Globalstar Inc (GSAT) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Globalstar Inc. earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Dean Hirasawa, Director of Public and Investor Relations. You may proceed.

Thank you, operator, good afternoon everyone. Thank you for joining us for today's conference call to discuss the results for Globalstar, Inc. for the quarter and 12 months ended December 31, 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 annual report on Form 10-K for the 12 months ended December 31, 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 those non-GAAP measures to the most comparable GAAP measure in the press release.

Please note that the information in this call is accurate only as of today, which is Thursday, March 11, 2010. Today's press release contains certain financial information, is available on the Company website at www.Globalstar.com. Later this afternoon an audio recording of this conference call will become available via telephone dial-in and a webcast recording along with a copy of the slide presentation will also be made available on the Company 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 Navarra, 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. It is a pleasure to once again have an opportunity to discuss Globalstar with you. Over the next few minutes I will summarize our operational highlights for the year and share with you our continued vision for Company.

As many of you know, on July 1 of 2009 Globalstar made what can be described as our 2009 watershed event when we announced the completion of a $738 million financing. As other companies attempt to either replicate this achievement or find other sources of funding for their satellites, we have been busy completing the manufacture of our second-generation satellites designed and built by Thales Alenia Space.

In less than four months the 90-day launch window for the initial launch of six new satellites is scheduled to open and we expect this first of four launches to commence by late summer. Our funding not only finances the manufacture and launch of 24 new satellites, but it also permits the continued development of our next-generation Globalstar ground segment. Once fully deployed, the second generation constellation is expected to immediately restore our first generation voice and duplex data services to the high levels of quality and reliability to which our customers are accustomed. We expect this will pave the way for our return to the levels of growth for two-way voice and duplex data business experienced prior to 2007. Tony will be along shortly to provide you with the latest updates concerning the constellation and network.

In January of 2009, Globalstar announced that our broadband network service partner, Open Range Communications, had closed on its equity financing and rural utility service loan. This was a significant event for Globalstar where it permitted Open Range to proceed with its planned deployment of WiMAX services to rural America and for us to become the first and to this date the only mobile satellite services provider to have successfully utilized its ancillary terrestrial services for ATC spectrum authority by the FCC. The FCC has authorized 19.275 megahertz of Globalstar's spectrum for ATC use by terrestrial service providers and we are encouraged by recent regulatory and industry discussions regarding the flexible use of mobile satellite spectrum for future wireless broadband network initiatives in the United States.

In December 2009 we signed an agreement to acquire virtually all of the assets of Axonn LLC. Axonn is a leading developer and manufacturer of GPS asset tracking and messaging products, including our spot satellite GPS messenger. Axonn also designs and markets enterprise satellite M-to-M products, including the AXTracker and SMARTONE asset tracking solutions. This acquisition secures the critical long-term supply chain and associated intellectual property rights for our spot satellite GPS messenger, retail consumer products and other simplex data enterprise M-to-M solutions. It also provides Globalstar with a world-class product design capability that consists -- that can assist us in driving the maximum usage from our satellite network. Axonn's intellectual property expertise, coupled with our satellite network, permits us to offer developers the open source technology standard needed to integrate our proven messaging and global tracking capabilities into their M-to-M and asset tracking solutions.

As many of you know, one of the key elements that separates us from our competition is the fact that we are the first and only mobile satellite services provider to have successfully marketed retail consumer products. As of today, we have received orders to ship over 200,000 SPOT units to over 10,000 retail points of distribution around the world. Globalstar has traditionally been a provider of high-value and high-quality mobile satellite voice and data solutions to global enterprise commercial customers. Throughout 2009, Globalstar continued to evolve and expand our retail consumer market presence by expanding our product offerings to the North American and international marketplace.

In late 2009, we introduced the market to the new and improved SPOT satellite GPS messenger, or SPOT 2. Our new SPOT product is roughly 30% smaller and lighter than our original award-winning product. In October we introduced our HUG product at the Fort Lauderdale International Boat Show, the largest boat show in the world. HUG, which we expect to deliver to retailers beginning this summer, is an easy to install satellite-based asset monitoring and messaging system that can be used to protect a variety of mobile assets, such as yachts or motorcycles. HUG is designed to monitor an asset's location and to send an unauthorized movement alert to the owner-operator or an asset monitoring center providing them with a satellite-based theft protection system. It can also be used to monitor operational information, such as bilge water levels for maritime vessels and unauthorized equipment removal.

Finally, our HUG product provides all of the piece of mind and safety messaging features found in all of our SPOT satellite GPS messenger products.

In addition to these new SPOT products, we also introduced a host of new consumer-based services, such as our SPOT Assist roadside and maritime services.

Earlier this year at the Consumer Electronics Show, or CES in Las Vegas, Globalstar along with GPS manufacturer DeLorme jointly introduced the world's first handheld GPS and satellite communicator. The revolutionary satellite communicator designed exclusively for the new DeLorme PN-60w merges SPOT satellite message functionality and DeLorme's state-of-the-art GPS mapping capability. Users can send customized text messages using the PN-60w's keyboard to select individuals or groups from virtually anywhere, even when they are far beyond the range of traditional wireless or cellular coverage.

Established SPOT technology allows real-time location updates and the ability to summon -- established SPOT technology allows real-time location updates and the ability to summon help in case of an emergency. We expect custom messages will easily be shared with social networking sites like spotadventures.com, geocaching.com, Twitter and Facebook. Earlier today we announced that DeLorme had just placed an initial order for more than 15,000 SPOT communicators and we expect the new satellite communicator product to begin shipping in late spring.

In 2009 we continued to demonstrate our commitment to the growing consumer retail marketplace as well as our commitment to the commercial simplex data M-to-M market by installing our Simplex 2.0 ground network upgrades. These software upgrades are designed to enhance our overall customer messaging capacity by 10 times the current capacity and significantly increase the data receiver sensitivity of the Globalstar Simplex data network. In 2009 we also continued to work with Hughes Network Systems for our ground segment radio access network upgrades and for the development of our next-generation satellite interface chipset which I will discuss later in the call.

Throughout the year Globalstar continued to expand its geographic coverage where we market our unique mobile satellite products and services. In November we announced the opening of the satellite gateway ground station in Nigeria which is operated by independent service provider Globaltouch West Africa Limited. The gateway, located in Kaduna, provides expanded coverage into central and western Africa as well as to western coastal maritime region.

All of our SPOT consumer and Simplex data market initiatives helped drive our business throughout 2009 as we continued to exhibit significant Simplex data and SPOT satellite GPS messenger subscriber growth. We completed the year with over 390,000 subscribers or approximately 46,200 more subscribers than we had at the end of last year.

Fuad will provide more financial results shortly. I will now pass the call over to Tony so that he can provide us with the latest information concerning our current and second-generation satellites in 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 continuing to perform at a 98% messaging reliability level for our Simplex asset tracking, data monitoring and SPOT satellite GPS messenger customers.

As Peter indicated earlier, our Simplex data and SPOT satellite GPS messenger subscriber growth was not affected by our S-band degradation issue. Our duplex data and voice customers continued to access the new and improved web-based optimum satellite availability tool known as the Call Times Tool. The CTT provides customers with the ability to more easily obtain satellite availability for any given geographic location for up to four days in advance at a time. We are also completing the repositioning phase of our first-generation constellation in preparation for the deployment of our second generation satellites.

As many of you know we recently returned from our investor and media meetings that Globalstar hosted at the Thales Alenia space satellite manufacturing facility in Rome. Investors and media representatives had the opportunity to meet with Globalstar management and had a chance to speak with key executives for our manufacturer at Thales, as well as our satellite launch provider, Arianespace.

More importantly our guests were able to view our first batch of six brand-new Globalstar second-generation satellites undergoing final assembly, integration and testing, or AIT procedures, prior to being delivered to the launch facility at the Baikonur Cosmodrome in Kazakhstan.

Globalstar has contracted with our Arianespace for four launches of six satellites each using the highly reliable Soyuz launch vehicle. The Soyuz has been previously launched on eight occasions to successfully launch Globalstar first generation satellites. As we announced in Rome, the first 90-day launch window for six new Globalstar second-generation satellites is scheduled to open in less than four months, on July 5 with the first launch expected to take place in late summer.

As you can see, it's been almost four years since we signed our second generation satellite manufacturing contract with Thales Alenia Space. With just a few short months to go before our first launch, we are pleased to say that nearly all of the necessary engineering and time-consuming operating processes and procedures have been completed.

In addition to the commencement of our satellite assembly, integration and testing, let me provide you with an update concerning a number of our other second-generation launch milestone objectives that have been completed since our last earnings call in November.

In December 2009, a Globalstar team of engineers were sent to the Soyuz launch facility located at the Baikonur Cosmodrome where they completed the mandatory pre-launch Globalstar site survey. Last month we completed installation of the second-generation software upgrades at our primary satellite operations control center here in Milpitas, California. Testing of these upgrades began earlier this month. In-orbit testing equipment, or IOT&E installations, has also been completed at the selected gateways and our satellite operations control center.

Finally, our launch provider Arianespace announced earlier this month the qualification testing of the new six-unit satellite dispenser which will be used to deploy the new satellites once they are boosted into orbit is now complete. Nearly four years since the signing of our satellite contract, the satellite design has been validated with this dispenser qualification testing.

When we speak again in the 2nd quarter, we expect our second batch of six flight model satellites to be undergoing prelaunch AIT preparation.

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

Thank you, Tony. I will now go through the 2009 highlights. By completing our financing in early July we now have the financial resources to complete our second-generation deployment. The additional cash cushion shown here allows us to undertake new product development activities as well as ground infrastructure improvements. These initiatives are aimed at providing us near-term revenue growth opportunities such as the acquisition of Axonn and the joint product development efforts at DeLorme. It also helps us fuel our longer-term growth for the deployment of our next generation of subscriber products and services.

I reiterate from our previous calls the Company's focus on stability and our duplex revenue while growing our Simplex and SPOT business opportunities.

Over the past year we have been successful in that endeavor, and that coupled with the cost-saving measures I also mentioned in our previous calls has led us to improving adjusted EBITDA over the same period last year. I will provide an illustration of that later in the call.

Our cost cutting measure initiatives are bearing fruit as operating expenses continued to decline from quarter to quarter. We have made headcount and other non-labor reductions in areas do not affect our satellite launch campaign for the Simplex and the SPOT business. In addition, our sales and marketing spend is focused on areas that allow us to grow our business in the near term.

Looking ahead, we will continue to aggressively manage our costs as we find additional efficiencies throughout the organization. We only we are only months away from beginning our launch campaign. With our rapidly approaching launches we look forward to reinvigorating our duplex business. With our aggressive cost-cutting measures and our targeted market initiatives aimed at our Simplex business we have remained near breakeven results. Although we have kept the momentum growing in our Simplex business throughout 2009, we experienced a normal seasonal decline in our Duplex revenue in the fourth quarter of 2009. The decline while expected was significantly lower than the typical seasonal decline experienced in the same period last year. The recovery of such seasonal decline typically begins in late Q1.

In addition in the fourth quarter we also experienced a delay in the delivery of our SPOT 2 products which had a negative impact on our equipment revenue for the quarter. We are pleased to announce that we have begun deliveries of our SPOT 2 product.

The stability of our Duplex business is highlighted by our ability to maintain a low retail churn rate in the Duplex business while maintaining or even growing our retail ARPU over the course of the year. As also noted by Tony, the relatively flat retail ARPU is due primarily to the stability of our satellite constellation. We expect this level of ARPU to continue until second-generation constellation is launched starting a mere month from now and then expand rapidly thereafter. With the second-generation launch fast approaching, we believe a core asset, our Duplex customer base, remains largely intact giving us a great platform for future growth.

In addition our Simplex business continues to grow providing us with meaningful additional revenue sources.

In closing our aim is to return our Duplex business to the growth rates we were experiencing prior to satellite degradation issues while aggressively exploiting Simplex opportunities worldwide, as articulated by Peter earlier in the call.

In addition, we control an extremely valuable block of global spectrum which the investors have only now begun to recognize. as the spectrum scarcity debate ranges in the regulatory and industry circles. We believe 2010 is poised to become the year in which the pieces of the Globalstar value proposition will start to emerge.

With that thought, I will turn to you, Peter, with the last messages.

Thank you, Fuad. In closing, I would like to take the opportunity to remind you of the key factors which drive our business and help differentiate Globalstar from our competition. Unlike our competition, Globalstar has already completed a $738 million financing designed to fund the manufacture and launch of 24 second-generation satellites beginning late this summer. The second-generation calm installation which was contracted to Thales Alenia Space almost four years ago 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 we believe 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-based services several years ahead of our primary competition.

We are in the position to do this because of the diligent efforts of our employees and all our partners who share our vision for Globalstar's future. Globalstar is also the first and only mobile satellite services provider to have already successfully marketed our retail consumer product, the SPOT satellite GPS messenger.

Our commitment to further expanding our suite of SPOT and other consumer and commercial products and services is demonstrated by our acquisition of Axonn. This acquisition not only secures our consumer product supply chain and important intellectual property rights but it also provides us with the ability to offer developers an open source standard to integrate Globalstar's proven technology into their products.

Finally, with the recent industry and regulatory discussions concerning the spectrum requirements needed to power future wireless networks, let me remind you that Globalstar holds the valuable satellite spectrum and ATC authority that can be potentially utilized for future broadband network usage in the United States.

Unlike our potential new competitors, Globalstar already has hundreds of thousands of customers utilizing those spectrum assets each and every day and our spectrum licenses provide us with the ability to serve those customers not just here in North America but around the world.

And unlike our incumbent competitors Globalstar not only has received ATC authorization from the FCC, but we are the first and only ATC authorized mobile satellite provider utilizing its ATC satellite spectrum holdings via our spectrum leasing agreement with rural broadband provider Open Range Communications. And with our global spectrum capability, we hope to replicate this agreement with other providers, both here in North America and around the world.

In conclusion, let me share with you the different components which will drive the value of the Company for the remainder of this year 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 two of these milestones are associated with the manufacture and launch of our second-generation constellation. As Tony stated, the first of our satellite launches is expected to take place in late summer. Once the four launches are completed and the constellation is fully 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 are taking the steps needed to become the preeminent provider of current and future mobile satellite consumer retail products and services led by a host of SPOT satellite GPS messenger products and services.

Third, we possess global Globalstar satellite spectrum 19.275 megahertz, which is already authorized for domestic ancillary terrestrial component, or ATC use, here in the United States and we expect to continue to take the steps next necessary to advance our spectrum opportunity both here and internationally.

And as discussed in the past 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 a next generation of handsets and modems, but will also provide the same utility for current mobile wireless devices via a simple access point product. The company is focused on meeting the operational milestones associated with each of these drivers but we will also continue to look for further synergistic acquisition and product development 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 consumer and enterprise customers and at the same time satisfy what seems to be an insatiable appetite for integrated connectivity in the ever-growing domestic and global wireless spectrum requirements. Globalstar plans to provide our customers with innovative and seamless communications solutions wherever they may venture.

Thank you and I look forward to speaking with you again in about 60 days with our next update.

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

Lilly Wu, TGRA Capital.

Hi, thanks. I wanted to get some more details on the order that was announced today by DeLorme. When are those orders -- I presume those are for the SPOT 2 unit. Can we get some information on when those orders and also the service subscription will begin there? And I think the press release indicated that those are preliminary orders or initial orders, in which case what is the general scope of the overall engagement that you expect?

Good afternoon, Lilly, this is Peter Dalton, and DeLorme has issued a initial purchase order with Globalstar for 15,000 communicators and those are going to be delivered beginning this summer. We expect that the first shipments are going to begin in the month of June.

And no, those are not SPOT 2's. Those are a custom-designed messaging device that uses the keyboard of the DeLorme PN-60w which is a brand -- the PN-60 is a brand-new DeLorme product just being released and 60w is a device that communicates with our specially designed communicator for the PN-60. So you will begin to see it on the retail shelves beginning this summer following June, and DeLorme has quite a promotional campaign with the introduction of this device.

Okay, and how large the overall engagement will be I guess ultimately depends upon their sell-through; is that correct?

Yes, that's correct, and they were very active with the introduction of this new communicator device at the CES show in January along with Globalstar. And I can say I was there; they had quite a bit of press coverage with it because it is the first of its kind.

Okay great. Can we get an update on timing again? You mentioned the ATC Open Range arrangement financing. Can we get an update in terms of timetable of when and the scope of their service launch? And as well, too, it was great getting the update on our second-generation satellite launch, the first window starting July 5, but there, too, our improved service as a result of the first six launches, can we also get an idea of timing on that as well?

Hi Lilly, it's Tony Navarra here. On the first part of your question we continue to work closely with Open Range as they begin to rollout of their services in a number of mountain states and states located throughout the United States. We don't have that list with us here for the call, but if you go to their website you can see how they are beginning to roll out their services using the lease agreement we have with them for ATC services.

With regards to the satellite first launch it will be later this summer and we are currently going through the steps to shift the satellites from our facilities in Rome where we do the assembly, integration and test out to the Baikonur launch, the Cosmodrome itself. And I'm certain in the next 60 days in our next call we'll be able to describe to you the status of the shipment and when we expect to do what's called pre-launch fueling and preparation for the actual launch date later this summer.

Okay, great. And the ATC, do we have the timing on that?

The ATC has already been approved, which we worked on throughout 2008. The FCC and Globalstar worked very closely with Open Range through the year 2008 to get that license approved and in January the Open Range announced their services.

I'm sorry -- what I meant was, the launch in the mountain states by Open Range.

We don't have that, Lilly. It's best for you to go to the Open Range website. They have got their current information listed there.

Jack Sherck, SunTrust Bank.

I just had a quick question in terms of once you have [presumed] with the next satellite launch, how long after that or how many satellites do you have to get off before you can reassert or continue the two-way cell phone communication -- reestablish, I should say?

Jack, again, this is Tony Navarra. Very good question. The way that the low earth orbiting system works for Globalstar is that within about four to six weeks of the first launch, services will improve immediately via the first two satellites. And then approximately four weeks afterwards each of the remaining two satellites from that launch begin to improve service. So that it's on incremental services two satellites at a time as we launch them from the dispenser, two at a time for up to about three months. So the first part of your answer is that you see almost very, very quickly improvements for the use of our system with voice and data, and then approximately 90 days after the first launch we'll begin launching the remaining satellites, again, six satellites at a time for three more launches and effectively services will continue to improve almost two satellites at a time about a month or six weeks after each launch. Does that answer your question?

Yes, it does. Thank you very much, and then just one follow-up for you. Just in terms of any possible ongoing conversations or conversations at all with any of the other major carriers besides Open Range, you know, take it Verizon or Sprint or anyone else that would possibly be interested in marketing your services or delving into that category?

We really can't discuss that for this call. But I will say that we're always open to working with other telecom players and the industry in general.

Operator, this is Dean. We'll take one or two more questions and that will be it.

Jonathan Atkin, RBC Capital.

My question was actually already asked; it was about Open Range.

Thank you, John.

If there's no other questions, is there anything else operator?

There are no other questions. I would like to turn the call back over to management at this time.

Very good, okay I guess -- sorry, just maybe we'll give it a couple of more minutes and see if there's anybody else who wishes to join.

(Operator Instructions) Ryan Esposto, KKS Securities.

Hi, good afternoon, I just have a couple of quick questions. I noticed there wasn't a balance sheet that published. Can you give your total debt figure for the close of the quarter.

Ryan, this is Fuad. We will be issuing that 10-K in the next couple of days, so I would rather you wait for the 10-K to get the final numbers from our balance sheet. But, currently debt is in the $400 million range, but you may want to wait for the balance sheet.

Okay, and your basic share count, or your average basic share count for the quarter, will that be in there too?

That is correct.

And then, in terms of the SPOT product, you guys talked about 200,000 orders for that product. Those are booked orders in the next 12 months and what's the linearity of those orders?

Let me answer that question, and then maybe Peter can chime in as well. These are orders that have either been -- are received and shipped into the channel or will be shipped in the next 30 days or less.

That's 200,000 products of your SPOT products and your average price per product is what on those?

For the SPOT one, we sell into the channel currently at approximately $75, and -- of which we have no inventory left. So all future orders will be of SPOT 2 and the current price for SPOT 2 is approximately $110.

Gotcha, so it will be a mix of the two and it will be 200,000 units shipped within the next 30 days

That's correct. Not 200 in the next 30 days; this is a cumulative number, Ryan.

Cumulative number. And just my last question, on the deal you guys have with DeLorme, I heard you guys say it was exclusive. Could you just give me an idea of exactly what exclusive means to you guys? Are you allowed to discuss with other GPS vendors, that type of thing; and, if it is exclusive, how long?

Ryan, actually, it is not an exclusive relationship with DeLorme and the company is open to pursue similar opportunities with other GPS vendors, manufacturers.

Perfect, that's my questions; thanks, guys.

Operator, we'll take one more question.

Lilly Wu, TGRA Capital.

Thank you, again, actually a question for Fuad as well on the finances. Can we get a broad picture of what the 2010 outlook is like in terms of capital expenditures. Are we between the existing credit facilities, cash on hand and what we expect on operating cash flow, do we -- barring any unforeseen delays or issues, are we covered for the year in terms of investment capital and financing capital?

As we have reiterated on this call and before, the financing transaction that was completed in July funds our second-generation constellation in its entirety, and the completion for the second-generation launch is slated for the middle of next year. So certainly we are completely funded through that period, including OpEx as well as CapEx.

Okay, great, thank you.

Operator, I think with that we'll bring the conference call to an end. Thank you again for joining us. And please be reminded that later this afternoon an audio recording of the conference call will become available via telephone dial-in and a webcast recording and a copy of the presentation will also be available on the Globalstar website. Thank you, and good afternoon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation in today's conference. You may now disconnect and have a great day.