Globalstar, Inc. (GSAT) Q1 2023 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Globalstar First Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.

Good morning, everyone. Thanks for joining Globalstar's first quarter 2023 investor call which will consist of a very brief opening update and then we will move directly to Q&A. 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, its 10-Q filed for the first quarter of 2023 in this week's earnings release. As outlined in the release, Globalstar had record growth and revenue this quarter, led by an 80% increase in total revenue over the first quarter of 2022. Net loss decreased 83% from the first quarter of 2022, which gets us to a net loss for the quarter of $3.5 million, close to breakeven. Even this modest loss was largely driven by a $10 million nonrecurring noncash charge related to the repayment of our 2019 credit facility. So we have real cause for optimism. Consistent with this, adjusted EBITDA was up a robust 216% versus Q1 of 2022 to $32 million. And we expect growth to continue for the foreseeable future. This quarter reflects the beginning of our next chapter. We've spent years repositioning the platform, both our space and terrestrial assets, to support sustainable growth and significant cash flow generation. We have endured many years with a capital structure overhang that was removed with the conclusion of our recent financings. As we drive many significant near term opportunities to a close, we have the runway to execute our business plans across our four pillars, wholesale, legacy, IoT and terrestrial spectrum, creating a market disruptor which will maximize the overall value. Today, we can deliver cost effective solutions that few of our competitors can. Furthermore, we plan to launch innovative products this year, like our two way module, that will build on the competitive advantages in our one way IoT market and allow us to support end user applications we couldn't have addressed previously. We have the capacity and the sales funnel for potentially millions of devices utilizing our satellite network. Simply put, we are in deal mode. Just this week, we signed an agreement for a unique service utilizing Band 53, which is initially in the United States and Canada and is expected to generate significant milestone payments as the engineering analysis is completed and validated, after which the agreement will convert to a long term lease. The service is additive and entirely incremental to our revenue model since it does not affect our other terrestrial or satellite opportunities, and we believe this deal represents good value for our spectrum while maintaining the flexibility to pursue all other public and private wireless deployments. We also expect to close and receive a nonrefundable deposit for a separate private network in Canada in the next few weeks. This deployment will be for the utilization of Band 53 by critical infrastructure. We expect to be able to replicate this exact opportunity in many other geographies, so stay tuned. The point is our efforts are ramping up and while not the Holy Grail, these deals represent the two examples of the type of ongoing discussions we are having and closing. While we are still unable to discuss the specifics of our direct to handset services, the investments we have made in the ground network over the past few years and the ongoing new satellite investments will support our IoT and legacy businesses and are already yielding significant opportunities for us. The next-gen satellite capacity we are bringing to market is driving discussions that we are having now. Furthermore, the ecosystem leverage we gained from the incorporation of Band 53 into Qualcomm's chipsets for major handset vendors and separately, our infrastructure partnership with Qualcomm will yield significant opportunities on the terrestrial side. We have plenty more to share with you shortly. Finally, while we see the big disruptive nature of our combined assets now coming into focus and there are few management teams that ever feel that their business is properly reflected in their share price, this is especially true for us today, despite substantial quantifiable improvements we've made to our operations, our financial results, and our balance sheet. To this end, we are planning a series of roadshows in select cities over the coming months in order to tell our story more directly. We will be out with specifics about these meetings and locations shortly. We'll now open the call up to Q&A. Dave, Rebecca, Kyle and Tim are available along with me. Please direct questions to a specific person given that we are remote. We thank you in advance for focusing your questions on the non-direct to handset parts of our business as well as our financial results.

[Operator Instructions] Our first question comes from Mike Crawford with B. Riley Securities.

Thank you. First just on the Band 53 leases. So initially, the revenue for this first deal in US and Canada is going to be recorded in what engineering services. And then are you going to add a line to the income statement or how once you actually start leasing up spectrum, is that going to show up in your GAAP financials?

Mike, you're a step ahead of me, but yes, I would think that it's exactly going to play out as you just described. It'll be within engineering and service or other, and then as it becomes material to the P&L, we'll break it out on its own line item.

Okay. And just further to that, Jay, you talked about these two deals back at the Investor Day in New York last year. There were mining and other entities in Africa and elsewhere that seemed like they were using the spectrum. But are they not leasing Band 53?

Yes, in fact, some of those are. And when I was talking about it back at the Investor Day. We were talking about a long pipeline of projects that we expect over the next years. The ones that we've talked about today are totally additive to what we were talking about then, particularly the first one. The nature of these things is that they are private LTE. And as such, they really don't impair our ability to do anything on a public network basis for Band 53. But we would expect that the mining area and several other areas will be important to our long term future in private LTE because they're critical infrastructure. And when people have critical infrastructure, they're starting to prefer to operate that in a private LTE or a private 5G network instead of doing it over Wi Fi. So we think these will continue to add up over the next years and become more and more meaningful quarter by quarter.

Okay, thank you. And just one last one from me. In your schedule, the service revenue you reported this quarter included $30,411,000 of wholesale capacity service revenue. Is there any reason why that number would decline in future quarters this year or next?

Yes, Mike. Good question. So as we've explained before, the service agreements, the consideration under the service agreements includes fixed components and variable components. So you will see volatility from quarter to quarter. And we also called out a number in the earnings release of $6.5 million related to prior periods that we determined that we would receive in the first quarter. And so that piece could be carved out as nonrecurring in nature. But as I said, there are other variable components that might be recognized in the next quarter or the following quarter. right. So it's a little bit challenging to predict the exact amount every quarter, but absent that $6.5 million, call it nonrecurring item, I think otherwise it's a good baseline for a run rate.

Our next question comes from Simon Flannery with Morgan Stanley.

Good morning. This is Landon Park on for Simon. Thanks for taking the questions, everyone. Maybe, Jay, we could just start with you. Are you able to talk any more about the unique service in terms of, not sure if I missed it did you talk about what industry it relates to, or is there any more details you can provide? And maybe it sounds like there's something like a revenue associated with it. So is that something that is going to fall outside of 2023 or is it just not enough to drive you to increase the low end of your guidance or the high end in any way, yes, just anything you can comment on that.

Sure. First of all, this is a very novel implementation, and over time, it can be tens of millions of dollars per year. It is, as we said, 100% incremental. This was not even in the discussion when we carried on the Investor Day, although we had been working on it. So it is not something that we can explain more completely today. I do think that the engineering process that we will go through will be one that will last 12 to 18 months and will yield this $30 million worth of payments that I described that will become clearer as we get through the engineering work that I was describing. We're not very concerned about the engineering. We think we're comfortable with how it should all play out, but there's always work that you have to do, and we're doing that, so please hold tight for a little while. And I think it'll become very clear during the next quarter or so exactly what it is and why it's so meaningful to us and entirely additive to the business model. Doesn't take anything away from anything else that we're doing.

Great. Okay, that sounds very exciting. So we'll look for more details there and maybe you could update us on where things stand with Qualcomm and the discussions, you're having with them and what discussions they're having with their customers in terms of private 5G networks and what that can really look like for you as Band 53 is sort of embedded as what is presumably a portion of that offering, how that ultimately that relationship can net out from a financial standpoint.

Kyle, will you take that, would you – yes, please do.

Yes, Leonard it's still pretty early days in that agreement. They're doing, finishing some technical work. We expect that work to be done in the coming quarters. We have started to have discussions with their system integrator group and we have a series of other meetings coming up the next few weeks with them to start just to make sure that the world knows that this is coming and this will be a platform that the system integrators can deploy. So still very early in the process, but we're excited about it, and I believe Qualcomm is very excited about it as well.

Okay. Thanks very much, Kyle. And then just last one for me, maybe Rebecca, can you just talk about where you guys are at with MDA and Rocket Lab in terms of are there any additional catch up payments that you still owe them? And then maybe what, how should we think about CapEx for the balance of the year and ‘24?

Yes. So as we sit here today, we have paid MDA everything that we owe them, which is about $110 million approximately inception to date on the $327 million contract. So everything is on track and progressing nicely. And the CapEx for the balance of the year will just depend on the milestone completions as they're outlined in the contract. But given that we're on track for 2025, you can project based on the current run rate, how that will play out over the balance of the year.

Okay. And just to clarify, the $110 million is that through quarter end or is that through [Multiple Speakers]?

Yes, that's right. I'm sorry. Yes, so we received the first funding under the prepaid agreement in April, and a portion of that went to pay the most recent invoice due to MDA, which was about %47 million. So that amount remained in accrued expenses at the balance sheet.

And the prepay for Apple, the $250 million, you're receiving that in portions, or was that a lump sum? How should we think about the cash inflow from that?

Yes, think about the funding quarterly based on the subsequent quarters funding needs based on the projected milestone completions, whether that's MDA or other satellite vendors. So during April, we received kind of the first tranche needed based on the invoices that we had incurred as of that date.

Okay, so it's more of a match funding, essentially.

That's right. Or in theory, it's one quarter ahead. April just got a little bit wonky because of the payoff of the facility agreement being the last day of the first quarter and the liens being released there, and just kind of the administrative things that had to happen prior to that first funding being received. But otherwise, think about it as one quarter in advance of the CapEx.

Great. And I don't know who the person to direct this to would be, but maybe Jay, where are you guys at with the launch contract and provider?

Tim?

Sure. So we have been working through that process for the past six or eight months, and we're down selecting to a few potential partners on that front, working through the contract terms and negotiating final pricing and major structural items of the launch services agreements with a couple of parties. I think we'll be down selecting to the final party in the coming months, and that'll give us the availability in the manifest to complete the launches in ‘25.

Our next question comes from George Sutton with Craig-Hallum.

Thank you. Nice results. Jay, relative to the unique terrestrial service. I'm curious, given that it's network architecture that doesn't seem to impact your existing capacity, is this the kind of thing that you could have additional customer opportunities, whatever this incremental network architecture is?

We haven't had discussion with anybody else that would do a similar thing, but if we did, we could do it in other parts of the world without a problem. But we haven't had those discussions yet, George.

Got you. Okay. And relative to the two way device, I just wondered if we could get a little more specific about the expectation for the timing of that. And I'm curious, are we at the point where we can begin to market to customers with those use cases?

Yes, this is Dave. We are, in fact, talking to customers now. We fully expect the two way module to come out by the end of the year, and we will likely be in beta at that point with customers. Obviously, we're talking to our core value rated service providers at resellers, and we're telling them what the devices will do. We're also launching a new one way device that has all the software capabilities that will also be in the two way device. So they're already seeing the edge computing capabilities that we will be launching with the two ways already today with the latest ST150 product, the Integrity 150 that we're launching as we speak.

Perfect. And I'm not sure who to address this too, but this is on the regulatory side. It was nice to see Spain move forward and my belief is, and correct me if I'm wrong. They tend to be a forward thinking regulatory body. Can you talk about how that might influence the timing of other regulatory approvals?

Sure. The original process that we went through in Europe was a substantial engineering effort which can underpin the filings in any number of countries. We are going forward with the process in several places right now. And yes, the Spanish were forward thinking and did provide a model for others to use. So we anticipate that we'll get a lot of traction in Europe just the way that others have in the past, when they similarly went for these kinds of approvals there. So it's an exciting time for us and we hope that during the course of the balance of the year, there's a lot of news flow out of Europe on these opportunities.

[Operator Instructions] Our next question comes from Lyman Delano with Beck Mack & Oliver LLC.

Can you hear me now? Great. Earlier this week there was an article in the Wall Street Journal on the fact that Deere is seeking a satellite network to provide connectivity in remote rural areas, specifically mentioning the US, Canada and Brazil, where I note that Globalstar has full coverage. I was wondering if Globalstar is eligible to provide this type of service to someone like John Deere, and if so, do you have the capacity available to do that, given the commitment you have to your major partner to provide a fairly large percentage of your satellite capacity?

That's a great question, Lyman. So, yes, we were involved in the early days of that process. We continue to push our capabilities into John Deere and other agricultural focused companies, but what they're looking for is more of a broadband type of service and a two way service, which most of the issue is for us, would be the broadband capabilities that they're looking for. Video, live video streams and the like. And so we're probably not likely to win that bid. And we're of course, going after other aspects of what they do and others in that marketplace with what we can do for them, whether it's water management, tank monitoring, and all the other typical one way and low bit data rate type solution we can provide. So it's not applicable to what we do from a broadband perspective. We will have a bigger part of the pie as we go forward with our two way product late in the year, as we talked about already. But yes, clearly there is a lot of activity in the smart Ag market and we are playing in the parts that we can play in.

Yes, Lyman, this is Kyle. I think there's also some opportunities for Band 53 to play a part in some of those types of deployments. So if they need high bandwidth services, you could imagine them. If it's a big farm, you could put a single tower and cover a large part of the farm, or maybe multiple towers. You just need to backhaul it in some other way. So there could be some combinations of satellite and Band 53 type services.

Thank you. And this concludes the Q&A session. I'd now like to turn the call back over to Jay Monroe for any closing remarks.

Great. A couple of things. First on a truly qualitative basis. There is not a room that we walk into today where the conversation hasn't changed radically as a result of everything that we've been doing in the last couple of years, whether it's direct to handset with a truly transformative partner or our relationship with Qualcomm, which finalized the Band 53 infrastructure picture for us. As well as made the chipset available to all handset manufacturers that they currently work with. Between Apple and Samsung alone, they control 86% of the US handset market and they are of course, large Qualcomm customers. So our ecosystem continues to expand. We appreciate everybody's questions today. Obviously, this has been a record quarter for us and it starts a new chapter. The platform and the ecosystem I were just talking about are in place and with a clean balance sheet providing us unconstrained runway, it's now our entire focus to drive the utilization of these space and terrestrial assets. Our solutions are absolutely at the forefront of the market and though we're talking about driving significant revenue and cash generating opportunities. at Globalstar, we never lose sight of the fact that our technology is ultimately saving lives. This is a big reason why our partners have selected us, and it drives our mission every day. We look forward to engaging with all of you in the future months.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.