Globalstar, Inc. announced results for the three-month period ended September 30, 2013.

  

 

November 13, 2013

 

Globalstar, Inc.announced its financial results for the three-month period ended September 30, 2013. 

 

Jay Monroe, Chairman and CEO of Globalstar, commented, “The third quarter marked a momentous time for Globalstar as the Company achieved milestones across our operating, financial and regulatory efforts.  In August, we placed the final satellite from our February launch into service, completing the MSS industry’s first second-generation Low Earth Orbit (“LEO”) constellation years ahead of the competition. This event not only physically restores quality Duplex service but also symbolizes our perseverance in the face of great challenges over the past few years. We have experienced both a material increase in network usage and the acquisition of a growing number of new subscribers as the combination of restored service and attractive pricing drives increased demand. The introduction of the SPOT Global Phone helped total Duplex equipment revenue grow 80%. We are succeeding in expanding MSS into the nascent consumer market. Major Duplex data points including ARPU, minutes of use, service revenue, equipment revenue and gross subscriber additions are rebounding and provide strong evidence of our future financial performance. The FCC’s recent release of proposed new rules permitting Globalstar to offer mobile broadband services is the culmination of a nearly year-long effort that, once concluded, should greatly enhance Globalstar’s future profitability while meaningfully increasing the nation’s spectrum available for terrestrial broadband service and reduce acute Wi-Fi congestion. We look forward to working through the comment cycle in collaboration with all stakeholders to obtain a favorable FCC order.”  

Revenue 

Revenue was $22.5 million for the third quarter of 2013 compared to $20.5 million for the third quarter of 2012, an increase of 10%, which was due to increases in both service revenue and subscriber equipment sales. 

Service revenue was $17.1 million for the third quarter of 2013 compared to $15.4 million for the third quarter of 2012, an increase of $1.7 million, or 11%. The primary driver of this increase was growth in Duplex revenue, which increased $1.2 million, or 25%. The growth in Duplex service revenue was due primarily to higher usage, an increase in revenue-generating subscribers and the continued migration of subscribers to higher rate plans that reflect improved network performance. These factors drove a 29% increase in Duplex ARPU to $24.50. Third quarter 2013 service revenue growth also reflected SPOT revenue growth, which increased 6% as revenue-generating subscribers increased. SPOT ARPU increased 13% to $10.64 due in part to deactivations of non-revenue generating subscribers beginning in the first quarter of 2013. As previously announced, the Company initiated a process to deactivate certain suspended (non-paying) subscribers in its subscriber base beginning in 2013; approximately 36,000 subscribers were deactivated during the first quarter. If suspended subscribers were excluded from the 2012 subscriber count, average subscribers for the third quarter of 2013 would have increased by 8%. Simplex service revenue increased 27% due to a 24% increase in the average subscriber base. These increases were offset slightly by a decrease in other service revenue of $0.5 million due primarily to the timing and amount of service revenue recognized from engineering contracts in the third quarter of 2013 compared to the third quarter of 2012. 

Subscriber equipment revenue was $5.5 million in the third quarter of 2013, an increase of 6% from the third quarter of 2012. Duplex equipment revenue increased 80% from the third quarter of 2012 which was driven by the success of SPOT Global Phone sales. Comparing the third quarter of 2013 to the same period in 2012, Simplex equipment sales decreased $0.6 million and SPOT equipment sales decreased $0.1 million. Simplex sales were impacted by the change in the mix of products sold during the third quarter of 2013 compared to the third quarter of 2012. SPOT sales were impacted by the delayed introduction of SPOT Gen 3™. 

Net Loss 

Net loss increased during the third quarter of 2013 reflecting the substantial impact of multiple aggregating non-cash items resulting from the Company’s debt transactions and related derivative instruments. The Company reported a net loss of $205.0 million for the third quarter of 2013 compared to $41.2 million for the third quarter of 2012. Increased net loss was due primarily to the impact of non-cash derivative losses driven by a significant increase in the Company’s stock price from June 30, 2013 to September 30, 2013. The increased net loss was due also to the recognition of a non-cash loss on extinguishment of debt of $63.6 million resulting from transactions executed in connection with the Amended and Restated Loan Agreement with Thermo, which was completed in July 2013 as a condition precedent to closing the Amended and Restated COFACE Facility. Also contributing to the increased net loss was higher interest expense as the amount of interest being capitalized decreased and note conversion activity increased, in addition to higher depreciation expense as the Company placed additional satellites into service. 

Adjusted EBITDA 

Adjusted EBITDA was $2.5 million for the third quarter of 2013 compared to $3.1 million in the third quarter of 2012. This decrease was due to an increase in total operating expenses of $2.6 million (excluding EBITDA adjustments) offset partially by an increase in revenue of $2.0 million. The increase in operating expenses was due to strategic investments made for sales and marketing initiatives, including new product launches and the expansion of the Company’s distribution network, as well as investments in its gateway infrastructure in anticipation of increased Duplex demand. 

FINANCING UPDATE

During the third quarter, Globalstar successfully completed the amendment and restatement of its COFACE Facility Agreement. The amended agreement provides for a material improvement to the debt amortization schedule and covenant levels with a total deferral of $235 million of principal payments through 2019.     

OPERATIONAL AND REGULATORY UPDATE 

Second-Generation Constellation

 

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As previously announced, all satellites launched on February 6, 2013 have been placed into service, successfully completing the Company’s second-generation constellation and fully restoring its Duplex capabilities.

 

Regulatory Reform for Terrestrial Spectrum Authority

 

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On November 1, 2013, the FCC voted unanimously to release proposed rules that would permit Globalstar to provide low-power terrestrial mobile broadband services over 22 MHz of spectrum, including 11.5 MHz of Globalstar’s licensed S‐band spectrum at 2483.5-2495 MHz, as well as the adjacent 10.5 MHz of unlicensed spectrum at 2473‐2483.5 MHz. The comment period is 75 days following the publication of the proposal in the Federal Register with reply comments due 30 days thereafter.

 

Mr. Monroe concluded, “With both the refinancings and constellation restoration now in the rear view mirror, we are fully engaged in leveraging our restored duplex service capability to re-acquire and retain high-value subscribers. We can now dedicate 100% of our operational focus to driving revenue by investing in aggressive customer acquisition and retention strategies and continuing to develop and launch exciting new products like the new consumer asset tracking device, SPOT Trace™. And finally, let me reiterate how pleased we are with the proposed new rules issued by the FCC last week. These rules are extremely positive for our future plans and hold enormous potential for both consumers and the Company in the months and years ahead.”