Globalstar(US:GSAT)2023-11-02 20:09PART I - FINANCIAL INFORMATION Financial Statements Globalstar's unaudited interim condensed consolidated financial statements for Q3 2023 include operations, balance sheets, cash flows, and detailed notes on key accounting events Condensed Consolidated Statements of Operations Globalstar achieved a significant turnaround in Q3 2023, moving from a $186.6 million operating loss to a $2.0 million operating income, driven by a 53% revenue increase and reduced net loss Q3 & Nine Months 2023 vs 2022 Statement of Operations Highlights (In thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $57,683 | $37,626 | $171,399 | $107,198 | | Service Revenue | $53,643 | $33,301 | $155,245 | $95,693 | | Income (loss) from operations | $2,017 | $(186,641) | $11,828 | $(211,709) | | Net loss | $(6,169) | $(204,361) | $(9,640) | $(251,580) | | Net loss per common share (Basic & Diluted) | $0.00 | $(0.11) | $(0.01) | $(0.14) | - The significant improvement in operating income for both the three and nine-month periods in 2023 is largely attributable to the absence of the $166 million reduction in the value of long-lived assets recorded in Q3 202211 Consolidated Balance Sheets Total assets increased to $910.6 million and total liabilities grew to $527.2 million by September 30, 2023, driven by property, equipment, and increased long-term debt Balance Sheet Highlights (In thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $64,136 | $32,082 | | Total current assets | $143,638 | $81,244 | | Property and equipment, net | $612,911 | $560,371 | | Total assets | $910,612 | $738,469 | | Current portion of long-term debt | $32,200 | $0 | | Long-term debt | $307,130 | $132,115 | | Total liabilities | $527,246 | $423,698 | | Total stockholders' equity | $383,366 | $314,771 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities more than doubled to $68.6 million, while investing activities used $142.4 million and financing activities provided $105.9 million, reflecting debt issuances and satellite procurement Cash Flow Summary (In thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,556 | $31,705 | | Net cash used in investing activities | $(142,385) | $(25,306) | | Net cash provided by (used in) financing activities | $105,902 | $(5,886) | | Net increase in cash | $32,054 | $445 | Notes to Financial Statements Notes detail the August 2023 XCOM License Agreement, resulting in $30.6 million goodwill, a surge in wholesale capacity revenue, and major debt restructuring including $200 million in Senior Notes - In August 2023, the Company entered into an Intellectual Property License Agreement with XCOM Labs, Inc., acquiring an exclusive license and other assets for 60.6 million shares of common stock, valued at approximately $68.7 million; the transaction was accounted for as a business combination, resulting in the recognition of $26.0 million in developed intellectual property and $30.6 million in goodwill303135 Disaggregation of Revenue (In thousands) | Revenue Source | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Service Revenue | $53,643 | $33,301 | $155,245 | $95,693 | | Subscriber services | $25,675 | $25,447 | $70,672 | $71,028 | | Wholesale capacity services | $27,517 | $6,972 | $83,406 | $22,640 | | Total Subscriber Equipment Sales | $4,040 | $4,325 | $16,154 | $11,505 | | Total Revenue | $57,683 | $37,626 | $171,399 | $107,198 | - The company completed significant debt restructuring in 2023, including: issuing $200 million of 13% Senior Notes due 2029, entering a new 2023 Funding Agreement for up to $252 million, and fully repaying its 2019 Facility Agreement, which resulted in a $10.4 million loss on extinguishment of debt63747980 - Thermo, the company's principal owner, provides significant support, including guaranteeing the 2023 Funding Agreement, holding $136.7 million of the Series A Preferred Stock, and leasing the company its headquarters113115116118 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses significant revenue growth from wholesale capacity services, the strategic XCOM Labs acquisition, and major debt restructuring impacting liquidity and capital resources Overview and Recent Developments Globalstar focuses on MSS, Commercial IoT, and terrestrial spectrum monetization, with the August 2023 XCOM Labs license agreement being a key development for wireless spectrum technologies - In August 2023, the company entered into a significant Intellectual Property License Agreement with XCOM Labs to acquire exclusive rights to its technologies for wireless spectrum innovations, including its coordinated multi-point radio system (XCOMP)131 - The company is actively pursuing international terrestrial authorizations for its 2.4 GHz spectrum, having already received them in countries like Brazil, Canada, South Africa, and Spain144 Results of Operations Q3 2023 total revenue increased 53% due to a $20.5 million surge in wholesale capacity services, while operating expenses decreased significantly due to the absence of a $166.0 million asset impairment charge - Wholesale capacity service revenue was the primary growth driver, increasing by $20.5 million in Q3 2023 and $60.8 million in the first nine months of 2023 compared to the same periods in 2022, due to consideration earned under Service Agreements which commenced in November 2022158 - Duplex service revenue continued to decline (down 12% in Q3) as the company no longer manufactures Duplex devices and focuses on IoT and wholesale services; SPOT service revenue also saw a slight decrease (3% in Q3) due to fewer average subscribers155156 - Commercial IoT service revenue grew 36% in Q3 2023, driven by a 26% increase in gross subscriber activations over the preceding twelve months and higher ARPU157 - Total operating expenses decreased mainly because of a one-time $166.0 million reduction in the value of long-lived Duplex assets and an $8.5 million inventory write-down recorded in Q3 2022, which were not repeated in 2023161165169 - A loss on extinguishment of debt of $10.4 million was recorded in Q1 2023 following the full repayment of the 2019 Facility Agreement172 Liquidity and Capital Resources Liquidity improved with cash at $64.1 million, capital structure altered by $200 million Senior Notes and $87.7 million from a new funding agreement, used for debt repayment and satellite construction Change in Debt and Vendor Financing (In millions) | Date | Principal Amount | | :--- | :--- | | December 31, 2022 | $202.8 | | September 30, 2023 | $375.4 | - Key financing activities in 2023 included issuing $200 million of 2023 13% Notes, establishing a 2023 Funding Agreement for up to $252 million (with an initial draw of $87.7 million), and reclassifying the 2021 Funding Agreement to debt181184187189 - Cash used in investing activities increased to $142.4 million from $25.3 million year-over-year, primarily due to $110.5 million in payments to MDA for the new satellite constellation181 - The company is now paying quarterly cash dividends on its Series A Preferred Stock, totaling $7.9 million in the first nine months of 2023123195 Quantitative and Qualitative Disclosures About Market Risk Globalstar faces foreign currency exchange risk from international sales in Canadian dollars, Brazilian reais, and euros, but does not use hedging instruments - The company's primary market risk is foreign currency exchange risk from sales denominated in Canadian dollars, Brazilian reais, and euros199 - Globalstar does not currently use derivative hedging instruments to manage its foreign currency exposure199 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting identified - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level203 - No changes occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting205 PART II - OTHER INFORMATION Legal Proceedings No material legal proceedings were reported during the period - There are no legal proceedings to report207 Risk Factors A new risk factor highlights potential failure to achieve strategic objectives from the XCOM Labs transaction and the new CEO's integration - A new risk factor was added concerning the potential failure to achieve strategic objectives from the XCOM transaction and the integration of the new CEO, which could harm growth and profitability208 Other Information Board member Timothy E. Taylor entered a new Rule 10b5-1 trading plan on September 28, 2023, for the sale of 3.16 million common shares - On September 28, 2023, board member Timothy E. Taylor entered into a Rule 10b5-1 trading plan for the sale of 3.16 million shares of common stock, terminating in September 2025210 Exhibits Exhibits include CEO/CFO certifications, XBRL data, and incorporated key corporate documents like the CEO's employment agreement and the XCOM License Agreement - Exhibits filed include CEO/CFO certifications and XBRL data; key agreements like the CEO's employment contract and the XCOM License Agreement are incorporated by reference212