10-QPeriod: Q1 FY2015

Globalstar, Inc. Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 8, 2015For Securities:GSAT

Summary

Globalstar, Inc.'s first quarter 2015 performance showed a modest increase in total revenue to $21.0 million, up from $20.5 million in the prior year period. This growth was primarily driven by a $0.9 million increase in service revenue, largely from gains in the Duplex, SPOT, and Simplex subscriber bases. However, this was partially offset by a decrease in subscriber equipment sales, impacted by rebate programs and a stronger U.S. dollar. The company reported a significant net loss of $129.7 million, an improvement from a loss of $250.5 million in Q1 2014, largely due to a substantial reduction in derivative loss. Operating expenses decreased due to lower depreciation and amortization, but marketing, general, and administrative expenses rose, driven by subscriber acquisition costs and stock compensation. The company ended the quarter with $13.7 million in cash and cash equivalents, with $14.0 million available under its equity line with Terrapin. Despite improvements in some operational areas, the company continues to grapple with substantial debt and significant derivative liabilities impacting its financial results.

Financial Highlights

45 data points
Beta

Revenue

$21.02M

85.1% Gross Margin

Net Income

-$129.73M

-617.1% Net Margin

EPS (Diluted)

$-1.95

Total Assets

$1.26B

Cash & Equivalents

$13.65M

Free Cash Flow

$1.39M

Financial Statements
Beta
Revenue$21.02M
Cost of Revenue$3.13M
Gross Profit$17.89M
SG&A Expenses$8.60M
Operating Expenses$38.21M
Operating Income-$17.18M
Net Income-$129.73M
EPS (Basic)$-1.95
EPS (Diluted)$-1.95
Shares Outstanding (Basic)66.72M
Shares Outstanding (Diluted)66.72M

Key Highlights

  • 1Total revenue increased by 2% to $21.0 million in Q1 2015, driven by a 7% rise in service revenue primarily from increased Duplex, SPOT, and Simplex subscribers.
  • 2Net loss narrowed significantly to $129.7 million from $250.5 million in Q1 2014, primarily due to a substantial decrease in derivative losses.
  • 3Operating expenses decreased by 7% to $38.2 million, largely due to lower depreciation, amortization, and accretion expenses.
  • 4Marketing, general, and administrative expenses increased by 11% to $8.6 million, attributed to higher subscriber acquisition costs and stock compensation.
  • 5Cash and cash equivalents increased to $13.7 million at the end of Q1 2015, up from $7.1 million at the end of 2014, supported by financing activities.
  • 6The company has $14.0 million remaining under its equity line with Terrapin, which was used as an "Equity Cure Contribution" in February 2015 to assist with financial covenant compliance.
  • 7Significant derivative liabilities, totaling $548.5 million, continue to impact the balance sheet and statement of operations, with a $107.9 million loss recognized in the quarter.

Frequently Asked Questions

The significant reduction in Globalstar's net loss from $250.5 million in Q1 2014 to $129.7 million in Q1 2015 was primarily driven by a substantial decrease in derivative losses. Derivative losses fell from $209.4 million in the prior year period to $107.9 million in the current quarter, which was the largest contributor to the improved net loss.

Globalstar's senior secured credit facility agreement has specific financial and non-financial covenants. The company has the ability to cure noncompliance with certain financial covenants through equity contributions until June 2017. In February 2015, Globalstar utilized $10 million from its equity line with Terrapin as an 'Equity Cure Contribution' to aid in covenant compliance calculations. The company is currently in discussions with its lenders regarding a disputed covenant calculation for the period ending December 31, 2014.

Globalstar carries significant derivative liabilities on its balance sheet, totaling $548.5 million at the end of Q1 2015. These liabilities arise from embedded features in debt instruments that require bifurcation. The fair value of these derivatives is marked-to-market each period, resulting in substantial non-cash gains or losses reported in the statement of operations. In Q1 2015, a $107.9 million derivative loss was recognized, largely influenced by fluctuations in the company's stock price and stock price volatility.

Globalstar's revenue is derived from two main sources: service revenue and subscriber equipment sales. Service revenue, which increased by 7% to $17.1 million, is growing due to increases in Duplex, SPOT, and Simplex subscribers. Duplex service revenue grew 5%, SPOT service revenue grew 7%, and Simplex service revenue saw a significant 23% increase. Subscriber equipment sales revenue, however, decreased by 4% to $3.9 million, largely due to lower SPOT equipment sales revenue, impacted by rebate programs, despite an increase in SPOT product activations.