talksatellite   AMERICAS    

Daily news


AMERICAS
EMEA

ASIA-PACIFIC

 

     
     
 
     


Globalstar Announces 2019 Fourth Quarter and Annual Results  


 February 27, 2020

Globalstar, Inc. announced financial and operating results for the fourth quarter and year ended December 31, 2019.

Dave Kagan, Chief Executive Officer of Globalstar, commented, "In November, we successfully refinanced our capital structure when we executed an amendment of our existing senior secured credit facility and raised a new second lien term loan facility led by Thermo and Echostar. This transaction significantly improved our balance sheet, provided us with extended runway and maintained the favorable interest rates of our existing credit facility. Our capital structure now positions us well to execute our plan for value creation from our spectrum and satellite assets."

Mr. Kagan continued, "As our 2019 financial performance reflects, we continue to capitalize on the IoT growth opportunities in front of us, with a 26% increase in Commercial IoT service revenue over 2018 as both subscriber count and average pricing increased. We have focused our product development efforts around Commercial IoT devices, particularly modules that can be integrated into the products of our partners, which should broaden our current reach. These modules offer enhanced functionality in a very small form factor and competitive price point, which we think will be attractive to those needing data reporting capabilities in remote or harsh environments. Outside of Commercial IoT, 2019 was a transitional year in many respects. We believe we are back on the right track with the updates that we made to our consumer products based on the positive trajectory of SPOT subscriber additions following the release of SPOT X ® with Bluetooth® technology late in the third quarter. We also have received positive customer responses to our most recently launched Duplex product, Sat-Fi2® RAS. In the last 12 months, we have made many critical decisions, from how best to improve our capital structure to determining appropriate consumer service pricing. All of these decisions are founded on positioning Globalstar for growth, and we have the team, products and network advantages to be successful.”

Jay Monroe, Executive Chairman of Globalstar, added, "Since our last business update call, we have made progress on terrestrial spectrum by cultivating the asset, adding to our roster of potential ecosystem partners and advancing our international regulatory efforts. After the initial 3GPP approval in late 2018, Jarvinian Advisors and the spectrum team have continued to make additional progress at 3GPP with respect to 5G and carrier aggregation specifications which will further align the capabilities of the band with what is required from the equipment ecosystem and potential partners. We expect both the 5G variant of Band 53 and carrier aggregation to be completed by the 3rd quarter 2020. It’s a complicated time in the wireless industry with the variables of C-band, CBRS and the recently approved T-Mobile and Sprint merger; however, our S-band provides a clear and understandable resource in an industry experiencing so much uncertainty. We are eager to conclude our 3GPP efforts so that our spectrum can be a part of new network builds in 5G. While this effort is underway, we are actively working on potential private LTE deployments that can serve as the proving grounds for our commercial efforts with the potential to produce meaningful revenue."

Mr. Monroe continued, “As evidenced by Thermo’s additional investment in the new second lien, open market stock purchases and conversion of our 2009 loan into stock at a price well above the current market price, my confidence in the value of our spectrum and satellite business remains high. Our spectrum strategy has been consistent, and we will continue to increase the marketability of the spectrum through both international regulatory successes and 3GPP standardization. We are driving the ecosystem to have more infrastructure and industrial devices working on Band 53 and are actively pursuing a variety of deployments with partners like Nokia, Airspan and Airwavz. We are working through product certifications for the first deployments with these partners to meet their customer needs across industries including utilities, transportation systems, ports, in-building wholesale networks, in-building and on-campus private LTE networks and fixed and mobile wireless services, among others. While I am eager to see that first dollar come in from use of our spectrum, I am encouraged by the progress we have made and confident in our strategy. We are closer than ever to realizing our long-held belief that 5G networks will require greater density thus leading to increased small cell deployments where our spectrum is well-suited. We are also closer than ever to realizing the potential for a single company to have an internationally harmonized spectrum band. Our regulatory efforts in major countries continue to ramp up. However, from a broader investment perspective, Thermo does not deploy capital in Globalstar only for the spectrum potential. I believe significant untapped value exists in the satellite network. The continued shift towards IoT is the right move not only from a competitive perspective but also because it is a large and growing market where the longer-term value of acquiring a customer should be very attractive due to low churn. I applaud the team’s efforts on the new IoT module. The initial feedback has been very constructive."

Howard Trott, CEO of Recon Dynamics, said, “Globalstar’s new IoT board significantly expands the strength of our operational intelligence platform, helping customers gain critical insight needed to drive productivity and efficiency regardless of geography.” Recon expects to be shipping products leveraging this connectivity in 2020.

Mr. Monroe continued, "The Company also continues to expand its consumer efforts and expects to soon begin cross selling products in the auto market, an opportunity which started as an IoT application but is now expanding to utilize other Globalstar services. Globalstar’s satellite network represents a large in-space resource and getting more and more IoT services to go over that network will drive free cash flow. Finally, the Company is committed to conveying the most fulsome information to our investor base and doing so in a cadence that matches fundamental developments rather than following a strict quarterly schedule. Going forward we believe that our investors would be best informed of significant business developments through comprehensive press releases, such as this earnings release, and periodic business update calls and investor events when appropriate.”

FOURTH QUARTER FINANCIAL REVIEW

Revenue

Total revenue for the fourth quarter of 2019 was essentially flat from the fourth quarter of 2018 due to an increase in subscriber equipment sales offset by a decrease in service revenue.

Service revenue decreased $0.8 million, or 3%, in the fourth quarter of 2019 compared to the fourth quarter of 2018. This decrease was primarily driven by fewer Duplex subscribers as churn was greater than gross additions during the last twelve months. Although churn was generally consistent with average historical levels, gross additions were lower than the previous twelve-month period due to fewer equipment sales. We have various initiatives underway to drive higher Duplex activations. We released an improved Sat-Fi2® device during September 2019 and a derivative product, the Sat-Fi2® Remote Antenna Station, during October 2019 in response to customer demand and to expand the use cases for the Sat-Fi2® device. Further development efforts are underway to launch additional derivatives of this device. SPOT service revenue was down slightly from the fourth quarter of 2018. This decrease was due particularly to a 5% decline in average subscribers, even though the majority of the churn was involuntary as we deactivated nearly 10,000 non-revenue-generating subscribers in Latin America. Excluding this involuntary churn, SPOT subscribers at the end of 2019 would have been in line with the end of 2018. Offsetting the decline in Duplex service revenue was a 22% increase in Commercial IoT service revenue. This increase was driven by growth in our average Commercial IoT subscriber base of 12% and higher ARPU of 9%. The higher subscriber count resulted from Commercial IoT equipment sales during the last twelve months, primarily of our SmartOne family of products led by our SmartOne SolarTM which launched in 2018. The SmartOne SolarTM is a solar-powered IoT asset tracking device (with ATEX and intrinsically safe certifications), proving to be a cost-effective, low power and secure monitoring solution for a variety of security applications.

Subscriber equipment sales revenue increased $0.7 million, or 14%, in the fourth quarter of 2019 compared to the fourth quarter of 2018. As previously mentioned, this growth was due almost entirely to sales of Commercial IoT devices, including particularly our SmartOne SolarTM device, which contributed $1.0 million to the increase. Revenue generated from Duplex and SPOT equipment sales were flat quarter over quarter.

Loss from Operations

Loss from operations decreased $1.4 million, or 7%, to $17.1 million in the fourth quarter of 2019. This decrease was due primarily to a decrease in operating expenses resulting from lower MG&A expenses and cost of services, offset partially by higher cost of subscriber equipment sales and asset impairment charges of $1.5 million recorded during 2019. The $3.5 million decrease in MG&A expenses was due primarily to the timing of costs incurred (and the recovery of those costs) to defend the securities claim that was settled during the fourth quarter of 2018. These costs did not recur in the fourth quarter of 2019; additionally, we received an insurance recovery during the fourth quarter of 2019 of $1.7 million, which further reduced expenses. The asset impairment charges were due primarily to a $1.1 million write-down in the carrying value of our former gateway site in Nicaragua, which was classified as held for sale as of December 31, 2019.

Net Loss

Net loss was $37.7 million for the fourth quarter of 2019 compared to $96.5 million for the fourth quarter of 2018. This decrease resulted primarily from the change in non-cash derivative valuation adjustments during the respective quarters, which contributed $67.6 million to the decrease in net loss. This fluctuation resulted primarily from changes in certain valuation inputs, including stock price, stock price volatility and the remaining estimated term of the instruments. Partially offsetting this decrease was higher interest expense due primarily to lower capitalized interest, higher average interest rates in place during 2019 and higher amortization of deferred financing costs. In connection with the refinancing in November 2019, which included a partial paydown of our senior credit facility, we wrote off a proportional amount of the remaining deferred financing costs associated with that debt.

Adjusted EBITDA

Adjusted EBITDA for the quarter ended December 31, 2019 increased slightly to $9.8 million as compared to the prior year's fourth quarter. This increase was due to higher revenue of $0.2 million offset partially by a $0.1 million increase in operating expenses (both excluding EBITDA adjustments for non-cash or non-recurring items). The increase in operating expenses during the fourth quarter of 2019 resulted primarily from higher cost of subscriber equipment sales in line with the higher volume of hardware sales, offset partially by a decrease in cost of services due in part to lower ground network support costs.

ANNUAL FINANCIAL REVIEW

Revenue

During the twelve months ended December 31, 2019, total revenue increased $1.6 million to $131.7 million from $130.1 million in 2018. This increase was impacted by an out-of-period adjustment of $3.9 million during the third quarter of 2019 related to a change in the calculation of the estimated impact from the initial adoption of ASC 606. Excluding this adjustment, total revenue decreased $2.3 million from 2018. This decrease was due primarily to a $1.6 million decrease in service revenue, driven by fewer Duplex subscribers and lower revenue recognized from government contracts. Also contributing to the decrease in service revenue was a 3% decline in average SPOT subscribers; approximately 10,000 subscribers were involuntarily deactivated during 2019 as they were non-revenue-generating. Excluding this involuntary churn, SPOT subscribers at the end of 2019 would have been higher than at the end of 2018. These items were offset by an increase in Duplex ARPU as well as significant growth in our Commercial IoT business, including subscribers, ARPU and hardware sales. Total revenue generated from subscriber equipment sales decreased $0.7 million, which resulted primarily from lower volume and pricing of Duplex and SPOT units sold.

Loss from Operations

Loss from operations increased $16.7 million, or 35%, during 2019 due to an $18.3 million increase in operating expenses, offset partially by a $1.6 million increase in total revenue. The increase in operating expenses was due primarily to the $20.5 million reversal of a contract termination charge during 2018. An increase in depreciation as well as asset impairment charges recorded during 2019 also increased operating expenses. The increase in depreciation expense was due to a full year of depreciation of the second-generation ground infrastructure assets placed into service during mid-2018. Offsetting these increases was a decrease in MG&A driven primarily by the costs incurred to support our efforts associated with the proposed merger and associated litigation during 2018, which did not recur at the same level in 2019.

Net Income (Loss)

Net income was $15.3 million for 2019 compared to net loss of $6.5 million for 2018. This fluctuation is due primarily to non-cash items, including a $64.0 million increase in derivative gains, offset partially by an $18.9 million increase in net interest expense and an $18.2 million increase in operating expenses (as previously discussed). The anticipated conversion of the Thermo loan agreement during the first quarter of 2020 was the primary driver of the higher derivative gain during 2019 as the value to the holder of the conversion feature within the loan agreement is lower. The increase in interest expense was driven primarily by lower capitalized interest of $6.6 million (which increases interest expense) and an increase in interest costs of $12.5 million due to a higher average cost of debt during 2019 compared to the prior year as well as the write-off of a portion of the deferred financing costs related to our senior credit facility following the partial paydown of that debt in November 2019.

Adjusted EBITDA

Adjusted EBITDA decreased by 7% to $37.8 million in 2019 due primarily to a $1.9 million decrease in total revenue (for reasons previously discussed) and a $0.9 million increase in operating expenses (both excluding EBITDA adjustments for non-cash or non-recurring items). The increase in operating expenses during 2019 resulted primarily from $1.2 million in costs related to tariffs on nearly all of our Chinese-manufactured products sold since July 2018. The recognition of these costs followed an unfavorable ruling received from U.S. Customs in October 2019. We are pursuing options to mitigate the impact of these tariffs, including negotiating lower costs from our primary manufacturer and suppliers.

 

 

Subscribe to talksatellite weekly newsletter - circ@talksatellite.com