10-QPeriod: Q2 FY2011

Globalstar, Inc. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:GSAT

Summary

Globalstar, Inc.'s (GSAT) Q2 2011 filing reveals a company in transition, heavily reliant on the successful deployment of its second-generation satellite constellation. Total revenue saw a modest increase of 8% year-over-year for the quarter, driven primarily by strong growth in Simplex and SPOT equipment sales and service revenue, alongside a one-time revenue recognition from the termination of an Open Range contract. However, this growth is hampered by persistent issues with the first-generation satellites, leading to a significant decline in Duplex service revenue and a corresponding drop in its Average Revenue Per User (ARPU). The company faces substantial financial challenges, including significant operating expenses driven by depreciation from new satellites and increased legal fees. Liquidity remains a critical concern, with Globalstar acknowledging insufficient cash and financing commitments to meet its obligations over the next twelve months. While capital expenditures for the second-generation constellation are nearing completion, the company is actively seeking additional financing and is entangled in an arbitration with Thales regarding future satellite procurement. Investors should closely monitor the progress of the second-generation satellite launches, the resolution of the Thales arbitration, and the company's ability to secure necessary funding to avoid potential default on its debt obligations.

Financial Highlights

46 data points
Beta

Revenue

$19.00M

80.7% Gross Margin

Net Income

-$14.07M

-74.0% Net Margin

EPS (Diluted)

$-0.75

Total Assets

$1.42B

Cash & Equivalents

$24.09M

Free Cash Flow

-$2.33M

Financial Statements
Beta
Revenue$19.00M
Cost of Revenue$3.67M
Gross Profit$15.33M
SG&A Expenses$11.57M
Operating Expenses$35.82M
Operating Income-$16.82M
Interest Expense$1.16M
Net Income-$14.07M
EPS (Basic)$-0.75
EPS (Diluted)$-0.75
Shares Outstanding (Basic)19.66M
Shares Outstanding (Diluted)19.66M

Key Highlights

  • 1Total revenue increased by 8% year-over-year to $19.0 million in Q2 2011, driven by Simplex and SPOT equipment sales and service revenue.
  • 2Duplex service revenue and ARPU continued to decline (12% and 9% respectively for Q2) due to ongoing two-way communication issues with the first-generation satellites.
  • 3SPOT subscriber base grew significantly (42% for Q2), contributing to a 30% increase in SPOT service revenue.
  • 4Operating expenses increased by 35% to $35.8 million, primarily due to higher depreciation from new satellites and increased legal fees.
  • 5The company reported net cash used by operating activities of $(5.5) million for the first six months of 2011, and $(6.2) million for the same period in 2010.
  • 6Globalstar faces a significant liquidity crunch, stating it does not have sufficient cash or financing commitments to meet its obligations over the next twelve months.
  • 7The company is in arbitration with Thales concerning the procurement of additional second-generation satellites, which could impact future costs and deployment schedules.

Frequently Asked Questions

Globalstar's Duplex service, which provides two-way voice and data communication, is significantly impacted by the degradation of its first-generation satellites. This has led to ongoing two-way communication issues, resulting in decreased service revenue and ARPU for this segment.

Globalstar acknowledges it does not have sufficient cash or financing commitments to meet its upcoming obligations. The company plans to fund its needs through available cash, its Facility Agreement, additional debt and equity offerings that are not yet arranged, cash from its contingent equity account, and potentially operating cash flows. However, the success of these plans is uncertain.

Globalstar is in the process of launching 24 second-generation satellites, with 12 already launched and the remaining set for completion by the end of 2011. This new constellation is crucial for improving coverage and service quality, particularly for the Duplex product, and is expected to drive future subscriber growth and ARPU. However, one launched satellite has experienced an anomaly and is in 'safe hold' mode, and the company is in arbitration with Thales regarding future satellite procurement.

Key risks include the company's ability to secure necessary financing to meet its obligations, potential defaults on its debt due to missed milestones related to satellite deployment, delays in second-generation satellite launches or operational issues with new satellites, and the ongoing arbitration with Thales which could impact future satellite costs and availability. The company also highlights that its ability to return to profitability is contingent on successful deployment of the new constellation and generating sufficient revenue and cash flow.