2012 Represents an Inflection Point for Globalstar’s Business
Satellite service provider Globalstar is entering an inflection point in their business. They are counting on the deployment of their new constellation to pay off debts associated with the billion dollar second generation new constellation.
Things are looking up for Globalstar after reporting a revenue increase of 5 percent in the fourth quarter of 2011 compared to the four quarter of 2010. Annual revenue for 2011 increase by 7 percent compared to the annual review for 2010.
Globalstar, based out of Covington, LA for the past three years, has slashed expenses to bring their numbers to a profitable level.
Globalstar said in a March 13th filing they were able to defer payment to its ground infrastructure supplier Hughes Network and Ericsson. This further helped their cash flow.
Eighteen of Globalstar’s 24 second generation satellites that are under the current contract have been launched. These 18 satellites will be in full operation by late summer.
The fourth launch of six satellites is scheduled for the August to September time period. The launch vehicle will by a single Soyuz rocket operated by Europe’s Arianespace launch consortium for the Baikonur Cosmodrome spaceport in Kazakhstan.
The launch window will depend on whether Globalstar and Thales Alenia Space of France are able to come up with a software patch to overcome a momentum wheel defect that affected a number of satellites launched in 2010 and 2011. According to Globalstar the momentum wheel issue has not affected the six satellites launched in December.
Globalstar’s first generation satellites had to be replaced with this new constellation due to the radiation causing degradation of the duplex transmitter of each satellite. Globalstar lost many subscribers due to the loss of service, but Globalstar plans to regain much of its subscriber base due to the improvement of service with the new constellation.
According to Globalstar once the 18 satellite are fully functional they will be able to offer a call completion rate of 90%.
Globalstar has current cash on hand of $10 million as of December 31 plus a $46 million account provided by Thermo. They have also had a rise in cash flow from customers reactivating service. All this will allow Globalstar to meet all their financial obligations for 2012.
Globalstar Chairman Jay Monroe said the company’s revenue growth should really pick up steam in 2012 and be really robust in 2012 with the new constellation.
A delay in the launch of the last six satellites could reduce the amount of revenue that Globalstar generates in 2012. If that happens Globalstar plans to push out the first principal payments on its $586.3 million in debt.
Coface France’s export credit agency, has guaranteed 95% of that sum which allows Globalstar to build and deploy its new second generation constellation.
Under the terms of the financing deal, Globalstar must begin repaying the principal either eight months after the last launch of six satellites or on June 30, 2013, whichever comes first.
Globalstar will need to raise fresh equity or debt to upgrade its ground infrastructure for the second generation satellites and the construction of six more satellites they plan to use for spares.
Globalstar is planning for the eight first generation satellites launched in 2007 to function for the next number of years alongside the 24 second generation satellites. These older eight satellites are expected to suffer the same radiation caused erosion of there duplex transmitters which caused the failure of the first generation satellite constellation.
The first generation satellites are continuing to provide service to Globalstar’s SPOT satellite messenger product which uses the satellites simplex transmitters which did not fail. The SPOT satellite messenger service only supplies Globalstar with half the revenue of what voice subscribers pay.
Globalstar has entered arbitration proceeding with Thales Alenia Space over whether the satellite builder is obliged to build more satellites under terms agreed in their original contact which Globalstar says is still valid. Globalstar believes the arbitration panel will deliver a ruling in the near future.