10-QPeriod: Q1 FY2018

Globalstar, Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 10, 2018For Securities:GSAT

Summary

Globalstar, Inc. reported total revenue of $28.7 million for the first quarter of 2018, an increase of 17% compared to $24.7 million in the prior year's same quarter. This growth was primarily driven by a $4.5 million increase in service revenue, reflecting higher Average Revenue Per User (ARPU) across its core product categories (Duplex, SPOT, and Simplex). Despite an increase in operating expenses, particularly in marketing, general, and administrative categories, the company significantly improved its net income to $87.9 million from a net loss of $20.2 million in the first quarter of 2017. This substantial swing in profitability was largely attributable to a derivative gain of $108.9 million in the current quarter, compared to a much smaller gain of $3.2 million in the prior year. The company's cash flow from operations also showed improvement, increasing to $9.8 million from $5.3 million. A notable event subsequent to the quarter's end was the announcement on April 24, 2018, of an Agreement and Plan of Merger, where Globalstar will acquire FiberLight, LLC, along with other assets and cash, through a merger with Thermo Acquisitions. This significant transaction is expected to add substantial assets and value to Globalstar, though its financial implications are still subject to closing conditions and adjustments.

Financial Highlights

44 data points
Beta

Revenue

$28.75M

92.4% Gross Margin

Net Income

$87.93M

305.9% Net Margin

EPS (Diluted)

$-0.15

Total Assets

$1.13B

Cash & Equivalents

$48.81M

Free Cash Flow

$8.44M

Financial Statements
Beta
Revenue$28.75M
Cost of Revenue$2.17M
Gross Profit$26.58M
SG&A Expenses$11.28M
Operating Expenses$41.71M
Operating Income-$12.96M
Net Income$87.93M
EPS (Basic)$1.05
EPS (Diluted)$-0.15
Shares Outstanding (Basic)84.16M
Shares Outstanding (Diluted)95.82M

Key Highlights

  • 1Total revenue increased by 17% to $28.7 million in Q1 2018 compared to $24.7 million in Q1 2017, driven by service revenue growth.
  • 2Service revenue saw a significant increase of $4.5 million, primarily due to higher ARPU across Duplex, SPOT, and Simplex services.
  • 3Net income surged to $87.9 million in Q1 2018 from a net loss of $20.2 million in Q1 2017, largely due to a substantial derivative gain of $108.9 million.
  • 4Operating expenses increased by 5% to $41.7 million, with Marketing, General, and Administrative expenses being the main driver.
  • 5Cash flow from operating activities improved to $9.8 million in Q1 2018 from $5.3 million in Q1 2017.
  • 6The company adopted ASC 606, 'Revenue from Contracts with Customers,' effective January 1, 2018, impacting revenue recognition policies.
  • 7Subsequent to the quarter, Globalstar announced a significant merger agreement to acquire FiberLight, LLC and other assets.

Frequently Asked Questions

The primary driver of Globalstar's improved net income was a significant derivative gain of $108.9 million in the first quarter of 2018. This gain, related to changes in the fair value of certain embedded derivatives in the company's debt instruments, dramatically offset operating losses and other expenses, leading to a substantial swing from a net loss in the prior year's quarter.

Globalstar adopted ASC 606 using the modified retrospective method, effective January 1, 2018. This resulted in a net increase to the opening retained deficit and changes in accounting policies, notably regarding the deferral of costs to obtain a contract and the accrual of contract breakage to revenue based on historical usage patterns. For the first quarter of 2018, this adoption led to a reduction in Duplex service revenue of $0.8 million, as revenue calculated based on usage patterns under ASC 606 was less than what would have been recognized under legacy GAAP.

The merger agreement announced on April 24, 2018, signifies a major strategic move for Globalstar. The company plans to acquire FiberLight, LLC, along with $100 million in cash, shares of CenturyLink, Inc., and other assets. This transaction, which is subject to customary closing conditions and lender approvals, is expected to significantly expand Globalstar's asset base and potentially diversify its business, though it also introduces complexities related to financing and integration.

As of March 31, 2018, Globalstar had $48.8 million in cash and cash equivalents and $63.9 million in restricted cash. The company's principal liquidity requirements include debt service obligations and operating costs. While cash flows from operations improved, the company anticipates needing an 'Equity Cure Contribution' to maintain compliance with financial covenants under its Facility Agreement by the end of 2018, with the source of these funds not yet fully arranged. The upcoming merger with FiberLight and associated financing are critical to its future liquidity and operational capabilities.