Globalstar, Inc. Q3 FY2025 earnings call

• Satellite: Pioneered direct-to-device services, over 0.5 billion devices can use the network, investing in XCOM RAN and expanding C-3 constellation and global ground network. - Government: Strong traction with Parsons Corporation, moving from proof of concept to commercial engagement for defense and public safety. - Commercial IoT: Subscriber growth accelerating, gross activations up 40% YOY, two-way module globally available. - XCOM RAN: Received initial order, positioned for warehouse and factory automation with better performance and economics than industrial Wi-Fi.

In the third quarter, Globalstar achieved total revenue of $73.8 million, a record quarterly amount. This growth was driven by wholesale capacity services and Commercial IoT. Wholesale capacity services revenue increased due to timing of service fees from network infrastructure expansion. Commercial IoT saw IoT service revenue grow with average subscribers at 543,000 (6% increase YOY) and equipment revenue from IoT devices up 60% YOY. Year-to-date, total revenue was $201 million (6% growth YOY), service revenue up 6%, and equipment revenue up 21%.

Reiterated full-year 2025 outlook: revenue expected in the range of $260 million to $285 million and adjusted EBITDA margin of approximately 50%.

Q: Regarding your C-3 constellation, correct me if I'm wrong, if this is not completely synonymous with your extended MSS network. But can the ground segment improvements that you're putting in at these gateways be used by your existing constellation that's being refreshed?

A: Yes. So we put in antennas that are specific for the [indiscernible] system -- or sorry, the C-3 system. And yes, so we have the existing satellite antennas for the existing constellation already.

Q: And I believe it's going to be two batch launches for -- to replenish that constellation. Is there any update on when the first of those might occur?

A: We have not given any new indications on when the launches are going to occur.

Q: Just on the accelerating IoT, can you just add any color on what the acceleration is? Do you think you're gaining share in the space? Or do you think the market was just seeing outsized healthy growth? And how should we think about pricing with the two-way capabilities on a forward basis?

A: So we -- there are definitely new applications that we're able to address. I think that there is also the fact that when we look at some of the competitors in the area who have been in this area for a long time, there's definitely interest of our customer base to have diversity of supply or change suppliers. So that's definitely driving part of it. So some of it's taking share, some of it's new, it's growing the pie. And then the other -- on the two-way pricing, yes, I mean, it's a new set of capabilities, and there is market pricing out there for two-way systems. Of course, we expect to be aggressive and take share with the two-way system. And the growth so far, though -- if I just want to reiterate, the growth so far is not on the two-way system yet. The two-way system is still -- we brought out the module. We betted it with people. They then started building it into their products, and that takes a little bit of time for them to get up to speed and get their products rolled out. So the growth that you're seeing is actually the existing -- of the existing systems, which is really quite impressive.

Q: You guys have been kind of talking about the XCOM RAN investment throughout the year, and I think you've been expanding the sales force a bit. And it certainly feels like you have a lot of opportunities in front of that asset. I was wondering if you could just talk a little bit about sort of how should investors think about the return profile or even the profitability of those assets over the next few years?

A: Okay. So I mean, the margins are good in that business. We're right at the beginning of the sort of the commercial adoption cycle. And so we expect to see growth not just from the existing customer that we had been focused on in the past, but from a new set of customers and also into a new set of areas. And we've put up various numbers on sort of total addressable market. And so there's a significant addressable market going forward. And what we're seeing also is that companies that have been in the 5G private network space that didn't have any differentiated technology are starting to feel a lot of pressure. We've seen layoffs and things like that. And we have not just differentiated technology, we have better economics. And of course, we have the dedicated spectrum for mission-critical applications, which, by the way, that hasn't even really started to come into play yet because we were focused on CBRS. So a lot of areas of growth. We don't expect to see a lot of revenue in this fiscal year. But as we look forward into the next year, we expect to see growth there. And then like I said, the margins are good. So we should be in a good place to build both revenues and profitability off of that business.

Q: I was kind of hoping you could talk a little bit about early traction with the two-way module, just sort of the feedback you're getting, any use cases that you want to call out that are kind of standing out and just sort of maybe your sense on adoption here over the next few years?

A: Yes. I can't really give you a lot on the customers because they're all in the process of building their products and want to make their own announcements. But it is a lot of the similar industries that we've been in the past, but with new applications and new sets of customers. And there was a set of customers that weren't very interested in talking to us when we were only one way, and now we are able to -- I think we'll take share in a number of markets with the two-way system. And then as we look forward to making the system also multimode with cellular capability as well, that will also satisfy demands of a certain customer base. So yes, it's not like there is some brand-new area that I'd say, okay, this we can address now that we didn't, but we certainly have a set of customers that are talking to us that wouldn't have talked to us in the past with a one-way-only system.

Q: Paul, a question first on the XCOM RAN warehouse implementation. Is this related to the early work that you have been doing and has been ongoing since you alluded to a large retail testing implementation?

A: Yes. So we are now in a position where I think we can address a larger customer set and also not just the original application that we were looking at of the sort of micro fulfillment concept, but larger scale operations as well. And then we're going beyond just the warehouse automation space. We're talking to companies that do things like build out high-density environments, convention centers, airports, stadiums, that kind of hotspots, that kind of stuff. And so as time has gone on and we've been able to invest in the system, it's got a more horizontal feature set as opposed to just super focused on the warehouse automation space. So all these things provide us with growth opportunities.

Q: So is that to say then that ultimately, there's more of a unified connectivity outside the warehouse as well using that as an example?

A: Yes, for sure. Yes, that's where we're...

Q: And then can you help us understand the revenue model behind this? Obviously, you've got an equipment side and then there's the spectrum side of this. Is there any ongoing service associated with those implementations? And how should we think about the profitability over time as clients grow, as new customers grow in that space?

A: Yes. So there is those things that you said, but also there is an annuity component of software license because the main computation is done on commercial off-the-shelf servers. And so we license the software into those servers as well. And then the other thing that's happened is that over time, we've been able to build out the entire stack. So we look forward to the ability to provide Network as a Service. And that obviously is very much a nice annuity kind of business. So that hasn't happened yet. That's the thing that we're sort of looking to in the medium term, but we get the idea that we don't want to just sell something and then walk away.

Q: We've come through 10 years where we haven't seen any market transactions in MSS and now we've gotten a few and another one announced this morning. Can you maybe spend a little bit more time, you did at the beginning of the call, but just differentiate what Globalstar has and the utility and the global harmonization from a relative value perspective from what we've seen in the market, if you could?

A: Yes. So I don't want to talk about transactions or speculation, but I will talk about our competitive positioning, which is we have spectrum, which is globally harmonized, meaning that it is not just for a small number of markets. You don't have to worry as a satellite operator, whether you're crossing boundaries, whether there are country boundaries or just inter system, interoperator boundaries. The spectrum covers the entire earth. And yes, there might be a few countries here and there, we didn't get landing rights. But for the most part, the world is covered by our spectrum and system. So that is differentiated. Some of the transactions that have been seen in the market have been focused on particular geographies. And in some cases, I would say there's questions about whether some of the spectrum that -- whether it will continue to be available post license reauthorization processes of some of the spectrum that's transacted. So that -- we're watching that. We've put our hat in the ring for some of these spectrum assets in case they are reallocated, and we certainly can put them to good use, and they are also covered by our HIBLEO XL-1 filing.

Q: One last question on the C-3 ground station build-out. You've mentioned 90 new tracking antennas. Does that -- where does that put you in terms of the total build-out plan in percentage terms?

A: That's the build-out. I mean the 90-plus is the new set of antennas for the...

Q: Okay. And how many of those are actually deployed...

A: Some not -- I mean, we're in the process of rolling out. I don't think we've given an exact number to date. But you Rebecca, if we have said anything more precise than that, please speak up.

Q: No, we haven't. We've talked about the sites where we're currently in construction, which is around now close to 30. So making really good progress and definitely on track with those milestone dates in the various agreements, both regulatory ground infrastructure build-out and satellite construction.