Globalstar Inc (GSAT) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for your patience. The first quarter Globalstar, Incorporated earnings conference call will begin in just a few moments. Once again, thank you for your patience and please continue to standby.

Welcome to the Globalstar, Incorporated earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Dean Hirasawa, Director of Public and Investor Relations for Globalstar, Incorporated. Please 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 three-month period ended March 31, 2011.

Before we begin, please note the following. This call may contain forward-looking statements within the meaning of federal securities laws. 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, 2011, which will be filed shortly.

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

Please note that the information in this call is accurate only as of today, which is Thursday, May 5, 2011. Today's press release containing certain financial information is available on the Company web site at www.globalstar.com. Later today, an audio recording of the conference call will be available via telephone dial-in and a webcast recording, along with a copy of this slide presentation, will also be immediately available on the Company web site.

Today's call is being hosted by Mr. Peter Dalton, CEO of Globalstar, Inc. Joining Mr. Dalton, are Mr. Dirk Wild, 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. During the first quarter of 2011, Globalstar continued to make progress on its key strategic initiatives and value drivers. We continue to integrate our recently launched second-generation satellites, while further enhancing our position as the preeminent provider and developer of innovative, mobile satellite consumer products and services.

As you know, deployment of our second-generation constellation secures our space segment, and the satellite's designed to last for the next 15 years. But most importantly, it moves the Company a step closer to revitalizing our MSS two-way and Duplex Data Satellite Communications business which in the past has generated significant EBITDA.

Innovation continues to drive the development of our new, award-winning products. And they in turn drive both our unique MSS SPOT consumer retail business, as well as our M2M Simplex asset tracking and data monitoring business. Given the substantial growth in wireless broadband services in the US, we also believe our global spectrum assets are more valuable than ever. And we continue to strategize how to best utilize and monetize our spectrum authority.

Now, let's briefly go over our highlights for the quarter. During the first three months of the year, Globalstar completed activating the six second-generation satellites that were launched in October of last year. All six new satellites are now providing service and coverage improvements, benefiting those customers outside of North America who use our voice and duplex data services.

During the quarter, Globalstar further solidified its unique role as the leading innovator of award-winning MSS retail consumer products with SPOT Connect. We have successfully introduced this innovative new product at the 2011 CES in Las Vegas and began shipping product to retailers in March.

SPOT Connect is a small satellite communicator that converts iPhone and Android smartphones and other smart devices, into satellite messaging communicators, capable of sending text messages from virtually anywhere. SPOT Connect received numerous accolades at this year's CES show. And we are excited about the prospects for this innovation in what we believe to be a revolutionary, new MSS consumer products.

During the quarter, Globalstar also continue to focus on maximizing the value of its global spectrum assets by renewing its efforts with regulatory bodies both domestically and abroad. As many of you know, Globalstar is authorized to utilize approximately 25 megahertz of global L- and S-band mobile satellite spectrum, which we use to provide services to our more than 447,000 subscribers around the world.

On March 18, 2011, the International Bureau of the Federal Communications Commission, the FCC, granted Globalstar authority to operate its second generation satellites within the United States. This authority will become effective once Globalstar completes registering the constellation with France, which we expect to occur in the near future.

Once authorization is completed, the operational satellites will immediately begin to provide services for North American customers. In a few minutes, Dirk will have more to say about our financial results for the quarter. But at this time, I will pass the call over to Tony, so he can provide the latest information concerning Globalstar's current and second-generation satellites.

Thank you, Peter, and good afternoon everyone. I'm glad we have this opportunity to provide the latest update regarding the second launch and operations of our new satellites. In early April, we experienced an anomaly on one of our second-generation satellites in orbit providing service.

This anomaly was caused by a momentum wheel, which is used to control the attitude and station-keeping of the satellite in orbit. This wheel was temporarily taken out of service while the spare momentum wheel of the satellite was energized and service was quickly returned to normal.

We're doing a great deal of work with Thales, conducting analyses to determine if this wheel may be placed back into service and be used as a spare wheel for the satellite. It is important to know that our satellites have four momentum wheels, where three are required for operations and one momentum wheel is redundant, a non-operating wheel acting as a spare on the satellite in space. So the satellite in space operated exactly as we had designed and allowed global structure to initiate recovery activities, returning the satellite to normal operations very quickly.

On April 11th, Thales Alenia Space determined during pre-launch activities that the second launch which was scheduled for mid-May should be delayed. It was decided that additional technical checks of the satellites on each momentum wheel at the launch base, as well as all momentum wheels in the assembly integration and test process, be inspected to respect the quality process and ensure the flight missions going forward.

Immediately, Thales Alenia Space, with their subcontractor, Goodrich Space, began a thorough investigation of all the Globalstar momentum wheels in space, as well as those in the entire fleet. So the heritage of all the momentum wheels was reviewed. This included their manufacturing processes, qualification test results and assembly and integration on each satellite.

Thales Alenia Space has completed their analysis, concluding that the wheels of satellites are cleared for continued assembly and integration and delivery. Thales has advised Globalstar that the satellites and momentum wheels have been re-inspected and qualified with validated performance characteristics and are ready to ship from Rome to Baikunor for pre-launch preparation and fueling for the second launch.

The analysis of the production wheel test results and condition of the installed wheels on the satellites completed by Thales Alenia Space on all the momentum wheels in the Globalstar fleet of satellites, establishes our confidence that the second and third batch of satellites will be ready for launch. We are also very confident that the satellites launched in October of last year will complete their anticipated 15-year mission.

Therefore, with Arianespace's launch readying its confirmation, we expect to conduct the second launch of our second-generation satellites in July, and we plan to complete the two additional remaining launches before the end of 2011.

As Peter indicated earlier, Globalstar has completed deployment and activation of its six new satellites launched in October. These satellites are operational, providing voice, duplex and simplex data services to customers outside of North America.

Once the French registration of the new constellation is complete, the new second-generation satellites will begin to provide service for customers throughout the United States and Canada. We are making good progress in providing satellite and constellation information to the French ministry.

In summary, we expect a total of 24 satellites will be launched and then integrated with the eight first-generation satellites that were launched in 2007. The Globalstar constellation has been expected to provide industry-leading duplex voice and mobile handset data services, machine-to-machine messaging and SPOT services worldwide.

I would like to now pass the call over to Dirk Wild, who will discuss the financial performance and operating highlights for the quarter -- first quarter of 2011.

Thanks, Tony. The Company reported total quarterly revenue of $18.3 million during the first quarter of 2011, compared with $15.6 million for Q1 2010, representing an increase of 17.2%.

Service revenue grew from $12.5 million to $14.2 million, while equipment revenue grew from $3.1 million to $4.1 million. Service revenue growth was attributable to a continued increase in SPOT service revenue, and from the one-time recognition of previously deferred revenue in the amount of $2 million associated with the termination of the Open Range spectrum lease agreement.

Net loss for the first quarter of 2011, was $6.5 million, compared to a net loss for the first quarter of 2010 of $35.6 million. This decrease in net loss was due primarily to changes in non-cash items, including an increase in derivative gain of approximately $31.4 million, offset by an increase in depreciation, amortization and accretion expense of $4.7 million, which was primarily related to the new second-generation satellites. The Company's adjusted EBITDA loss for the quarter, was $2.5 million versus $1.8 million for the year-ago period.

We remain optimistic about the success and market acceptance of our suite of SPOT consumer products, including SPOT HUG and SPOT Connect, both of which were recently introduced into the marketplace.

These products are indicative of the Company's high quality development capabilities. The management team remains focused on leveraging these capabilities and our current suite of products and services in order to further penetrate existing markets and enter new markets, whereby, we can take advantage of compelling benefits of satellite technology.

We believe that concurrent with the continued launch and deployment of our second-generation constellation, we will experience revenue growth from our core, duplex business as quality service levels are restored.

We ended the first quarter with $83 million of liquidity, including our quarter-ending cash balance, additional availability under our COFACE senior debt facility and our $60 million contingent equity account.

At quarter-end we had approximately $61 million of additional, remaining capital expenditures associated with the construction and launch of the first 24 second-generation satellites. While we continue to have the contingent equity account available, our plan is to obtain additional financing to fund the completion and launch of the first 24 satellites and leave the contingent equity account untapped.

Also, as noted during our year-end call, these capital expenditure amounts exclude expenditures associated with our ground upgrades and any potential additional satellite construction or launch payments beyond the first 24 satellites. Our ability to fund these additional programs -- additional capital programs will be a function of the Company's future cash flow generation and additional financings.

So let me now pass the call back to Peter for some closing remarks.

Thank you, Dirk. Before closing, I would like to take a minute and review our key strategic initiatives going forward. First, we plan to continue deploying our second-generation satellites. Second, we expect to continue to market and develop current and new consumer and simplex products and services.

Three, we expect to implement plans to re-launch our voice and duplex data services. And four, we will continue to engage in discussions with the FCC, and expect to continue with our strategy to increase the use of our authorized MSS spectrum in order to further the FCC's national broadband initiatives.

Five, finally, we expect to continue with our plans to obtain financing for long-term strategic capital programs, such as our next generation ground segment upgrades. Thank you, and I look forward to a chance to speak with you again regarding our second quarter results.

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?

(Operator Instructions). Your first question, gentlemen, comes from the line of Sri Nadesan with Globalstar.

Hi, this is Sri Nadesan from Lazard Asset Management. Question on the problem with the momentum wheel, how many satellites were affected by that that are in orbit?

Tony, do you want to pick that up?

Sure, Peter. Sri, the answer is, only one satellite was affected on orbit. And frankly, as I mentioned in my comments, we're still looking at methods by which we can bring that satellite into normal operations.

At this point it's not functioning normally?

That's correct. At this point, we would use that wheel once we bring it back into normal operations to be our redundant or our spare wheel in case we were to need it for normal operations. The satellite continues to operate normally using the other three wheels.

Okay, got it. And, you're confident that this won't be an issue in the six that are to be launched in July?

That's correct. We took the extra steps and used the time between the planned May launch to now, to go through all of the remaining wheels in our fleet to make sure that they're fully capable of being flight worthy and to launch in the month of July.

Okay. And you said that you have $65 million of CapEx remaining? Now the -- is any of that going to be spent on the ground station or is that additional? And how much, how much is required to be spent over the next year on ground station CapEx?

Dirk?

Sure. Sri, hey, Dirk -- hey Sri, how are you doing?

Hi, Dirk.

This is Dirk. So, right, the $61 million does not include any of the ground upgrades. Right now scheduled for 2011 we have $43 million for both Hughes and Oceus combined for 2011. Now you'll remember that we disclosed in our 10-K that we have agreements with both of those parties that allow us to defer payments on those to some extent. And we're continuing to work with them as we are arranging long-term financing for that, for the ground upgrades.

And so are you confident that you'll be able to find some arrangement on that before -- I think you have what, a couple of more months to sort that out, right?

Yes, we have a couple of months with -- before the current agreement with Hughes. We have a trigger in that and then the Oceus agreement actually goes through the beginning of next year. But our vendors have worked with us in the past and continue to work with us. So yes, we expect that they'll continue to work with us.

Okay. And the -- in terms of your financing arrangements, right, what's the likelihood that you may be able to -- or what's the reception been from your bankers, especially those on the COFACE facility, in terms of providing additional funding for this, for the additional funding that you need? So at this point, you're looking for funding for the CapEx, right, both for the $61 million of CapEx outside of the ground station upgrade and for the $43 million for the ground station?

Yes, the way I look at this, Sri, is I kind of think of it as a two-step process. We've got a shorter term process that we're looking for something to cover the difference between what we have available. Again, as I said excluding the contingent equity which we're not planning on using, but will remain available. So we'll have the amount needed for the first 24 and that's kind of step one. That's a shorter term process.

And then not too long out but probably within 2011, we'll need to address, as Peter said, our longer term capital programs, which include both the ground upgrades and any additional satellites beyond the first 24.

So in terms of your COFACE bankers extending additional funding, is that a possibility in the near term?

Yes, I mean we're certainly including COFACE in all of the discussions. We'll need their cooperation, and we're looking at all the different alternatives on how we might arrange that long-term financing.

Okay. Thank you very much.

Okay. Thanks, Sri.

Ladies and gentlemen --

Operator, are there any other questions?

There are no other questions in the queue at this time. (Operator Instructions). And gentlemen as there are no further questions, I'll just turn it back over to you.

Okay. Oh, thank you operator. With that we'll bring the conference call to an end. Thank you again for joining us today. Please be reminded that later this afternoon, an audio recording of this conference call will become available via telephone dial-in. And a webcast recording and copy of the presentation will also be available on our Company web site. Thank you and good afternoon.

Ladies and gentlemen, this concludes the presentation and you may now disconnect. Have a great day.