Globalstar, Inc. (NYSE American: GSAT) today announced its
operating and financial results for the quarter ended June 30,
2019.
OPERATIONAL HIGHLIGHTS
Financing Update
We are actively working to complete a transaction that would
improve our capital structure and address our current liquidity
concerns, by, among other things, limiting the amount of principal
payments we are required to make on our indebtedness prior to its
maturity. We are currently pursuing two alternative transactions:
(i) a complete refinancing of our existing debt and (ii) an
amendment to our current debt BPIFAE Facility Agreement coupled
with a new second lien credit facility.
With regard to the refinancing, we believe we are nearing an
agreement on commercial terms for new first and second lien senior
secured loan facilities with institutional financial and strategic
lenders, including Thermo. This proposed financing is expected to
be in the following form:
- a senior secured first lien term loan facility with an
aggregate principal amount of $200 million and a maturity of five
years; and
- a senior secured second lien term loan facility with an
aggregate principal amount of $150 million and a maturity of six
years.
If this financing is consummated, we expect that all amounts
outstanding under our existing Facility Agreement and under the
bridge financing raised in June 2019 would be paid in full, and
that all amounts outstanding under the subordinated Loan Agreement
with Thermo would convert to common stock at a conversion price
equal to $0.69 per share. We expect that the first lien term loan
facility will bear cash interest at a rate of approximately 10% and
the second lien term loan facility will bear payable-in-kind
interest at a fixed rate of 14.0% per annum. We also expect that we
will issue warrants to purchase common stock to the second lien
lenders.
With regard to the amendment alternative, we have reached an
agreement in principle with our lenders under the BPIFAE Facility
Agreement on an amendment of certain key terms. While final amended
terms are subject to definitive documentation, we expect that this
amendment would provide for (i) prepayment of the next four
scheduled principal payments using primarily proceeds from a new
second lien term loan facility, (ii) revisions to the remaining
repayment schedule to reduce the amount of payments of principal
required prior to maturity, and (iii) a reset of financial covenant
levels together with an extension of our ability to make equity
cures.
In consultation with the Strategic Review Committee of our Board
of Directors and our financial advisors, we intend to select the
alternative that is in the best interest of the company. We seek to
have one of these financing alternatives consummated during the
third quarter of 2019.
Dave Kagan, Chief Executive Officer, commented, "We are excited
about our progress towards the refinancing of our balance sheet and
the optionality that these two alternatives provide us. We believe
that either transaction would result in meaningful improvement in
levered free cash flow, a strengthened balance sheet and a
long-term sustainable capital structure that will position us for
success as we pursue the vast satellite and spectrum related
opportunities in front of us."
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, annual GDP of over half
a trillion USD and more than 1.7 billion MHz-POPs of licensed
coverage. 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 and expect additional
approvals in the coming months.
We continue to be active at 3GPP achieving UE conformance
approvals during the quarter and beginning the process of adding
carrier aggregation with both CBRS (Band 48) and 5 GHz unlicensed
(Band 46). We have also initiated the work on securing Band 53 as
5G-enabled through a 5G NR or New Radio designation (“n53”). This
is the next evolutionary step as we work towards Band 53 being
embedded in next generation wireless systems.
Strategic Partnerships
In May 2019, we announced a long-term strategic relationship
with Recon Powerline ("Recon"), whereby Recon will use our
satellite and multi-radio modems to help address the growing issue
of wildfire risk management. With the integration of Globalstar
connectivity into their Powerline Monitoring System, Recon can
offer a platform with reliable communications in remote regions
with little to no cellular coverage. This exclusive partnership is
an integral component of Recon’s response to California Governor
Gavin Newsom’s Executive Order that gives the State of California a
new path to address issues like the wildland-urban interface fire
crisis through innovative technology solutions for monitoring and
prevention as well as similar opportunities in other states.
In June 2019, we announced an agreement with Airwavz Solutions,
Inc. ("Airwavz"), a provider of in-building wireless
infrastructure, to offer Band 53 for in-building wireless services.
Airwavz received rights to lease our Band 53 at specific buildings
with a focus on developing new technologies in anticipation of
significant growth in IoT devices and the connections needed for
smart-building applications. Airwavz and Globalstar have begun the
pilot programs in the commercial real estate sector.
In June 2019, we announced that, together with Echo Ridge, LLC
("Echo Ridge"), we have informed the U.S. Department of
Transportation ("DOT"), in response to the DOT's request for
information, that the companies have developed and are prepared to
participate in and support a live field demonstration of a
positioning, navigation, and timing ("PNT") capability that can
provide accurate and reliable PNT services to backup and/or
complement GPS in case of GPS unavailability or unreliability.
Automotive Industry Update
We continue to make meaningful progress on our automotive
initiatives as we are now distributing existing products in the
commercial trucking market through several major automotive
retailers, we have signed a technology sharing and licensing
agreement with a major global Tier 1 supplier to develop an
automotive grade solution around our core technology, and we are
conducting field trials with a major OEM with our latest Duplex
voice and data products. Additionally, we are in discussions with
multiple parties to distribute our SPOT line of products to the
automotive market with a focus on off-road safety.
FINANCIAL REVIEW
Dave Kagan commented, "During the second quarter, total
subscribers grew to over 770,000 which is a record for the company.
Our Commercial IoT subscriber base continued to increase, up 16% to
over 400,000 customers. This expansion helped to offset declines
from other areas of our business, including a smaller Duplex base
and fewer hardware sales given the channel fill orders in the prior
year's quarter following the launch of three new products. As we
continue to make progress on product improvement and development
initiatives during this relatively soft quarter, we are optimistic
about the second half of 2019. We have a robust pipeline of sales
across our Commercial IoT product portfolio that is targeting a
variety of use cases and applications that span various industries.
We also have been actively working to address performance issues
associated with certain of our devices launched in 2018, including
an improved Sat-Fi2® device which will be launched next month. I'm
also excited about initiatives underway to grow the number of users
of our consumer tracking products. Total SPOT activations during
the quarter were higher than the prior year due in part to an
increase in activations of our newest SPOT product, SPOT X®. We
also are running an aggressive summer promotion on legacy devices
that we expect to drive higher activations in future quarters.
Finally, we continue to make strategic investments in various
initiatives to expand the business."
Revenue
Total revenue for the second quarter of 2019 decreased $2.5
million, or 8%, from the second quarter of 2018 due to a $1.3
million decrease in service revenue and a $1.2 million decrease in
revenue generated from subscriber equipment sales.
Our subscriber base grew over the last twelve months to total
average subscribers of 772,807 in the second quarter of 2019 from
733,964 in the second quarter of the prior year. However, the
decrease in service revenue was due primarily to lower average
Duplex subscribers which reduced revenue by $1.3 million when
compared to the second quarter of 2018. This decrease in Duplex
subscribers was driven by lower gross activations resulting from
fewer equipment sales over the last twelve months. We are actively
working to address our inventory shortage issue through the
re-launch of an improved Sat-Fi2® device expected during the third
quarter of 2019. Additionally, certain nonrecurring items benefited
SPOT service revenue by $0.6 million during the prior year's second
quarter, including primarily collection of a single customer's
receivable balance that was not previously recorded as revenue
because payment was not considered probable. These items did not
recur during the second quarter of 2019. Partially offsetting these
unfavorable variances was a 35% increase in Commercial IoT service
revenue 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. The 16% increase in Commercial
IoT subscribers, which now exceed 400,000, was driven by higher
equipment sales during the last twelve months, including legacy
products as well as our newest solar-powered IoT device that
launched in March 2018.
The decrease in revenue from equipment sales was due primarily
to a lower volume of Commercial IoT device sales. Initial orders
placed for our SmartOne SolarTM device, which generated $2.0
million in equipment revenue during the second quarter of 2018,
exceeded the follow-on orders filled during the second quarter of
2019.
Operating Income (Loss)
Operating income (loss) fluctuated from income of $1.9 million
during the second quarter of 2018 to a loss of $16.7 million during
the second quarter of 2019. This change was due to higher operating
expenses of $16.1 million, coupled with a $2.5 million decrease in
total revenue (for reasons previously discussed). Driving the
majority of the increase in operating expenses was a $20.5 million
reversal of a previously recorded contract termination charge
during the second quarter of 2018, which was a nonrecurring
reduction to expense. This increase was offset partially by a $4.9
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 $1.2 million increase in
depreciation, amortization and accretion expense and decreases in
the cost of subscriber equipment sales and cost of services also
contributed to the change in operating income (loss).
Net Income (Loss)
Net income (loss) fluctuated by $13.2 million from net loss
during the second quarter of 2018 to net income during the second
quarter of 2019 due primarily to two non-cash items. The
fluctuation in non-cash derivative valuation adjustments during the
respective periods, which contributed $37.2 million to the change
in net income (loss), was offset partially by a $20.5 million
contract termination charge reversal recorded in 2018 (as
previously discussed). Changes in the Company's stock price, among
other factors, were the primary driver of the derivative
adjustments recorded during the respective quarters. Also
contributing to the change in net income (loss) was a $6.8 million
legal gain accrual following the settlement of a business economic
loss claim reached during the second quarter of 2018. The decrease
in MG&A expenses (as previously discussed) primarily drove the
remaining variance.
Adjusted EBITDA
Adjusted EBITDA decreased to $8.8 million during the second
quarter of 2019 compared to $11.2 million during the second quarter
of 2018 due primarily to a $2.5 million decrease in total revenue
offset partially by $0.1 million decrease in operating expenses,
after excluding EBITDA adjustments related to stock-based
compensation as well as costs to support the now-terminated merger
and to defend the related securities claim.
CONFERENCE CALL
The Company will conduct an investor conference call to discuss
its financial results and the expected amendment or 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, 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, a subsidiary of Globalstar, 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 June
30,
2019
2018
Revenue:
Service revenue
$
26,700
$
27,995
Subscriber equipment sales
4,491
5,731
Total revenue
31,191
33,726
Operating expenses:
Cost of services (exclusive of
depreciation, amortization, and accretion shown separately
below)
9,395
9,526
Cost of subscriber equipment sales
3,578
4,170
Marketing, general and administrative
11,022
15,944
Revision to contract termination
charge
—
(20,478
)
Depreciation, amortization, and
accretion
23,852
22,616
Total operating expenses
47,847
31,778
Operating income (loss)
(16,656
)
1,948
Other income (expense):
Interest income and expense, net of
amounts capitalized
(12,808
)
(10,305
)
Derivative gain (loss)
35,116
(2,059
)
Gain on legal settlement
120
6,779
Other
474
(3,351
)
Total other income (expense)
22,902
(8,936
)
Net income (loss) before income taxes
6,246
(6,988
)
Income tax expense
57
24
Net income (loss)
$
6,189
$
(7,012
)
Net income (loss) per common share:
Basic
$
0.00
$
(0.01
)
Diluted
0.01
(0.01
)
Weighted-average shares outstanding:
Basic
1,450,380
1,263,372
Diluted
1,640,442
1,263,372
GLOBALSTAR, INC. RECONCILIATION OF GAAP NET
INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA (In thousands)
(Unaudited)
Three Months Ended
June 30,
2019
2018
Net income (loss)
$
6,189
$
(7,012
)
Interest income and expense, net
12,808
10,305
Derivative loss (gain)
(35,116
)
2,059
Income tax expense
57
24
Depreciation, amortization, and
accretion
23,852
22,616
EBITDA
7,790
27,992
Non-cash compensation
1,700
1,749
Foreign exchange and other
(947
)
3,290
Debt modification third party fees
378
—
Merger and litigation-related costs
—
5,427
Revision to contract termination
charge
—
(20,478
)
Gain on legal settlement
(120
)
(6,779
)
Adjusted EBITDA (1)
$
8,801
$
11,201
(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
June 30,
2019
2018
Service
Equipment
Service
Equipment
Revenue
Duplex
$
9,031
$
306
$
10,134
$
751
SPOT
12,619
2,186
13,868
2,011
Commercial IoT
4,353
1,972
3,216
2,878
IGO
179
—
216
—
Other
518
27
561
91
Total Revenue
$
26,700
$
4,491
$
27,995
$
5,731
Average Subscribers
Duplex
58,654
67,456
SPOT
286,101
293,659
Commercial IoT
400,193
345,749
IGO
26,930
25,988
Other
929
1,112
Total Average Subscribers
772,807
733,964
ARPU (1)
Duplex
$
51.32
$
50.08
SPOT
14.70
15.74
Commercial IoT
3.63
3.10
IGO
2.22
2.77
(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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190809005082/en/
Investor Contact Information: Marcy O'Leary
investorrelations@globalstar.com
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