Globalstar Inc (GSAT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2010 Globalstar Incorporated earnings conference call.

As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator Instructions). We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to Mr. Dean Hirasawa, Public and Investor Relations for Globalstar. Please proceed, sir.

Good afternoon, everyone. Thank you for joining us for today's conference call to discuss the results for Globalstar Inc. for the quarter ended March 31, 2010.

Before we begin, please note the following. This call may contain 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 March 31, 2010, which will be filed in the upcoming days.

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

Please note that the information in this call is accurate only as of today, which is Thursday, May 6, 2010. Today's press release containing certain financial information is available on the Company website at www.Globalstar.com. Later this afternoon, an audio recording of the 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 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 questions.

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

Good afternoon and thank you for joining us. Over the next few minutes, I will summarize our operational highlights for the recently completed quarter and share with you our continued vision for Globalstar.

As many of you know, Globalstar has traditionally been a provider of high-value and high-quality mobile satellite voice and data solutions to global enterprise or remote commercial customers. Although that is a traditional strength of the MSS industry in general, one key element that differentiates us from our competition is our diversified product portfolio. We are the first and only MSS provider to have also successfully marketed a line of retail consumer products and services.

As you can see, last year, we introduced the market to the new and improved SPOT satellite GPS messenger, or SPOT 2. We also announced our SPOT Assist roadside and maritime services in our HUG product, an easy to install satellite-based asset monitoring theft prevention and messaging system. We expect HUG to be used to protect a variety of mobile assets, such as yachts, snowmobiles, or motorcycles.

Throughout 2010, it is our intention to continue evolving and expanding our unique retail consumer market presence. During the first quarter, we accomplished just that when we, along with GPS manufacturer DeLorme, jointly introduced the world's first handheld GPS satellite communicator. The revolutionary satellite communicator, designed exclusively for the new DeLorme PN 60-W, merges SPOT satellite messenger functionality and DeLorme's state-of-the-art GPS mapping capability. Users can send customized text messages using the PN 60-W's keyboard to select individuals or groups from virtually anywhere. DeLorme has already placed an initial order for more than 15,000 SPOT communicators, and we expect to begin delivery of the first units in the next few months.

In past presentations, we have discussed the concept of integrating affordable and ubiquitous global satellite network coverage into everyday consumer mobile phones and other handheld devices as being one of the cornerstones of our product strategy. Not only is Globalstar delivering on that strategy, but we believe this communicator is simply the first of a series of Globalstar mobile access point products capable of offering global wireless coverage to the millions of users of standardized consumer wireless handsets and GPS devices.

In the last part of the first quarter, we resumed shipping of our newly enhanced SPOT satellite GPS Messenger. The new SPOT 2 is 30% smaller and lighter than our original award-winning product and features enhanced functionality. As of today, since introducing the SPOT product in late 2007, we have received orders to ship more than 230,000 SPOT units to the more than 10,000 retail points of distribution around the world.

Throughout the quarter, we continued to work on the consolidation of leading GPS asset tracking and satellite managing developer and manufacturing assets, which we acquired from Axonn late last year. This consolidation helped solidify our retail consumer messaging and tracking product platform that we expect will assist us in driving the development of application hardware by satellite M2M developers.

Axonn's intellectual property expertise, coupled with our satellite network, permits us to offer these developers the open-source technology standard needed to integrate our proven messaging and global tracking capabilities into their machine-to-machine and asset tracking solutions.

The acquisition also secured the critical long-term supply chain associated intellectual property rights for our SPOT satellite GPS Messenger retail consumer products and other Simplex data enterprise solutions.

During the quarter, we continued to solidify our geographic coverage where we market our products and services. In February, we announced a joint venture agreement with Korean-based maritime satellite services provider Arion Communications Company, Limited. The new joint venture company known as Globalstar Asia-Pacific will operate the Globalstar gateway ground station in Korea and provide Simplex and Duplex mobile satellite voice and data services, including SPOT satellite GPS Messenger products and services, to customers in Korea and the surrounding maritime region.

During the quarter, thanks to our Simplex data and SPOT initiatives, we continued to exhibit Simplex data subscriber growth and completed the quarter with more than 394,000 subscribers. This is about 37,000 more than we had on March 31 of last year. Fuad will provide more financial results and detail shortly.

Before the end of the call, I will summarize our thoughts relating to the recent national broadband initiatives being proposed by the FCC and how a mobile satellite spectrum such as Globalstar's could be used more widely and efficiently for terrestrial wireless services. But at this time, I will pass the call over to Tony so he can provide us with the latest information concerning our current and second-generation satellites.

Thank you, Peter. Good afternoon, everyone.

Our first-generation constellation continues to perform as expected with our Simplex data network continuing to perform at a 98% messaging reliability level for Simplex asset-tracking data monitoring and SPOT satellite GPS messenger customers. We are also completing the repositioning phase of our first-generation constellation. During this process, certain first-generation satellites are being positioned for de-orbiting in preparation for orbital insertion of the satellites from the first launch into our second-generation constellation.

As many of you know, unlike our competition, Globalstar has already completed a $738 million financing designed to fund the manufacture and launch of 24 second-generation satellites. Thanks to our financing partners shown here, we've been able to focus on meeting the operational milestones needed to stay on schedule. I'm pleased to announce that we are only about two months away from taking delivery of the first of our brand-new second-generation satellites.

Our second-generation constellation, which was contracted to satellite manufacturer Thales Alenia Space 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 we expect it will also secure our Space segment through the year 2025.

In early 2010, we hosted investor and media meetings at the Thales Alenia Space manufacturing facility in Rome. Investors and media representatives had the opportunity to meet with Globalstar management and key executives from our manufacturer, Thales, as well as our satellite launch provider, Arianespace.

As you can see in these pictures, 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. You can also see a rare image of one of the new production satellites with an unfurled solar array.

Globalstar has contracted with Arianespace for four launches of six satellites, each using the highly reliable Soyuz launch vehicle. The Soyuz has been previously used on eight occasions to successfully launch Globalstar first-generation satellites. It has also launched vehicles used to send astronauts and cosmonauts to the International Space Station.

The first 90-day launch window for six new Globalstar second-generation satellites is scheduled to open in less than two months, on July 5, with the first launch expected to take place in September or early October.

It has been almost five years since we started to plan our new constellation. While there are some critical activities ahead of us, from a pure timeline perspective, we are about 95% of the way through the process of planning, designing, manufacturing and launching the first of our new satellites.

Earlier today, we announced the key operational milestones and timetable for the upcoming launch of the first batch of six satellites. Our committed team of highly skilled partners and employees continue to deliver on time and on budget, giving us the confidence today to announce the remaining milestones that will take us to the finish line. Although this process of delivering and launching a state-of-the-art satellite network is truly space and rocket science -- which may seem overwhelming -- however, we are simply continuing to execute on a detailed plan that we began to implement back in mid 2005.

When we speak again in the next quarter, we expect all six satellites for our first launch to be delivered, and we should be finalizing our schedule for the inaugural launch of the Globalstar second-generation constellation.

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

Thank you, Tony. I will now go through the financial highlights.

With the completion of our $738 million financing last year, Globalstar is completely funded for the deployment of our second-generation constellation. With this funding, the Company has sufficient liquidity to fund the deployment of not only our second-generation constellation but also the development of new products while continuing to upgrade our ground infrastructure.

The investments the Company has made to date and that it will continue to make into the future will help position Globalstar to take advantage of the improved post-launch service capabilities. The Company has committed to improving its operations in establishing high-quality growth avenues, as highlighted by Peter earlier in his remarks.

Due to a number of factors, including our superior operating leverage and successful vertical integration of our production lines, we have experienced continued improvement of our gross margin. The acquisition and integration of Axonn highlights our focus on improving the operating model.

After adjusting for one-time nonrecurring charges, our gross margin reached 49% in Q1 of 2010, up from 30% in Q1 of 2009. We believe that an improving pricing environment will further expand our leverage.

Driven by aggressive cost-containment initiatives, the improving market for our services and the continued success and adoption of our Simplex and SPOT products, the Company has been able to significantly improve its operating results.

Adjusted EBITDA has improved significantly over the last six quarters, as shown here. Adjusted EBITDA for the first quarter of 2000 improved to a loss of $1.8 million versus a loss of $6.8 million for the same period of 2009.

We have remained focused on growing our Simplex and SPOT businesses and are well-positioned for Duplex growth as we begin the launch of our second-generation satellites. The successful rightsizing of our operations over the past few quarters will allow us to successfully capitalize on the near-term revenue drivers and fully benefit from the improved Duplex service quality following the launch.

In addition, we continue to refocus our sales and marketing spend more effectively towards high-growth revenue opportunities.

The continued stability of our Duplex business is highlighted by our ability to maintain a low retail churn rate in the Duplex business and maintaining a stable retail ARPU over the course of the year. This is primarily due to the stability of our satellite constellation over the same period. We expect the continued stability of retail ARPU prior to our second-generation launch and then expansion to levels consistent with our performance prior to satellite degradation issues.

Additionally, we expect near-term improvement of Simplex and SPOT ARPU concurrent with the additions of expanding product service offerings. Also, with the acquisition of Axonn, the Company looks to benefit from the significant improvement in our Simplex and SPOT equipment margin.

With the launch of our second-generation constellation only months away, our Duplex subscriber base continues to be largely intact. This base of 105,000 subscribers provides Globalstar with a solid operating platform to capitalize on the improved next-generation service offerings.

I am also pleased to announce that SPOT production issues experienced in Q4 of 2009 have been resolved and shipments in substantial quantities resumed in March. With the exception of one-time isolated [VAR] exiting the Simplex business, Simplex and SPOT subscriber growth remains robust.

We continue to launch new points of distribution and our SPOT derivative pipeline will offer our users improved functionality, including enhanced communication capability and improved form factors, thus resulting in a substantial higher-value pricing.

The introduction of new and inventive Simplex products will also open previously untapped markets for the Company. We look forward to announcing details on multiple, highly innovative products over the next few quarters.

In closing, our main goal this year is to begin the launch of our next-generation satellite constellation and the resulting recovery of our Duplex business while aggressively pursuing growth opportunities for our Simplex business worldwide. Additionally, we believe that equity markets have begun to recognize the value of our spectrum assets, which we also intend to exploit. As a result, we are very excited about the Company's near-and long-term prospects.

With that, I will now pass the call back to Peter for some closing comments.

Thank you, Fuad.

During the past few months, there has been much discussion pertaining to the use of wireless spectrum in the United States and internationally. As many of you are aware, we are licensed to use more than 25 MHz of LNS band spectrum both here and around the world. We also have FCC authority to offer complementary ancillary terrestrial component, or ATC, services in the United States, and in conjunction with our mobile satellite services using up to 19.275 MHz of the spectrum.

In November of 2009, we became the very first MSS provider to utilize our ATC authority when our partner, Open Range Communications, began to deploy a WiMAX rural broadband service in Colorado using this spectrum. With the introduction of such services, as well as new wireless data products being launched on a regular basis, it is clear that there is an increased demand for wireless broadband. Consequently, we are seeing a heightened awareness of the need for a more domestic wireless spectrum.

The FCC addressed this and other issues when it released "Connecting America, the National Broadband Plan". One important element of the plan is to examine whether and how mobile satellite spectrum, such as ours, could be used more widely and efficiently for terrestrial wireless services. This is potentially important for ATC authorized licensees such as Globalstar. The plan recommended the FCC should consider granting licensees flexibility under the ATC regime in the 2.4 GHz Big Leo band already being used for terrestrial broadband deployments to make this spectrum permanently suitable for terrestrial broadband service. If the FCC allows us greater flexibility in the use of the spectrum, we intended to exploit such flexibility not only in the US but also abroad, as FCC policies often provide a template for similar regulatory policies in international markets.

Finally, we feel the plan validates our current ATC business model, under which we are already receiving revenue for leasing our satellite spectrum to wireless broadband provider, Open Range. The full extent of the plan's potential revenue impact on Globalstar will be better known in the upcoming months as the FCC intends to initiate a rule-making procedure addressing these opportunities in midsummer, and we plan to be an active participant.

In closing, let me share with you the diverse components which collectively differentiate us from our competition and which we expect will drive our business and the value of the Company for the remainder of this year and beyond. We believe our success should ultimately be measured by our ability to meet major but achievable operational milestones associated with these Globalstar value drivers.

Our most immediate milestones are associated with the manufacture and launch of our second-generation constellation. 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 continue to take the steps needed to not only grow our consumer retail market presence but to become the preeminent long-term provider of mobile satellite consumer retail products and services. Third, we possess Globalstar satellite spectrum, 19.275 MHz of which is already authorized for domestic ATC use here in the United States. What impact the FCC's broadband initiatives will have on the MSS spectrum will be better known in the upcoming months.

Globalstar will continue to take the steps necessary to advance our spectrum opportunities 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 our next-generation handsets and modems but will also provide the same utility for current mobile wireless devices via a line of mobile access point products.

Thank you. I look forward to speaking with you again during our next update.

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?

Thank you. (Operator Instructions). Jonathan Atkin, RBC Capital Markets.

Yes, good afternoon. I have two questions.

First, on spectrum, you already have entered into a relationship with Open Range. Is there a similar monetization path that is open to you near-term along similar lines as to what you've already set up with Open Range that doesn't require any further FCC rulemaking?

Then the second question, relating to future products, after how many launches can you start to have an operational service on the next-generation platform?

Let me answer your first question first. This is Tony. The answer is yes, with the first ability for the Company with Open Range, we can proceed to move into a number of different agreements, much like Open Ranges throughout the United States, so there is no new requirements or no new licensing necessary for us to proceed in entering into new lease agreements with other service providers.

With regards to the products and the second generation, could you repeat that question again?

Yes. Do you have to have all of the launches completed before you can actually start lighting up and having a functional network, or would two launches suffice? In other words, part of the way there before you could actually start offer new services?

No, clearly we will begin to see improvements in our service immediately after the first launch. Then obviously, as each subsequent launch occurs, we will have a stairstep in improving higher-qualities, more signals provided to each of the subscribers on the network, and then have a robust service in place clearly by the late spring/early summer of next year.

Great. Thank you very much.

Barton Crockett, Lazard Capital.

This is actually Victor Anthony. I work with Barton Crockett, who is not able to be on the call. I just had a few questions. The first one, you alluded to the competitive landscape a few times -- a few times during your script. I wanted to get your sense on the competitive landscape, in particular (inaudible) intention to launch a handset. What is your competitive advantage there?

The second question I had is on it looks like you're making strides towards EBITDA profitability. If could you give us a sense of when do you think you will achieve that milestone?

Just to follow-up on the first caller's question, I wanted to get a sense of what future potential partners that you may be able to enter into business with? Ultimately, with that spectrum, what sort of value would you ascribe to it? I know you talked to it during your prepared remarks. You stated that you wouldn't really know. At least, I think I interpreted what you said as that you would probably know or have a better sense in a few months, how you better plan to monetize that spectrum, the remaining spectrum that you have. But if you were to ascribe sort of a long-term value to that, what would that be? Thanks.

This is Tony. Let me take the first one for you, and then I will pass to Fuad to answer your second and third questions.

First and foremost, we will begin providing the higher-quality service with our current, existing products using the IS-95 CDMA waveform that we work closely with, with QUALCOMM, over the past several years. Then as we move into our second-generations of products, they will not only be of a very high quality, but they will specifically be at a higher data rate, as high as 256 kb. In all cases, our products will be fully compatible with our second-generation satellite network and all backward-compatible.

Victor, this is Fuad. To answer your second question about EBITDA profitability, as you can see in our prepared remarks as well as the presentation, we've been closing the GAAP the gap between OpEx and revenue fairly rapidly over the last six quarters.

While we are not providing any guidance on the future, I just want to leave you with a couple of thoughts. We have seen stability in our Duplex business over the last couple of years. We believe that stability will remain intact and one or two launch (inaudible) affect the generation of constellation, we will see the growth in that part of the business.

In addition, we are keeping our costs fairly low and continue to growth the Simplex business. We are seeing constant additions on the SPOT product as well as adding new devices, Simplex devices, on the system. So we expect to narrow the gap considerably as the business -- as the SPOT business and the Simplex business improves. We don't anticipate any meaningful increase in the costs (inaudible) period.

To answer your third question, with respect to the value of our spectrum, essentially it is hard to tell you what the value is, but let me leave you with some thoughts here. The AWS spectrum that was auctioned off by the FCC a couple of years ago, the average price -- that spectrum was auctioned at -- for the [reacts], which is the large economic regional zones, was approximately $0.78 per MHz tops. So, that's one metric. The 700 MHz auction took place about a year ago. The average price there was $1.30. So those are some of the benchmarks that we feel would be somewhat applicable to the spectrum positions we have currently in the US. But it is -- so that's, you know, that's how we feel this spectrum should be looked at, in that vein.

Okay, thanks. Just a follow-up (inaudible) I wanted to know any sort of potential partners you could possibly name at the moment.

Sorry, again I missed the last part. What was the question?

Yes, I was just curious. You know, you have the relationship with Open Range. Any other future or potential partners that you would actually enter into business with?

Obviously, Victor, we are not looking to discuss any ongoing discussions we are having with any specific party, but I think we will want to leave you with the fact that those discussions are continuing and, with other parties, are continuing and will continue to have them. However, I think you will see a meaningful escalation of our discussions with any parties once some of the regulatory documents come from the FCC over the next couple of quarters. We expect a NPRM from the FCC to come out in third quarter outlining the spectrum position that the MMS operators have and some of the easing of the flexibility with regard to the ATC spectrum that they have,. We expect that to happen and the FCC has mentioned their internal mandates to provide generally complete clarity on that spectrum position by the end of the year. So we feel that any discussions we have will be more meaningful when there is clarity from the FCC. But we expect that to happen fairly quickly.

Okay, thank you very much.

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the call over to Mr. Dean Hirasawa for closing remarks.

Thank you, Anne. With that, we will bring the conference call to an end. Thank you again for joining us. Please be reminded that, later this afternoon, an audio recording of the conference call will become available via telephone dial in, and the webcast recording and a copy of the presentation will be available on our website.

Thank you very much, and good afternoon.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.