Globalstar, Inc. Q2 FY2024 earnings call

• Organized into business categories: consumer wholesale, consumer retail, government, commercial IoT, XCOM RAN, and n53 licensing.
• Added new talent and ramped up team in India for new tech development/testing.
• Wholesale services growing in government and consumer sectors, with progress on a government services proof-of-concept.
• Targeted investments in consumer retail offerings to generate economic returns.
• Consumer IoT business growing, with progress in testing new technologies and engaging customer base.
• Added to product development organization for streamlined product/market rollout; manufacturing transitioned to Vietnam to remove tariff impact.
• Added new channel partners to expand geographic reach.
• Next-generation satellites on schedule for first launch in 2025; XCOM RAN being installed/validated in micro-fulfillment centers and government study on use cases.

Globalstar had a strong second quarter with total revenue reaching a record high of $60.4 million, a 10% year-over-year increase. Service revenue increased 18%, offsetting a decline in equipment revenue due to IoT timing. Adjusted EBITDA grew by 20% this quarter to a margin of 54%, up from 49% in the prior year's second quarter. Total revenue contribution isn't broken down by specific product segments beyond service and equipment, but service revenue was the driver of growth.

• Raised the low end of revenue guidance to $235 million.
• Raised adjusted EBITDA margin guidance to 53%, up from previous forecast of 50%.
• Highlighted continued momentum across key growth categories driving revised guidance.

Q: Could you just elaborate a little bit more on the product development efforts the team is doing to incorporate XCOM RAN into your private wireless networking offerings?

A: Yes. So we're in the process - we have the first pass of the product. In working with our customer, they've asked for a few features to be added to the product, and we're in the process of doing that both on internal development and also some components of the system that we're working with third parties on as well. So there's a small amount of incremental innovation that's going on. It's mostly just product-oriented stuff. It's no science project. It's really just building out a few more features.

Q: And do you expect to test using Band 53 as an anchor spectrum to really increase capacity of what the product can do?

A: Yes. So we're going to show - we expect to show before the end of the year some demonstrations around Band 53 and the XCOM RAN technology, and then we'll look to be bringing a product out that incorporates a broad range of frequency bands so we can tailor that to what the customers want. But look, when we talk to customers about private network, I mean, it's a huge differentiator not just to have the technology but to have the frequency band as an anchor and one that's guaranteed because on a standalone basis, XCOM Labs was able to use CBRS spectrum, but it's not 100% mission critical because military can come in or somebody higher up in the priority stack can come in, and then you don't get to use that spectrum. So if you're going private cellular, you definitely have a mission critical application. Otherwise, you'd just have used Wi-Fi. So we want to make sure that we can provide really the most reliable system, and that's very differentiated for us.

Q: Okay. Thank you, Paul. Just maybe one or two more. What should we be looking for next with this potential government customer?

A: Yes. So we're in the process of doing the proof-of-concept with them. When they are done with that, then you'll see us move into sort of the operational phase of it and full deployment. But what's really nice is a new set of technology runs over our network. The satellites are bent-pipe, so all of the technology innovation happens on the ground, so it's very easy for us to upgrade. We're doing things to make sure that performance is what was expected, that all the compatibility between this new technology and all of the other things that we're running over the network are there, and everything's been going quite well so far. So we have high expectations for that and see no reason why we wouldn't continue to move forward.

Q: Okay. Thank you. And then last question is just on the replacement satellites. When do you expect to have your first launch window for the new satellites?

A: Yes. So it will be in the first half of next year that we look to launch. And the satellites are being built. The progress is being made there. Having great discussions with FCC. And, yes, so that's all moving ahead.

Q: Hi, good morning, guys. This is Logan on for George. Maybe if we could just start with that government services contract. Obviously, you guys have said you're in the proof-of-concept. Just wondering if you guys are able to kind of move through that. Do you think it makes it easier to sell to maybe some other government services companies? Like, is that a necessary hurdle to maybe expand that offering?

A: Actually, so we're having good engagement with government across the board. We have this project that we're working on with XCOM RAN right now. But the thing that's actually quite exciting is that as we've gotten closer with our government services partner, this company, together we've been brainstorming other opportunities together, and there's quite a good pipeline of that. So in some sense, yes, we want to get through this first project together, make sure we work well together. But we see an excellent opportunity going forward. And then for sure there's other potential with other companies that are government contractors. And I'm sure you know it's, working with the government, building that channel takes time. So the idea of partnering with companies that have been added for a while really is a great go-to-market path for us.

Q: Got it. And then maybe just one kind of quick follow-up for you Paul. Just any commentary on the AST FCC approval earlier this week? I mean, I know I think they still have a few steps to go in terms of actual cellular use, but I'm just wondering if you have any comments on the competitive environment, whether or not you think it's changing.

A: Yes, I don't think that particularly changes things. It's five satellites out of I think they were looking for 250 to run the service. And obviously, it takes a lot of effort. We know well we've been running a network for decades. And we are still the only ones running commercial direct smartphone services. So, yes, as I've said many times that business model is an unproven business model up to this point. Providing full cellular services outside of cellular coverage areas, Globalstar and Iridium went bankrupt doing that 20 years ago. And for sure cellular networks have grown since then. So, yes, there is an opportunity for connectivity. Obviously, we're showing that right now for connectivity outside of cell coverage. Question is, what's the incremental opportunity beyond what's being provided now? And so that business model, it needs to be proven. And I think for us, we're just going to continue to focus on where we've found the opportunities to generate real profitability and real revenue streams from this direct-to-cell business. And we keep track of everything that's going on. I've got a great team of engineers, lots and lots of experience in building new wireless technologies. So we're on it. We're definitely watching it. But like I said, it's really about proving that there's a business model there.