Commercial IoT service revenue rose 4%, with higher ARPU partly offset by fewer subscribers.
- Average subscribers across reported categories were 743,434 versus 768,893. Subscriber equipment sales increased, led by SPOT and Commercial IoT products.
- Management cited COVID-19 effects on equipment demand, customer pricing requests, and collections. Commercial IoT activations showed possible recovery, but management said the full pandemic impact remained uncertain.
Liquidity, debt and capital
- At March 31, cash and cash equivalents were $8.4 million; restricted cash was $98.4 million. Of restricted cash, $47.3 million was reserved for scheduled first-lien principal payments and $51.1 million for the debt-service reserve. These funds are restricted and are not equivalent to freely available cash.
- Debt carrying value was $390.9 million, up from $385.4 million at year-end; $55.3 million was classified as current. First-lien principal was $182.6 million and second-lien principal was $238.4 million. The second lien bears 13.5% blended interest, paid in kind; the first lien matures in December 2022 and has a floating LIBOR-based rate.
- All lender warrants were exercised by March 31, producing $43.7 million in Q1 proceeds and $47.3 million in total proceeds since issuance. The warrants represented 124.5 million shares; common shares outstanding increased to 1.792 billion from 1.675 billion at December 31, 2020.
- In April, the company used the equity proceeds account for first-lien payments: $33.1 million due in June 2021 and the balance toward the December 2021 payment. Q1 also included a $4.4 million mandatory excess-cash-flow principal payment.
- Management said it expected liquidity sources to cover obligations for the next 12 months, while noting uncertainty from COVID-19. The company was in compliance with first- and second-lien covenants at quarter-end, but was discussing projected 2021 capital spending against first-lien covenant levels.
Outlook, risks and unusual items
- No quantitative revenue, earnings, or cash-flow guidance is provided. Management is assessing product mix and network capacity amid the industry shift toward IoT, has temporarily ceased sales and service for certain Duplex devices, and is developing a two-way Commercial IoT reference design module.
- Globalstar is pursuing terrestrial use of its licensed spectrum, including Band 53/n53 ecosystem development and additional international regulatory approvals. The filing describes these as opportunities, not assured outcomes.
- The $5.0 million PPP loan remained outstanding. Globalstar had applied for forgiveness and expected forgiveness, but said approval by its lender and the SBA was not assured; any unforgiven amount could require accelerated repayment under lender terms.
- Embedded derivatives are Level 3 fair-value measurements. The increase in the company’s share price and volatility drove a higher liability for the 2013 convertible notes and contributed to the derivative loss.
- Other risks include foreign-currency exposure, variable-rate debt, satellite and ground-network performance, customer and supply-chain effects from COVID-19, and covenant compliance. Management reported no material change to previously disclosed risk factors and no material off-balance-sheet transactions.
Most important facts for investors to verify
- Whether service revenue and subscriber trends—especially Duplex and SPOT—stabilize, and whether Commercial IoT growth continues.
- Availability of unrestricted liquidity after scheduled debt payments, and compliance with first-lien covenants as capital spending evolves.
- Timing and amount of remaining first-lien payments and the December 2022 maturity obligation, alongside the high-cost, PIK-accreting second-lien debt.
- Outcome of the PPP forgiveness application and any resulting repayment obligation.
- Progress and commercial adoption of Band 53/n53 spectrum initiatives and the Commercial IoT product roadmap.