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Globalstar Announces 2022 Financial Results

March 01, 2023

Globalstar, Inc. announced its operating and financial results for the fourth quarter and year ended December 31, 2022.

"The events of 2022 altered the trajectory of Globalstar's future in a profound way for our shareholders, lenders, customers, partners, employees and anyone else with a vested interest in Globalstar," commented Dave Kagan, Chief Executive Officer of Globalstar. Kagan continued, "The business experienced a true transformation over the last 12 months including the information filed in the September Form 8-K filing and the capital structure changes announced in yesterday's 8-K filing, and our future is anchored in the value generated from these events. With an improved capital structure and accelerating cash flow, Globalstar has never been as well-positioned as it is today to capitalize on the opportunities at hand. In addition to meaningful operational highlights, we continue to report strong financial results, including 2022 annual revenue growth of 19%. We expect continued revenue growth and rapidly expanding Adjusted EBITDA, which position the Company to execute as a telecom infrastructure provider across our four value drivers, including wholesale, legacy, IoT and terrestrial spectrum efforts. We are also pleased to announce that Globalstar has completed the preliminary design review with MDA and Rocket Lab under the satellite procurement agreement and look forward to continuing to work through the procurement process and providing milestone updates as we approach launch in 2025."

Jay Monroe, Globalstar Executive Chairman, added, "Yesterday we announced that Spain has authorized Globalstar to provide complementary terrestrial services over its mobile satellite spectrum via Band 53. This latest terrestrial authorization, our first in Europe, is an important step in the convergence of satellite and mobile terrestrial services globally."

FOURTH QUARTER FINANCIAL REVIEW

Total Revenue

Total revenue for the fourth quarter of 2022 increased 20% from the fourth quarter of 2021 due to increases in both service revenue and revenue generated from subscriber equipment sales.

Service Revenue

Service revenue increased 22% in the fourth quarter of 2022 compared to the fourth quarter of 2021 due to revenue generated under our wholesale capacity services contract.

Wholesale capacity service revenue increased $7.3 million quarter over quarter due to revenue earned for performance obligations under the previously disclosed Service Agreements, including work associated with the construction of new satellites, as well as Phase 1 service which commenced in November 2022.

Commercial IoT service revenue increased by 14% quarter over quarter due in part to growth in our average subscriber base and higher ARPU. We continue to see steady growth in net subscriber additions, including a more than 50% increase in gross activations during the fourth quarter of 2022. This increase is particularly meaningful and a clear indicator of demand in light of the supply chain disruptions we experienced during 2022 that led to significant delays in order fulfillment.

Service revenue associated with legacy services, including SPOT and Duplex, was down 7% quarter over quarter due to lower SPOT ARPU and fewer Duplex subscribers. SPOT ARPU is lower due to strengthening of the U.S. dollar, which reduces the amount of revenue that we record in dollars after bills are generated in a foreign currency, such as the euro. The decrease in SPOT ARPU was also driven by the mix of subscriber rate plans, including the continued popularity of flex plans, which generally carry lower rates than traditional prepaid unlimited plans. Consistent with our expectations, average Duplex subscribers are lower quarter over quarter resulting from continued reduction in the base as we focus on other service offerings, such as Wholesale capacity and Commercial IoT.

Subscriber Equipment Sales 

Revenue generated from subscriber equipment sales increased 8% in the fourth quarter of 2022 compared to the fourth quarter of 2021. Despite component part shortages disrupting our ability to manufacture our most popular SPOT and Commercial IoT devices, we were able to fill many of our open sales orders during the fourth quarter. We expect to fulfill our remaining back orders in the coming weeks.

Commercial IoT equipment revenue increased over 100% during the fourth quarter of 2022, as we started to deliver product to customers in meaningful quantifies for the first time in several months. The 95% increase in sales volume quarter over quarter reflects not only an accumulation of orders, but also an increase in demand across our reseller network. With production issues substantially behind us and subscriber growth continuing, we are more optimistic than ever about our future opportunities for this critical strategic pillar.

SPOT equipment revenue decreased $1.5 million during the fourth quarter of 2022 resulting primarily from a lack of inventory to fulfill sales orders. Unlike Commercial IoT, we were unable to fully return to normal production levels during the fourth quarter of 2022, but expect to fill the remaining open sales orders during the first quarter of 2023.

Loss from Operations

Loss from operations decreased 40% to $9.3 million in the fourth quarter of 2022. This change was driven by higher revenue of $6.8 million (discussed above) offset partially by higher operating expenses of $0.6 million. Higher operating expenses reflect increases in marketing, general and administrative (MG&A) and cost of services offset by lower depreciation, amortization and accretion expense.

MG&A costs were higher during the fourth quarter of 2022 due primarily to non-cash stock-based compensation designed to retain key employees.

Cost of services was higher due primarily to higher lease and related occupancy costs associated with new gateway sites as well as licensing and professional fees, which have been elevated to support the launch of a new ERP system and other information technology security and maintenance.

Net Loss

Net loss was $5.3 million for the fourth quarter of 2022 compared to $24.0 million for the fourth quarter of 2021. In addition to the drivers of the decrease in loss from operations, the improvement in net loss was also due to fluctuations in foreign currency exchange rates and lower interest expense.

Adjusted EBITDA

Adjusted EBITDA increased 48% to $18.3 million for the fourth quarter of 2022 from $12.4 million for the same period in 2021. Higher revenue of $6.5 million was offset partially by a $0.6 million increase in operating expenses (both excluding adjustments for non-cash or non-recurring items).

ANNUAL FINANCIAL REVIEW

Total Revenue

During the twelve months ended December 31, 2022, total revenue increased $24.2 million, or 19%, to $148.5 million from $124.3 million in 2021. The increase in total revenue was driven by higher service revenue of $25.6 million offset partially by a decrease in revenue generated from subscriber equipment sales of $1.4 million.

Service Revenue

The improvement in service revenue during 2022 was due almost entirely to higher wholesale capacity services, which increased $26.0 million year over year due to deliverables performed under the Service Agreements. Higher Commercial IoT service revenue of $1.6 million, or 9%, was due to increases in average subscribers and ARPU. Offsetting these increases were decreases in both Duplex and SPOT. The continued decrease in Duplex service revenue is expected as we focus our efforts on other service offerings. The decrease in SPOT service revenue was due to lower ARPU, driven by both rate plan mix (discussed above) as well as unfavorable fluctuations in exchange rates; higher average subscribers partially offset the ARPU variance.

Subscriber Equipment Sales

As previously discussed, disruptions in supply chain from component part shortages negatively impacted our ability to fulfill equipment orders during most of 2022. During the fourth quarter of 2022, we were able to fulfill many of our Commercial IoT back orders and, to a lesser extent, certain of our SPOT back orders. Despite these supply chain disruptions, Commercial IoT equipment revenue increased 41% year over year due to higher demand of core IoT devices and modules.

Loss from Operations

Loss from operations was $221.0 million during 2022 compared to $65.5 million during 2021 due predominantly to a non-cash charge of $174.5 million following the abandonment of our second-generation Duplex assets during the third quarter of 2022. Upon the announcement in September 2022, our strategy associated with these assets permanently shifted and we determined that we would no longer support second-generation Duplex services because the revenue generated from this type of subscribers did not justify the capacity required to support these services. Our first-generation Duplex services, including to handsets, will continue to be offered within the retained capacity for our direct services.

Excluding the non-cash impairments, loss from operations would have improved year over year due to an increase in revenue (discussed above) offset partially by an increase in operating expenses driven primarily by higher cost of services and MG&A.

For both cost of services and MG&A, the nature of the increases year over year are generally consistent with the quarterly increases discussed above. For cost of services, we continue to make strategic investments to support our ground infrastructure and to enable us to successfully provide services to our Partner under the Service Agreements, including making enhancements in our information technology security and software. Additionally, as our global footprint expands, headcount grows in these new regions, which increases personnel costs.

Net Loss

Net loss was $256.9 million for 2022 compared to $112.6 million for 2021 due primarily to non-cash charges as previously discussed. Offsetting this impact was lower interest expense driven by improvements in our capital structure over the last twelve months, including the full payoff of our 2009 Facility Agreement in November 2021 and the partial exchange of our 2019 Facility Agreement into preferred equity in November 2022.

Adjusted EBITDA

Adjusted EBITDA increased $18.7 million, or 48%, to $57.4 million in 2022 due primarily to a $23.9 million increase in total revenue (for reasons previously discussed) offset partially by a $5.2 million increase in operating expenses (both excluding adjustments for non-cash or non-recurring items).

Liquidity

Cash and cash equivalents were $32.1 million as of December 31, 2022 compared to $14.3 million as of December 31, 2021. During 2022, net cash flows generated from operations of $63.8 million were used to fund capital expenditures of $40.0 million and financing activities of $6.0 million.

Operating cash flows include primarily cash receipts from wholesale capacity services provided to our Partner under the Service Agreements as well as satellite voice and data services provided, and equipment sold, to our subscribers. We use cash in operating activities primarily for personnel, network maintenance, inventory purchases and other general corporate expenditures. Investing outflows during 2022 relate primarily to network upgrades associated with the Service Agreements, including the procurement and deployment of new antennas for our gateways, the preparation and launch of our on-ground spare satellite in June 2022, and milestone work under the satellite procurement agreement with MDA. The financing activities during the year included primarily an excess cash flow payment to our senior lenders in August 2022.

Over the next twelve months, our sources of cash are expected to include primarily operating cash flows generated from the business as well as service prepayments from our Partner under the amended Service Agreements that will be used to fund capital expenditures associated with the new satellites. We also expect a source of liquidity to include funds from a debt or equity financing that has not yet been arranged; these proceeds will be used primarily to refinance the remaining principal amount of the 2019 Facility Agreement. This refinancing is expected to close later this month.

The total carrying amount of our debt and vendor financing outstanding was $191.9 million at December 31, 2022, compared to $237.9 at December 31, 2021. This decrease is due primarily to the exchange of $149.4 million principal amount of our 2019 Facility Agreement, offset partially by amounts due to MDA under the satellite procurement agreement.