Globalstar, Inc. (AMEX:GSAT) Q1 2024 Earnings Call Transcript

Globalstar, Inc. (AMEX:GSAT) Q1 2024 Earnings Call Transcript May 8, 2024

Globalstar, Inc. reports earnings inline with expectations. Reported EPS is $-0.01 EPS, expectations were $-0.01. GSAT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen. And welcome to the Globalstar 1Q 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, May 8th, 2024. I would like to turn the conference over to Rebecca Clary, CFO. Please go ahead.

Rebecca Clary: Thank you, operator. And good afternoon, everyone. After my prepared remarks, Jay Monroe, Executive Chairman; and Kyle Pickens, VP of Strategy, will join the question-and-answer session. 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 for the financial year ending 2023 and its other SEC filings, as well as today’s earnings release. To start, Paul is not able to join today’s call. Unfortunately, his mother passed away yesterday and he is focusing on his family.

We send our condolences to both the Jacob’s family and also to the family of Board member, Mike Lovett, who unexpectedly passed away two weeks ago. We are extremely grateful for Mike’s valuable contribution to our company during his time served on the Board. While it is a sad time for the Globalstar team on a personal level, business has been encouraging. Today we are announcing our first quarter results and providing operational highlights. We included a substantial update in the earnings release, so we will keep the prepared remarks section of this call brief. First, we achieved two significant milestones during the quarter, one satellite and one terrestrial. We initiated a contract with a government services company to utilize our satellite network for mission critical applications.

The proof of concept phase is now underway. Assuming final go ahead after verification testing, the agreement has a five year term and contains annual minimum revenue commitments escalating to $20 million during the fifth year, with the potential for significant upside through the agreement’s revenue share arrangement. This opportunity represents a creative use of our satellite and spectrum assets, which does not materially utilize capacity we will use for our other customers. On the terrestrial side, we shipped the first commercial units of our XCOM RAN last month, an enormous accomplishment for our team. As previously announced, the XCOM RAN was chosen by one of the world’s largest retailers for a critical deployment. We are hopeful that this is not only the beginning of a larger relationship with this customer, but also the first of many more deployments for similar fulfillment management use cases.

Also worth noting that the XCOM team has managed to meet the needs of this customer in over the air testing, utilizing a 10 megahertz channel showing gains of four to five times compared to other small cell deployments. We believe Band n53 and XCOM RAN are a powerful combination. Now, turning to our financial results. We reported total revenue of $56.5 million generated primarily from subscriber and wholesale capacity services, with service revenue up slightly from the prior year’s first quarter. It’s important to remember that the comparable quarter included certain non-recurring service revenue. Excluding this non-recurring item, service revenue would have increased by $3.7 million, or 7%. For subscriber driven revenue sources, commercial IoT continues to grow.

During the first quarter of 2024, IoT service revenue increased 24% due to higher ARPU and a larger subscriber base. Subscriber equipment revenue was down $2.7 million from the prior year’s quarter due to the timing of commercial IoT and spot device sales. In 2023, we recovered from inventory shortages and experienced higher sales as a result of product availability. To illustrate this point, the first quarter of 2023 was a record high for any first quarter in the company’s history for both spot and commercial IoT. Moving to other areas of our financial performance. The increase in net loss was driven primarily by non-cash items. After adjusting for these and certain non-recurring items that aren’t representative of our core operating business, adjusted EBITDA was $29.6 million, representing a margin of 52%.

Importantly, both total revenue and adjusted EBITDA during the first quarter were higher on a sequential basis as well as compared to the quarterly average of 2023, reflecting variability in revenue throughout the year. Based on these results and future expectations, today we are reiterating our full year revenue and adjusted EBITDA guidance issued in February. We are excited about how 2024 has started and even more so about what is yet to come in the balance of the year. Paul Kyle, Jason Bernstein and I will be attending conferences on the East and West Coast in the coming weeks, with one presentation being streamed via webcast. So we look forward to speaking with you again soon. I will now turn the call back to the operator for Q&A.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Simon Flannery from Morgan Stanley. Your line is open.

Simon Flannery: Thank you very much. Good morning or good evening. Our condolences to Paul’s family and to Paul. I wonder, Jay, could you talk a little bit about the pipeline just where we are today versus, say, three months ago. Certainly seems like there’s some good progress here. And then on the proof of concept, what’s the timeline to getting final results from that and having it move into the next phase? And then finally, any updates on the constellation would be great. The next constellation.

Jay Monroe: Great. Hi, Simon, I’m glad to do this. Take it in the reverse order, if you will. The constellation remains on schedule. We anticipate launching in 2025, as we’ve conveyed previously. So that is all where it ought to be. In terms of the work that we’re doing for the proof of concept. That is a study and test that can go on for a few more months, and then it will convert into the full contract. It can convert almost any time that they believe that the service that they’re getting has been debugged in a way that they like it, and then they can convert to that service that we talked about before. At the end of that five year period, either party can, or collectively, both parties can renew the contract so it can last longer, but it is set up fundamentally and initially as a five year term. Anything else on those two subjects, Simon?

Simon Flannery: No, I think that’s fine. And I think the $20 million, you’re sort of saying that that can be even larger if there is a revenue share component to that. I don’t know if there’s any more you can say in the nature of the service to help us visualize.

Jay Monroe: No, we can’t say much. Yes, we can’t say much about what the actual service is, but what we can say is that we are optimistic that the revenue share component of it is substantial. It was structured this way for a number of reasons, but we are optimistic that because of the service that’s being provided and to whom it’s being provided, that they’ll use it a lot more in a lot of varied ways. So we’re pretty optimistic that that will produce additional revenue for us.

Simon Flannery: Right. And then on the pipeline, just to understand general level of activity.

Jay Monroe: Yes. Kyle, do you want to take the pipeline? Kyle, are you on mute?

Kyle Pickens: Can you hear me now?

Jay Monroe: Yes, yes, we can hear you.

Kyle Pickens: Okay. Sorry about that. I was on my home pod and then it switched. So, yes, sorry about that. So on the pipeline, there’s several different components of the pipeline. I don’t know if you’re referring to XCOM RAN or to Band 53 or to satellite, but I’ll just talk about all of them, I guess. So on the XCOM RAN, the first customer that we’re working with, this global retailer that we’ve talked about. They could keep us pretty busy for quite some time. So I think that alone is a very substantial pipeline. The other opportunities in MFC, which is this Micro Fulfillment Center where we’re spending a decent amount of time, it’s actually quite large. It’s much larger than I would have even though on the potential market.

So we’ve been pretty active in going out to various trade shows and talking to the companies that are doing that and trying to explore where XCOM RAN could be beneficial to their deployments. We’re also continuing to work with other situations where, I mean, I think one of the areas to focus on is where you have opportunities that are difficult RF environments with large automated machinery moving around. So think ports where we’re already active with Band 53. Think kind of shipyards and various logistics areas are very good opportunities for us to focus on. And we’re spending time there. On broader Band n53 opportunities, we continue to work with the ecosystem like Qualcomm and Nokia and others looking for opportunities. It’s similar types of areas where we’re focusing places where there’s critical infrastructure, high value deployments like mines, infrastructure, ports again, and that I think will be growing and building one of the things that we’ve been working on is getting more 5G radios, which we’re making good progress on that.

So I think that will open up the market for that. And then on the satellite side, the pipeline is, I mean, it’s more kind of business as usual. I don’t really have anything to highlight there, but the team is working on driving new products into the market as they always do.

Simon Flannery: Great. Thanks a lot for the color.

Operator: Your next question comes from the line of Mike Crawford from B. Riley Securities. Your line is open.

Mike Crawford: Thank you. Can you talk about what parts of your balance sheet you might be looking to attack first? Is your free cash flows coming, especially as they accelerate with success on XCOM RAN and Band 53 licensing?

Rebecca Clary: So, from a leverage perspective, I’m assuming that’s what you’re referring to on balance sheet improvement. So that’s, as you know, mostly under our service agreements. So we have the 2021 funding agreement, which is recouped or brought down against service fees, that we earn about $8.6 million a quarter. And so that’s steadily reducing. I think the principal outstanding is about $66 million in that range. And then there’s the 2023 funding agreement, which is about 50% of the total CapEx of our next-gen satellites that’s funded over time. And so — and that will be recouped in a similar way to the 2021 funding agreement. And so those are classified as debt under GAAP because of the terms of the agreements, but kind of substantively treated as deferred revenue in terms of pre-payment for service, in terms of how they get brought down.