Globalstar(GSAT) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company reported a net loss for Q3 and the nine months ended September 30, 2020, primarily due to reduced derivative gains, while total assets decreased and debt was significantly reduced by a loan conversion Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Globalstar reported a net loss of $24.9 million for Q3 2020 and $87.9 million for the nine-month period, primarily due to a significant decrease in derivative gains compared to the prior year, despite a slight revenue decline Condensed Consolidated Statements of Operations (In thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $32,757 | $38,614 | $95,315 | $99,883 | | Loss from operations | $(14,635) | $(12,005) | $(44,099) | $(46,992) | | Derivative gain | $1,225 | $50,156 | $1,564 | $142,280 | | Net (loss) income | $(24,946) | $21,111 | $(87,905) | $53,071 | | Basic (loss) income per share | $(0.01) | $0.01 | $(0.05) | $0.04 | Condensed Consolidated Balance Sheets Globalstar's total assets decreased to $910.5 million as of September 30, 2020, primarily due to reduced property and equipment, while total liabilities significantly decreased to $463.9 million mainly from the Thermo loan conversion, leading to an increase in stockholders' equity Condensed Consolidated Balance Sheet Highlights (In thousands) | | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $73,311 | $63,260 | | Total assets | $910,513 | $965,590 | | Total current liabilities | $107,177 | $63,060 | | Long-term debt, less current portion | $330,069 | $464,176 | | Total liabilities | $463,958 | $558,247 | | Total stockholders' equity | $446,555 | $407,343 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $23.7 million for the nine months ended September 30, 2020, while net cash from financing activities sharply decreased, resulting in an overall increase in cash, cash equivalents, and restricted cash to $74.3 million Cash Flow Summary (In thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,687 | $6,044 | | Net cash used in investing activities | $(9,295) | $(7,625) | | Net cash provided by financing activities | $872 | $13,566 | | Net increase in cash, cash equivalents and restricted cash | $15,208 | $11,959 | | Cash, cash equivalents and restricted cash, end of period | $74,336 | $87,449 | Notes to Financial Statements The notes detail financial reporting policies, the impact of COVID-19, and key events including the adoption of ASU 2016-13, the conversion of the $137.4 million Thermo Loan into common stock, and the receipt of a $5.0 million PPP loan - The company assessed the impact of COVID-19, noting lower demand for products and services, particularly from the oil and gas market, and while expecting this to be temporary, it increased its loss rate for certain receivables[28][29][46] - On February 19, 2020, Thermo converted the entire outstanding principal balance of its loan, totaling $137.4 million (including accrued interest), into 200.1 million shares of common stock[63][85] - In April 2020, the company received a $5.0 million loan under the Payroll Protection Program (PPP) as part of the CARES Act, which it expects to be forgiven[31][68] Revenue by Product and Service (Nine Months Ended Sep 30, In thousands) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Service Revenue | | | | Duplex | $26,175 | $34,265 | | SPOT | $35,098 | $38,196 | | Commercial IoT | $13,028 | $12,577 | | Engineering and other | $9,814 | $1,449 | | Total Service Revenue | $84,410 | $86,971 | | Subscriber Equipment Sales | $10,905 | $12,912 | | Total Revenue | $95,315 | $99,883 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the adverse impact of COVID-19 on revenue and equipment sales, noting decreased operating expenses and a liquidity position supported by cash from operations and a PPP loan, while acknowledging uncertainty regarding future debt covenant compliance following the Thermo loan conversion Business Overview Globalstar provides Mobile Satellite Services (MSS) through its LEO satellite constellation and is actively pursuing terrestrial authority for its 2.4GHz spectrum (Band 53 and 5G variant n53) to enable private LTE networks and cellular densification - The company provides MSS through its Duplex, SPOT, and Commercial IoT product lines, serving approximately 751,000 subscribers as of September 30, 2020[96][97][98][103] - Globalstar is actively seeking international approvals to harmonize its S-band spectrum for terrestrial mobile broadband services, having already received authorization in the U.S. and other countries[106][107] - The 3GPP has approved Band 53 for the company's 2.4 GHz spectrum and its 5G variant, n53, creating a pathway for integration into handset and infrastructure ecosystems[109] Results of Operations Total revenue decreased 15% in Q3 2020 and 5% for the nine-month period, primarily due to lower Duplex service revenue and mixed subscriber equipment sales, while total operating expenses declined due to reduced maintenance, R&D, and MG&A costs Revenue Breakdown (Three Months Ended Sep 30, 2020 vs 2019, In thousands) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Service Revenue | | | | Duplex | $9,956 | $12,704 | | SPOT | $11,396 | $12,482 | | Commercial IoT | $4,420 | $4,526 | | Engineering and other | $2,518 | $416 | | Subscriber Equipment Sales | $4,372 | $4,462 | | Total Revenue | $32,757 | $34,152 | - Duplex service revenue decreased 22% in Q3 2020 (excluding a prior-year adjustment) due to a 13% decrease in average subscribers and a 9% decrease in ARPU[123] - Commercial IoT equipment sales decreased by $0.9 million in Q3 and $2.6 million in the nine-month period, driven by lower demand from customers in the oil and gas industry due to COVID-19[128] - Total operating expenses decreased by 6% for Q3 2020, helped by lower maintenance costs, reduced subscriber acquisition costs, and a prior-year write-off of financing costs that did not recur[129][130][133][134] Liquidity and Capital Resources As of September 30, 2020, the company had $19.5 million in cash and cash equivalents, with long-term debt significantly reduced by the Thermo loan conversion, but faces a requirement to raise $45.0 million in equity by March 31, 2021, and acknowledges uncertainty regarding future debt covenant compliance due to COVID-19 - The company's principal sources of liquidity are cash on hand ($19.5M), cash from operations, and anticipated proceeds from warrant exercises[143][144] - The Facility Agreement requires the company to raise no less than $45.0 million of equity prior to March 31, 2021, to be applied towards the June 30, 2021 principal payment[151] - The company was in compliance with all debt covenants as of September 30, 2020, but notes that future compliance is uncertain due to the ongoing impact of COVID-19[143][148][155] Cash Flow Summary (Nine Months Ended, In thousands) | | Sep 30, 2020 | Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,687 | $6,044 | | Net cash used in investing activities | $(9,295) | $(7,625) | | Net cash provided by financing activities | $872 | $13,566 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates, particularly from sales in Canadian dollars, Brazilian reais, and euros, and interest rate fluctuations on its variable rate Facility Agreement, where a 1.0% change would impact annual interest expense by approximately $1.9 million - The company faces foreign currency risk from sales denominated in Canadian dollars, Brazilian reais, and euros[169] - The company has interest rate risk from its variable rate Facility Agreement, which is based on LIBOR, where a 1.0% change in interest rates would change annual interest expense by about $1.9 million on the $187.0 million principal outstanding[171] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, noting that remote work arrangements due to COVID-19 and the implementation of a new billing system did not adversely affect internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of September 30, 2020, providing reasonable assurance of timely and accurate reporting[173][174] - The company implemented a new billing system in April 2020, which resulted in changes to internal controls that were not deemed to have a material adverse effect[176] PART II - OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[178] Risk Factors The company highlights the adverse impact of the COVID-19 pandemic as a significant risk factor, leading to reduced equipment sales, challenges in collecting receivables, and potential supply chain disruptions, which could negatively impact operations and debt covenant compliance - The COVID-19 pandemic could have a material adverse impact on financial condition and results of operations[180] - Specific pandemic-related risks include reduced sales of subscriber equipment, challenges in collecting receivables from customers in the oil & gas and retail industries, and potential supply chain interruptions from China[182][183] - The company warns it may not remain in compliance with certain financial covenants in its Facility Agreement over the next twelve months due to the pandemic's impact[184] Unregistered Sales of Equity Securities and Use of Proceeds Not applicable - Not Applicable[186] Other Information The company reported no other information - None[187] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL data files