10-QPeriod: Q1 FY2010

Globalstar, Inc. Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 7, 2010For Securities:GSAT

Summary

Globalstar, Inc.'s first quarter 2010 report (ending March 31, 2010) shows a net loss of $35.6 million, a significant increase from the $21.8 million loss in the same period of 2009. This widened loss is primarily driven by a substantial $25 million derivative loss, largely due to mark-to-market adjustments on various derivative liabilities and interest rate caps. Despite this, total revenue saw a modest increase of 3% to $15.6 million, largely fueled by a 12% rise in service revenue, particularly from the growing Simplex subscriber base (up 37%) and increased Average Revenue Per User (ARPU) for Simplex services. Operating expenses decreased by 26% due to cost reductions, including lower marketing, general, and administrative expenses, and decreased cost of goods sold related to lower equipment sales. However, capital expenditures remain high, with $76.8 million used in investing activities, primarily for the second-generation satellite constellation. The company secured $126.1 million in financing from its Facility Agreement, significantly improving its cash position to $96.9 million at the end of the quarter, up from $67.9 million at the end of 2009. Management believes current resources are sufficient for at least the next 12 months.

Financial Highlights

6 data points
Beta

Revenue

$15.57M

Net Income

-$35.64M

-228.9% Net Margin

EPS (Diluted)

$-1.95

Financial Statements
Beta
Revenue$15.57M
Net Income-$35.64M
EPS (Basic)$-1.95
EPS (Diluted)$-1.95
Shares Outstanding (Basic)18.36M
Shares Outstanding (Diluted)18.36M

Key Highlights

  • 1Net loss widened to $35.6 million in Q1 2010 from $21.8 million in Q1 2009, largely due to a $24.96 million derivative loss.
  • 2Total revenue increased 3% to $15.6 million, driven by a 12% increase in service revenue, primarily from Simplex services.
  • 3Simplex subscriber base grew 37% year-over-year, with Simplex ARPU increasing 22%.
  • 4Total operating expenses decreased 26% due to cost-cutting measures and favorable stock-based compensation adjustments.
  • 5Cash and cash equivalents increased significantly to $96.9 million from $67.9 million due to $126.1 million drawn from the Facility Agreement.
  • 6Capital expenditures in investing activities were substantial at $76.8 million, mainly for the second-generation satellite constellation.
  • 7The company is experiencing two-way communication issues with its current satellite constellation, impacting duplex service quality and subscriber numbers.

Frequently Asked Questions

The primary driver of the increased net loss is a significant derivative loss of approximately $24.96 million. This loss is primarily due to the mark-to-market adjustments of various derivative instruments and liabilities, including those embedded in convertible notes and warrants, as well as interest rate cap agreements. Higher stock prices at the end of the quarter increased the fair market value of these derivative liabilities.

The company is experiencing degradation in the performance of its current satellite constellation, specifically with two-way communication issues related to S-band antenna amplifiers. This impacts the availability and duration of two-way voice and data services. The company is working on plans, including new products, services, and pricing programs, to mitigate these effects until its second-generation satellites are deployed. Importantly, these issues do not affect the one-way Simplex data transmission services, such as the SPOT messenger products.

Globalstar's cash position significantly improved due to drawing $126.1 million from its Facility Agreement, bringing cash and cash equivalents to $96.9 million. The company believes it has sufficient resources to meet its cash obligations for at least the next 12 months. Future long-term liquidity needs include funding the remainder of the second-generation constellation deployment, working capital, potential acquisitions, and debt repayment. Potential sources include remaining Facility Agreement funds, additional debt/equity financings, cash flow from operations once the new constellation is deployed, a debt service reserve account, and a contingent equity account.

The growth in Simplex services is a key positive driver for Globalstar. Simplex subscriber numbers increased by 37% year-over-year, and the Average Revenue Per User (ARPU) for Simplex services grew by 22%. This strong performance in the Simplex segment led to a 12% increase in overall service revenue and helped offset declines in the company's duplex business, which is affected by the current satellite constellation's communication issues.