10-QPeriod: Q2 FY2016

Globalstar, Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:GSAT

Summary

Globalstar, Inc. reported revenues of $25.1 million for the three months ended June 30, 2016, an increase of 9% compared to the same period in the prior year, driven primarily by a 16% increase in Duplex service revenue and a 14% increase in SPOT service revenue. Service revenue growth was supported by an increase in the average subscriber base and higher Average Revenue Per User (ARPU) across key service categories. However, the company experienced a net loss of $12.8 million for the six months ended June 30, 2016, a significant decrease from the net income of $75.0 million in the same period of 2015. This swing in profitability is largely attributable to a substantial decrease in derivative gains, which were $39.2 million in the first six months of 2016 compared to $129.2 million in the prior year's comparable period. The company's balance sheet reflects total assets of $1.16 billion and total liabilities of $1.16 billion, with total stockholders' equity standing at $256.1 million. Cash and cash equivalents stood at $11.3 million, while long-term debt, net of current portion, was $540.4 million. Operationally, Globalstar continues to invest in its network infrastructure, with $190.3 million in construction in progress for next-generation upgrades. The company maintained compliance with its debt covenants, utilizing equity contributions from Terrapin Opportunity, L.P. to satisfy financial covenant requirements. Significant ongoing dialogue with Thales Alenia Space France regarding ownership of certain deliverables for second-generation satellites remains a notable point of attention. The company also highlighted the potential impact of the UK's vote to leave the EU (Brexit) on its European operations and currency exchange risk.

Financial Statements
Beta

Key Highlights

  • 1Total revenue increased by 9% to $25.1 million for Q2 2016, driven by service revenue growth in Duplex and SPOT services.
  • 2Despite revenue growth, the company reported a net loss of $12.8 million for the six months ended June 30, 2016, compared to a net income of $75.0 million in the prior year, largely due to a significant decrease in derivative gains.
  • 3Cash and cash equivalents stood at $11.3 million, with $31.5 million remaining available under the August 2015 Terrapin common stock purchase agreement.
  • 4Long-term debt, net of current portion, was $540.4 million as of June 30, 2016.
  • 5Significant investment in network infrastructure continues, with $190.3 million in construction in progress for next-generation ground upgrades.
  • 6The company remains compliant with its debt covenants, having made equity cure contributions from Terrapin.
  • 7Dispute with Thales Alenia Space France regarding ownership of second-generation satellite deliverables is ongoing.

Frequently Asked Questions

The primary driver for the substantial decrease in net income was a significant reduction in derivative gains. Derivative gains were $39.2 million in the first six months of 2016, down from $129.2 million in the same period of 2015. This fluctuation is largely due to changes in the fair value of embedded derivatives within the company's debt instruments, which are sensitive to stock price volatility.

Globalstar's long-term debt stood at $540.4 million (net of current portion) as of June 30, 2016. The company has a $75 million common stock purchase agreement with Terrapin, with $31.5 million available as of the reporting date, which can be used for general corporate purposes or to satisfy debt covenant requirements (Equity Cure Contributions). The company reported compliance with its debt covenants and used Terrapin funds for such contributions.

The company has successfully launched its second-generation satellites, with one on-ground spare remaining. It is continuing to invest in ground infrastructure upgrades, with $190.3 million in construction in progress for next-generation gateways. However, there is an ongoing dispute with Thales Alenia Space France regarding the ownership of certain deliverables for the second-generation satellites.

Globalstar's revenue is primarily driven by service revenues from Duplex, SPOT, and Simplex services, along with subscriber equipment sales. For Q2 2016, total revenue increased 9% year-over-year, fueled by a 16% increase in Duplex service revenue and a 14% increase in SPOT service revenue. This growth is attributed to an increasing subscriber base and higher Average Revenue Per User (ARPU) for these services.