Globalstar Announces Second Quarter 2022 Results

Globalstar, Inc. (NYSE American: GSAT) today announced its operating and financial results for the quarter ended June 30, 2022.

Dave Kagan, Chief Executive Officer of Globalstar, commented, "The first half of 2022 has been very strong with financial and operational achievements that I expect will propel us into an even better second half. Below is a discussion of certain of these recent highlights, including our financial performance, which continued to improve significantly in the second quarter led by a revenue increase of over 21%. This increase in revenue contributed to an improved operating margin, while non-cash items drove a net loss, and, importantly, Adjusted EBITDA reached its highest level in the history of our company, surging almost 50% from the prior year's quarter. The past years of development and investment are bearing fruit, and I have never been more excited about our future."

OPERATIONAL UPDATE

Commercial IoT

The most notable achievement for the IoT sales team during the quarter was the execution of a binding agreement for 23,000 SmartOne devices used to provide remote monitoring services in the alternative energy industry. We expect to start delivering product by the end of the year after certain routine back-office engineering work is completed. We also hope to receive significant follow-on orders from this customer, but even at the initial quantity, it is the largest single IoT deal in our history. Deployments such as this one expand the use cases and industries that the products can support and have precedential value when pursuing new partners and opportunities.

To further enhance Commercial IoT offerings, we recently introduced the Realm Enablement Suite, a portfolio of satellite asset tracking hardware and software solutions that gives us a competitive advantage for penetrating the addressable IoT market. At its core, Realm includes an advanced edge platform that simplifies new applications and solutions development by processing and transmitting data without additional code. Also included in the solution set is the Integrity 150, which is the first solar-powered, deployment-ready satellite asset tracking device that operates on Realm. We have also introduced ST150M, a satellite modem module which simplifies product development. With the launch of the Realm Enablement Suite, Globalstar's product portfolio is well-positioned to incorporate two-way and multi-mode devices, which are under development and a catalyst for substantial growth in this space.

Production Issue Resolution

Our second quarter 2022 financial performance is particularly encouraging considering the prolonged period in which we could not produce certain core SPOT and Commercial IoT devices due to component part shortages. As we resume production over the coming days and weeks, we expect equipment revenue to be meaningfully higher in the second half of 2022, leading to further subscriber revenue growth. Demand, particularly for Commercial IoT service and products, has not faltered even in the face of material supply issues. Sales orders continue to build at an impressive pace, and we will fulfill these orders expeditiously.

Terrestrial Spectrum

In the last earnings release, we announced that we had signed a term sheet with a large, global customer for the use of Band 53 / n53, and this relationship has continued to move forward and develop. We are in advanced negotiations on a number of other important opportunities that further validate our view of the value of the spectrum resource we control. These deals take a long time to develop and we thank Nokia, Airspan, XCom, Global Telecom and others in the ecosystem for continuing to drive these opportunities forward.

Additionally, we expect to announce terrestrial approval of Band 53/n53 in additional countries during the upcoming months which we expect will take us well over one billion covered POPs.

Satellite Network

In 2022, we have completed important milestones advancing the objective of replenishing our satellite network. Early this year, we executed the Procurement Agreement with Macdonald, Dettwiler and Associates Corporation ("MDA") for the construction of 17 new spacecraft with Rocket Lab as the bus vendor. These satellites are planned to launch in 2025 and secure continuity of service. The milestone work under this contract is progressing as expected.

In June, we successfully launched an existing on-ground spare satellite in partnership with SpaceX. Today, this satellite is being used as an in-orbit spare to be raised to its operating altitude when and if needed.

Financing Arrangements

The Procurement Agreement provides for deferrals of milestone payments through August 2022. We are actively pursuing a broader financing of the satellite construction costs, and have been diligent in these efforts in order to execute a financing arrangement on the best available terms. We also plan to refinance our 2019 senior credit facility in due course.

As previously discussed, the other party to the Terms Agreement will reimburse us for 95% of the approved capital expenditures we make in connection with the new satellites, interest costs of our borrowings related to the new satellites, other approved costs and termination costs, should any arise, under the Procurement Agreement. The timing of this reimbursement is in line with the depreciation of the satellites, which is expected to start in 2025.

Jay Monroe, Executive Chairman, commented, “I would like to congratulate the team on excellent financial results with strong revenue growth and record EBITDA. The financial and operational achievements discussed above underpin the four pillars of value that we have discussed previously - legacy Duplex and SPOT services, wholesale satellite capacity, Commercial IoT and terrestrial spectrum. These pillars illustrate how we think about and manage the business. We have made substantial strides forward on all four pillars and are closer than ever to increased value realization. We have said this before but it is even more true today, there has never been more interest in Globalstar’s satellite services and terrestrial spectrum resources."

FINANCIAL REVIEW

Revenue

Total Revenue

Total revenue for the second quarter of 2022 increased $6.5 million, or 21%, from the second quarter of 2021 primarily due to an increase in service revenue. Higher service revenue was offset partially by a decrease in revenue generated from subscriber equipment sales resulting from supply chain disruptions.

Service Revenue

Service revenue increased $7.4 million due primarily to the timing and amount of engineering and other service revenue associated with the Terms Agreement, which increased $6.6 million from the second quarter of 2021. During the second quarter of 2022, we recognized $8.8 million for consideration received for performance obligations associated with work to expand and upgrade gateways around the world and under the satellite procurement agreement.

Subscriber service revenue also increased, up $0.6 million from the prior year's second quarter.

Commercial IoT service revenue increased 12% in equal parts from subscriber growth and improved ARPU. Over the last twelve months, gross subscriber activations were up 25% and churn in the base was lower. We have recently experienced steady growth in our Latin American subscriber base; for the three and six month periods, average subscribers in this region increased 63% and 55% and represented 9% and 7% of our total average subscriber growth, respectively. Consolidated ARPU increased due to a favorable mix of subscriber rate plans.

SPOT service revenue increased 5% over the prior year's quarter due almost entirely to an increase in average subscribers. Similar to Commercial IoT, we have recently experienced growth in our Latin American subscriber base; for the three and six month periods, average subscribers in this region increased 13% and 3%, and represented 10% and 3% of our total average subscriber growth, respectively.

Partially offsetting the increases in service revenue from Commercial IoT and SPOT was a decrease in Duplex service revenue resulting from fewer average subscribers. Attrition in the subscriber base has slowed significantly in 2022 compared to recent years.

Subscriber Equipment Sales

Subscriber equipment sales decreased $0.9 million in the second quarter of 2022 compared to the second quarter of 2021 due to lower volume resulting from supply chain disruptions, which impacted our ability to produce our most popular SPOT and IoT devices over the past few quarters. Production issues related to the SmartOne Solar were substantially resolved in the second quarter of 2022 and we expect production of the remaining devices to resume in the third quarter of 2022.

Commercial IoT equipment sales revenue decreased 9% over the prior year's second quarter due to a temporary stop in production since late 2021 resulting from the supply chain issues. After selling through safety stock, we have accumulated significant backorders for both SmartOne devices. If we were able to fulfill these orders in the second quarter, sales would have been more than double the prior quarter's volume. Products not impacted by component part shortages, such as the ST100 board, which was launched near the end of 2020, had its highest volume in any quarter since its launch. We also increased pricing for certain Commercial IoT devices near the end of 2021 resulting from higher component part pricing; these increases favorably impacted revenue for most device type despite volume being lower quarter over quarter.

SPOT equipment sales revenue was down 25% because we did not have inventory to fulfill sales orders for two core SPOT products. Despite the production challenges caused by component part shortages, our retail partners have remained committed to the brand as they expand the number of store locations with SPOT devices and showcase our products on endcaps in many of their stores. We expect to resume production in the third quarter of 2022 and look forward to capitalizing on this demand.

Loss from Operations

Loss from operations was $11.4 million during the second quarter of 2022 compared to $16.0 million during the second quarter of 2021. This improvement was due to an increase in revenue (discussed above) offset partially by an increase in operating expenses driven primarily by higher cost of services.

Consistent with recent quarters, cost of services was higher due primarily to an increase in lease expense for our gateway expansion efforts associated with the Terms Agreement. Also contributing to the increase were higher licensing and professional fees, which were elevated to support the launch of a new ERP system in January 2022 and other information technology software and maintenance. Personnel costs also contributed to the increase in cost of services quarter over quarter.

Cost of subscriber equipment sales increased slightly due to the reversal of a prior year accrual for tariffs during the second quarter 2021 totaling $0.9 million. Excluding this reversal, cost of subscriber equipment sales would have been down $0.7 million and generally consistent with the decreases in total revenue from subscriber equipment sales.

Finally, nonrecurring reductions in the value of long-lived assets and inventory contributed to the remaining fluctuation in loss from operations quarter over quarter. During the second quarter of 2022, we wrote off work in progress associated with spectrum licensing efforts in certain countries around the world after we determined that attainment of such licenses was no longer probable based on discussions with regulators and other circumstances. During the second quarter of 2021, we wrote off balances associated with obsolete material for discontinued products.

Net Loss

Net loss was $26.8 million for the second quarter of 2022 compared to $21.4 million for the second quarter of 2021. Unfavorable variances in non-cash items, such as foreign currency rates on intercompany balances and a gain on extinguishment of debt that did not recur in 2022, contributed to the increase in net loss. These items were offset partially by lower interest expense.

Adjusted EBITDA

Adjusted EBITDA was $14.6 million during the second quarter of 2022 up $4.8 million, or 49%, compared to the prior year's quarter due to higher revenue offset partially by higher operating expenses (excluding EBITDA adjustments) for the reasons previously discussed.

Liquidity

As of June 30, 2022, we held cash and cash equivalents of $13.1 million. Our current sources of cash also include operating cash flows generated from the business and vendor financing. We expect our uses of cash over the next twelve months to include operating costs, capital expenditures and the repayment of amounts being financed through our satellite vendor. We are pursuing a new debt financing arrangement to repay and fund amounts due under the Procurement Agreement.

About Globalstar, Inc.

Globalstar pioneered personal safety by introducing its SPOT Satellite GPS Messenger in 2007. Today, leveraging its low-earth orbit (LEO) satellite constellation, Globalstar reliably connects and protects assets, transmits key operational data, and saves lives – from any location – for consumers, industrial companies and government agencies in over 120 countries. With a portfolio that includes SPOT GPS messengers, next-generation IoT products and modems, and cloud-based telematics solutions, Globalstar’s cost effective satellite-powered innovations give users visibility and intelligence for improving safety and operational efficiencies.

Note that all SPOT products described in this press release are the products of SPOT LLC, which is not affiliated in any manner with Spot Image of Toulouse, France or Spot Image Corporation of Chantilly, Virginia.

Safe Harbor Language for Globalstar Releases

This press release contains certain statements that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements, such as the statements regarding our expectations with respect to the pursuit of terrestrial spectrum authorities globally, future increases in our revenue and profitability, the impact on our business due to unexpected events such as the COVID-19 coronavirus, and other statements contained in this release regarding matters that are not historical facts, involve predictions. Any forward-looking statements made in this press release are believed to be accurate as of the date made and are not guarantees of future performance. Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update any such statements. Additional information on factors that could influence our financial results is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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