Globalstar, Inc. — 2017 Form 10-K Summary
Business context and reporting period
Globalstar provides global mobile satellite voice and data services, including Duplex communications, SPOT consumer messaging and Simplex asset tracking. This annual report covers the fiscal year ended December 31, 2017; the company’s business depends on its satellite constellation, ground network and spectrum rights.
Financial performance and liquidity
- Revenue: $112.7 million, up 16% from $96.9 million in 2016. Service revenue rose 19% to $98.5 million; equipment revenue increased 3% to $14.2 million. Growth reflected higher average revenue per user (ARPU) across core businesses and a larger overall average subscriber base.
- Operating results: Operating loss was $68.8 million versus $63.7 million in 2016. Operating expenses increased 13% to $181.4 million, including a $17.0 million long-lived asset write-down and $0.8 million inventory write-down. Operating loss was about 61% of revenue, compared with about 66% in 2016.
- Net results: Net loss was $89.1 million, narrowing from $132.6 million in 2016. Results included a $21.2 million non-cash derivative gain, partly offset by a $6.3 million non-cash debt-extinguishment loss and $34.8 million net interest expense. Derivative fair-value movements are materially influenced by Globalstar’s share price.
- Cash flow: Operating cash flow was $13.9 million, up from $8.8 million. Investing cash outflow was $20.8 million, including $11.9 million for second-generation network costs; operating cash flow did not cover investing outlays. Financing provided $63.8 million, principally reflecting equity proceeds and debt service payments.
- Liquidity: Year-end cash and cash equivalents were $41.6 million, with a further $63.6 million of restricted cash, much of it committed to debt service. Current assets were $136.4 million versus current liabilities of $160.3 million; restricted funds are not freely available for general use.
- Debt: Debt principal was $574.7 million (carrying value $513.9 million after discounts and financing costs), including $467.3 million under the senior secured Facility Agreement and $106.1 million owed to Thermo. The Facility Agreement bears floating-rate interest and is secured by substantially all company and domestic-subsidiary assets, subject to stated exceptions.
- Other metrics: Average subscribers increased to 710,322 from 688,819. Average Duplex subscribers declined to 72,443 from 75,925, while Duplex monthly ARPU rose to $43.29 from $34.96. SPOT subscribers grew to 285,683 and Simplex to 313,553. No clear consolidated gross-margin or adjusted EBITDA figure is provided in the supplied filing text.
Material changes versus 2016
- Revenue increased $15.8 million, led by Duplex service revenue growth of 18%, SPOT service growth of 19% and Simplex service growth of 9%. Duplex and SPOT ARPU gains were partly offset by fewer average Duplex subscribers.
- Operating loss widened by $5.1 million, with the $17.0 million asset write-down a major factor. Depreciation, amortization and accretion remained high at $77.5 million.
- Net loss improved by $43.6 million, largely reflecting the year-over-year change from a $41.5 million derivative loss to a $21.2 million derivative gain—not solely improved operating performance.
- Globalstar raised approximately $115.0 million net in an October common-stock offering and $33.0 million from Thermo, while issuing substantial additional shares. Year-end voting common shares outstanding were about 1.262 billion, versus 972.6 million a year earlier.
- The FCC granted authority in August 2017 to provide terrestrial broadband over 11.5 MHz of licensed spectrum in the United States, subject to conditions including equipment certification. Botswana also approved terrestrial use of 16.5 MHz of S-band spectrum.
Outlook, risks, contingencies and unusual items
- Liquidity and covenants: Management stated that current liquidity sources were expected to be insufficient to meet obligations during 2018. It anticipated needing an Equity Cure Contribution to comply with Facility Agreement financial covenants for the period ending December 31, 2018; the funding source was not fully arranged. The company reported covenant compliance at December 31, 2017.
- Debt requirements: The Facility Agreement requires 80% of specified equity proceeds through December 31, 2019 to be placed in a restricted account for Facility Agreement obligations. The $1.3 million remaining principal under the 2013 8% convertible notes was subject to a holder put option on April 1, 2018.
- Business outlook: No quantified revenue or earnings guidance is provided. Management described plans for new Duplex, SPOT and Simplex products, additional ground-network upgrades and efforts to monetize terrestrial spectrum rights, including seeking strategic partners. Success depends on execution, regulatory approvals, customer demand and access to capital.
- Satellite and network risks: Satellite failures, shorter-than-expected satellite lives, gateway disruptions and the need for future satellite replacement could impair service, reduce revenue or require significant capital. The company did not insure satellites against in-orbit failure after an initial six-month period.
- Thales matters: Globalstar recorded a $17.0 million write-down of prepaid long-lead satellite items after determining recovery was no longer probable; Thales disputes Globalstar’s ownership of those items. A separate €17.5 million contract termination payment remains accrued and is payable only if specified conditions relating to a new satellite contract and financing occur. Thales may also seek confirmation of an earlier arbitration award; the company says an adverse outcome could materially harm its financial condition, results and liquidity.
- Other risks and accounting: Risks include restrictive debt covenants, floating-rate borrowing, competition, international currency exposure, regulatory and spectrum coordination, and dependence on resellers and vendors. Globalstar adopted ASC 606 on January 1, 2018 using the cumulative-effect method and expected no material impact to financial position or results, while identifying changes to revenue timing and contract acquisition-cost accounting.
- Controls and audit: The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management reported effective controls and no material weakness at year-end.
Important facts for investors to verify
- How Globalstar will fund 2018 debt service, the required debt-service reserve and any covenant cure, and whether restricted cash can be used for the intended payments.
- Whether the April 2018 note put was exercised and how the company met the related obligation.
- Progress toward terrestrial-spectrum partnerships, equipment certification and international approvals—and the costs and timing required to generate revenue from these rights.
- The status and potential financial consequences of the Thales dispute, the impaired long-lead items and the contingent €17.5 million payment.
- Satellite health, remaining capacity and service life, plus the timing and financing plan for replacement satellites and further ground-network deployment.
- Whether service-revenue and ARPU growth can continue while retaining subscribers, and how ASC 606 affects reported revenue and contract acquisition costs.
- The impact of continued equity issuance and Thermo’s control and related-party financing on dilution, governance and common-stock investors.