Globalstar, Inc. (AMEX:GSAT) Q4 2022 Earnings Call Transcript

Globalstar, Inc. (AMEX:GSAT) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Good day, and thank you for standing by. Welcome to the Globalstar Fourth Quarter 2022 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jay Monroe, Executive Chairman.

Jay Monroe: Thanks for joining Globalstar’s fourth quarter and full year 2022 investor call. 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 the Globalstar’s SEC filings, including its annual report on Form 10-K for the financial year ended 2022 and in last week’s earnings release. It’s been some time since our last earnings call, and we’re pleased to be back at it. We have been busy developing, executing, announcing a long list of critical developments in the interim involving our spectrum, wholesale services, powerful, long-term partnerships and so much more.

We also provided a full update and presentation during our Investor Day in November and plan to host similar events when the time is right. On this call and on future earnings calls, we plan to keep our prepared remarks comparatively brief, hitting the highlights for the prior periods and moving directly to Q&A. Today, Dave Kagan, Rebecca Clary, Kyle Pickens and Tim Taylor will be available to answer your questions. As has been our policy even before September 17th — 7th announcement, we will not be able to answer questions about our wholesale business partner or any of their future services. Instead, we will focus on the other aspects of our business. But what we can say is that the September announcement is the foundation of the company’s wholesale satellite plan.

We will continue to execute our own satellite opportunities, utilizing our retained capacity, including finalizing the work at 3GPP for our new NTN band class, which we expect to finish this September. Standardization with NTN allows for the proliferation of chipsets and devices able to operate on both satellite and terrestrial networks, greatly increasing the total addressable market for satellite connectivity. We will do this while maintaining the unique satellite assets which we operate today through fully licensed and protected spectrum in the L, S and C bands. This wholesale business strategy allows Globalstar to generate contracted, consistent cash flow for the future, which will grow materially as new satellite assets are deployed in the coming years.

We are close to announcing a new and exciting partnership to help utilize our available satellite capacity. On top of our wholesale effort, our core MSS business generates annual revenue in excess of $100 million and is anchored by the legacy SPOT and Duplex businesses. As we had expected and as we have experienced, the major growth driver for our MSS core business is Commercial IoT, which will soon benefit from the introduction of our very first 2-way IoT product launching later this year. We continue to believe in this significant growth opportunity and have appropriately added to the team to help close sales. Our terrestrial spectrum assets have continued to develop well with two major announcements in just the last week. First, the successful completion of terrestrial authority for Band 53 in Spain, our first in Europe, which should foreshadow many more licenses there.

Spain represents the 11th national authorization across 4 continents. Secondly, yesterday, we announced our new collaboration with Qualcomm. As additional national authorizations are secured, we view this as an increasingly borderless spectrum resource. The strategic agreement with Qualcomm introduces Band 53 into the full Qualcomm RF ecosystem and sales network, including both the chipset and the front end. This is important for rapid adoption of the small cell infrastructure for private wireless 5G networks. Qualcomm calls this the FSM platform, and its availability will substantially increase the number of radio vendors rolling out Band 53. The FSM is expected to be introduced this summer. Qualcomm will also encourage the use of Band 53 via their global mobile chipset business, the world’s largest, so that the widest range of new smartphones, laptops and other 5G devices will be enabled with Band 53 and offered globally.

The agreement with Qualcomm further positions Globalstar to monetize our spectrum across multiple commercial channels. Partners will be able to access these products through a rapidly expanding ecosystem with Globalstar and Qualcomm jointly working through Qualcomm’s global network of system integrators, or SIs, to offer Qualcomm’s suite of solutions for Band 53. Together with these SIs, Globalstar can deploy spectrum in support of new 5G network solutions in the U.S. and in any other country where we have or obtained terrestrial authority. This announcement represents a continuation of the company’s effort to expand Band 53 ecosystem following the initial agreement with Qualcomm to support us in their prior Snapdragon modems. We are in negotiations with terrestrial users representing hundreds of millions of dollars of annual spectrum leases for Band 53.

On the financing front, we are pleased to sign the agreements we did last week, which were announced in the 8-K, and this was accomplished without dilution. And we are currently working to complete the conditions precedent, including the refinancing of the remaining first-lien facility in the very near future. With an improved capital structure and accelerating cash flow, Globalstar shareholders are well positioned to realize the value of the opportunities at hand. Concluding my remarks today, 2022 represented a significant improvement in the company’s financial results, including revenue increasing 19% and adjusted EBITDA increasing 48%. The Commercial IoT growth is accelerating, and we believe this growth will accelerate again with the introduction of our 2-way module later this year.

Entering the 2-way market will close the gap versus competitive alternatives and allows us to attack a large existing market with an established OEM distribution channel. This is a massive opportunity for Globalstar, and we will continue evolving our IoT products and service offerings as IoT connectivity becomes more and more critical across industrial use cases. We will now open up the call to Q&A, including the availability of Dave, Rebecca, Kyle and Tim. Please direct questions to whomever you prefer. We remind you that we are not able to answer questions related to our activities in the direct handset market. And we thank you in advance for focusing your questions on the other part of our business and our financial results.

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Q&A Session

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

Simon Flannery: I was wondering if you could just talk to your prior 2023 guidance and any more updates or color you can provide to that? And particularly, any comments around CapEx and comments around free cash flow, to what extent the revenues will be coming out of your deferred revenue balance versus new additional cash inflows?

Rebecca Clary: Sure, Simon. It’s Rebecca. So our 2023 guidance that we issued in September and reaffirmed, I believe, in the third quarter earnings release in November, we still feel confident about that revenue range of $185 million to $230 million. There’s nothing that has changed that would have impacted those projections from the prepay agreement that we signed last week. So CapEx, though, has changed, obviously. So now we’re committed to funding about $250 million of the CapEx for the new satellite through primarily operating cash flows. And so that will be funded over the next couple of years. And then on the favorable side, we are saving quite a bit of interest by not having to raise $500 million of senior debt at astronomical rates, as you guys know.

So depending on the assumptions, we’re saving upwards of $150 million over the construction period. But again, offsetting that from a cash flow perspective, we’re spending $250 million more in CapEx. That is a timing issue just in terms of the repayment of that CapEx investment will come to us over the Phase 2 service period after those satellites are launched. So again, it’s an upfront investment and just the timing of cash flow issue.

Simon Flannery: And anything on what your revenues, how you use the deferred revenue balance this year? Is that going to grow this year or decline?

Rebecca Clary: So we still have to do a little bit of study in the gas to figure out how the new prepayment will work as far as that will be deferred revenue or debt classification on our balance sheet. But regardless, it will turn into revenue when we earn it over the Phase 2 service period. Now the $94 million that we received in prior years, that is sitting in deferred revenue, that will be recognized over the service period that started in November.

Simon Flannery: Right. And it’s been about a year since you signed the deal with MDA to build a new constellation. Could you update us on the progress on the manufacturing of the satellites? And I think you said before delivery and launch by the end of ’25. Is that still looking good?

David Kagan: Yes. Yes, I’m happy to — go ahead, Tim.

Timothy Taylor: So we’ve been working on the contract, the one-year anniversary was a few weeks ago. So we’re a little over 12 months into it. And a major milestone in the first year of the construction contract is the completion of PDR, which is the preliminary design review. That happened a few months ago. And that’s the initial design leading up then for a period of about eight months or nine months until you get to the critical design review. So we’re on schedule, on budget and lined up well for launches in 2025.

Simon Flannery: Great. Good to hear. And then just one last one. The FCC seems to be taking an active interest in the satellite terrestrial intersection. Could you just talk about how you see what’s being proposed as position — Globalstar’s positioning relative to competitors?