Globalstar, Inc. (NYSE: GSAT) is a growing MSS provider of critical one-way and two-way satellite telecommunication services in areas that are either unserved or underserved by terrestrial infrastructure. Since 2013, revenue and Adjusted EBITDA have grown 36% and 185%, respectively. With the large capital expenditures behind the company and new products and services coming to market, Globalstar is expected to drive revenue growth in the future with potentially high free cash flow margins.
*****CORRECTION***** Where the press release states “Unprofitable” this is based on older information from 2018 as Globalstar’s last Q did show profitability.
The company at a Glance:
So far as recent performance is concerned, 2018 has already been a very busy year for the Globalstar team. Adjusted EBITDA growth has continued to be strong, up close to 40% as compared to the same quarter in 2017. This was accomplished prior to any contribution from new products and from new services.
Key highlights of 2018:
- On May 10th, the company introduced SPOT-X, a 2-way satellite messaging device. SPOT X offers 2-way message capabilities with an onboard backlit keyboard, GPS location tracking, social media linking and direct communication with emergency services in one portable, lightweight device. SPOT X is an exciting evolution in the company’ portfolio of satellite communication devices and will make connectivity in remote regions easier and more effective than ever before. The product will be available online and at outdoor retailers in the U.S. mid-May 2018, with worldwide availability following the U.S. launch. The device will cost $249.99 with several annual service plans available, beginning at $19.99 per month.
- On April 25, 2018, Globalstar announced it signed a merger agreement with Thermo Acquisitions, Inc. Thermo Acquisitions pursuant to which the following assets will be combined with Globalstar: metro fiber provider FiberLight, LLC (FiberLight), 15.5 million shares of common stock of CenturyLink, Inc. (NYSE: CTL) (CenturyLink), $100 million of cash and minority investments in complementary businesses and assets of $25 million in exchange for Globalstar common stock valued at approximately $1.65 billion, subject to adjustments. The merger is expected to create a fundamentally stronger company with significantly reduced leverage and diversified holdings serving the global telecommunications industry.
- In April, GSAT released its highly anticipated Sat-Fi2TM, the first Duplex product utilizing next-generation ground infrastructure, providing reliable satellite communications via any Wi-Fi enabled smart device.
- In late March, the company also released its latest Simplex device, SmartOne SolarTM, a solar-powered asset tracking device that expands the Simplex market by addressing operations in remote areas that would otherwise go unserved or underserved without solar capabilities. GSAT partnered with a major wireless carrier and GLOBECOM on this product, and currently delivering 10,000 units, with the potential to provide many thousands more for one of the world’s largest oil and gas firms. This deal shows how useful GSAT’ MSS products and services are for a variety of the evolving IoT applications.
- The company also continues to expand into other service offerings including the launch of Globalstar Automotive, which will serve the connected autonomous vehicle market. On the spectrum front, GSAT achieved “working item” status at the 3GPP meeting in Chennai, India, keeping the company on schedule for standardization.
Over the past two decades, the global MSS market has experienced significant growth. Growth in mobile satellite data services is driven by the rollout of new applications requiring higher bandwidth, as well as low-cost data collection and asset tracking devices and technological improvements permitting integration of mobile satellite services over smartphones and other Wi-Fi enabled devices.
Considering all this, the company is in an extremely favorable risk-reward position, and there is enormous potential which we are yet to see in terms of share appreciation of the company. The market cap of just $690.5 million and share now ruling at $0.5467, can move to a level of $1.60 in the next six months.
About the company: Globalstar is a leading provider of mobile satellite voice and data services. Customers around the world in industries such as government, emergency management, marine, logging, oil & gas and outdoor recreation rely on Globalstar to conduct business smarter and faster, maintain peace of mind and access emergency personnel. Globalstar data solutions are ideal for various asset and personal tracking, data monitoring, SCADA and IoT applications. The Company’s products include mobile and fixed satellite telephones, the innovative Sat-Fi satellite hotspot, Simplex and Duplex satellite data modems, tracking devices and flexible service packages.
Major product applications: Globalstar data solutions are ideal for various asset and personal tracking, data monitoring, SCADA and IoT applications. The Company’s products include mobile and fixed satellite telephones, the innovative Sat-Fi satellite hotspot, Simplex and Duplex satellite data modems, tracking devices and flexible service packages.
GSAT operates a series of satellites that cover 80% of the Earth’s surface. In the recent past, it has also upgraded its network to second-generation technology. Having deployed this network, GSAT is attempting to build out coverage of its broadband services both in the United States and abroad.
Major Technology: GSAT’s prominent technology is called Terrestrial Low Power Service (“TLPS”), which was the main driver of the stock in the past. The technology promises to allow smart devices to access meaningful speed outside of areas covered by traditional wireless. Globalstar is seeking terrestrial authority over its entire S-band spectrum in multiple jurisdictions worldwide. Company has already initiated diligence efforts and / or regulatory procedures in countries representing a combined population of 800 million.
Synergies of the recently announced merger:
- The anticipated combined Adjusted EBITDA of the pro forma Company is projected to be at least 4x standalone Globalstar.
- The pro forma cash flow of the combined Company is expected to be derived from five principal sources including (i) satellite operations, (ii) leasing or other monetization revenue from the spectrum, (iii) FiberLight operations, (iv) dividend income and (v) other Thermo Investments’ returns.
- The pro forma Company is expected to benefit from Globalstar’s $1.7 billion U.S. net operating losses allowing growth in a tax efficient manner. By materially improving the combined Company’s liquidity position, Globalstar believes the merger will best position the Company for monetizing its 2.4 GHz terrestrial spectrum in addition to maximizing the global use of its licensed spectrum.
First Quarter 2018 Results:
Revenue: Total revenue for the first quarter of 2018 increased by $4.0 million, or 17%, from the first quarter of 2017. This increase resulted primarily from higher service revenue across all core revenue streams, driven by growth in ARPU. Partially offsetting this increase was a decrease in subscriber equipment sales.
Profitability: Net income (loss) fluctuated from a loss of $20.2 million in the first quarter of 2017 to income of $87.9 million in the first quarter of 2018. The primary reason for this change was a higher non-cash derivative gain, up from $3.2 million in the first quarter of 2017 to $108.9 million in the first quarter of 2018. The gain recorded during the first quarter of 2018 resulted from variations in several valuation inputs, including the decline in the Company’s stock price from December 31, 2017, to March 31, 2018, as well as shorter remaining estimated term of the instruments.
Liquidity: As of March 31, GSAT’ sources of liquidity include future cash flow from operations and an unrestricted cash balance of approximately $49 million, access to approximately $13 million currently held in a restricted account available to pay debt service obligations in June and $51 million held in the debt service reserve account.
Key risk factors and potential stock drivers:
- International expansion and ways to monetize
- Progress on growing EBITDA, improving liquidity and satisfying loan covenants.
- Progress on technology upgrades to second-generation technology – execution and potential decline in capex and costs over next couple of years.
- The global communications industry is highly competitive. Globalstar currently faces substantial competition from other service providers that offer a range of mobile and fixed communications options. Its most direct competition comes from other global MSS providers. Therefore, in this competitive landscape, the company’s ability to sustain revenue growth while improving profitability would remain a challenge.
- Another key risk is related to government regulations, GSAT’s business is subject to extensive government regulation, which mandates how it operates, increase cost of providing services, slow expansion into new markets and subject its services to additional competitive pressures, it said, any adverse regulatory development could potentially lower tariffs and hence returns.
- On Friday, June 15th, 2018, GSAT closed at $0.55, on traded volume of 7.0 million shares exchanging hands. Market capitalization is $690.542 million. The current RSI is at 47.07
- In the past 52 weeks, shares of GSAT have traded as low as $0.43 and as high as $2.3
- At $0.5467, shares of GSAT are trading below its 50-day moving average (MA) at $0.63 and below its 200-day moving average (MA) at $1.14
- The present support and resistance levels for the stock are at $0.48 & $0.58 respectively.
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