Globalstar, Inc. (AMEX:GSAT) Q2 2023 Earnings Call Transcript

Globalstar, Inc. (AMEX:GSAT) Q2 2023 Earnings Call Transcript August 3, 2023

Globalstar, Inc. misses on earnings expectations. Reported EPS is $-0.00145 EPS, expectations were $0.01.

Operator: Good morning, and welcome to the Globalstar Second Quarter 2023 Earnings Conference Call. I will now turn the call over to Jay Monroe.

James Monroe: Thanks, everybody, for joining today’s Globalstar’s Second Quarter 2023 Investor Call. In keeping with recent practice, I will make very brief opening remarks, and then we’ll move straight to Q&A. But first, please note that today’s call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the forward-looking statements and Risk Factors section of Globalstar’s SEC filings including its annual report on Form 10-K and for the financial year ending 2022 as well as this morning’s earnings release. As outlined in the release, Globalstar continued to see robust growth and a significant improvement in profitability, resulting in a 50% increase in revenue over the prior year’s quarter.

Adjusted EBITDA was up 86% over the same period. And for the first half of 2023, our revenue was up more than 60% to $113 million and EBITDA was almost $60 million, an increase of over 140%. Our liquidity ended the quarter with $65 million, more than double our cash balance at year-end. Service revenue, unrelated to our wholesale business increased, reflecting organic growth in our commercial IoT business. We expect this to continue, propelled by the launch of new 2-way device platform and services later this year. Average revenue per subscriber is expected to increase meaningfully after that introduction. As a result of these factors, we are increasing the low end of our 2023 revenue guidance from $185 million to $200 million and reiterating a forecasted adjusted EBITDA margin of approximately 55%, not including spectrum revenue.

A brief update on our Band 53 efforts. We are working on many fronts and engaged in engineering efforts with a wide range of companies which are working on Band 53 deployments. Our opportunity set is truly unique given, among other things, the installed base of devices capable of using Band 53 continues to grow. We expect it to be in hundreds of millions of devices by this time next year. And we are also making great progress with the strategic collaboration agreement we signed with Qualcomm earlier this year. This agreement increases the range of infrastructure available for Band 53 deployments and further drives device adoption. With Qualcomm and their system integrator partners, we are simplifying private wireless deployments, so Band 53 can be rolled out ubiquitously around the world.

Industrial and security of critical infrastructure, our macro trends driving private wireless today and they’re driving it on a global basis. We are a great resource with the right ecosystem to deliver for this growing demand, specifically regarding the opportunities that we discussed during the first quarter call. We are in the midst of final engineering validation and are looking forward to sharing more detail about these shortly. We hope you understand that timing is not within our control. The engineering is driven by the technical demands of the individual projects, not by our public company reporting calendar. Finally, I want to reiterate my sentiment from last quarter. I do not believe the current market price of our stock reflects the company’s value.

When participating in multiple investment conferences this past quarter, we heard questions about whether our transformation and growth is sustainable. My simple answer is yes. Globalstar has invested over $1 billion during the past decade, rebuilding our satellite and ground network, innovating to bring Band 53 to market, delivering revolutionary satellite services which went operational in November and putting other resources in place to prepare for this moment. I am absolutely confident that we will continue to execute and deliver increasing revenue, EBITDA and shareholder value. Now we’ll open the call up to Q&A. We have today available to answer questions, Dave, Rebecca, Kyle and Tim. It would be helpful if you would direct your questions to whomever you prefer.

As a reminder, we are still not able to answer questions related to our wholesale partners’ activities or future plans in the direct to handset market. And we thank you in advance for focusing your questions on other parts of our business. And of course, our financial results. Operator, we can begin Q&A.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from Simon Flannery with Morgan Stanley.

Simon Flannery: This may be for you, Jay, but I just wanted to get an update on the construction of the new satellite constellation. Any sense on where you are on the milestones and the ultimate launch timing and how we think about payments and cash flows through the balance of the year. And then maybe just if you could just comment on the SPOT outlook and the supply chain and how that should normalize.

James Monroe: Sure. Simon, why don’t we break that into 3 different people to answer the questions that you’ve asked. Tim, if you would talk first just about the status of the contract. Rebecca, then about the cash flow implications to us and the funding sources. And Dave, hopefully, you can tackle the question on SPOT.

Timothy Taylor: Sure. Thanks, Simon. So MDA has been working tirelessly as the prime on the contract and developer of the payload, while Rocket Lab has been delivering per the schedule. And it’s clear that the benefits of their years long acquisition and integration of leading critical subsystem developers is proving successful in this program. We’re just about to enter a critical design review, will take place through the large part of August. And we’re still on pace to complete satellite acceptance as scheduled originally in the contract and to launch the satellite in 2 years during 2025.

Rebecca Clary: Simon, it’s Rebecca. So on the payment load side of things. So we’ve incurred $166 million roughly under the $327 million contract with MDA of the $166 million, we’ve paid about $108 million. The balance will be paid when due. So we’re on track there, as Tim just mentioned and under the 2023 funding agreement with our partner, of 50% of milestones will be paid by them, funded through that agreement and the remaining 50% will be paid through our own operating cash flow. So as those milestones are completed and payments are due, we will pay them in line with that agreement.

Simon Flannery: So the critical design review of that — once that’s done, then you will be due in other payments, or you’ll be due to make another payment.

Rebecca Clary: That’s right.

David Kagan: Simon, this is Dave. Yes. As of mid-April, all of the supply chain issues are now behind us. We are in full production. And in fact, we’re building safety stock. Our goal is to build 6 months of safety stock for each of the main products. We’re well on the path of doing that. Demand is still robust. It’s a little bit of a process to refill up the retail chain, which that is also underway and our big box retailers, the REI, Bass Pro, Cabela’s, West Marine. They’re all ordering healthy and we see continued success on the SPOT business. We’re pretty satisfied where we are at this point.

Simon Flannery: So we should see a reacceleration in Q3, Q4?

David Kagan: Yes. And we’re already starting to see that pick up. We see the orders in advance, of course. And so they are all there. And we’re also seeing, given the summer period an increase in saves that we’re making with our SPOT products as well. So everything has been normalized, and we feel good about where we are.

Simon Flannery: Great. And maybe just one clarification. I think you said the low end of the guidance you’re raising. And I think you said because you were confident on the trajectory of service revenues, driven largely by your excitement about commercial IT. Is that what you’re trying to say?

James Monroe: That’s correct. Absolutely, Simon. And Dave, maybe you can tackle the 2-way as well for the answer of SPOT question.