10-QPeriod: Q2 FY2015

Globalstar, Inc. Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 10, 2015For Securities:GSAT

Summary

Globalstar, Inc. reported its second quarter 2015 financial results, showing a notable shift from a net loss to a net income of $204.8 million, primarily driven by a significant derivative gain of $237.1 million. This gain was largely attributed to the favorable change in the fair value of derivative instruments tied to the company's debt. Despite the overall profitability for the quarter, total revenue saw a slight decrease to $23.0 million from $24.0 million in the prior year period, mainly due to a decline in subscriber equipment sales. Service revenues showed a modest increase, supported by a 12% growth in the subscriber base. The company also addressed its debt structure, amending its Facility Agreement and securing new equity financing arrangements. Key highlights include improvements in operational efficiency and a continued focus on subscriber growth across its service lines.

Financial Highlights

45 data points
Beta

Revenue

$23.02M

87.0% Gross Margin

Net Income

$204.77M

889.4% Net Margin

EPS (Diluted)

$2.55

Total Assets

$1.26B

Cash & Equivalents

$12.87M

Free Cash Flow

-$4.97M

Financial Statements
Beta
Revenue$23.02M
Cost of Revenue$2.98M
Gross Profit$20.04M
SG&A Expenses$10.16M
Operating Expenses$40.44M
Operating Income-$17.42M
Net Income$204.77M
EPS (Basic)$3.00
EPS (Diluted)$2.55
Shares Outstanding (Basic)67.33M
Shares Outstanding (Diluted)80.36M

Key Highlights

  • 1Reported a net income of $204.8 million for the quarter, a significant turnaround from a net loss in the prior year, largely due to a $237.1 million derivative gain.
  • 2Total revenue decreased by 4% to $23.0 million, primarily driven by a $1.7 million decrease in subscriber equipment sales, partially offset by a $0.7 million increase in service revenue.
  • 3Service revenue increased year-over-year, supported by a 12% growth in the overall subscriber base.
  • 4Operating expenses decreased by 18% to $40.4 million, mainly due to the absence of a significant inventory write-down recorded in the prior year and lower depreciation expense.
  • 5The company amended its senior secured credit facility agreement (Facility Agreement) in August 2015 to clarify debt covenants and secured a new $75 million equity line with Terrapin.
  • 6Cash and cash equivalents increased to $12.9 million as of June 30, 2015, from $7.1 million at the end of 2014.
  • 7Depreciation, amortization, and accretion expense decreased by 12% due to first-generation satellites reaching the end of their depreciable lives.

Frequently Asked Questions

The substantial net income of $204.8 million for the quarter was primarily driven by a $237.1 million gain from derivative instruments. This gain reflects favorable changes in the fair value of embedded derivatives within the company's debt instruments, largely influenced by fluctuations in Globalstar's stock price.

While service revenues saw a modest increase due to a 12% growth in subscribers, total revenue declined primarily because of a significant decrease in subscriber equipment sales. This decline was attributed to lower Simplex equipment sales and reduced pricing for Duplex and SPOT equipment due to promotional activities and new product introductions.

Globalstar amended its Facility Agreement in August 2015 to clarify its debt covenants, specifically the Net Debt to Adjusted Consolidated EBITDA ratio, and to extend the period for Equity Cure Contributions. Additionally, the company secured a new $75 million equity line with Terrapin, which can be used for Equity Cure Contributions or general corporate purposes, and Thermo committed to provide up to $30 million in equity financing under specific conditions.

The company is still considering its rights and remedies regarding a dispute with Thales over ownership of certain long-lead items (LLI) for second-generation satellites. Although a settlement agreement exists, certain conditions related to the financing and purchase of additional satellites have not been met, leaving the settlement terms for termination charges in limbo. Thales' confirmation of an arbitration award could materially impact Globalstar's financial condition.