Globalstar, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed February 25, 2016. The filing also reports unaudited fourth-quarter results. Globalstar provides mobile satellite voice and data services, including Duplex, SPOT and Simplex, to approximately 688,000 subscribers at year-end.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $90.5 million | $90.1 million |
| Operating loss | $66.6 million | $95.9 million |
| Net income (loss) | $72.3 million | ($462.9 million) |
| Operating cash flow | $2.2 million | $4.0 million |
| Cash used in investing activities | $33.5 million | $19.3 million |
- Service revenue was $74.1 million, up 6%; equipment revenue was $16.4 million, down 19%. SPOT service revenue rose 15%, Simplex rose 8%, and Duplex rose about 1%.
- Year-end cash and cash equivalents were $7.5 million; an additional $37.9 million was restricted for debt service. Current assets were $38.5 million versus current liabilities of $107.0 million.
- Debt carrying value was $639.0 million ($675.8 million principal), including $32.8 million classified as current and $606.2 million long-term. The facility is floating-rate, matures in December 2022, and bears LIBOR plus 2.75% through June 2017, with step-ups thereafter.
- 2015 net income primarily reflects a $181.9 million non-cash derivative gain, rather than operating profitability. Depreciation, amortization and accretion were $77.2 million; interest expense, net, was $35.9 million.
- Fourth-quarter revenue was $22.8 million, operating loss $15.9 million and net loss $26.8 million.
Changes versus prior periods
- Revenue increased only $0.4 million year over year: subscriber growth lifted service revenue by $4.3 million, partly offset by a $3.9 million decline in equipment sales. Management estimated revenue would have been approximately $4.6 million higher absent foreign-exchange movements.
- Operating expenses fell 16% to $157.1 million. A major factor was the absence of 2014’s $21.7 million inventory write-down; depreciation also declined by $8.9 million.
- Subscribers grew 8% to 688,327. SPOT and Simplex year-end subscribers increased, while Duplex grew from 67,362 to 77,047. Average Duplex ARPU was affected by the 2014 deactivation of non-paying or suspended users; the filing provides adjusted historical comparisons.
- Cash from operations declined by $1.8 million, while investing outflows increased $14.2 million, principally due to ground-network upgrades. Financing provided $33.3 million, including $39.0 million from Terrapin stock purchases.
Outlook, risks and unusual items
- Management expected second-generation products in 2016, with higher data speeds and smaller, less expensive devices. Second-generation RAN deployment was complete in the U.S., Canada and France; Brazilian installations and Puerto Rico deployment remained planned. Ericsson core-network work was expected to finish in the second quarter of 2016.
- The FCC had not completed its proceeding on proposed rules that could permit low-power terrestrial broadband service (TLPS) using Globalstar spectrum. Commercial deployment depends on satisfactory regulatory action; no revenue guidance or quantified outlook is provided.
- The company remained loss-making at the operating level, had limited unrestricted cash, and relied on future operating cash flow and equity funding. It had $60.0 million available under its $75.0 million Terrapin agreement at year-end; it drew $6.5 million in February 2016. Covenant compliance relies in part on qualifying equity-cure contributions. The company reported compliance at December 31, 2015.
- Key risks include satellite or ground-network failures, the need for future satellite replacement, funding and covenant constraints, variable-rate debt, foreign-exchange exposure, competition, and regulatory uncertainty. In-orbit satellite failures are not insured.
- Contingencies include a recorded $18.5 million Thales contract-termination accrual, payable only upon specified future satellite-contract and financing conditions, and a dispute with Thales over ownership of satellite long-lead items. The filing says the outcome of the dispute is uncertain.
- Globalstar recorded a $5.5 million liability for potential additional shares owed to Hughes under downside protection on shares issued for contract payments. Additional equity issuance may dilute shareholders. Thermo controlled approximately 54% of voting common stock at year-end.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls; management reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether operating cash generation improves enough to fund debt service and remaining ground upgrades without repeated equity draws.
- Terrapin’s capacity and the conditions for further draws, remaining Thermo support, and progress against Facility Agreement covenants.
- Satellite health, network upgrade completion, product launch timing and customer adoption, including subscriber retention and ARPU trends.
- FCC action on TLPS and any resulting authority, partnership, deployment costs or monetization prospects.
- Developments in the Thales disputes, the contingent termination payment and Hughes downside-protection liability.
- The extent of non-cash derivative gains and losses, which can materially affect reported net income independently of operating performance.