Globalstar (NYSE:GSAT) Inc. has entered into expanded service agreements with Apple Inc (NASDAQ:AAPL)., which include the development of a new mobile satellite services (MSS) network. The agreement, detailed in an 8-K filing with the SEC, outlines the construction of a new satellite constellation and ground infrastructure, as well as increased global MSS licensing.
The deal includes an infrastructure prepayment of up to $1.1 billion from Apple, which Globalstar will use to fund the capital requirements for the Extended MSS Network.
This network will be owned by Globalstar Licensee, LLC and operated by Globalstar, with Apple becoming a passive equity holder with a 20% interest through a $400 million investment in Class B Units. The closing of the transaction is anticipated around November 5, 2024, subject to customary conditions.
In addition to infrastructure prepayment, Apple will prepay amounts necessary for Globalstar to retire its outstanding 13.00% Senior Notes due 2029, totaling $219 million plus $13 million in make-whole fees.
The agreement also stipulates incremental service fees due from Apple, which include costs associated with the Extended MSS Network, additional services, and performance bonuses, some of which are contingent on meeting certain milestones.
Globalstar is set to maintain control over the new network's operations and will allocate 85% of its network capacity to render the Satellite Services to Apple. The company will continue to service its other MSS customers with the remaining capacity.
The transaction also includes provisions for Globalstar to repurchase the Class B Units from Apple under certain conditions. If Globalstar fails to perform specific obligations or if Apple terminates the agreements under certain scenarios, Globalstar may be required to repay advances and redeem the Class B Units, which could include a percentage of revenue total cash flow, or immediate repayment.
Globalstar expects its total annual revenue to more than double the 2024 annualized levels with improved EBITDA margins following the launch of the expanded Satellite Services. However, the company acknowledges that these estimates are subject to various factors and uncertainties.
This news is based on a press release statement and Globalstar's SEC filing.
In other recent news, Globalstar has seen a significant increase in its financial performance with service revenue rising by 18% and total revenue hitting a new high of $60.4 million. The company has also raised its full-year revenue guidance to $235 million and expects a healthy adjusted EBITDA margin of 53%.
Globalstar has also secured a 15-year extension on its senior HIBLEO-4 authorization from the United States Federal Communications Commission (FCC), allowing the company to operate up to 26 replacement satellites.
In a strategic move, Globalstar has partnered with Liquid Intelligent Technologies to enhance 5G connectivity solutions in Africa, the Middle East, and the Gulf regions. The partnership grants Liquid exclusive rights to sell and distribute Globalstar's XCOM RAN private networks 5G access solution within these territories.
This collaboration aligns with Globalstar's ambition to provide unmatched connectivity to customers and is expected to revolutionize the mining industry in Africa and cater to high-end markets in the Middle East and Gulf regions.
These recent developments highlight Globalstar's strategic planning and its focus on expanding its business segments and integrating new technologies. The company is planning for future growth with a strong cash position and upcoming satellite launches. Globalstar also plans to demonstrate the use of its n53 spectrum at an upcoming Investor Day, underscoring its commitment to innovation.
InvestingPro Insights
Globalstar's expanded service agreements with Apple come at a crucial time for the company. According to InvestingPro data, Globalstar's revenue growth has been strong, with a 17.81% increase in the last twelve months as of Q2 2024. This growth trend aligns well with the company's expectation that total annual revenue will more than double following the launch of the expanded Satellite Services.
Despite the positive revenue growth, InvestingPro Tips highlight that Globalstar is not currently profitable and analysts do not anticipate profitability this year. This context makes the Apple deal even more significant, as it provides substantial financial support and potential for future growth.
The company's gross profit margin stands at a healthy 67.16%, indicating efficient core operations. However, the operating income margin is negative at -5.53%, underscoring the importance of the new agreement in potentially improving profitability.
InvestingPro Tips also reveal that Globalstar operates with a moderate level of debt, which is relevant considering the company's plans to retire its outstanding Senior Notes as part of the Apple agreement. This move could potentially improve Globalstar's financial position and reduce interest expenses.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights on Globalstar's financial health and market position. Currently, there are 11 more tips available on the InvestingPro platform, providing a deeper understanding of the company's prospects in light of this significant development with Apple.
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