Globalstar(GSAT) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Globalstar's unaudited interim condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements. This section presents Globalstar, Inc.'s unaudited interim condensed consolidated financial statements, including statements of operations, balance sheets, stockholders' equity, and cash flows for the periods ended June 30, 2023, along with accompanying notes. Key financial highlights include significant revenue growth, a shift from operating loss to income, and a substantial increase in cash and long-term debt due to new financing agreements and satellite procurement Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details Globalstar's financial performance, including revenue, operating income, and net income (loss) for the specified periods Three Months Ended June 30, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Total Revenue | $55,072 | $36,800 | +$18,272 | | Service Revenue | $48,648 | $33,048 | +$15,600 | | Subscriber Equipment Sales | $6,424 | $3,752 | +$2,672 | | Income (loss) from operations | $2,620 | $(11,356) | +$13,976 | | Net income (loss) | $9 | $(26,757) | +$26,766 | | Basic Net loss per common share | $0.00 | $(0.01) | +$0.01 | Six Months Ended June 30, 2023 vs 2022 (in thousands) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Total Revenue | $113,716 | $69,572 | +$44,144 | | Service Revenue | $101,602 | $62,392 | +$39,210 | | Subscriber Equipment Sales | $12,114 | $7,180 | +$4,934 | | Income (loss) from operations | $9,811 | $(25,068) | +$34,879 | | Net income (loss) | $(3,471) | $(47,219) | +$43,748 | | Basic Net loss per common share | $0.00 | $(0.03) | +$0.03 | Consolidated Balance Sheets This statement provides a snapshot of Globalstar's assets, liabilities, and equity as of the specified dates As of June 30, 2023 vs December 31, 2022 (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $65,334 | $32,082 | +$33,252 | | Total current assets | $121,002 | $81,244 | +$39,758 | | Property and equipment, net | $605,502 | $560,371 | +$45,131 | | Total assets | $832,439 | $738,469 | +$93,970 | | Current portion of long-term debt | $29,800 | $— | +$29,800 | | Vendor financing | $— | $59,575 | -$59,575 | | Total current liabilities | $173,776 | $197,076 | -$23,300 | | Long-term debt | $306,786 | $132,115 | +$174,671 | | Total liabilities and stockholders' equity | $832,439 | $738,469 | +$93,970 | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in Globalstar's stockholders' equity, including capital and retained deficit, for the specified period Changes in Stockholders' Equity (January 1, 2023 to June 30, 2023, in thousands) | Metric | Balance Jan 1, 2023 | Balance Jun 30, 2023 | Change | | :-------------------------------- | :------------------ | :------------------- | :----- | | Total Stockholders' Equity | $314,771 | $315,366 | +$595 | | Additional Paid-In Capital | $2,345,612 | $2,352,414 | +$6,802 | | Retained Deficit | $(2,040,264) | $(2,043,735) | -$3,471 | | Accumulated Other Comprehensive Income | $9,242 | $6,506 | -$2,736 | - The company recognized $6,897 thousand in additional paid-in capital related to the fair value of the Thermo guarantee associated with the 2023 Funding Agreement during the second quarter of 2023[18] Condensed Consolidated Statements of Cash Flows This statement details Globalstar's cash flows from operating, investing, and financing activities for the specified periods Six Months Ended June 30, 2023 vs 2022 (in thousands) | Cash Flow Activity | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $42,993 | $20,771 | +$22,222 | | Net cash used in investing activities | $(124,636) | $(22,392) | -$102,244 | | Net cash provided by financing activities | $114,822 | $449 | +$114,373 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $33,252 | $(1,163) | +$34,415 | - Significant increase in cash used in investing activities primarily due to $108.7 million in payments under the satellite procurement agreement in 2023, compared to no such payments in 2022[23] - Net cash provided by financing activities surged due to proceeds from the 2023 13% Notes ($190 million) and the 2023 Funding Agreement ($87.7 million), partially offset by debt repayments and dividends[23] Notes to Unaudited Interim Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting Globalstar's interim condensed consolidated financial statements 1. BASIS OF PRESENTATION This note describes Globalstar's business operations and the accounting principles applied in preparing the financial statements - Globalstar, Inc. operates as a Mobile Satellite Services (MSS) business, providing voice, data, and wholesale capacity services through its global satellite network[27] - The Company adopted ASU 2022-04 (Liabilities — Supplier Finance Programs) effective January 1, 2023, revising disclosures for supplier finance program obligations[31] 2. REVENUE This note disaggregates Globalstar's revenue by service and equipment type, highlighting key drivers of change Service Revenue Disaggregation (in thousands) | Service Type | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :------------------------ | :------ | :------ | :------- | :------- | | Duplex | $6,359 | $6,936 | $12,110 | $13,082 | | SPOT | $11,039 | $11,536 | $22,353 | $22,791 | | Commercial IoT | $5,356 | $5,038 | $10,534 | $9,708 | | Wholesale capacity services | $25,478 | $8,825 | $55,889 | $15,668 | | Engineering and other services | $416 | $713 | $716 | $1,143 | | Total service revenue | $48,648 | $33,048 | $101,602 | $62,392 | Subscriber Equipment Sales Disaggregation (in thousands) | Equipment Type | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :------------------------ | :------ | :------ | :------- | :------- | | Duplex | $17 | $143 | $36 | $273 | | SPOT | $2,513 | $1,674 | $4,439 | $3,149 | | Commercial IoT | $3,901 | $1,908 | $7,713 | $3,714 | | Other | $(7) | $27 | $(74) | $44 | | Total subscriber equipment sales | $6,424 | $3,752 | $12,114 | $7,180 | - Wholesale capacity services revenue significantly increased by $16.7 million (QoQ) and $40.2 million (YoY) due to service fees under the Service Agreement with Apple, which commenced in November 2022, and revenue recognized for satellite construction[32][33][146] - In February 2023, Partner (Apple) agreed to pay Globalstar $6.5 million for performance obligations completed in prior periods, recognized as revenue in Q1 2023[33][147] Accounts Receivable, net of allowance for credit losses (in thousands) | Type | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Subscriber accounts receivable | $20,816 | $14,850 | | Wholesale capacity accounts receivable | $7,481 | $7,234 | | Agency agreement accounts receivable | $1,891 | $4,245 | | Total accounts receivable (short-term) | $30,188 | $26,329 | | Long-term wholesale capacity accounts receivable | $16,100 | $16,100 | | Total accounts receivable (short-term and long-term) | $46,288 | $42,429 | - The Company re-characterized $88.0 million previously recorded as deferred revenue from the 2021 Funding Agreement to debt during Q2 2023, following an amendment to the Service Agreements[43][44] 3. LEASES This note provides details on Globalstar's operating and finance lease liabilities, terms, and discount rates Lease Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total operating lease liabilities | $30,447 | $30,382 | | Total finance lease liabilities | $809 | $87 | Weighted-Average Lease Term and Discount Rate | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Finance leases (term) | 0.6 years | 4.6 years | | Operating Leases (term) | 10.2 years | 10.1 years | | Finance leases (discount rate) | 8.7 % | 10.2 % | | Operating leases (discount rate) | 8.6 % | 8.5 % | - Total lease cost increased to $3.143 million for the six months ended June 30, 2023, from $2.325 million in the prior year, driven by higher operating lease costs[46] 4. PROPERTY AND EQUIPMENT This note details the composition of Globalstar's property and equipment, including space and ground components, and construction in progress Property and Equipment (in thousands) | Component | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Space component | $1,246,343 | $1,246,343 | | Ground component | $99,585 | $102,567 | | Construction in progress (Space component) | $190,611 | $110,068 | | Total property and equipment, net | $605,502 | $560,371 | - Construction in progress for the space component increased significantly, reflecting costs incurred under the $327 million satellite procurement agreement with MDA, with $166.0 million incurred as of June 30, 2023[53] 5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS This note outlines Globalstar's debt structure, including new funding agreements, notes, and repayments Debt and Vendor Financing (in thousands) | Debt Type | Principal Amount (Jun 30, 2023) | Carrying Value (Jun 30, 2023) | Principal Amount (Dec 31, 2022) | Carrying Value (Dec 31, 2022) | | :------------------------ | :------------------------------ | :---------------------------- | :------------------------------ | :---------------------------- | | 2023 Funding Agreement | $87,729 | $75,838 | $— | $— | | 2021 Funding Agreement | $87,950 | $77,935 | $— | $— | | 2023 13% Notes | $200,000 | $182,813 | $— | $— | | 2019 Facility Agreement | $— | $— | $143,213 | $132,115 | | Vendor financing | $— | $— | $59,575 | $59,575 | | Total debt and vendor financing | $375,679 | $336,586 | $202,788 | $191,690 | | Less: current portion | $29,800 | $29,800 | $59,575 | $59,575 | | Long-term debt and vendor financing | $345,879 | $306,786 | $143,213 | $132,115 | - The 2023 Funding Agreement provides up to $252 million from Partner to fund 50% of satellite costs, with the first payment of $87.7 million received in April 2023. This agreement includes covenants and a guarantee from Thermo[56][57][58] - The 2021 Funding Agreement, totaling $94.2 million, was re-characterized from deferred revenue to debt in Q2 2023, granting Partner a first-priority lien on Company assets[64][177] - Globalstar issued $200.0 million in 13% Senior Notes due 2029 in March 2023, with interest payable 4% cash and 9% PIK. Proceeds were used to repay the 2019 Facility Agreement[67][68][72] - The 2019 Facility Agreement was fully repaid in March 2023, resulting in a $10.4 million loss on extinguishment of debt[72][73] - Vendor financing with MDA, totaling $59.6 million at December 31, 2022, was fully repaid in Q1 2023[75][76] - The Company issued 149,425 shares of 7.0% Series A Preferred Stock in November 2022, with a fair value of $105.3 million, in exchange for outstanding 2019 Facility Agreement loans[77] 6. DERIVATIVES This note details Globalstar's derivative instruments, including embedded derivatives, and their fair value and gain/loss impact Derivative Liabilities (in thousands) | Derivative Type | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Embedded derivative within 2023 Funding Agreement | $(42) | $— | | Compound embedded derivative within 2019 Facility Agreement | $— | $(122) | Derivative Gain (Loss) (in thousands) | Derivative Type | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :-------------------------------- | :------ | :------ | :------- | :------- | | Embedded derivative within 2023 Funding Agreement | $299 | $— | $299 | $— | | Compound embedded derivative within 2019 Facility Agreement | $— | $(1,242) | $— | $(1,944) | | Total derivative gain (loss) | $299 | $(1,242) | $299 | $(1,728) | - The embedded derivative associated with the 2019 Facility Agreement was written off in March 2023 due to its refinancing, while a new embedded derivative from the 2023 Funding Agreement was recognized[84][85] 7. FAIR VALUE MEASUREMENTS This note describes the valuation methodologies and inputs used for Globalstar's liabilities measured at fair value Liabilities Measured at Fair Value (Level 3, in thousands) | Liability | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Embedded derivative within 2023 Funding Agreement | $(42) | $— | | Compound embedded derivative within 2019 Facility Agreement | $— | $(122) | - The embedded derivative within the 2023 Funding Agreement is valued using a discounted cash flow model, with a discount yield of 8.21% at June 30, 2023[91] - The 2023 Funding Agreement's first draw had a fair value of $76.0 million, and the Thermo guarantee embedded feature was valued at $6.9 million[93][94] 8. COMMITMENTS AND CONTINGENCIES This note outlines Globalstar's significant contractual obligations, including network capacity allocation and satellite procurement - The Service Agreements require Globalstar to allocate 85% of network capacity to Partner, provide all necessary resources, prioritize services, maintain quality standards, and maintain minimum liquidity of $30 million[102] - Globalstar entered into a satellite procurement agreement with MDA for 17 new satellites at an initial contract price of $327 million, expected to launch by 2025, with Partner funding 95% of approved capital expenditures[101] 9. RELATED PARTY TRANSACTIONS This note discloses Globalstar's transactions and relationships with related parties, including Thermo Companies - Thermo Companies, controlled by Globalstar's Executive Chairman, is the principal owner and largest stockholder[103] - Thermo guarantees certain obligations under the 2023 Funding Agreement, for which Globalstar will issue 10.0 million warrants to Thermo[108] - Globalstar paid Thermo dividends of $1.2 million (Nov 15-Dec 31, 2022) and $2.4 million for each of Q1 and Q2 2023 on Series A Preferred Stock[106] 10. NET LOSS PER SHARE This note presents the calculation of Globalstar's basic and diluted net loss per common share, considering preferred stock dividends Net Loss Per Common Share (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :-------------------------------- | :------ | :------ | :------- | :------- | | Net income (loss) | $9 | $(26,757) | $(3,471) | $(47,219) | | Effect of Series A Preferred Stock dividends | $(2,644) | $— | $(5,259) | $— | | Adjusted net loss attributable to common shareholders | $(2,635) | $(26,757) | $(8,730) | $(47,219) | | Weighted average shares outstanding - basic and diluted | 1,813,393 | 1,799,886 | 1,812,617 | 1,798,784 | | Net loss per common share - basic and diluted | $0.00 | $(0.01) | $0.00 | $(0.03) | - Potential common stock of 18.2 million (Q2 2023) and 19.0 million (YTD 2023) shares were excluded from diluted EPS calculation due to their anti-dilutive effect, including a portion of 49.1 million warrants issued to Partner[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on Globalstar's financial condition and operational results, highlighting significant revenue growth driven by wholesale capacity services, strategic investments in IoT and satellite replenishment, and changes in debt structure. The company experienced improved operating income and reduced net loss, while managing liquidity through new financing agreements and cash flow generation Overview This section provides an overview of Globalstar's business model, strategic investments, subscriber base, and terrestrial broadband capabilities - Globalstar provides Mobile Satellite Services (MSS) including voice, data, and wholesale capacity services through its global satellite network, supporting IoT data transmissions and connectivity in remote areas[117] - The company is investing in IoT-enabled devices, including the Realm Enablement Suite, and is acquiring 17 new satellites for $327 million from MDA, expected to launch by 2025, with Partner funding 95% of approved capital expenditures[119][120][124] - As of June 30, 2023, Globalstar had approximately 766,000 subscribers, with Commercial IoT devices increasing significantly. The Partner under Service Agreements accounted for 49% of revenue for the six months ended June 30, 2023[126][127] - Globalstar has terrestrial broadband authority for its licensed 2.4 GHz spectrum (Band 53/n53), which has been integrated into 3GPP standards and supported by partners like Apple and Qualcomm, enhancing its device ecosystem[129][130][131] Performance Indicators This section analyzes key financial performance metrics, including revenue disaggregation, subscriber trends, operating expenses, and non-operating items Total Revenue (in thousands) | Period | 2023 | 2022 | Change | | :------------------------ | :----- | :----- | :----- | | Three Months Ended June 30 | $55,072 | $36,800 | +50% | | Six Months Ended June 30 | $113,716 | $69,572 | +63% | - Wholesale capacity service revenue increased significantly by $16.7 million (QoQ) and $40.2 million (YoY) due to service fees from the Service Agreement with Apple and revenue from satellite construction[146] - Commercial IoT service revenue increased 6% (QoQ) and 9% (YoY) driven by a 21% increase in gross subscriber activations, while Duplex and SPOT service revenues decreased due to lower subscriber counts[143][144][145] - Subscriber equipment sales for SPOT and Commercial IoT increased by 50% and 50% (QoQ), and 41% and 109% (YoY) respectively, as production delays from component shortages in 2022 were resolved[149][150] Average Number of Subscribers and Monthly ARPU (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | Change (Subscribers) | Change (ARPU) | | :------------------------ | :------ | :------ | :------------------- | :------------ | | Duplex Subscribers | 34,974 | 42,723 | -18.1% | +12.0% | | Duplex ARPU | $60.61 | $54.12 | | | | SPOT Subscribers | 261,734 | 277,815 | -5.8% | +1.6% | | SPOT ARPU | $14.06 | $13.84 | | | | Commercial IoT Subscribers | 466,609 | 433,578 | +7.6% | -1.0% | | Commercial IoT ARPU | $3.83 | $3.87 | | | - Total operating expenses increased to $52.5 million (QoQ) and $103.9 million (YoY) due to higher cost of services (new gateway leases, IT maintenance, personnel), increased subscriber equipment sales costs, and higher MG&A (stock-based compensation, legal fees)[151][152][153][155] - Depreciation, amortization, and accretion expenses decreased by $2.2 million (QoQ) and $4.1 million (YoY) due to a net reduction in property and equipment following the re-assessment and write-down of second-generation Duplex assets in September 2022[156] - A $10.4 million loss on extinguishment of debt was recorded in Q1 2023 due to the full repayment of the 2019 Facility Agreement[157] - Net interest expense decreased by $2.1 million (QoQ) and $9.6 million (YoY) due to lower gross interest costs from the 2019 Facility Agreement repayment, partially offset by new interest from the 2023 13% Notes and Funding Agreements[158][159] - Derivative gains of $0.3 million were recorded in Q2 and YTD 2023, compared to losses of $1.2 million (QoQ) and $1.7 million (YoY) in 2022, primarily due to changes in discount rates and cash flow timing for the 2023 Funding Agreement derivative[160][161] - Foreign currency gains of $2.0 million (QoQ) and $3.9 million (YoY) were recorded in 2023 due to the weakening of the U.S. dollar[164] Liquidity and Capital Resources This section discusses the company's sources of liquidity, changes in debt structure, and cash flow movements from operating, investing, and financing activities - Principal liquidity sources include cash on hand ($65.3 million as of June 30, 2023), cash flows from operations, and proceeds from the 2023 Funding Agreement[165][166] - Total debt and vendor financing increased by $144.9 million to $336.6 million at June 30, 2023, driven by the issuance of $200.0 million in 2023 13% Notes and the recognition of the 2021 and 2023 Funding Agreements as debt, offset by repayments of the 2019 Facility Agreement and vendor financing[167] Cash Flows for the six months ended June 30, 2023 vs 2022 (in thousands) | Activity | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $42,993 | $20,771 | +$22,222 | | Net cash used in investing activities | $(124,636) | $(22,392) | -$102,244 | | Net cash provided by financing activities | $114,822 | $449 | +$114,373 | | Net increase (decrease) in cash | $33,252 | $(1,163) | +$34,415 | - Operating cash flow increased due to higher wholesale capacity service fees. Investing cash flow increased significantly due to $108.7 million in payments for satellite procurement. Financing cash flow surged from new debt issuances, partially offset by debt repayments and $6.6 million in Series A Preferred Stock dividends[169][170][171] Off-Balance Sheet Transactions This section confirms the absence of material off-balance sheet transactions impacting the company's financial position - The Company has no material off-balance sheet transactions[186] Recently Issued Accounting Pronouncements This section addresses the company's review of new accounting standards and their anticipated impact on financial statements - The Company reviews new accounting standards but has not identified any that will have a material impact on its condensed consolidated financial statements[187] Item 3. Quantitative and Qualitative Disclosures About Market Risk. Globalstar is exposed to foreign currency exchange risk due to international sales denominated in various currencies, primarily Canadian dollars, Brazilian reais, and euros. The company mitigates this risk by seeking U.S. dollar payments and spot market foreign currency purchases, but does not currently use hedging instruments. Operations in highly inflationary economies like Argentina are not considered significant - Globalstar's international sales are primarily denominated in Canadian dollars, Brazilian reais, and euros, exposing the company to currency exchange risk[188] - The Company manages foreign currency risk by requiring U.S. dollar payments when possible and purchasing foreign currencies on the spot market, but does not currently use hedging instruments[188] - Operations in Argentina, a highly inflationary economy, are not significant to consolidated operations[189] Item 4. Controls and Procedures. Management, including the Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, concluding they were effective. No material changes to internal control over financial reporting occurred during the quarter - As of June 30, 2023, management concluded that the Company's disclosure controls and procedures were effective, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[191][192] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended June 30, 2023[194] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings. There are no legal proceedings to report - The Company reported no legal proceedings[196] Item 1A. Risk Factors. There have been no material changes to the risk factors previously disclosed in the Company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in Part I. Item 1A. 'Risk Factors' of the 2022 Annual Report[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This item is not applicable for the reporting period - This item is not applicable[198] Item 3. Defaults Upon Senior Securities. There are no defaults upon senior securities to report - The Company reported no defaults upon senior securities[198] Item 4. Mine Safety Disclosures. This item is not applicable for the reporting period - This item is not applicable[198] Item 5. Other Information. Rebecca S. Clary, VP and CFO, entered into a Rule 10b5-1 trading plan on June 28, 2023, for the sale of 300,000 shares of common stock, terminating on September 3, 2024. No other directors or executive officers adopted or terminated such plans during the quarter - Rebecca S. Clary, VP and CFO, adopted a Rule 10b5-1 trading plan on June 28, 2023, to sell 300,000 shares of common stock, effective until September 3, 2024[198] - No other directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the fiscal quarter ended June 30, 2023[198] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL taxonomy documents Key Exhibits Filed | Exhibit Number | Description | | :------------- | :---------- | | 3.1* | Third Amended and Restated Certificate of Incorporation | | 3.2* | Fourth Amended and Restated Bylaws | | 31.1 | Section 302 Certification of the Principal Executive Officer | | 31.2 | Section 302 Certification of the Principal Financial Officer | | 32.1 | Section 906 Certification of the Principal Executive Officer | | 32.2 | Section 906 Certification of the Principal Financial Officer | | 101.INS | XBRL Instance Document | Signatures The report was duly signed on August 3, 2023, by David B. Kagan, Chief Executive Officer, and Rebecca S. Clary, Chief Financial Officer - The report was signed by David B. Kagan, Chief Executive Officer, and Rebecca S. Clary, Chief Financial Officer, on August 3, 2023[205]