10-QPeriod: Q1 FY2008

Globalstar, Inc. Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 12, 2008For Securities:GSAT

Summary

Globalstar, Inc. (GSAT) reported a net loss of $6.6 million for the first quarter of 2008, a significant decrease from the $0.4 million net income in the same period of 2007. This decline was driven by a 4% decrease in total revenue to $22.1 million and a substantial 42% increase in operating expenses to $33.7 million. The company cited lower service revenue, attributed to pricing adjustments made to mitigate the impact of ongoing two-way communication issues with its older satellite constellation, as a primary revenue driver. Furthermore, increased operating expenses were due to higher depreciation from newly launched satellites, costs associated with the SPOT satellite messenger product launch, and increased marketing and administrative expenses. Financially, the company experienced a net decrease in cash and cash equivalents of $23.1 million during the quarter, ending with $14.5 million. Significant investing activities included $109.3 million in capital expenditures, primarily for the second-generation satellite constellation. The company also secured $100 million in new debt financing under its credit facility. Subsequent to the quarter, on April 15, 2008, Globalstar successfully closed a $135 million convertible notes offering, providing a significant liquidity boost. Despite operational challenges with its current constellation, the company is making substantial investments in its next-generation network, underscoring a long-term strategic focus.

Key Highlights

  • 1Net loss of $6.6 million for Q1 2008, compared to a net income of $0.4 million in Q1 2007.
  • 2Total revenue decreased by 4% to $22.1 million, primarily due to a decline in service revenue.
  • 3Operating expenses surged by 42% to $33.7 million, driven by higher depreciation, SPOT product launch costs, and increased marketing expenses.
  • 4Cash and cash equivalents decreased by $23.1 million during the quarter, ending at $14.5 million.
  • 5Capital expenditures were $109.3 million, largely for the second-generation satellite constellation.
  • 6Secured $100 million in new debt financing during the quarter.
  • 7Completed a $135 million convertible notes offering in April 2008 (subsequent event), bolstering liquidity.

Frequently Asked Questions

The primary reason for the increased operating loss is a combination of lower service revenues due to pricing adjustments made to manage the impact of two-way communication issues with the current satellite constellation, and a significant 42% increase in operating expenses. These expenses were driven by higher depreciation from newly launched satellites, costs associated with the new SPOT satellite messenger product launch, and increased marketing and administrative expenses.

The company is experiencing degradation in its older satellites due to issues with solid-state power amplifiers, which affects two-way voice and data communication. While they have implemented technical solutions and launched spare satellites, the quality is expected to continue declining. The long-term solution is the deployment of their second-generation satellite constellation, which is a major ongoing capital expenditure. Simplex data services, like the SPOT messenger, are not affected by these issues.

As of March 31, 2008, Globalstar had $14.5 million in cash and cash equivalents. The company used $109.3 million for investing activities, primarily for its second-generation satellites, and secured $100 million in debt financing. Subsequent to the quarter, the company successfully closed a $135 million convertible notes offering on April 15, 2008 (with an additional $15 million from an over-allotment option on May 8, 2008). This offering significantly strengthened the company's liquidity and is expected to fund its capital expenditures and working capital needs.

Globalstar's primary capital expenditure commitment is the procurement and deployment of its second-generation satellite constellation, which is estimated to cost approximately $1.25 billion. This includes contracts with Thales Alenia Space for satellite construction and control systems, and with Arianespace for launch services. Significant portions of these costs are denominated in Euros.