Earnings Call Transcript - GSAT Q3 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Globalstar Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Rebecca Clary, CFO. Please go ahead.

Rebecca Clary, CFO

Thank you, operator, and good afternoon, everyone. Before we begin, please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the Risk Factors section of Globalstar's SEC filings, including its annual report on Form 10-K for the financial year ending 2024 and its other SEC filings as well as today's earnings release. Also note that management may reference EBITDA, adjusted EBITDA, free cash flow or adjusted free cash flow on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release, which is available on our website. Today, I will walk you through our third quarter and year-to-date financial results, discuss our liquidity position and touch briefly on outlook. We delivered solid top line performance in the third quarter with total revenue of $73.8 million. This represents growth over the prior year's third quarter, reaching a record quarterly amount. This improvement was driven by two key areas: wholesale capacity services, and continued strength in Commercial IoT. Our wholesale capacity services revenue increased primarily due to the timing of service fees associated with the reimbursement of network-related costs as we continue to expand and upgrade our global ground infrastructure. Commercial IoT also continues to be a growth driver for us. IoT service revenue increased on the back of subscriber growth with average subscribers reaching 543,000, a 6% increase from the prior year's third quarter. This growth was again propelled by a record number of gross activations over the last 12 months. We also saw particularly strong equipment sales performance. Equipment revenue from Commercial IoT device sales was up 60% compared to the prior year's third quarter. We expect this momentum to continue, particularly with the recent commercial availability of our two-way module, which we believe will drive additional demand. Income from operations was $10.2 million in the quarter, up from $9.4 million in the prior year's third quarter. This improvement came despite higher operating expenses during the quarter due to planned increased investments in our business. Net income was lower than the prior year's third quarter, driven primarily by noncash items. Specifically, we recognized higher interest expense from noncash imputed interest related to the 2024 prepayment agreement. We also recorded net foreign currency losses from the remeasurement of intercompany balances. These items were partially offset by a noncash gain on the quarterly mark-to-market adjustment of our derivative assets. Adjusted EBITDA for the third quarter reflects our strategic investment in growth opportunities, particularly XCOM. We continue to enhance and develop our XCOM RAN product and service offerings. And as we've discussed previously, we're incurring costs, primarily personnel-related in advance of significant revenue contribution from this business. We believe this is a solid investment for the company, and we remain confident in the strategic value of this initiative, particularly based on recent developments towards commercialization. Importantly, we continue to maintain healthy adjusted EBITDA margins, 51% in the third quarter and 52% year-to-date, even while making substantial investments in XCOM and next-generation products. This demonstrates the profitability of our core business and gives us confidence that as these new revenue streams scale, we'll see meaningful margin expansion. For the year-to-date period, total revenue was $201 million, representing 6% growth compared to the same period last year. Service revenue was also up 6%, while equipment revenue increased 21%. The revenue and operating income story for the 9-month period largely mirrors what we saw in Q3. Now let me turn to our balance sheet and cash flow. We ended the third quarter with cash and cash equivalents of $346.3 million. During the first 9 months of 2025, we generated operating cash flow of $445.8 million, a strong result that reflects $299.6 million received in connection with the Infrastructure Prepayment and also demonstrates the cash-generating capabilities of our business. Capital expenditures were $485.9 million during the period, reflecting our commitments under our Updated Services Agreements for network expansion and upgrades, including ground infrastructure as well as satellite construction and launch costs. These investments are fundamental to our ability to deliver enhanced services and support our long-term growth. Financing activities used $6.1 million in cash, primarily for debt recoupment under the 2021 Funding Agreement and preferred stock dividend payments, offset partially by $27.1 million in proceeds under the 2023 Funding Agreement, which will be used to fund CapEx for our replacement satellites. Adjusted free cash flow for the 9-month period was $133.3 million, up significantly from $74.5 million in the prior year period. This increase reflects primarily higher customer payments, including $37.5 million in accelerated service payments received during 2025. Total debt principal outstanding was $418.7 million at September 30, 2025, largely in line with the prior year-end and reflecting the financing activities previously discussed. Our financial position remains strong with solid cash generation, ample liquidity and strategic investments that position us for long-term growth. We're making deliberate investments in XCOM and next-generation products, and we're executing on our infrastructure commitments to support our wholesale services agreement. The fundamentals of our business are sound. We're growing revenue in strategic areas, generating strong operating cash flow and managing our cost structure while investing for the future. Given our results to date and expectations for the balance of the year, we are reiterating our full-year 2025 outlook and continue to expect revenue in the range of $260 million to $285 million and an adjusted EBITDA margin of approximately 50%. With that, I'd like to turn the call over to Paul.

Paul Jacobs, CEO

Thanks, Rebecca, and good afternoon, everyone. I'm pleased to be with you today and to discuss what has been a robust quarter for Globalstar. Across every major part of our business, we're executing our strategy and delivering measurable progress that strengthens our position in the market. It's really never been a more exciting time to be in the connectivity industry and for Globalstar in particular. My team and I have spent our careers driving many of the hottest trends in mobile communications and computing. And here we are again. On the satellite side, we couldn't be more proud to have helped pioneer direct-to-device services and witnessed the life-saving impact of our network. There are now over 0.5 billion devices capable of utilizing our network, and we continue to invest and innovate to maintain our leading position. And on the mobile wireless network side, our XCOM RAN technology is proving its benefits both in performance for mission-critical applications and its cost-effectiveness and ease of deployment. As I've said previously, what drew us to Globalstar is the strength and differentiation of our globally harmonized spectrum, three decades of LEO constellation operations, and deep engineering capability to deliver secure, reliable connectivity worldwide with the quality of service demanded by some of the world's most innovative technology leaders, something few others, if anyone, can claim. Recent activity in the market underscores that value as a wide variety of players now better understand the need for dedicated mobile satellite service or MSS spectrum. Other participants in the direct-to-device solution space have spent tens of billions to acquire L- and S-band assets that, while useful, lack the global coverage, priority rights, and harmonization with an established hardware ecosystem that defines our portfolio, one that has been deployed for decades by our Globalstar customers. We believe this validates the global orientation of our strategy from inception, building the company around globally harmonized and licensed spectrum assets and a global LEO platform. We see extraordinary potential for disruptive innovation around our spectrum bands and are confident we are playing a defining role now and for some time to come. For many reasons, Globalstar holds the critical jigsaw pieces that complete the broader D2D puzzle. This moment is a strategic inflection point that could shape or reshape the future of a rapidly converging communications industry. Before I turn to the other parts of our business, let me acknowledge that you may have seen recent media reports regarding a potential strategic transaction involving Globalstar. As a matter of policy, we do not comment on press articles, rumors or market speculation. Therefore, we will not be addressing this topic during today's call or the Q&A following our remarks. Now let's turn to the business, and let me start with our infrastructure expansion and satellite roadmap for our C-3 constellation. We continue to make significant progress in the construction of our extended MSS network. In addition to development of our third-generation C-3 satellite system, this effort includes the build-out of our global ground network with new infrastructure across multiple continents, including Europe, Asia, and North America. This global ground expansion is continuing, including up to 90 new tracking antennas supporting Globalstar's C-3 satellite system, representing a significant investment in the functionality, capacity, and future-proofing of our network. This significantly underscores our mission and strategy to support resilient and robust connectivity that not only serves the needs of today but also prepares for those of tomorrow. To that end, our HIBLEO XL-1 filing is designed to expand operational frequency, which is a foundational step towards our planned next satellite era. This system will introduce new satellites, orbital shells, and frequency bands to enable greater capacity and throughput. It's an important step forward that aligns with the other network investments we are making today. While we are not currently planning significant investment in our own megaconstellation, this filing gives us the future option to work with partners supporting our constellation, sorry, our spectrum on a megaconstellation that is coordinated with our existing and planned constellations. Let's turn to the government sector. We continue to see strong traction following our wins earlier this year. We've made meaningful progress with Parsons Corporation, transitioning from proof of concept to commercial engagement that leverages our satellite network within their advanced software-defined communications architecture. This partnership highlights Globalstar's ability to deliver resilient, low latency, and mission-critical connectivity for defense and public safety applications. We continue to expect government-related opportunities to represent an expanding source of revenue in 2026 and beyond. Our Commercial IoT subscriber growth is strong and accelerating with strong MSS device sales supported by growing adoption in safety, logistics, and infrastructure markets. Gross activations are up 40% over the same quarter last year, and total units are up 100% on a quarterly basis compared to the prior year. That doesn't even include the new two-way module, which is now being integrated into our customers' finished products. These sales, combined with increased enterprise demand, are contributing to a balanced and diversified revenue profile. Another milestone this quarter is the global availability of our two-way Commercial IoT module, the RM200M. Already receiving certifications in key regions, the RM200M is now officially available for worldwide deployment. Leveraging Globalstar's licensed L&S band spectrum and second-generation satellites, the module delivers reliable two-way connectivity, reducing friction when deploying across numerous geographic regions. On the private wireless side, momentum continues to build for XCOM RAN. During the quarter, we received an initial order from a new XCOM RAN customer, advancing their next-generation robotics application and a significant expansion of this program. XCOM RAN is positioned to play a critical part in ensuring quality of service in warehouse and factory automation, where reliable and secure connectivity is at the core of a robotic future in these environments. We believe we can demonstrate not only significantly differentiated performance of our 5G-based systems over industrial Wi-Fi, but also improved economics for large area applications. And we are addressing new applications outside of warehouse automation, which we believe will grow our addressable market significantly. Stepping back, this has been a year of meaningful acceleration for Globalstar. We've expanded our infrastructure, strengthened our product lineup, deepened our government relationships, and enhanced the commercial viability and visibility of our technology portfolio. These accomplishments have not gone unnoticed. Increased partner engagement and growing investor confidence reflect a renewed understanding of Globalstar's strong market position, combining spectrum ownership, global infrastructure, product lineup, and operational expertise that few others can match. Overall, this has contributed to positioning the company in the market as a high-value strategic asset in the rapidly converging satellite and terrestrial communications ecosystem. While we remain focused on executing our plan, this recognition underscores the scalability and relevance of what we've built and what's still ahead. As we look to the close of the year, our focus remains on execution, including completing key infrastructure milestones, expanding enterprise and government deployments, and continuing to drive adoption of our new technologies across both satellite and terrestrial domains. We're proud of what our team has accomplished and energized by the growing momentum we see across all segments of our business. Thank you for your continued support. I look forward to sharing more about our progress in the quarters to come. With that, I will turn the call back to the operator.

Operator, Operator

Our first call comes from Mike Crawford at B. Riley Securities.

Michael Crawford, Analyst

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?

Paul Jacobs, CEO

Yes. So we put in antennas that are specific for the C-3 system. And yes, so we have the existing satellite antennas for the existing constellation already.

Michael Crawford, Analyst

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

Paul Jacobs, CEO

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

Rebecca Clary, CFO

And just to add to that, Mike, for the Extended MSS network, as you know, we haven't provided timing. For the replacement satellites, which you might be referring to that are being launched in two batches, we're working with SpaceX to confirm an updated launch window in the first half of 2026.

Michael Crawford, Analyst

Okay. And then maybe just stepping back, Paul, to Globalstar's global harmonized spectrum holdings. Can you just maybe define those again in terms of megahertz POPs or some related measurements or what you have in the U.S. as well as where you have landing rights internationally?

Paul Jacobs, CEO

I mean it's essentially global coverage. So on the S-band, we have 16.5 megahertz. On the L-band, we have almost 9. On the C-band, we have over 300 megahertz. So let's see, there are 7 billion people on earth.

Michael Crawford, Analyst

Okay. I can do that math. And then on the C-band, I believe there remains a 59 megahertz slot that might not necessarily be required to operate your satellite networks given improvements in technology over the past 20 years?

Paul Jacobs, CEO

No, there is a significant portion of the C-band spectrum that is utilized by Wi-Fi in the unlicensed band. There is also a segment at the lower end that is not used for that purpose. All of the spectrum is currently functioning as a feeder link, since the existing satellites allocate parts of the feeder spectrum to reproduce the entire spectrum band on the L&S band side for each satellite beam. Thus, all of it is utilized for satellite operations. When considering terrestrial use, there is a portion not assigned for Wi-Fi. However, the team from XCOM Labs, which developed unlicensed band cellular technologies, may help us explore these bands for unlicensed band NR, such as 5G.

Michael Crawford, Analyst

Okay. And then final question for me just goes back to XCOM RAN. So in the test applications that you've been doing for quite some time now. What is the latest data that you're seeing in terms of increased performance and reliability versus industrial Wi-Fi?

Paul Jacobs, CEO

Yes. So it works much better than industrial Wi-Fi because we don't have handoff regions and Wi-Fi wasn't really built for handoffs anyways. We also have ease of deployment. We have this clustering where if the robots cluster under one of the radios, you don't just depend on the capacity of that radio; you actually get the capacity of the entire system. So in terms of performance benefits, it's dramatically better. It's more reliable, more mission-critical. But what we've also been finding is that in these large area deployments, we're also economically better. So the economics of rolling out our system relative to an industrial Wi-Fi is much better. And part of that comes from the fact that we have now built our own radio units and significantly cost-reduced those, as well as being able to provide more frequency bands on a faster basis when those are requested by our customers.

Operator, Operator

Our next call comes from the line of Greg Pendy at Clear Street.

Gregory R. Pendy, Analyst

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?

Paul Jacobs, CEO

Okay. There are definitely new applications that we can address. Additionally, when we consider some of the long-standing competitors in this field, there is clear interest from our customers in diversifying their supply or switching suppliers. This is certainly a contributing factor. Some of this is about gaining market share, while some is about stimulating growth overall. Regarding two-way pricing, we have introduced a new set of capabilities and there is market pricing available for two-way systems. Naturally, we intend to be aggressive in capturing market share with the two-way system. However, I want to emphasize that the growth we've seen so far is not attributed to the two-way system just yet. We have launched the module, tested it with clients, and they are now beginning to integrate it into their products, which takes time. Therefore, the growth you see currently is actually from the existing systems, which is quite impressive.

Gregory R. Pendy, Analyst

Got it. That's very helpful. Wholesale appears to be quite strong compared to our expectations. You mentioned there are 0.5 billion devices, and I'm trying to grasp the underlying growth. Is it simply due to an increasing number of enabled devices, or are you observing greater usage from those already enabled? I'm trying to understand the reasons behind this growth.

Paul Jacobs, CEO

I can't really comment on the customers of our customer, so I won't go into that. However, the number of devices out there illustrates the growth in the number of devices equipped with satellite modem and radio capabilities. That group of devices continues to grow quite rapidly.

Operator, Operator

Our next question comes from the line of George Sutton of Craig-Hallum Capital Group.

Logan W Lillehaug, Analyst

This is Logan on for George. 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?

Paul Jacobs, CEO

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. 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. We've put up various numbers on the total addressable market. There's a significant addressable market going forward. 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. 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. 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.

Logan W Lillehaug, Analyst

Got it. And then the next one for me. 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.

Paul Jacobs, CEO

I can't provide much information about the customers since they are currently focused on developing their products and prefer to make their own announcements. However, we are engaging with many of the same industries as before, but now with new applications and different customer groups. There were customers who were not interested in communicating with us when we only had a one-way system, but now that we offer a two-way system, I believe we will gain market share in several areas. Additionally, as we plan to enhance the system with cellular capability, this will cater to the needs of a specific customer base. While there aren't any completely new areas for us to address, we do have a group of customers who are now engaging with us that would not have considered us in the past with a one-way-only system.

Operator, Operator

Our next call comes from the line of Michael Ridgeway.

Michael Ridgeway, Analyst

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?

Paul Jacobs, CEO

Yes. 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. 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, those kinds of hotspots, that kind of stuff. 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 being super focused on the warehouse automation space. All these things provide us with growth opportunities.

Michael Ridgeway, Analyst

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?

Paul Jacobs, CEO

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

Michael Ridgeway, Analyst

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?

Paul Jacobs, CEO

Yes. So there are those things that you said, but also there's an annuity component of software license because the main computation is done on commercial off-the-shelf servers. We license the software into those servers as well. The other thing that's happened is that over time, we've been able to build out the entire stack. We look forward to the ability to provide Network as a Service. That obviously is very much a nice annuity kind of business. That hasn't happened yet. That's what 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.

Michael Ridgeway, Analyst

All right. So from a margin perspective, we could expect a delay on margin accretion as installs happen over the last several quarters?

Paul Jacobs, CEO

Yes, yes. This business right now is still in an investment phase, for sure. On a gross margin basis, gross margins are solid here, and we have differentiated technology. We put the effort into driving the cost curve down. So yes, margins should be good. To the extent that you get an embedded base, I think this might be where you were going, embedded base of annuity revenue, then obviously, that's very high margin.

Michael Ridgeway, Analyst

That's super helpful. Just the last question, talking about this. 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?

Paul Jacobs, CEO

Yes. 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, inter-operator boundaries. The spectrum covers the entire earth. Yes, there might be a few countries here and there where we didn't get landing rights. But for the most part, the world is covered by our spectrum and system. That is differentiated. Some of the transactions that have been seen in the market have been focused on particular geographies. In some cases, I would say there's questions about whether some of the spectrum will continue to be available post license reauthorization processes of some of the spectrum that's transacted. We're watching that. We've put our hat in the ring for some of these spectrum assets in case they are reallocated. We certainly can put them to good use, and they are also covered by our HIBLEO XL-1 filing.

Michael Ridgeway, Analyst

Great. That's helpful. One last question on the C-3 ground station build-out. You've mentioned 90 new tracking antennas. What percentage does that represent in relation to the total build-out plan?

Paul Jacobs, CEO

That's the build-out. I mean the 90-plus is the new set of antennas for the C-3 system.

Michael Ridgeway, Analyst

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

Paul Jacobs, CEO

We're in the process of rolling out. I don't think we've given an exact number to date, but if we've said anything more precise, please speak up.

Rebecca Clary, CFO

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.

Operator, Operator

At this time, I'm showing no further questions. I would like to turn the call back over to Paul Jacobs for closing remarks.

Paul Jacobs, CEO

I believe it has been an excellent quarter, and we are performing exceptionally well. We are excited about our focus on creating a global company with a worldwide customer base and infrastructure from the outset. This position is proving to be particularly advantageous during this industry shift. I view this as a strategic turning point. Being involved in this sector again and having the chance to participate in this new phase is incredibly thrilling. We anticipate it will be beneficial for all of us, including our supporters and investors. Thank you for your continued support, and we look forward to providing more updates in the future.

Operator, Operator

Thank you very much. This concludes today's conference. You may now disconnect.