10-QPeriod: Q3 FY2006

Globalstar, Inc. Quarterly Report for Q3 Ended Sep 30, 2006

Filed December 18, 2006For Securities:GSAT

Summary

Globalstar, Inc. reported total revenue of $38.7 million for the three months ended September 30, 2006, a decrease of 5% compared to the prior year, primarily driven by a significant drop in subscriber equipment sales. However, service revenue saw a healthy increase of 24% year-over-year, indicating growth in the core subscription business, with subscriber growth of 39% from September 30, 2005, to September 30, 2006. Despite the revenue dip, operating income saw a substantial increase of 44% due to improved operational efficiencies and a decrease in certain operating expenses. The company's net income, however, decreased by 66% to $2.7 million, largely impacted by a significant $2.9 million loss on an interest rate derivative and increased income tax expenses. For the nine months ended September 30, 2006, Globalstar demonstrated stronger performance with total revenue up 18% to $107.4 million, fueled by a 22% increase in service revenue and a 12% rise in subscriber equipment sales. Operating income grew 16%, and net income more than doubled to $24.4 million, significantly benefiting from a substantial deferred tax benefit of $21.4 million recognized upon the company's election to be taxed as a C corporation. The company's balance sheet reflects a significant increase in assets, largely due to investments in spare and second-generation satellites, and an increase in liabilities, including borrowings under a new revolving credit facility. Looking ahead, Globalstar faces substantial capital expenditure requirements for its second-generation satellite constellation, with a major contract for €661 million entered into with Alcatel.

Key Highlights

  • 1Total revenue for Q3 2006 decreased 5% to $38.7 million, primarily due to lower subscriber equipment sales, though service revenue grew 24% to $27.6 million.
  • 2Net income for Q3 2006 decreased 66% to $2.7 million ($0.04/share) compared to $7.9 million ($0.13/share) in Q3 2005, impacted by a derivative loss and higher taxes.
  • 3For the first nine months of 2006, total revenue increased 18% to $107.4 million, with service revenue up 22% and subscriber equipment sales up 12%.
  • 4Net income for the first nine months of 2006 significantly increased to $24.4 million ($0.39/share) from $10.7 million ($0.17/share) in the prior year, driven by a large deferred tax benefit.
  • 5The company's balance sheet shows significant investment in 'Spare and second-generation satellites and launch costs,' which grew from $3.0 million to $66.6 million.
  • 6Globalstar entered into a significant €661 million contract with Alcatel Alenia Space France for its second-generation satellite constellation, with payments extending into 2013.
  • 7As of September 30, 2006, Globalstar had $17.7 million in cash and cash equivalents and had drawn $23.3 million on its $50 million revolving credit facility.

Frequently Asked Questions

In the third quarter of 2006, Globalstar reported total revenue of $38.7 million, a decrease of 5% compared to $40.6 million in the same period of 2005. This decline was primarily due to a 40% decrease in subscriber equipment sales, which fell to $11.0 million from $18.3 million, largely attributed to unusually high equipment sales in Q3 2005 related to hurricane activity. However, service revenue grew a strong 24% to $27.6 million, driven by a 39% increase in the subscriber base.

For the first nine months of 2006, Globalstar's net income rose significantly to $24.4 million ($0.39 per share) from $10.7 million ($0.17 per share) in the corresponding period of 2005. This substantial increase was largely a result of a $21.4 million deferred tax benefit recognized upon the company's election to be taxed as a C corporation, offsetting a decrease in income before taxes and an increase in operating expenses. Operating income for the nine-month period increased by 16% to $14.5 million.

Globalstar is making substantial investments in its future satellite capabilities. The company has entered into a significant contract valued at approximately €661 million (about $871 million) with Alcatel Alenia Space France to construct 48 satellites for its second-generation constellation, with payments scheduled to extend through 2013. Additionally, the company is preparing to launch eight spare satellites from its current constellation in 2007, with associated costs estimated at $110 million. These investments are crucial for maintaining service continuity and enhancing future capabilities.

As of September 30, 2006, Globalstar had $17.7 million in cash and cash equivalents. The company has access to a $50 million revolving credit facility, of which $23.3 million was drawn, and a $100 million delayed draw term loan facility. Furthermore, Thermo Funding Company has an outstanding commitment of $185.0 million under a standby stock purchase agreement. Despite these resources, the company faces significant capital expenditure needs for its second-generation constellation and satellite launches, with plans to fund these through operations, equity sales, and debt facilities. The company's substantial upcoming capital expenditures and ongoing operational costs necessitate careful financial management.