Globalstar(GSAT) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The financial statements reveal Globalstar's significant revenue growth and operational turnaround in Q1 2023, alongside balance sheet shifts and cash flow impacts from strategic investments and debt refinancing Condensed Consolidated Statements of Operations Globalstar's Q1 2023 operations show a significant revenue surge to $58.6 million, transforming an operating loss into income despite a one-time debt extinguishment loss Q1 2023 vs Q1 2022 Statement of Operations (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $58,644 | $32,772 | | Service Revenue | $52,954 | $29,344 | | Subscriber Equipment Sales | $5,690 | $3,428 | | Income (Loss) from Operations | $7,191 | ($13,712) | | Loss on Extinguishment of Debt | ($10,403) | - | | Net Loss | ($3,480) | ($20,462) | | Net Loss per Common Share (Basic & Diluted) | $0.00 | ($0.01) | - Total revenue increased by 79% year-over-year, driven by a substantial 80% growth in service revenue[13] - The company achieved a significant operational turnaround, posting an income from operations of $7.2 million compared to a loss of $13.7 million in the same period last year[13] - A one-time loss on debt extinguishment of $10.4 million significantly impacted the bottom line, leading to a net loss despite positive operating income[13] Consolidated Balance Sheets Globalstar's balance sheet as of March 31, 2023, shows total assets increasing to $844.6 million, driven by property and prepaid satellite costs, while liabilities grew due to new long-term debt Balance Sheet Summary (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $72,715 | $81,244 | | Cash and cash equivalents | $20,487 | $32,082 | | Total Assets | $844,555 | $833,395 | | Total Current Liabilities | $162,694 | $197,076 | | Vendor financing | $0 | $59,575 | | Long-Term Debt | $182,243 | $132,115 | | Total Liabilities | $534,701 | $518,624 | | Total Stockholders' Equity | $309,854 | $314,771 | - Cash and cash equivalents decreased by $11.6 million during the quarter to $20.5 million[16] - The company eliminated its $59.6 million in vendor financing, but long-term debt increased by $50.1 million due to the issuance of new 13% Senior Notes[16] Condensed Consolidated Statements of Cash Flows Globalstar's Q1 2023 cash flows show strong operating cash generation, offset by significant investing outflows for satellite procurement and financing activities from debt refinancing Cash Flow Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,805 | $7,569 | | Net cash used in investing activities | ($71,575) | ($10,451) | | Payments under satellite procurement agreement | ($59,575) | - | | Net cash provided by financing activities | $37,148 | $8 | | Proceeds from 13% Notes Agreement | $190,000 | - | | Principal and Interest payments of 2019 Facility | ($148,281) | - | | Net decrease in cash | ($11,595) | ($2,785) | - Investing activities saw a significant cash outflow of $71.6 million, dominated by a $59.6 million payment related to the satellite procurement agreement[21] - Financing activities were marked by a major refinancing, with $190 million in proceeds from new notes used to repay approximately $148.3 million of the 2019 Facility Agreement[21] Notes to Unaudited Interim Condensed Consolidated Financial Statements The notes detail a surge in wholesale capacity revenue, major debt refinancing, a new $252 million prepayment agreement for satellite construction, and commitments under service agreements - Revenue from Wholesale capacity services, associated with the Apple Inc. Service Agreements, increased dramatically to $30.4 million in Q1 2023 from $6.8 million in Q1 2022[29] - The company entered into a satellite procurement agreement with MDA for 17 new satellites at an initial contract price of $327 million, with launches expected in 2025[52][87] - On March 31, 2023, the company issued $200 million of 13% Senior Notes due 2029 and used the proceeds to repay all outstanding obligations under its 2019 Facility Agreement[55][60] - A Prepayment Agreement was established with its key partner, providing $252 million to fund the new satellite construction and launch costs, replacing the need for third-party financing[64] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Globalstar's Q1 2023 revenue growth driven by the Apple partnership, improved operating income, and strengthened liquidity through a new prepayment agreement and debt refinancing Overview Globalstar's overview highlights its MSS offerings, strategic procurement of 17 new satellites for $327 million, and advancements in terrestrial spectrum use, with a key partner driving 52% of Q1 2023 revenue - The company's key partner under the Service Agreements (identified as Apple in Note 2) accounted for 52% of total revenue in Q1 2023, up from 21% in Q1 2022[113] - Globalstar is acquiring 17 new satellites from MDA for $327 million to replenish its constellation, with launches expected by the end of 2025. Its partner has agreed to make service payments equal to 95% of these approved capital expenditures[110] - The company is pursuing terrestrial use of its licensed spectrum, designated as 5G Band n53, which is supported by partners like Nokia and Qualcomm and is enabled in certain cellular devices[116][117] Results of Operations Globalstar's Q1 2023 results show a 79% revenue increase to $58.6 million, primarily from wholesale capacity services, leading to a positive operating income despite higher expenses and a debt extinguishment loss Revenue by Type (in thousands) | Revenue Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Service Revenue | $52,954 | $29,344 | | Subscriber services | $22,243 | $22,071 | | Wholesale capacity services | $30,411 | $6,843 | | Total Equipment Revenue | $5,690 | $3,428 | | Total Revenue | $58,644 | $32,772 | Subscriber & ARPU Data | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Average Subscribers | 765,160 | 757,293 | | Duplex Subscribers | 36,616 | 43,565 | | SPOT Subscribers | 266,067 | 276,863 | | Commercial IoT Subscribers | 462,077 | 423,519 | | ARPU (monthly) | | | | Duplex | $52.35 | $47.03 | | SPOT | $14.17 | $13.55 | | Commercial IoT | $3.74 | $3.68 | - Wholesale capacity service revenue increased by $23.6 million, primarily due to service fees under the Service Agreement which commenced in November 2022 and a one-time $6.5 million payment recognized in Q1 2023[132][133] - MG&A expenses increased by $4.1 million, partly due to a $1.0 million accrual reversal in Q1 2022 that lowered the prior year's expense base, as well as higher personnel and legal fees in Q1 2023[139] Liquidity and Capital Resources Globalstar's liquidity is supported by operating cash flow and a new $252 million prepayment agreement for satellite construction, following a major debt refinancing that impacted cash balances - The company's cash position decreased from $32.1 million at year-end 2022 to $20.5 million at the end of Q1 2023[149] - A Prepayment Agreement with its partner will provide $252 million to fund satellite procurement, launch, and insurance costs, replacing the previous requirement to raise third-party financing. The first payment of $87.7 million was received in April 2023[163] Q1 2023 Cash Flow Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,805 | $7,569 | | Net cash used in investing activities | ($71,575) | ($10,451) | | Net cash provided by financing activities | $37,148 | $8 | | Net decrease in cash | ($11,595) | ($2,785) | - The company completed a major refinancing, issuing $200 million of 13% Senior Notes and using the proceeds to fully repay its 2019 Facility Agreement and its vendor financing arrangement[157][160][162] Quantitative and Qualitative Disclosures About Market Risk Globalstar faces foreign currency exchange risk from international sales in various currencies, mitigating it by prioritizing U.S. dollar payments and spot market purchases without hedging instruments - The company's primary market risk is foreign currency exchange risk from sales denominated in Canadian dollars, Brazilian reais, and euros[171] - Globalstar mitigates currency risk by requiring U.S. dollar payments where feasible and does not currently use derivative hedging instruments[171] Controls and Procedures Management concluded that Globalstar's disclosure controls and procedures were effective as of March 31, 2023, despite changes from a new ERP system - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[175] - The implementation of a new ERP system in Q1 2022 resulted in changes to internal controls, but management concluded these changes did not materially affect, or were not reasonably likely to materially affect, the company's internal control over financial reporting[177] PART II - OTHER INFORMATION Legal Proceedings The company reported no legal proceedings for the period - There were no legal proceedings to report[179] Risk Factors No material changes to the company's risk factors were reported since the filing of the 2022 Annual Report - No material changes to the company's risk factors were reported since the filing of the 2022 Annual Report[180] Exhibits Key exhibits filed include the Purchase Agreement and Indenture for the March 2023 note issuance, a Prepayment Agreement, and an amendment to the Key Terms Agreement - Key exhibits filed include the Purchase Agreement and Indenture for the March 2023 note issuance, a Prepayment Agreement, and an amendment to the Key Terms Agreement[184]