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Operator
Good morning and welcome to the Global Star second quarter 2023 earnings conference call. I will now turn the call over to Jay Monroe.
Jay Monroe
Thanks everybody for joining today's Global Star second quarter 2023 investor call. In keeping with recent practice, I will make very brief opening remarks and then we'll move straight to Q&A. But first, 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 forward-looking statements and risk factors section of Global Star's SEC filings, including its annual report on Form 10-K and for the financial year ending 2022, as well as this morning's earnings release. As outlined in the release, GlobalStar continued to see robust growth and a significant improvement in profitability, resulting in a 50% increase in revenue over the prior year's quarter. Adjusted EBITDA was up 86% over the same period. And for the first half of 2023, our revenue was up more than 60% to $113 million. and EBITDA was almost $60 million, an increase of over 140%. Our liquidity ended the quarter with $65 million, more than double our cash balance at year-end. Service revenue, unrelated to our wholesale business, increased, reflecting organic growth in our commercial IoT business. We expect this to continue propelled by the launch of new two-way device platform and services later this year. Average revenue per subscriber is expected to increase meaningfully after that introduction. As a result of these factors, we are increasing the low end of our 2023 revenue guidance from $185 million to $200 million and reiterating a forecasted adjustment of the adjusted EBITDA margin of approximately 55%, not including Spectrum revenue. A brief update on our BAN53 efforts. We are working on many fronts and engaged in engineering efforts with a wide range of companies which are working on BAN53 deployments. Our opportunity set is truly unique, given among other things, the installed base of devices capable of using BAN53 continues to grow. We expect it to be in hundreds of millions of devices by this time next year. And we're also making great progress with the strategic collaboration agreement we signed with Qualcomm earlier this year. This agreement increases the range of infrastructure available for Band 53 deployments and further drives device adoption. With Qualcomm and their system integrator partners, We are simplifying private wireless deployment so Band 53 can be rolled out ubiquitously around the world. Industrial and security of critical infrastructure are macro trends driving private wireless today and they're driving it on a global basis. We are a great resource with the right ecosystem to deliver for this growing demand. specifically regarding the opportunities that we discussed during the first quarter call. We are in the midst of final engineering validation and are looking forward to sharing more detail about these shortly. We hope you understand that timing is not within our control. The engineering is driven by the technical demands of the individual projects, not by our public company reporting calendar. Finally, I want to reiterate my sentiment from last quarter. I do not believe the current market price of our stock reflects the company's value. When participating in multiple investment conferences this past quarter, we heard questions about whether our transformation and growth is sustainable. My simple answer is yes. Global Star has invested over a billion dollars during the past decade rebuilding our satellite and ground network, innovating to bring Band 53 to market, delivering revolutionary satellite services which went operational in November, and putting other resources in place to prepare for this moment. I am absolutely confident that we will continue to execute and deliver increasing revenue, EBITDA, and shareholder value. Now we'll open the call up to Q&A. We have today available to answer questions Dave, Rebecca, Kyle, and Tim. It would be helpful if you would direct your questions to whomever you prefer. As a reminder, we're still not able to answer questions related to our wholesale partners' activities or future plans in the direct-to- handset market. And we thank you in advance for focusing your questions on other parts of our business and, of course, our financial results. Operator, we can begin Q&A.
Operator
Okay, our first question comes from Simon Flannery with Morgan Stanley. Your line is up.
Simon
Thanks very much. Good morning. This may be for you, Jay, but I just wanted to get an update on the construction of the new satellite constellation. Any sense on where you are on the milestones and the ultimate launch timing and how we think about payments and cash flows through the balance of the year? And then maybe if you could just comment on the spot outlook and the supply chain and how that should normalize. Thanks.
Jay Monroe
Sure. Thanks, Simon. Why don't we break that into three different people to answer the questions that you've asked. Tim, if you would, talk first just about the status of the contract. Rebecca, then about the cash flow implications to us and the funding sources. And Dave, hopefully you can tackle the question on the spot. Thanks, Simon. Thank you.
Simon
Sure. Thanks, Simon. So MDA has been working tirelessly as the prime on the contract and developer of the payload while Rocket Lab has been delivering for the schedule. And it's clear that the benefits of their years-long acquisition and integration of leading critical subsystem developers is proving successful in this program. We're just about to enter a critical design review that will take place through the large part of August. And we're still on pace to complete satellite acceptance as scheduled originally in the contract and to launch the satellite in two years during 2025. Thank you.
Simon
Hi, Simon. It's Rebecca. So on the payment side of things, so we've incurred $166 million roughly under the $327 million contract with MDA. Of the $166 million, we've paid about $108 million. The balance will be paid when due. So we're on track there, as Tim just mentioned, and under the 2023 funding agreement with our partner, about 50% of milestones will be paid by them, funded through that agreement, and the remaining 50% will be paid through our own operating cash flows. So as those milestones are completed and payments are due, we will pay them in line with that agreement.
Simon
So the critical design review, once that's done, then you will be due another payment, or you'll be due to make another payment?
spk10
That's right. Yeah.
Kyle
Thank you.
Q4
Simon, this is Dave. Yep. As of mid-April, all of the supply chain issues are now behind us. We are in full production, and in fact, we're building safety stock. Our goal is to build six months of safety stock for each of the main products. We're well on the path of doing that. Demand is still robust. It's a little bit of a process to refill up the retail chain, which that is also underway. And our big box retailers, the REI, Bass Pro, Cabela's, West Marine, they're all ordering healthy. And we see continued success on the spot business. We're pretty satisfied where we are at this point.
Simon
So we should see a reacceleration in Q3, Q4? Yeah.
Q4
Yes, and we're already starting to see that pick up. We see the orders in advance, of course, and so they are all there. And we're also seeing, given the summer period, an increase in saves that we're making with our spot products as well. So everything has been normalized, and we feel good about where we are.
Simon
Great. And maybe just one clarification. I think you said the low end of the guidance you're raising, and I think you said because you were confident on the trajectory of service revenues, driven largely by your excitement about commercial IoT. Is that what you were trying to say?
Jay Monroe
That's correct. Absolutely, Simon. And Dave, maybe you can tackle the two-way as well for the answer to the bot question. Yes.
Q4
Absolutely, yes. So on the two-way side, we are making great progress. This is not just a product launch. This is also an entire infrastructure platform launch. Half of the infrastructure is already at every gateway that we need it to be, and that has proven to be very successful. We're seeing a significant uptick in unique messages processed, as much as 30%. The second half of the infrastructure is being worked on as we speak, and we're getting a lot of good tests, hitting all the milestones that we need to come into beta by the end of the year with the product. We also just received what's known as the X1 build, which is the first initial board build. And those boards are able to be brought up on the network. And so, again, we're hitting the milestones there as well. So we do believe we'll be in beta with key customers by the end of the year with the product and the entire ecosystem.
spk00
Great. Thanks for the call.
spk10
Our next question comes from George Sutton with Craig Hallam.
George Sutton
Thank you. I'll address this question to Jay. Your IoT activation growth was effectively double what we had modeled, and I'm curious if you can give us a sense of the breadth of where that growth is coming from. Was that a specifically large implementation, or are you seeing a broader demand curve change?
Jay Monroe
George, I think the best one to answer that is Dave, CEO. He's involved in those discussions all the way down to the sales funnel. So, Dave, can you answer George's question, please?
Q4
Sure, absolutely. Yeah, it's not any one in particular significant customer demand. It's across the broad breadth of all of our customers. And, you know, obviously some of it is in all the different verticals that we're seeing, transportation, oil and gas, all those markets seem to be rebounding with others, other folks dealing with the end of their supply chain issues as well, because a lot of our customers build our modules into their products. And so I think it's broad, which we're glad about, and we just see a very robust and strong pipeline as we continue to go through the year.
George Sutton
Gotcha, and I think that helps address Jay's point on sustainability of the growth. So one other question, I'm not sure who to address it to, but on the country updates for Band 53, can you just give us a sense of how many opportunities we are focused on right now and any sort of timeframe for expectations?
Jay Monroe
Sure, you're asking about new countries or developments within the countries we already have licenses in?
George Sutton
New countries to expand our presence. Yes, okay, very good.
Jay Monroe
That is continuing. We're in discussions with a number of regulators right now, and on a global basis, they put things out for notices, and those notices are have started to come in a couple of different countries in Europe, and we expect more of those in the near term. We also have a couple of other countries that are very far along in the process. We never identify which one until it comes through. I apologize for that kind of in advance. But we have other countries that are deep into their process, and we hope that we'll be able to announce something in the coming months, or at least one, but there are a few others. Of course, the ones that happen in Europe, we believe will happen more frequently now. After we received Spain and went through the broad EU technical process, it's now to be implemented in each country, but you have to do that country by country. Is that a
Kyle
Is that a complete answer for you? That's perfect. Thanks, guys. Sure thing.
Operator
And our next question comes from Mike Crawford at B Reilly Securities.
Mike Crawford
Thank you. I'm not sure if this is going to be for Kyle or UJ, but on your last call, it seems that you went into more detail on specific things engineering, NRE, and licensing opportunities for BAN 53, including one deal that was signed and expected to generate $30 million of NRE over maybe an 18-month period. I'm wondering if that time frame has changed. They said there was another replicable deal related to private LTE for critical infrastructure that was near being signed and others in the works. But could you just maybe fill in the blanks on those issues?
Jay Monroe
Sure, I can. And Kyle, chime in as well. But Mike, the ones that we talked about last quarter are the ones I was referring to a moment ago when I said that they are in the final throws of the technical work that needs to be done. We had hoped, of course, that it would have been done in 90 days, but it looks like it's just going to take a little bit longer. That applies to both the project that you referred to that had the $30 million of NRE associated with it and the other critical infrastructure project that we talked about. Both are I mean, we look at them every single day, as you might imagine, and work them every single day. But it is one of these deals where the technical work is just taking a little bit longer than we wanted and hope to have an announcement on one or both of those that we won't have to wait another 90 days to announce.
Kyle
Yeah, I think that's most of it.
spk06
The other thing to think about, Mike, I mean, these are – very, very long-term deals. And so, you know, it's very important that we get them exactly right going into them because, you know, once we deploy these, they're in place for, you know, 15 to 30 years.
Jay Monroe
Mike, one other thing that I'll add to Kyle's point, that we're talking about these two because they're close in and the engineering has proceeded well and you know we feel like we can push these through quickly but we do have as I mentioned in my short prepared remarks a lot of additional discussions that are ongoing either through the Qualcomm service integrator channel as well as with other ton of other individual companies that are testing or starting to test the band. And in part, they're doing that because the ecosystem for both the infrastructure, which is the Qualcomm component of it, as well as the chipset, which is another piece of Qualcomm, which has proliferated now into basically any device that Qualcomm sells. So it'll be available. And that broadens the interest on the part of the users of these private network implementations. So we are extremely bullish on what the future looks like. We're looking at distribution centers where people are testing. We're looking at other types of infrastructure, particularly critical infrastructure, which benefits from having totally licensed spectrum. and all of those opportunities are maturing. But I think it's safe to say that now that the ecosystem on the infrastructure side as well as on the handset side has evolved so rapidly that it's a whole lot easier to entertain these conversations with companies that want to have them now.
Mike Crawford
Okay, thank you, Jay. And then just a final question is, given... that you now have wholesale partner revenue, a large component of which I believe is fixed and some variable. What would have to happen for Global Star to only recognize 86 million of revenue in the second half of the year to hit the raised lower end of your guidance?
Simon
Yeah, thanks for the question, Mike. So, I mean, if you just take the run rate where we are right now, you get to the lower end of the guidance. I'm not sure exactly if I follow the question, but, you know, I think that just based on the results year to date and, you know, midway through the year, as we sit here in early August, it makes sense. We know enough about the balance of the year to tighten that range. um okay i i thought the company had 113.7 million in revenue in the first half of the year some some of that is non-recurring as we talked about last quarter just about six or seven million uh that we were recognized in the first quarter and we've also talked about you know just kind of the variability and you know the lumpiness i guess that results from that and the revenue recognized under the contract and that's just one example so While that particular item might not be recurring, there might be something else that replaces it. But it's a little too soon to be precise on that. So if you remove that from the run rate, you get to the numbers that we're forecasting. Is that helpful?
Mike
A little bit. All right. Thank you very much.
spk10
Thanks, Mike.
Operator
If there are no further questions, I will turn the call back over to Jay Monroe for closing remarks.
Jay Monroe
Thanks everyone for joining the call today, whether you were on the phone or on the webcast. We appreciate the attention and are obviously very, very pleased with the financial results and anticipate those results continuing and growing. and look forward to an opportunity to talk to any of you who would like to from time to time. Otherwise, we'll reconvene again in 90 days. Have a great day. Thank you.
Operator
This meeting is now concluded. You may now disconnect.
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