Globalstar, Inc. Q1 2009 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2009. Globalstar, Inc. is a provider of mobile voice and data communications services via satellite, operating in over 120 countries. The company is currently in the process of constructing and deploying a second-generation satellite constellation to replace its aging first-generation network, which has experienced technical degradation affecting two-way communication services.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenue | $15.2 million | $22.1 million |
| Operating Loss | $(17.6) million | $(11.6) million |
| Net Loss | $(21.8) million | $(6.6) million |
| Loss Per Share (Basic/Diluted) | $(0.17) | $(0.08) |
| Cash and Cash Equivalents | $3.0 million | $12.4 million (Dec 31, 2008) |
| Total Debt | $288.7 million | $271.9 million (Dec 31, 2008) |
| Working Capital | $(60.8) million deficit | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 31% year-over-year. Service revenue dropped 30% to $11.1 million, and subscriber equipment sales fell 34% to $4.0 million. This was driven by price reductions to retain subscribers amidst two-way communication issues and lower sales of duplex products.
- Subscriber Growth vs. ARPU: While the total subscriber base grew 22% to approximately 356,900 (driven by a 92% increase in Simplex/SPOT users), the Average Revenue Per Unit (ARPU) for retail customers plummeted 39% to $23.08.
- Operating Expenses: Total operating expenses decreased slightly by 3% to $32.8 million. However, the cost of services increased 39% due to the acquisition of a Brazilian subsidiary and R&D for the second-generation ground component.
- Other Income/Expense: The company recorded a $3.9 million loss in "Other" income (primarily foreign exchange losses), compared to an $8.3 million gain in the prior year. The interest rate derivative loss of $3.5 million in Q1 2008 did not recur as the swap was terminated in December 2008.
Outlook, Risks, and Management Commentary
- Liquidity Crisis: Management explicitly states that current liquidity sources are insufficient to fund short-term or long-term needs. The company faces a working capital deficit of $60.8 million and requires additional financing to fund the second-generation constellation and ongoing operations.
- Financing Efforts: The company is pursuing a proposed $574 million credit facility supported by French export credit insurance (Coface). Closing conditions include the conversion of existing Thermo Funding debt to equity and an additional $100 million equity investment. There is no assurance this financing will close.
- Technical Challenges: The first-generation satellite constellation is aging, with degraded S-band amplifiers causing intermittent two-way communication failures. The company does not expect to commence deploying the second-generation satellites prior to 2010.
- Capital Expenditures: Estimated total capital expenditures for the second-generation constellation and ground upgrades are approximately $1.26 billion. Significant payments are due to Thales Alenia Space, Arianespace, and Hughes through 2013.
- Legal Proceedings: The company is involved in various litigation matters, including an appeal of an FCC decision regarding L-band spectrum (denied in May 2009) and patent infringement suits regarding the SPOT device.
Investor Verification Checklist
- Financing Status: Verify the status of the proposed $574 million credit facility and the $100 million equity commitment from Thermo Funding. Failure to close could lead to default or cessation of operations.
- Cash Burn Rate: Monitor the rapid depletion of cash (down to $3.0 million) against the $60.8 million working capital deficit.
- Second-Gen Timeline: Confirm the revised deployment schedule for the second-generation satellites, currently projected for no earlier than 2010.
- SPOT Product Performance: Assess the growth trajectory of the SPOT Simplex product line, which is the primary driver of subscriber growth but has lower ARPU than traditional voice services.
- Debt Covenants: Review compliance with the Thermo Funding credit agreement, specifically the minimum liquidity requirement of $5.0 million (currently breached) and leverage ratios.