Globalstar, Inc., announced its operating and financial results for the third quarter and year to date period ended September 30, 2023.
“Globalstar continued to sustain its record growth this year, with a significant improvement in profitability during the third quarter driven by a 53% increase in total revenue. Given the high margin nature of our revenue sources, Adjusted EBITDA increased 125% over the third quarter of last year. We continued to see momentum build outside of our wholesale services, reflecting new initiatives in Commercial IoT,” said Rebecca Clary, Chief Financial Officer. Clary continued, “As a result, we are increasing guidance for 2023 total revenue to a new range between $215 and $230 million.”
Dr. Paul E. Jacobs, Chief Executive Officer, said, “Twenty-five years ago yesterday, my father made the first satellite phone call on the Globalstar network to Bernard Schwarz, his partner at Loral. Today, I’m excited to be leading Globalstar as we embark on a new chapter that builds on their vision. New applications, services, and network configurations are driving increased demand for connectivity, on the ground and from space. Globalstar has the technology and team to capitalize on these opportunities.”
“My first sixty days were spent meeting with customers and partners and reviewing our products and projects. I met with our teams across the country, as well as with shareholders and industry analysts. There is a lot of excitement about Globalstar’s potential.”
Dr. Jacobs continued, “We can deliver solutions at scale across the globe. As we position the Company for longer term growth, we are evaluating significant opportunities, both satellite and terrestrial. Furthermore, our new XCOMP technology, which enhances wireless performance including spectral efficiency, opens an entirely new revenue category for us going forward.”
“The transformation over the last year and performance to date reflects just the beginning of our efforts. We have new satellites underway, an expanding Band 53-capable ecosystem, and the ability to provide services to a large and ever increasing number of people around the world. Our continuing goal is to leverage our unique assets, our proprietary technologies and our team’s industry leadership to differentiate our products and services in the space and terrestrial markets.”
THIRD QUARTER FINANCIAL REVIEW
Total revenue increased $20.1 million, or 53%, to $57.7 million during the third quarter of 2023 compared to the third quarter of 2022, due to higher service revenue.
Service revenue increased $20.3 million, or 61%, during the third quarter of 2023, due primarily to higher wholesale service revenue. This revenue stream increased $20.5 million from the prior year quarter. This increase was due largely to the launch of services in late 2022 as well as continued performance associated with the construction of additional satellites, gateway site improvements and the achievement of other certain milestones.
Consistent with previous quarters this year, subscriber driven revenue was led by growth in Commercial IoT, which saw a revenue increase of 36% from the third quarter of 2022, due to increases in both ARPU and the subscriber base. The increase in ARPU was driven by higher usage as well as the mix of rate plans on which subscribers activate. Gross subscriber activations were up 26% over the last twelve months, compared to the preceding twelve-month period. The third quarter of 2023 set another record for gross subscriber activations, reaching a new record high in any twelve-month period since we started selling Commercial IoT products.
Regarding our legacy services, SPOT was down due to fewer average subscribers. Equipment sales and gross activations over the last twelve months were impacted for several quarters by inventory shortages and back orders of two of our core SPOT products. Second quarter 2023 was the first full quarter of normal production of these devices, and we have seen a correlated increase in activations. Duplex service revenue declined at an expected rate due to attrition in the subscriber base, offset partially by an ARPU increase.
Subscriber Equipment Sales
Subscriber equipment sales decreased $0.3 million or 7% in the third quarter of 2023 compared to the third quarter of 2022. This decrease was due primarily to a spike in sales during the third quarter of 2022 following the resolution of certain production issues in that quarter, which resulted in the fulfillment of many Commercial IoT device back orders.
SPOT equipment revenue increased 12% from the prior year’s quarter. Starting in the second quarter of 2023, all SPOT products returned to ordinary production levels, contributing to an increase in revenue during 2023. The volume of both SPOT Gen4 and Trace device sales was up over 100% from the prior year’s quarter. All SPOT products are now being manufactured in the ordinary course of business.
Income (Loss) from Operations
Income from operations was $2.0 million during the third quarter of 2023, compared to loss from operations of $186.6 million during the third quarter of 2022. The prior year’s quarter was impacted by a non-cash impairment charge of $174.5 million following the abandonment of our second-generation Duplex assets during the third quarter of 2022. Excluding this non-cash charge, the fluctuation in income (loss) from operations was due to higher service revenue (discussed above) offset partially by an increase in operating expenses.
Cost of services increased resulting from higher gateway operating costs, such as lease, maintenance, security, IT and personnel expenses, which have increased in line with our new and upgraded global ground infrastructure. A significant portion of these costs are reimbursed to us and this consideration is recognized as revenue.
Management, general and administrative costs (MG&A) costs were higher during the third quarter of 2023 due in part to costs incurred to enter into and support the License Agreement with XCOM.
Stock-based compensation increased from the prior year’s quarter due primarily to restricted stock units granted in connection with the License Agreement, as well as the modification of certain awards. Additionally, increased compensation cost associated with our annual bonus plan, which is generally paid in the form of Globalstar common stock, increased year over year.
Net loss was $6.2 million for the third quarter of 2023, compared to net loss of $204.4 million for the third quarter of 2022. This variance was due primarily to an improvement in operating income (discussed above), coupled with lower interest expense and a favorable fluctuation in foreign currency losses. Interest expense was lower during the third quarter of 2023 due to the payoff of the 2019 Facility Agreement during the first quarter of 2023, as well as higher capitalized interest (which reduces interest expense) due to an increase in capital expenditures as we complete work related to our new satellites.
Adjusted EBITDA was $32.0 million during the third quarter of 2023, an increase of $17.8 million or 125% compared to the prior year’s quarter, due to higher revenue offset partially by higher operating expenses (excluding EBITDA adjustments) for the reasons previously discussed. Adjusted EBITDA is a non-GAAP financial measure. For more information on its usage and presentation, as well as a reconciliation to GAAP net income (loss), refer to “Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA”.
YEAR TO DATE FINANCIAL REVIEW
Total revenue increased $64.2 million, or 60%, for the nine months ended September 30, 2023 compared to the same period in 2022. This increase was due to both higher service revenue and revenue generated from subscriber equipment sales.
Consistent with the quarterly results discussed above, service revenue increased due primarily to higher wholesale capacity service revenue. Additionally, higher subscribers and ARPU generated a 17% increase in Commercial IoT service revenue. Partially offsetting this increase were fewer Duplex and SPOT average subscribers for the reasons discussed above.
Subscriber Equipment Sales
Subscriber equipment sales increased 40% due to production challenges in the comparable prior year period.
Income (Loss) from Operations
Income from operations was $11.8 million for the nine months ended September 30, 2023 compared to a loss from operations of $211.7 million during the same period in 2022. As discussed above, nonrecurring non-cash impairment charges were recorded in 2022. Excluding this non-cash charge, higher revenue was partially offset by higher operating expenses.
The increases in cost of services and MG&A are consistent with the quarterly discussion above and in line with the continued increase over past few quarters of 2023. Cost of subscriber equipment sales are higher, consistent with the increase in revenue generated from subscriber equipment sales, with margins narrowing slightly due to the mix of products sold this year.
Net loss improved to $9.6 million for the nine months ended September 30, 2023 from $251.6 million during 2022. Improved operating income (discussed above) was coupled with favorable changes in exchange rate fluctuations and lower interest expense.
Adjusted EBITDA was $91.6 million for the year to date period, an increase of $52.5 million or 134% compared to the prior year period, due to higher revenue offset partially by higher operating expenses (excluding EBITDA adjustments) for the reasons previously discussed. Adjusted EBITDA is a non-GAAP financial measure. For more information on its usage and presentation, as well as a reconciliation to GAAP net income (loss), refer to “Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA”.
As of September 30, 2023, we held cash and cash equivalents of $64.1 million, compared to $32.1 million as of December 31, 2022. Over the next twelve months, our sources of cash are also expected to include operating cash flows generated from the business and payments under the 2023 Funding Agreement. These sources of cash will be used to pay capital expenditures associated with the new satellites and associated launch costs as well as debt service costs.
We update our previously issued financial guidance for full year 2023 with anticipated results included below. Note that this outlook excludes revenue from terrestrial spectrum opportunities.
- Total revenue between $215 million and $230 million, which would represent an increase of approximately 45% to 55% over 2022 total revenue.
- Adjusted EBITDA margin of approximately 55%, compared to 39% in 2022.