Globalstar, Inc. (NYSE American: GSAT) today announced its
operating and financial results for the quarter ended September 30,
2019.
OPERATIONAL HIGHLIGHTS
Financing Update
We are in the final stages of completing the refinancing of our
capital structure by executing an amendment and partial paydown of
our existing senior secured credit facility agreement ("Facility
Agreement") and raising a new second lien term loan facility
("Second Lien Facility").
As previously announced, we have reached an agreement in
principle with our senior lenders under the Facility Agreement on
an amendment of certain key terms. This amendment would provide
primarily for (i) the prepayment of the next three scheduled
principal payments using proceeds from the Second Lien Facility,
(ii) revisions to the remaining repayment schedule to reduce the
amount of principal payments required prior to maturity, leaving a
final principal balance of approximately $100 million to be paid at
maturity on December 31, 2022, and (iii) a reset of financial
covenant levels together with an extension of our ability to make
equity cures through maturity.
As part of this amendment, we are also finalizing the Second
Lien Facility, the proceeds from which would be used to pay down
the Facility Agreement and pay in full all amounts outstanding
under the bridge financing raised in June 2019. The Second Lien
Facility is expected to bear payment-in-kind interest at a fixed
annual rate of no greater than 14% and warrants to purchase
approximately 120 million shares of common stock. The warrants are
structured to be exercised in cash, providing approximately $50
million of additional potential liquidity to be used towards
scheduled principal payments under the Facility Agreement.
Dave Kagan, Chief Executive Officer, commented, "We continue to
push forward to finalize this very broad scale refinancing.
Although this process has taken longer than we wanted, we, together
with our lenders and counsel, are finalizing the facilities and
their supporting documentation and expect to conclude the process
in the near term. We look forward to having this financing behind
us and are excited about the strength of our balance sheet
post-transaction."
Spectrum Update
In June 2019, we announced that we have now received MSS and
terrestrial authorizations in five countries across Africa,
representing over 1.1 million square miles of territory, a
population in excess of 100 million people, more than 1.7 billion
MHz-POPs of licensed coverage and annual GDP approaching half a
trillion USD. In these countries, we have obtained terrestrial LTE
authority over our entire 16.5 MHz of S-band spectrum, most with
permissible power limits suitable for both macro and small cell
deployments. We also continue to make progress toward
authorizations in additional countries both within and outside of
Africa and expect additional approvals in the coming months.
Engineering and standards process work continues on 3GPP as we
work to standardize Band 53 carrier aggregation with both CBRS and
5 GHz unlicensed having already secured both base station and user
equipment approvals. Band 53 can also be aggregated with additional
licensed channels and future authorities may provide for such
opportunities. Over the coming six months, we remain focused on
securing the 5G New Radio status for Band 53 which will provide
standardization for Band 53 in 5G systems going forward.
Product Introductions
In October 2019, we released the new Sat-Fi2® Remote Antenna
Station (RAS), which expands the capabilities of the Sat-Fi2®
Satellite Hotspot by incorporating a highly efficient remote
antenna enabling use in any vehicle, vessel or distant building.
Sat-Fi2® RAS easily installs to a fixed power source for seamless
connectivity via the Globalstar next generation satellite network
and ground infrastructure. Now available in the US and Canada,
Sat-Fi2® RAS provides continuous communications for anyone who
works or plays outside of cellular coverage.
In September 2019, we released a new SPOT X® two-way
satellite messenger equipped with Bluetooth® wireless technology.
Users now have the flexibility to use the new SPOT X® device to
connect to their smartphone through the SPOT X® app to send and
receive satellite messages. The new and improved SPOT X® is the
latest addition to the award-winning SPOT family of products,
providing affordable, two-way messaging, tracking and S.O.S. in
emergencies for hundreds of thousands of users all over the world.
Through a direct connection to the GEOS International Emergency
Coordination Center, SPOT has initiated more than 6,800 rescues
around the globe within the last ten years.
Strategic Partnerships
In November 2019, we announced a partnership with Ceres Tag, a
leader in livestock information systems using a proprietary smart
ear tag. The parties will conduct commercial large-scale trials to
provide for tracking history from birth and the management of
livestock using our Commercial IoT technology over the Globalstar
satellite network. This partnership is expected to improve
efficiencies within this industry with benefits including livestock
theft detection, better operational management for livestock
location, improved provenance along the entire supply chain,
improved detection and tracking for health and bio-security systems
and more information on animal welfare.
We also announced our expanding partnership with Nokia in
November 2019. The Fourth Industrial Revolution (4IR) sweeping
steadily across the African continent highlights the increasing
need for solutions that are tailored for, and compatible with, the
digital transformation of enterprises across many vertical domains.
The need for high capacity, low latency and secure connectivity
that is easy to deploy at multiple sites, and often across national
borders, poses a real challenge. One of the key enablers is
spectrum for local deployments combined with an appropriate
automation platform. Globalstar and Nokia have developed an
innovative solution, which allows enterprises to deploy intelligent
network applications in a dedicated spectrum band. It is based on
Nokia’s industrial-grade private wireless Digital Automation Cloud
platform together with Globalstar’s 3GPP Band 53 spectrum. The
solution will be showcased at the Globalstar stand at AfricaCom at
the Cape Town International Convention Centre on November 12-14,
2019.
FINANCIAL REVIEW
Revenue
Total revenue for the third quarter of 2019 decreased $1.0
million, or 3%, from the third quarter of 2018, after excluding a
non-recurring adjustment to Duplex service revenue that was
recorded during the third quarter of 2019 to change the estimated
impact from the adoption of the new revenue recognition standard
(ASC 606) on January 1, 2018. The decrease in total revenue was due
to a $1.3 million decrease in revenue generated from subscriber
equipment sales, offset partially by a $0.3 million increase in
service revenue.
The increase in service revenue was due primarily to increases
in ARPU across all core product types. The improvement in Duplex
ARPU resulted predominantly from customers migrating to or
activating on plans higher than prior year ARPU. Additionally,
Commercial IoT service revenue increased 28% due to increases in
both ARPU and average subscribers. The increase in ARPU was driven
in part by higher usage and a more favorable blend of rate plans in
place during 2019 based on the product mix of our subscriber base.
Offsetting these favorable variances were declines in the average
number of SPOT and Duplex subscribers. Involuntary churn of
nonpaying customers was the primary driver of the SPOT subscriber
decline; excluding this cleanup, the SPOT subscriber base would
have been generally flat from third quarter of 2018. On the Duplex
front, we introduced an improved version of our Sat-Fi2® device in
August 2019 and the RAS, a derivative of the Sat-Fi2® device, in
October 2019. These products, together with other Duplex products
currently in development, are expected to contribute to higher
activations in future quarters.
The decrease in revenue from equipment sales was due primarily
to a lower average selling price of our SPOT equipment due to
summer pricing promotions during the third quarter of 2019; we did
not run similar promotions during the third quarter of 2018. While
these promotions decrease the selling price of our hardware, we
expect the discounts to drive future activations and, therefore,
recurring high-margin service revenue. Revenue generated from
Duplex and Commercial IoT equipment sales was impacted by the mix
of products sold in the respective quarters.
Operating Loss
Operating loss decreased from $18.0 million during the third
quarter of 2018 to $16.0 million during the third quarter of 2019
due to lower operating expenses of $3.0 million offset partially by
lower total revenue of $1.0 million (after excluding the
out-of-period impact from the ASC 606-related revenue adjustment
previously discussed). Driving the majority of the decrease in
operating expenses was a $2.2 million reduction in marketing,
general and administrative (MG&A) expenses as costs that we
incurred during 2018 to support the now-terminated merger and to
defend the related securities claim did not recur in 2019. A $0.7
million decrease in depreciation, amortization and accretion
expense also contributed to the decrease in operating loss.
Offsetting these favorable variances was an increase in the cost of
subscriber equipment sales due to the recognition of $0.9 million
in tariffs for nearly all Chinese-manufactured products sold since
July 2018 following an unfavorable ruling received from U.S.
Customs in October 2019. This ruling related to the classification
of certain of our core products imported from China. The
classification per U.S. Customs, which carries a 25% tariff upon
import, is inconsistent with the classification we have previously
used based on external legal advice. We plan on filing a protest
against this ruling. We are also evaluating options to mitigate the
impact of these tariffs, including engaging in discussions with our
Chinese manufacturer regarding lowering their labor costs to
us.
Net Income
Net income increased $8.2 million from the third quarter of 2018
(after excluding the out-of-period impact from the ASC 606-related
revenue adjustment previously discussed) due primarily to an $11.1
million increase in the non-cash gain on derivative valuation
adjustments during the respective periods. The high likelihood as
of September 30, 2019 of a voluntary conversion of the Thermo loan
agreement in the near term was the primary driver of the gain
during the third quarter of 2019 as the value to the holder of the
conversion feature within the loan agreement is lower. A lower
operating loss also contributed to the increase in net income (for
the reasons previously discussed), offset partially by a higher
non-cash loss driven by foreign exchange rate changes due to the
strengthening of the U.S. dollar and higher interest expense due to
lower capitalized interest.
Adjusted EBITDA
Adjusted EBITDA decreased 2% to $11.9 million during the third
quarter of 2019 due primarily to a $1.0 million decrease in total
revenue, offset partially by a $0.7 million decrease in operating
expenses, after excluding EBITDA adjustments.
CONFERENCE CALL
The Company will conduct an investor conference call to discuss
its financial results and the expected refinancing following the
execution of the related definitive documentation.
About Globalstar Globalstar is a leading provider of
customizable Satellite IoT Solutions for customers around the world
in industries such as oil and gas, transportation, emergency
management, government, maritime and outdoor recreation. A pioneer
of mobile satellite voice and data services, Globalstar allows
businesses to streamline operations by connecting people to their
devices, supplying personal safety and communication, and
automating data to more easily monitor and manage mobile assets via
the Globalstar Satellite Network. The Company's Commercial IoT
product portfolio includes the industry-acclaimed SmartOne™ asset
tracking products, Simplex satellite transmitters and the SPOT®
product line of personal safety, asset and communication devices,
all supported on SPOT My Globalstar, a robust cloud-based back
office solution. Completing the satellite product suite are Duplex
satellite data modems, the innovative Sat-Fi2® satellite Wi-Fi
hotspot and the Sat-Fi2® Remote Antenna Station, with all product
solutions offering a variety of data service plans. Learn more at
Globalstar.com
Note that all SPOT products described in this press release are
the products of SPOT LLC, which is not affiliated in any manner
with Spot Image of Toulouse, France or Spot Image Corporation of
Chantilly, Virginia.
Safe Harbor Language for Globalstar Releases This press release
contains certain statements that are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are based on current
expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially
from the forward-looking statements. Forward-looking statements,
such as the statements regarding our expectations with respect to
the close of a financing arrangement, the pursuit of terrestrial
spectrum authorities globally, future increases in our revenue and
profitability and other statements contained in this release
regarding matters that are not historical facts, involve
predictions. Any forward-looking statements made in this press
release are believed to be accurate as of the date made and are not
guarantees of future performance. Actual results or developments
may differ materially from the expectations expressed or implied in
the forward-looking statements, and we undertake no obligation to
update any such statements. Additional information on factors that
could influence our financial results is included in our filings
with the Securities and Exchange Commission, including our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K.
GLOBALSTAR, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per
share data) (Unaudited)
Three Months Ended September
30,
2019
2018
Revenue:
Service revenue
$
34,152
$
29,898
Subscriber equipment sales
4,462
5,794
Total revenue
38,614
35,692
Operating expenses:
Cost of services (exclusive of
depreciation, amortization, and accretion shown separately
below)
9,216
9,429
Cost of subscriber equipment sales
4,482
4,426
Marketing, general and administrative
12,895
15,061
Depreciation, amortization, and
accretion
24,026
24,738
Total operating expenses
50,619
53,654
Operating loss
(12,005
)
(17,962
)
Other income (expense):
Interest income and expense, net of
amounts capitalized
(14,471
)
(13,358
)
Derivative gain
50,156
39,059
Other
(2,529
)
1,331
Total other income (expense)
33,156
27,032
Net income before income taxes
21,151
9,070
Income tax expense
40
51
Net income
$
21,111
$
9,019
Net income (loss) per common share:
Basic
$
0.01
$
0.01
Diluted
(0.01
)
(0.02
)
Weighted-average shares outstanding:
Basic
1,451,703
1,264,516
Diluted
1,647,734
1,427,800
GLOBALSTAR, INC.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED
EBITDA (In thousands) (Unaudited)
Three Months Ended
September 30,
2019
2018
Net income
$
21,111
$
9,019
Interest income and expense, net
14,471
13,358
Derivative gain
(50,156
)
(39,059
)
Income tax expense
40
51
Depreciation, amortization, and
accretion
24,026
24,738
EBITDA
9,492
8,107
Non-cash compensation
1,419
1,536
Foreign exchange and other
2,276
(1,398
)
Debt refinancing third party fees
2,403
—
Merger and litigation-related costs
206
3,919
Change to estimated impact upon adoption
of ASC 606
(3,885
)
—
Adjusted EBITDA (1)
$
11,911
$
12,164
(1)
EBITDA represents earnings before
interest, income taxes, depreciation, amortization, accretion and
derivative (gains)/losses. Adjusted EBITDA excludes non-cash
compensation expense, reduction in the value of assets, foreign
exchange (gains)/losses and certain other non-recurring charges as
applicable. Management uses Adjusted EBITDA in order to manage the
Company's business and to compare its results more closely to the
results of its peers. EBITDA and Adjusted EBITDA do not represent
and should not be considered as alternatives to GAAP measurements,
such as net income/(loss). These terms, as defined by us, may not
be comparable to similarly titled measures used by other
companies.
The Company uses Adjusted EBITDA as a
supplemental measurement of its operating performance. The Company
believes it best reflects changes across time in the Company's
performance, including the effects of pricing, cost control and
other operational decisions. The Company's management uses Adjusted
EBITDA for planning purposes, including the preparation of its
annual operating budget. The Company believes that Adjusted EBITDA
also is useful to investors because it is frequently used by
securities analysts, investors and other interested parties in
their evaluation of companies in similar industries. As indicated,
Adjusted EBITDA does not include interest expense on borrowed money
or depreciation expense on our capital assets or the payment of
income taxes, which are necessary elements of the Company's
operations. Because Adjusted EBITDA does not account for these
expenses, its utility as a measure of the Company's operating
performance has material limitations. Because of these limitations,
the Company's management does not view Adjusted EBITDA in isolation
and also uses other measurements, such as revenue and operating
profit, to measure operating performance.
GLOBALSTAR, INC. SCHEDULE OF
SELECTED OPERATING METRICS (In thousands, except subscriber and
ARPU data) (Unaudited)
Three Months Ended
September 30,
2019
2018
Service
Equipment
Service
Equipment
Revenue
Duplex (2)
$
12,704
$
349
$
12,213
$
436
SPOT
12,482
1,880
12,957
2,970
Commercial IoT
4,526
2,182
3,542
2,356
IGO
139
—
257
—
Other
416
51
929
32
Total Revenue
$
30,267
$
4,462
$
29,898
$
5,794
Average Subscribers
Duplex
57,091
66,004
SPOT
280,632
292,521
Commercial IoT
412,180
361,472
IGO
26,378
26,196
Other
912
1,007
Total Average Subscribers
777,193
747,200
ARPU (1)
Duplex (2)
$
74.17
$
61.68
SPOT
14.83
14.76
Commercial IoT
3.66
3.27
IGO
1.76
3.27
(1)
Average monthly revenue per user
(ARPU) measures service revenues per month divided by the average
number of subscribers during that month. Average monthly revenue
per user as so defined may not be similar to average monthly
revenue per unit as defined by other companies in the Company's
industry, is not a measurement under GAAP and should be considered
in addition to, but not as a substitute for, the information
contained in the Company's statement of operations. The Company
believes that average monthly revenue per user provides useful
information concerning the appeal of its rate plans and service
offerings and its performance in attracting and retaining high
value customers.
(2)
We recorded an out-of-period
adjustment of $3.9 million during the third quarter of 2019 as a
result of a change in the estimated impact of the adoption of ASC
606 on January 1, 2018. This adjustment, which increased Duplex
service revenue, is excluded from service revenue and ARPU in the
table above.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191112006005/en/
Investor Contact Information: Marcy Fluitt
investorrelations@globalstar.com
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