Globalstar Inc (GSAT) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 Globalstar Incorporated Earnings Conference Call. My name is Louisa, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

I'll now like to turn the call over to Mr. Dean Hirasawa, Director of Public and Investor Relations for Globalstar. Please proceed.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us for today's conference call to discuss the results for Globalstar for the quarter and nine month ended September 30, 2009.

Before we begin, please note the following. This call may contain certain forward-looking statements within the meaning of federal securities law. Factors that could cause results to differ materially are described in the Safe Harbor section of today's press release and in Globalstar's SEC filings, including the quarterly report on Form 10-Q for the three months ended September 30, 2009, which will be filed in the upcoming days.

The press release, this conference call and the associated slide presentation, which is available on the Investor Relations page of our Company website, include discussions of certain non-GAAP financial measures as defined under SEC rules. We have provided a reconciliation of each of these non-GAAP measures and the most comparable GAAP measure in the press release.

Please note that the information in this call is accurate only as of this day, which is Thursday, November 5, 2009. Today's press release containing certain financial information is available on the Company's website at www.globalstar.com. Later this afternoon, an audio recording of this conference call will be available by a telephone dial-in, and a webcast recording along with a copy of the slide presentation will also be made available on the Company's website.

Today's call is being hosted by Mr. Peter Dalton, CEO of Globalstar, Inc. Joining Mr. Dalton is Mr. Fuad Ahmad, Senior Vice President and CFO, and Mr. Tony Navarro, President of Global Operations. Each will be available following their prepared remarks to take your questions.

At this time I would like to turn the call over to Mr. Dalton.

Good afternoon and thank you for joining us. I would first like to say it is a pleasure to have this opportunity to discuss Globalstar with you today. Over the next few minutes, I will summarize our operational highlights for the quarter and share with you my vision for the Company.

As most of you know, on July 1, Globalstar made what can be described as a watershed announcement when we completed a $738 million financing. This financing funds the initial deployment of our second generation satellite constellation designed and manufactured by Thales Alenia Space. The launch of the first 24 satellites beginning next year by Arianespace, SPOTs and the continued development of our next generation of our Globalstar ground segment. Tony will be along shortly to provide you with the latest updates concerning the constellation and network.

Globalstar now has the financial resources needed to deploy a new constellation that is designed to last beyond 2025 and at a fraction of the cost of the first generation Globalstar network. Once deployed, the second generation constellation is expected to immediately restore our first generation voice and duplex data services to high levels of quality and reliability that our customers are accustomed to, thus helping to pave the way for returns to the levels of growth for our two-way voice and duplex data business that we experienced prior to 2007.

We expect that our new constellation in the upgraded ground network will also provide Globalstar with the capability to launch a host of enhanced internet multimedia subsystem, or IMS-based next generation voice and data services, years before our primary competitor. We expect to be in a position to initiate and support product and services such as Push to Talk and multicasting, advanced messaging capabilities such as multimedia messaging, mobile video applications, geo location services, multiband and multimode handsets and data services with GPS integration.

During the third quarter, Globalstar continued to exhibit significant simplex data and SPOT satellite GPS messenger subscriber growth. We completed the quarter with over 382,000 subscribers, or approximately 53,000 more subscribers than we had at the end of the third quarter of last year.

Our global SPOT satellite GPS messenger sales initiatives also continued to progress during the quarter. As of today, we have received orders to ship more than 175,000 units to just under 10,000 SPOT points of distribution in North America, Europe, Latin America, Australia, New Zealand and Southeast Asia. Our sales initiatives were highlighted by the signing of SPOT distribution agreements with Best Buy and the Pep Boys retailers in the United States, further expanding our domestic consumer retail profile.

In September 2009, Globalstar began to ship initial limited quantities of our new enhanced SPOT satellite GPS messenger. This new SPOT device is approximately 30% smaller and lighter than the original award-winning SPOT product, which was introduced in late 2007.

I am also pleased to say last week we announced yet another new addition to the growing family of innovative consumer retail mobile satellite products and services. Our Hybrid Universal Guardian, or HUG, product was unveiled at this year's Fort Lauderdale International Boat Show, the largest boat show in the world. Our HUG product, which we expect to deliver beginning in the spring of 2010, is an easy to install, satellite-based, asset monitoring and messaging system for the marine industry. HUG is designed to monitor a marine vessel's location and to send an unauthorized movement alert to an asset monitoring center and owner, proving them with the satellite-based theft protection system. It can also be used to monitor operational information, such as bilge water levels and unauthorized equipment removal.

Finally, our HUG product provides all the peace of mind and safety messaging features found in all of our SPOT satellite GPS messenger products. We are excited about this new product's potential. And we are very pleased with the reception HUG received at last week's boat show from owner-operators, dealers and distributor, the OEM community as well as representatives of the marine insurance industry.

One of the key differentiating factors that separates Globalstar from our competition is the fact that we are simply the first and only mobile satellite service provider to have successfully marketed a retail consumer product. Globalstar has traditionally been a provider of high value and high quality mobile satellite voice and data solutions to global enterprise or commercial customers. Globalstar has now evolved and expanded to become the first MSS provider to successfully launch low-cost, high-quality, award-winning consumer products and associated services to the North American and international marketplace.

Our near-term challenge is to continue to capitalize on and further expand this consumer success both domestically and around the world. One of our key goals is to evolve in order to become the world's largest provider of mobile satellite messaging, safety, security and asset tracking products and services for the retail consumer market. This can only be done if we continue to meet the needs of a growing world of consumers that seem to have a never-ending appetite for innovative communication solutions.

Finally, during the quarter, we further demonstrated our commitment to both this growing marketplace and our commercial simplex data end-to-end markets by commencing installation of our Simplex 2.0 network upgrades. The software upgrades are designed to enhance our overall customer messaging capacity by 10 times the current capacity and significantly increase the date receiver sensitivity of the Globalstar simplex data network. Our North American simplex data and SPOT customers are already experiencing the expanded utility provided by these upgrades. And we expect the enhancement to all our simplex-equipped gateway ground stations to be completed next week.

I will now pass the call over to Tony so he can provide us with the latest information concerning our second generation satellites and our next generation ground segment.

Thank you, Peter, and good afternoon, everyone. The Globalstar first generation constellation continues to perform as expected with our simplex data network operating at a 98% messaging reliability level for our asset tracking, data monitoring and SPOT satellite GPS messenger customers. Our duplex data and voice customers now have access to a new and improved web-based OSAT, or satellite coverage availability program known as the Call Times Tool. The CTT provides customers with the ability to more easily obtain satellite availability for any given geographic location.

Our eight first generation satellites launched in 2007 continue to perform as expected. This, combined with the fact that we expect no further degradation of our voice and duplex data service coverage, means that our duplex and voice ARPU and subscriber base should be more easily maintained until the launch of our second generation constellation.

Of course, as Peter indicated earlier, our simplex data and SPOT satellite GPS messenger subscriber growth was not affected by our satellite issues. I have recently returned from numerous satellite verification and operational readiness meeting with our manufacturer, Thales Alenia Space, and launch services provider, Arianespace. One of the key elements discussed concern a major earthquake which struck the Abruzzo region of Italy earlier this year, damaging the Thales component fabrication facility in L'Aquila, Italy.

Although none of the Globalstar production satellites or components were damaged, Thales has informed us that due to their production processing facility damage, we can expect delivery of our initial flight model satellites to be delayed for perhaps one to three months. Therefore, we now expect the first launch of six satellites to take place in the summer of 2010. Assembly integration testing of our production flight model satellite has begun at the Thales facility in Rome. And qualification testing of the new six-unit satellite dispenser by Arianespace is to begin before the end of 2009. Early next month, we will be sending a team of engineers to the Soyuz launch facility located in Baikonur Cosmodrome in Kazakhstan where they will conduct the prelaunch Globalstar site survey.

When we speak again in the first quarter of next year, we expect our first flight model satellites will be undergoing final preparation for shipments to the Cosmodrome. We are pleased to announce that the new gateway ground station facility in Kaduna, Nigeria has begun operational service providing Globalstar simplex data and SPOT satellite GPS messenger coverage to Western and Central Africa and parts of the coastal Atlantic and Gulf of Guinea maritime region. Our independent gateway operator, Globaltouch West Africa, has already commenced commercial operations and has accepted an initial order from Nigeria's aviation agency who will be using an integrated Globalstar simplex data tracking, an aviation flight following solution for Nigerian registered aircraft. As you may recall, Globalstar has a 30% ownership interest in this independent gateway operator.

Finally, in August, we completed the critical design review, or CDR, with Hughes Network Systems for the radio access network portion of our next generation ground segment. We also completed the CDR with Hughes for the satellite interface chipset, which Peter will discuss with you shortly during his closing comments.

I will now pass the call over to Fuad who will discuss the finance review for the third quarter.

Thank you, Tony. I will now go through the third quarter highlights. I'm pleased to report that our cost cutting initiatives have started to bear fruit. We have made headcount and other non-labor reductions in areas that do not affect our simplex and SPOT business.

In addition, we have focused our spending in areas that allow us to grow our business in the near term. This is evidenced by the increasing revenues over the last three quarters. We're also making investments in new product development and directing advertising and marketing dollars towards our consumer distribution channels as these efforts are expected to have substantial near-term positive impact. Despite these costs, we have narrowed the gap between our revenue and adjusted operating expenses to a mere $494,000 in the third quarter of 2009. Looking ahead, we will continue to aggressively manage our costs as we find additional efficiencies throughout the organization.

I reiterate. The Company's focus is stability in our core retail duplex business while growing our simplex business. Over the last three quarters, we have been very successful in this endeavor, and these affects, coupled with our cost saving measures I have mentioned earlier, have left our rapidly narrowing loss and sequentially higher revenue.

The stability of our core retail duplex business is highlighted by our ability to maintain low turn while steadily improving ARPU. It should be further highlighted that the improvement in retail ARPU is related primarily to the stability of our satellite constellation over the prior three quarters as discussed by Tony earlier. We expect this level of ARPU to continue until the second generation constellation is launched and then expand rapidly thereafter.

We believe our existing duplex retail customers are a huge asset to the Company, and we are singularly focused on maintaining them. With the second generation launch less than a year away, we believe our core assets, our customer base, remains generally intact, giving us a great platform for future growth. In addition, our simplex business continues to grow rapidly, providing us with meaningful additional revenues in the near term.

By work of completing our financing in early July, we now believe we have a fully funded business plan with substantial additional liquidity. We're also able to undertake new product development activities and upgrade our ground infrastructure. These initiatives are aimed at providing us near-term revenue growth as well as next generation of products and services for our subscribers beginning in 2012. Peter will provide you with a glimpse of the future later.

In closing, I would like to leave you with one final thought. Prior to the constellation degradation issues, Globalstar was on a significant growth trajectory in terms of revenue and EBITDA expansion. Our aim is to return to the same growth trajectory in the retail duplex business and to continue to expand our simplex business aggressively. We further aim to exploit our valuable spectrum assets and to introduce advance next generation products and services. By virtue of making substantial investments in second generation ground development, which our business plan allows, we have set in motion a long-term vision which will be articulated by Peter later.

With that final thought, I will turn over to Peter.

Thank you, Fuad. In closing, I would like to take the opportunity to remind everyone of the key factors which drive our business and differentiate Globalstar from our competition. Globalstar has already completed a $738 million financing earlier this summer. This will fund the launch of our 24 second generation satellites beginning next summer. The second generation constellation, which was contracted for back in 2006, will not only return our current and fully backwards compatible products and services to the high level of quality and reliable coverage our customers expect, but it will also secure our space segment through 2025. Combined with our ground segment upgrades, this paves the way for us to launch a host of enhanced next generation IMS space services several years ahead of our primary competition.

Globalstar is also the first and only mobile satellite services provider to have already successfully marketed a retail consumer product, the SPOT satellite GPS messenger. This product is already distributed through almost 10,000 points of distribution around the world. And in the upcoming months, we are committed to further expanding our suite of SPOT satellite GPS messenger products and services.

As Tony alluded to earlier, recognizing the potential for developing integrated solutions with global handset manufacturers, we have signed a contract with Hughes Network Systems who will not only provide us with next generation ground segment upgrades, but will also provide Globalstar with a new low-cost satellite interface chipset. We expect these chips to be available to us for as little as $10 each in quantity. We also expect these chips will allow us to offer the world's most cost-effective satellite-only handsets to our commercial and industrial markets, but will also provide other device manufacturers with ubiquitous satellite coverage for a fraction of the cost previously associated with earlier MSS chipsets.

Of perhaps even greater significance, the chipsets will also provide us with the capability of offering ubiquitous Globalstar satellite coverage to virtually any current Bluetooth or Wi-Fi-equipped mobile or cellular handset user by simply providing them with a low-cost mobile satellite access device, our Globalstar mobile access point product. Finally, Globalstar is the first and only ATC-authorized mobile satellite provider to have already commenced monetizing its ATC satellite spectrum holdings via our spectrum leasing agreement with rural broadband provider open range communications.

In conclusion, let me share with you the different components which will drive the value of the Company for the next 12 months and beyond. We expect to be measured by our ability to meet the operational milestones associated with what we term Globalstar value drivers. The first of these milestones are associated with the manufacture and launch of our second generation constellation. Once deployed, we expect to see strong positive impact on our core business fundamentals, such as voice and duplex data subscriber growth, EBITDA and revenues.

Secondly, we expect to take the steps needed to become the preeminent provider of current and future mobile satellite consumer products led by a host of SPOT satellite GPS messenger products and services. Third, we possess 27.85 megahertz of global satellite spectrum, 19.275 megahertz of which is already authorized for domestic ancillary terrestrial component, or ATC use, here in the United States. We are the only company to have already monetized this authority from the FCC. And we expect to continue to take the steps necessary to advance our spectrum opportunities both here and internationally.

Finally, we continue to work with Hughes Network Systems to produce the interface chipset needed to drive a host of converged next generation products. We expect this innovative low-cost chipset will not only provide satellite ubiquity to our next generation of handsets and modems, but will also provide the same utility for current mobile wireless devices via a simple access point product.

While the Company is focused on meeting the operational milestones associated with these drivers, we also continue to look for synergistic acquisition opportunities that will technically enhance both our enterprise revenue and consumer capabilities both domestically and around the globe. It is our goal to serve the ever evolving global community of consumers and enterprise customers, all of which seem to have an insatiable appetite for integrated connectivity. Globalstar will provide them with innovative and seamless communication solutions wherever they may venture.

Thank you. And I look forward to speaking with you again in about fourth month's time.

Thank you, Peter. That concludes the prepared portion of the presentation. We will now take the opportunity to answer some questions. Operator, can you please proceed with the first question?

Sure. (Operator Instructions). Your first question comes from the line of [Lily Woo] with [Picra] Capital. Please proceed.

Yes, hi. Thanks. I just wanted to get an update then. If the first launch will be in the summer of 2010, I think originally it was four launches of six satellites each. And will the whole schedule get pushed back so that the -- can we get some insight into when the last launch will be and when? And do all four launches need to occur for the two-way service to be fully back at the service level that you expect?

Lily, thank you for the call, or the question. First of all, the first launch will be in the summer of 2010. And our provisional launch windows for all four launches begin in the summer of 2010 and are fully complete by the summer of 2011. We expect the best services to begin improving for our duplex voice and data service starting immediately after the first launch.

Okay, okay. And do we have -- you had mentioned the ATC and the open range progress. Do you have some insight into when they will launch service?

We certainly do. They have a prototype series of products which have been fielded to date as beta units starting in Colorado. And more specifically, they will open their first three rural markets starting in September of this year and anticipate opening an additional three more markets in November.

Okay, great. Thank you.

(Operator Instructions). And at this time we have no more questions in the queue.

Okay, Operator. I guess with that then we'll bring the conference call to an end. Thank you again for joining us today. And please be reminded that later this afternoon, an audio recording of this conference call as well as a copy of the presentation will become available on the Company's website. And the conference call will be available by a telephone dial-in. Thank you very much for joining us today and good afternoon.

Thank you for your participation in today's conference. This now concludes the presentation. You may now disconnect and have a great day.