Globalstar, Inc. 10-Q Summary: Period Ended September 30, 2010
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Globalstar, Inc., a provider of mobile voice and data communications services via satellite. The report covers the three and nine months ended September 30, 2010. The company is currently in the process of deploying a second-generation satellite constellation to replace aging infrastructure. As of October 29, 2010, there were approximately 290 million shares of voting common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenue | $18,223 | $51,416 |
| Net Loss | $(24,493) | $(79,384) |
| Operating Loss | $(13,313) | $(30,958) |
| Loss Per Share (Basic & Diluted) | $(0.09) | $(0.28) |
| Cash and Cash Equivalents | $57,452 (as of Sep 30, 2010) | |
| Total Debt | ||
| Derivative Loss (Nine Months) | $(42,185) |
Liquidity: The company held $57.5 million in cash and cash equivalents and $38.4 million in restricted cash as of September 30, 2010. Total indebtedness was $625.5 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4% ($0.7 million) for the quarter and 6% ($3.0 million) for the nine months compared to the prior year periods. This growth was driven by a 29% increase in the Simplex/SPOT subscriber base and higher Average Revenue Per Unit (ARPU) for simplex products.
- Subscriber Trends: While the Simplex subscriber base grew significantly (31% for the nine months), the Duplex (two-way voice) subscriber base declined by 5% (quarter) and 6% (nine months) due to ongoing performance degradation of S-band antenna amplifiers on the first-generation satellite constellation.
- Operating Expenses: Operating expenses increased 8% for the quarter but decreased 9% for the nine months. The nine-month decrease was driven by reduced stock-based compensation, lower marketing costs, and headcount reductions, partially offset by higher equipment costs for simplex sales.
- Non-Operating Items: The company reported a significant derivative loss of $42.2 million for the nine months ended September 30, 2010, compared to a gain of $5.2 million in the prior year. This was primarily due to fair value adjustments on embedded derivatives in convertible notes and warrants. Additionally, the company recorded a $1.9 million impairment charge related to its investment in Open Range Communications following an FCC ruling.
Guidance, Outlook, and Risks
- Second-Generation Constellation: The first launch of six second-generation satellites occurred in October 2010. The company expects the fourth and final launch of the initial 24-satellite constellation to be completed in the summer of 2011. Management believes this will resolve the two-way communication issues affecting the current fleet.
- Debt Covenants and Default Cure: In September 2010, the company received a notice of default from its COFACE bank syndicate regarding a failure to deliver a required satellite communication license prior to the first launch. On October 28, 2010, the company entered into an amendment canceling the default notice. The company obtained the required French license on October 28, 2010, and is pursuing the required U.S. license by February 28, 2011. Management believes it will meet all debt covenants for the next 12 months.
- Headquarters Relocation: The company is relocating its headquarters and various business functions to Covington, Louisiana, incurring associated costs and potential personnel turnover risks.
- Regulatory Risks: The FCC suspended the company's authority to operate Ancillary Terrestrial Component (ATC) stations and lease spectrum to Open Range Communications in September 2010 due to non-compliance with gating criteria. The company is pursuing relief through FCC rulemaking proceedings.
Investor Verification Checklist
- License Compliance: Verify the status of the U.S. satellite communication license required by the amended Facility Agreement, with a deadline of February 28, 2011.
- Derivative Valuation: Review the fair value assumptions (stock price volatility, risk-free rates) used to calculate the significant non-cash derivative losses impacting net income.
- Capital Expenditures: Monitor cash burn related to the second-generation satellite constellation, with estimated future payments totaling over $400 million (including launch services) through 2012.
- Duplex Subscriber Churn: Assess the rate of subscriber loss in the duplex segment and the effectiveness of price reductions in mitigating churn prior to the new constellation launch.
- Open Range Investment: Confirm the final write-off amount and any potential recovery or legal recourse regarding the suspended ATC spectrum lease.