Globalstar

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 2/5

Globalstar is a satellite communications company providing voice, data, and internet connectivity services through a constellation of low-earth orbit satellites and ground infrastructure, mainly serving areas with limited or no terrestrial infrastructure.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Globalstar, Inc. (GSAT) operates within the satellite communications sector, focusing on providing connectivity solutions via its low-earth orbit (LEO) satellite network. This network spans voice, data, and IoT applications, offering coverage across many global regions where traditional terrestrial infrastructure may be lacking or unreliable.

  • Revenue Distribution: Globalstar’s revenue streams can be segmented as follows:
  • Service Revenue: This constitutes the bulk of their income, encompassing subscription fees for their various communication services. These are recurring in nature.
  • Equipment Revenue: This consists of sales of their satellite devices and related equipment. This revenue stream can be more variable.
  • Engineering Services: This is comprised of sales from engineering and technical services related to product development, network infrastructure, and integration.
  • Other: This category includes a number of areas such as government support or any small or unrelated revenue items.

For the first three months of 2024, Service Revenue was the major revenue driver accounting for $48.4 million of the $62.8 million in total revenues.

  • Industry Trends:
    • Increased demand for satellite connectivity, particularly in remote or underserved areas.
    • Expansion of the Internet of Things (IoT) sector is driving demand for satellite-enabled IoT devices.
    • Increased use of satellites in military and government applications.
    • Growing use of mobile satellite services in personal communication markets.
  • Competitive Landscape: -The satellite communication industry is fiercely competitive, with a mix of well-established players such as Intelsat and Iridium and new entrants like Starlink and OneWeb.

  • Competitive advantages arise from a number of factors, including the extent of network infrastructure, technological capabilities, regulatory approvals, pricing strategies, and the strength of partnerships with key suppliers.

  • What Makes Globalstar Different?
    • Globalstar uses a LEO satellite constellation that requires less power for the user to communicate with the satellites, creating smaller, cheaper and longer-lasting battery powered devices. They use the 2.4 Ghz band for direct to device, which is a free and open band, allowing them to innovate and rapidly deploy new services and products without government approval or the requirement of complicated and costly licensing.
    • Their proprietary technology and focus on specialized IoT and MSS markets give it a competitive edge in some regions.
    • The company is actively targeting customers in several industries such as logistics, utilities, agriculture, and emergency services.
    • Globalstar’s ability to combine traditional services with their terrestrial network to enable ubiquitous coverage in areas that have both terrestrial and satellite services.
    • The company has been working with Qualcomm on incorporating its technology directly into the new chipsets used in new-generation phones, allowing a direct to phone connection, similar to terrestrial wireless technology. This would enable an easy transition and provide connectivity everywhere.

Financials Deep Dive:

Globalstar’s financial health presents a mixed picture. While the company has demonstrated consistent revenue growth over the years, profitability and leverage are still a challenge.

  • Revenue Growth: There is some revenue growth with a 10% increase in revenues from Q1 of 2023 to Q1 of 2024. Total revenue for the first three months of 2024 stood at $62.8 million compared to $56.8 million over the same period a year prior. This growth is attributed to expansion in the subscriber base and increased demand for equipment and engineering services.
  • Operating Margins and Profitability: While revenues have increased, they still have not translated to profitability. Globalstar posted a net loss of $11.5 million for the first quarter of 2024, an improvement over $23 million over the same period a year before. Although the net loss has improved, the business is still not profitable. The increase in operating profitability is due to increased sales volume coupled with the high-margin revenue from service. Operating expenses rose at roughly the same rate, with higher expenses in cost of service.
  • Liquidity and Capital Resources: Cash flows from operating activities have been inconsistent, with quarterly figures fluctuating from inflow to outflow, which means that it is still not a self-sustaining business. Total cash and marketable securities as of March 31, 2024, was $41.6 million. While it is higher than the $40 million they held on the same period last year, the high and consistent burn rate does give some concern to the future of the business.
  • Debt and Leverage: Globalstar has a fairly high debt-to-equity ratio. Total long-term debt and capital leases was $776 million. That is far higher than the $342.9 million in equity they had on their balance sheet. They also have $20 million in short-term debt as well. The heavy debt makes them a higher-risk investment. For this reason, they are aggressively pursuing new agreements for additional recurring revenues, mainly from government.
  • Impact of Funding Agreements: The company has had some interesting capital structures for their main financial agreements. The company, by some estimates, paid $50 million in fees for raising capital, as well as diluting themselves by around 14% with new share issuance. Furthermore, they pay a 2% premium per year for their first lien debts. The 2022 and 2023 funding agreements were structured in such a way that, when the company reaches certain revenue hurdles, an interest rate reduction of 200 or 300 basis points is available. Such agreements are designed to increase value for shareholders and lenders by incentivizing growth.
  • Positive trends: Service revenues are up, net losses have decreased from the year before. GlobalStar is taking active steps to focus the business on profitability, like restructuring some parts of the business to focus on high-value customers and increasing their sales to the internet-of-things (IOT) market. New technology is being developed to further increase revenue growth for the company.

Moat Rating: 2/5 While Globalstar possesses some competitive advantages that grant them some limited protection against other players in the market, their position isn’t strong enough to make the business a durable one. Their use of the 2.4GHz band for their direct to device technology provides an innovative advantage and a barrier to entry, as well as their partnerships with key technology providers. However, the lack of a long proven business model and the heavy debt structure are causes for concern, as is the ability of competition to offer similar services at lower prices, as LEO technology becomes more readily available.

Risks to the Moat and Business Resilience

  • Technological Disruption: The communications space is rapidly evolving, and advancements in technology could make Globalstar’s current offerings less attractive to customers or make them vulnerable to other competitors with superior technology.
  • Competition: The satellite communications market is highly competitive, with several other players who could easily take market share from Globalstar. The emergence of more agile and competitive new entrants could disrupt the playing field.
  • Regulatory Hurdles: Government regulations can change frequently, causing considerable damage to the company’s prospects. Any changes in policy can negatively affect operating environment, causing them to lose key licenses or create additional obligations.
  • Debt and Leverage: Globalstar’s heavy debt burden creates significant financial risk, making them less capable of investing in future growth opportunities or absorbing unanticipated economic events. Servicing existing debt can impede cash flow and reduce profitability.
  • Reliance on Key Partnerships: As the success of Globalstar relies on their key partnerships, a failure or renegotiation of such partnerships could have a direct negative impact on the performance of the business.
  • Dependence on Key Personnel The company is dependent on a few key personnel to execute its vision for the future and any disruption or changes in this leadership structure could adversely affect the company’s prospect.
  • Inability to Generate Profits There is a long history of losses for this company that make it hard for it to become a durable business. If the company is unable to reach the point of profitability, that will jeopardize it’s future.

Business Resilience: Globalstar demonstrates some resilience through its established infrastructure, network, and growing presence across a number of market segments. However, the heavy debt combined with its limited cash and ongoing losses could significantly impact its ability to navigate severe changes in the market landscape.

Understandability Rating: 3/5

While the concept of satellite communication is relatively easy to understand, the complexities of the agreements, regulatory aspects, business model, and the various revenue streams create some difficulty to understand this business. The technical aspects of a satellite company, such as satellite deployments, spectrum management, technology investments, also are inherently complex to understand. Furthermore, the company’s heavy dependence on non-recurring contracts and capital financing for their operations adds further difficulty.

Balance Sheet Health: 2 / 5

The balance sheet of Globalstar can be described as unhealthy. Although the company does have a considerable amount of cash, it’s low in comparison to the debt load it has. The company has a debt-to-equity ratio that makes it highly susceptible to adverse economic conditions. Furthermore, the consistently negative net income is also a big cause for concern.

In conclusion, Globalstar presents an interesting case for investment in the satellite communication market. It presents both opportunity and risk. While the company does have some key characteristics to build a wide moat, such as it’s proprietary technology, long-term strategic partnerships, and a first-mover advantage into a new market, its debt-heavy balance sheet and inability to be consistently profitable make it a relatively risky investment. For this reason, it would be best to keep a keen eye on the company and watch how it navigates the competitive landscape, before investing.