Globalstar(GSAT) - 2020 Q4 - Annual Report

Part I Item 1. Business Globalstar provides global Mobile Satellite Services through its LEO constellation and is actively pursuing monetization of its 2.4 GHz spectrum Business Overview and COVID-19 Impact Globalstar offers Mobile Satellite Services globally, with its business negatively impacted by the COVID-19 pandemic - Globalstar provides Mobile Satellite Services (MSS) for voice and data communications, specializing in areas with poor or no terrestrial network coverage[16] - The COVID-19 pandemic has led to reduced equipment sales, particularly from oil and gas customers, and requests for pricing concessions[17] - To mitigate the pandemic's impact, Globalstar secured a $5.0 million forgivable PPP loan and deferred certain payroll taxes under the CARES Act[17][23] Network Infrastructure The company's network comprises second-generation LEO satellites and a global ground network utilizing patented CDMA technology for enhanced services - The satellite network is comprised of second-generation Low Earth Orbit (LEO) satellites designed for a 15-year mission life, offering 40% greater capacity than the first generation[18] - The ground network consists of multiple gateways that use patented CDMA technology, which the company believes provides superior call clarity and lower latency compared to competitors[22][23] - The second-generation ground network is an IMS-based solution designed to provide enhanced services with data speeds up to 72 kbps[23][24] Products, Services, and Customers Globalstar offers Duplex, SPOT, and Commercial IoT services to approximately 745,000 subscribers across diverse markets Communication Service Offerings | Service Category | Description | | :--- | :--- | | Duplex | Two-way voice and data transmissions using devices like the GSP-1700 phone and Sat-Fi® | | SPOT | One-way or two-way communication and data transmissions for personal tracking and messaging, including SPOT X® and SPOT Gen4™ | | Commercial IoT | One-way data transmissions for asset tracking and monitoring, using products like SmartOne and ST100 | | Engineering and Other | Custom engineering services for developing new applications on the Globalstar network | - As of December 31, 2020, Globalstar had approximately 745,000 subscribers worldwide[27] - The SPOT product family has facilitated approximately 7,500 rescues since its launch in 2007, averaging nearly two rescues per day[35] - In February 2020, the company entered into a Terms Agreement with a potential customer for non-recurring engineering (NRE) services to assess a potential new service utilizing company assets[48] Spectrum and Regulatory Structure Globalstar holds worldwide spectrum allocation, with its 2.4 GHz S-band spectrum standardized by 3GPP for terrestrial broadband services in the U.S - The FCC granted Globalstar authority to provide terrestrial broadband services over 11.5 MHz of its licensed satellite spectrum (2483.5 to 2495 MHz)[58] - The 3GPP has designated this spectrum as Band 53 for LTE and n53 for 5G, creating a pathway for integration into handset and infrastructure ecosystems[59] - In February 2021, Qualcomm Technologies announced support for Band n53 in its new Snapdragon X65 modem, significantly expanding the potential device ecosystem[59] - Globalstar is seeking additional terrestrial approvals in various international jurisdictions to harmonize its S-band spectrum globally[62] Industry, Competition, and Human Capital Globalstar operates in a highly competitive MSS market with significant entry barriers, employing 346 people worldwide as of December 31, 2020 - The company's most direct competitors in the global MSS market are Iridium, Inmarsat, and ORBCOMM[72] - Competition is primarily based on coverage, quality, portability, and pricing of services and products[72] - The MSS industry has significant barriers to entry, including the high cost and difficulty of obtaining spectrum licenses and building a satellite network[79] - As of December 31, 2020, Globalstar had 346 employees worldwide[85] Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, network reliability, substantial indebtedness, intense competition, and regulatory hurdles - The COVID-19 pandemic has caused a reduction in equipment sales and challenges in collecting receivables, which could negatively impact financial results and debt covenant compliance[93][96] - The business relies on a healthy satellite constellation and ground network; any disruptions, satellite failures, or shorter-than-anticipated orbital lives could degrade service and harm the business[100][106] - The company has significant indebtedness ($423.9 million as of Dec 31, 2020) with restrictive covenants that may limit operational and financial flexibility[129][130][131] - The business is subject to extensive government regulation (FCC, ITU, etc.), and failure to maintain licenses or obtain new authorizations for terrestrial services could curtail operations[151][157] - As of December 31, 2020, Thermo owned approximately 62% of outstanding common stock, giving it control over shareholder votes and creating potential conflicts of interest with other stockholders[178] Item 2. Properties Globalstar's principal headquarters are leased in Covington, Louisiana, with a global network of owned and leased facilities for its operations - The company's main headquarters are located in a 69,365 sq. ft. leased facility in Covington, Louisiana[182] - Globalstar owns and leases a network of properties worldwide for gateways and control centers, including key sites in Texas, Florida, Alaska, Canada, and France[182] - The company intends to further expand the number of ground stations it operates globally and has executed agreements for new gateway locations expected to commence in 2021[183] Item 3. Legal Proceedings The company is involved in various legal and regulatory proceedings, with details provided in Note 9 of the Consolidated Financial Statements - For details on material legal and regulatory proceedings, the report directs readers to Note 9 of the Consolidated Financial Statements[184] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Globalstar's common stock trades on the NYSE American, with 1.68 billion shares outstanding as of February 26, 2021, and no history or expectation of cash dividends - The company's common stock trades on the NYSE American under the ticker symbol "GSAT"[186] - As of February 26, 2021, there were 1,677,878,734 shares of common stock outstanding[187] - The company has never paid cash dividends and is prohibited from doing so by its First and Second Lien Facility Agreements[188] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, total revenue slightly decreased to $128.5 million, operating expenses fell, and the company focused on managing its $423.9 million debt and maintaining liquidity Results of Operations (2020 vs. 2019) In 2020, total revenue decreased to $128.5 million due to lower service and IoT equipment sales, partially offset by increased engineering revenue, while operating expenses declined Revenue by Type (2020 vs. 2019, in thousands) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Service Revenue | | | | Duplex | $33,878 | $39,794 | | SPOT | $46,417 | $50,461 | | Commercial IoT | $17,174 | $16,972 | | Engineering and Other | $15,722 | $2,274 | | Total Service Revenue | $113,191 | $109,501 | | Equipment Revenue | | | | Duplex | $1,883 | $1,325 | | SPOT | $8,176 | $7,617 | | Commercial IoT | $5,140 | $9,300 | | Total Equipment Revenue | $15,296 | $18,332 | | Total Revenue | $128,487 | $131,718 | - Engineering and other service revenue increased by $13.4 million in 2020, primarily due to engineering services contracts, including one that generated $10.0 million from milestone completion[204] - Commercial IoT equipment sales decreased by $4.2 million (45%) in 2020, largely due to lower demand from customers in the oil and gas industry following the COVID-19 pandemic[206] - Total operating expenses decreased 4% to $187.7 million in 2020, driven by lower cost of services, reduced equipment sales costs, and lower marketing, general & administrative expenses[207] Liquidity and Capital Resources As of December 31, 2020, Globalstar had $13.3 million in cash and $54.7 million in restricted cash, with total debt reduced to $385.4 million due to the Thermo loan conversion Cash and Debt Position (as of Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $13.3 | | Restricted cash | $54.7 | | Long-term debt (carrying amount) | $385.4 | | Long-term debt (principal balance) | $423.9 | Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,215 | $3,048 | | Net cash used in investing activities | ($14,536) | ($11,491) | | Net cash provided by (used in) financing activities | $1,164 | ($7,923) | - The First Lien Facility Agreement requires the company to raise no less than $45.0 million from the sale of equity prior to March 30, 2021, which it expects to fulfill via warrant exercises[240][430] - In February 2020, Thermo converted the entire $137.4 million principal balance of its loan agreement into 200.1 million shares of common stock, significantly reducing debt[248][442] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgments in revenue recognition, asset useful life estimation, deferred tax asset valuation, and derivative instrument valuation - Revenue recognition requires judgment, especially in allocating prices for bundled equipment and service arrangements and estimating usage patterns for prepaid annual plans[264][266] - Estimating the useful life of assets, particularly the 15-year life of second-generation satellites, is a critical estimate; a one-year reduction would increase annual depreciation expense by $5.2 million[268][288] - The company maintains a full valuation allowance against its deferred tax assets due to a history of financial reporting losses, as it is not more likely than not that these assets will be realized[272] - Valuation of derivative instruments embedded in debt requires significant and subjective estimates using models like Monte Carlo simulations, and changes in these estimates can materially affect financial results[274] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Globalstar is exposed to market risks from foreign currency exchange rates and interest rate fluctuations on its variable rate debt - The company faces foreign currency risk from sales denominated in Canadian dollars, Brazilian reais, and euros, but does not currently use hedging instruments[275] - The company is exposed to interest rate risk due to its variable rate debt under the First Lien Facility Agreement, which is tied to LIBOR[277] - A 1.0% change in interest rates would result in an approximate $1.9 million annual change in interest expense on the $187.0 million of principal outstanding under the First Lien Facility Agreement[277] Item 8. Financial Statements and Supplementary Data This section presents Globalstar's audited consolidated financial statements for 2020, including the independent auditor's report and detailed notes - The financial statements for the year ended December 31, 2020 were audited by Ernst & Young LLP, who provided an unqualified opinion[283][284] - The critical audit matter identified was the estimation of the useful life of Space component assets, which involves a high degree of subjectivity and has a significant effect on depreciation expense[287][289] Consolidated Financial Statements As of December 31, 2020, Globalstar reported total assets of $888.1 million, total liabilities of $465.0 million, and a net loss of $109.6 million for the year Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $68,487 | $63,260 | | Property and equipment, net | $715,909 | $799,914 | | Total Assets | $888,093 | $965,590 | | Total Current Liabilities | $114,215 | $63,060 | | Long-term debt, less current portion | $326,586 | $464,176 | | Total Liabilities | $465,028 | $558,247 | | Total Stockholders' Equity | $423,065 | $407,343 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenue | $128,487 | $131,718 | | Total Operating Expenses | $187,650 | $195,764 | | Loss from Operations | ($59,163) | ($64,046) | | Net (Loss) Income | ($109,639) | $15,324 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue, debt agreements, leases, derivatives, and other financial matters, including the impact of COVID-19 - Note 2 disaggregates revenue by product/service and geography, showing the United States as the largest market for both service and equipment revenue in 2020[398] - Note 6 details the company's significant debt instruments, including the First Lien Facility Agreement ($187.0M principal) and Second Lien Facility Agreement ($230.6M principal) as of Dec 31, 2020[419][235][244] - Note 7 explains that the company has various embedded derivatives in its debt instruments that are measured at fair value, resulting in a derivative gain of $2.9 million in 2020[453][454] - Note 13 discloses that the company has a full valuation allowance of $381.1 million against its deferred tax assets due to a history of losses[502] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal controls during the year - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[534] - The company's internal control over financial reporting as of December 31, 2020, was audited by Ernst & Young LLP, who concluded it was effective[539] - No changes in internal control over financial reporting occurred during the year that materially affected, or are likely to materially affect, internal controls, despite the implementation of a new billing system and remote work due to COVID-19[536] Part III Items 10-14 Information for these items, including corporate governance, executive compensation, and security ownership, is incorporated by reference from the company's 2021 Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2021 Proxy Statement[541] - Details on Executive Compensation are incorporated by reference from the 2021 Proxy Statement[542] - Security Ownership, Related Transactions, and Principal Accounting Fees information is incorporated by reference from the 2021 Proxy Statement[543][544][545] Part IV Item 15. Exhibits, Financial Statement Schedules This item lists the financial statements and exhibits filed with the report, noting the omission of financial statement schedules as information is already provided - This section lists the financial statements and exhibits filed as part of the annual report[547] - All financial statement schedules are omitted as they are not applicable or the required information is already present in the financial statements or notes[548] Item 16. Form 10-K Summary This item indicates that no Form 10-K summary is provided in this report - No Form 10-K summary is provided[550]