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Operator
Good day, and thank you for standing by. Welcome to the Global Star 3Q 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Global Star CEO, Paul Jacobs. Please go ahead.
Paul Jacobs
Thank you very much and welcome everyone to my first quarterly call as CEO of Global Star. I'm joined today by Rebecca Clary, our CFO, Tim Taylor, our VP of Finance, Business Operations and Strategy, and Kyle Pickens, our VP of Strategy. I'll start by making some brief comments, and then we'll spend the bulk of our time getting to your questions. 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 GlobalSTAR'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. So most of you who know me from Qualcomm will remember my basic approach here to shareholders, analysts, and the investment community is to keep the lines of communication open. I'm looking forward to getting to know more of our stakeholders, and to that end, we'll be getting out to more events, and we posted several upcoming conferences earlier this week. For those who I haven't had a chance to meet or speak with yet, I thought that a little background might be helpful. I have a long history with GlobalStar going back over 20 years, and at Qualcomm I was also involved in other satellite businesses such as Omnitracks and OneWeb. GlobalStar actually started life as a Qualcomm and Loral joint venture. In fact, it was 25 years ago yesterday that the first satellite call was placed on the network by my father to then-CEO of Loral, Bernard Schwartz. More recently, I've had an ongoing working relationship with Jay Monroe and Kyle Pickens. So why did I come back to GlobalStar? I took the CEO job because I feel GlobalStar has the right size platform, resources, and a great team, and one that fits with my vision of where connectivity is heading. The strategic business logic of combining XCOM Labs technology with GlobalStar's direct spectrum assets provides significant differentiation as we address mission-critical wireless applications. And many of you know that XCOM Labs was already working with GlobalStar on spectral efficiency to enhance throughput over Band 53. You might have seen me at the last Investor Day in New York City discussing those initiatives. So I've had a front row seat to a lot of the transformation over the last year. And the conversations that ensued earlier this summer concluded successfully. So bottom line, a number of us at XCOM Labs knew GlobalStar, its history, and along with the other folks who've joined GlobalStar, we are really energized to be here for the next chapters. My first 60 days were spent meeting with customers and partners and reviewing our ongoing initiatives in areas such as enhancing our satellite constellation, evolving our legacy products, growing our IoT business, deploying private 5G networks, and others. We've been reviewing spectrum-related opportunities that GlobalStar has been considering and how they align with initiatives at both GlobalStar and XCOM Labs with the goal of determining how best to capitalize on our spectrum assets. The team and I have experience in monetizing Spectrum assets, including prior transactions at Qualcomm, which led to multiple billions of dollars of value creation. The partnerships that GlobalStar has created open many new opportunities, and I'm excited by the scale of those partnerships and our ability to provide services to a large and ever-increasing number of people around the world. Amidst all the current wireless industry hype around satellite services, GlobalStar has run its satellites for decades, and it's humbling to see how well our network plays a key role in saving lives, stories we're seeing on almost a weekly basis. A quick high level on our excellent performance last quarter. As outlined in the release, GlobalStar continued to sustain its record growth this year, with a significant improvement in profitability during the third quarter, driven by results from a 53% increase in total revenue. Service revenue increased 61%. We saw growth in commercial IoT and adjusted EBITDA was up 125%. And as a result, we're increasing the low end of our 2023 guidance. So my focus will be on differentiating our offerings through innovation, growing the whole portfolio, and investing in R&D to position us for success, all of which we can do strategically and opportunistically. We have the current capacity to deliver solutions to customers globally, at scale, and at competitive cost. In conclusion, I believe the transformation over the last year and performance to date reflects just the beginning of our efforts. We expect to elevate GlobalStar in conversations with customers around the world. We have new satellites underway, an expanding Dan53-capable ecosystem, and new products coming online. So looking forward, Our plan is to leverage these unique assets, our proprietary technologies, and our team's industry leadership to differentiate ourselves and create value in the space and terrestrial markets. And now I'd like to hand it back to the operator for Q&A.
Operator
Thank you. At this time, we will conduct the Q&A session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
spk09
Please stand by while we compile the Q&A roster.
Operator
And our first question comes from Simon Flannery with Morgan Stanley.
spk01
Great. Good morning. Thanks, Paul, for the update. I wonder if you could just touch on the latest on the Constellation. Where are we in the build process and how does the timeline look from here? And then secondly, just give us a little bit more color on the pipeline because I think even before you came on board, the management team was talking about some pretty large deals in pipeline that had the potential to be pretty significant. It'd be just great to get a sense of timing and how are we expecting to see some of these hit in the next few quarters or is this more of a longer term opportunity? Thanks.
Paul
Paul, do you want me to take the timing of the new constellation? I'm not sure if we're having audio issues, Simon, but thanks for the question. Yeah, sure.
Paul Jacobs
I can hear you, Rebecca.
Rebecca
Okay, perfect. Oh, I'm sorry.
Paul Jacobs
Can you guys not hear me?
Rebecca
Were you unable to hear me?
Paul Jacobs
Okay, I'm sorry. I answered the question, but only to myself, apparently. Did you hear my speech? Okay. No.
spk00
Okay.
Paul Jacobs
Yeah, sorry. Let me answer the question. I apologize for that. Okay, so for the constellation, we're in process and in design. And you guys actually helped me whether we have announced publicly anything on the timings.
Rebecca
We have, and our expectations for 2025 launch is particularly where we talk about the timing for the MDA and most recently SpaceX contracts, and those milestones are on track.
Paul Jacobs
Okay, and then in terms of the spectrum deals, so when I came in, I started to look at all of the initiatives that GlobalStars had underway, including the spectrum assets, so We don't have any update at this point.
spk01
Okay. And any more color on this point about investing more in R&D? Is that something that you're going to allocate a few million of OPEX next year as your revenues continue to ramp? Or how should we think about that opportunity?
Paul Jacobs
Yeah, so we're already investing in additional R&D associated with evolution of the XCOM Labs technology, which was licensed. And then we also have other initiatives underway to build new products. And we're looking at ways that these things can be done to minimize the impact on the OpEx.
spk03
Great. Thanks a lot. And one moment for our next question.
spk09
And our next question comes from Mike Crawford with the Riley Securities.
Mike Crawford
Thank you. Turning back to potential terrestrial spectrum license monetization by GlobalStar. Previously, the company talked about two deals that apparently We're thought to be near the end of a pipeline, one of which may have included some substantial NRE before even resulting in what I think the company characterizes tens of millions of annual license revenue. And I'm wondering if those sentiments or statements remain consistent or have changed.
Paul Jacobs
We are in the process, like I said, of looking at all the initiatives that Global Star had underway before I got here. That would include spectrum assets and how we'll use those. Obviously, we have a lot more focus today on terrestrial private networks with the licensing of the XCOM Labs technology and with me and my team joining. We're really trying to make sure that we use our spectrum assets in an optimal fashion. And we have a lot of experience, as I said, in my reading comments and monetizing spectrum assets. So I don't have anything to update you on at this point, but we are working on that. Over the next period of time, we'll make our decisions on that as well.
spk06
As a follow-up, Paul, would it be fair to say that I was
Mike Crawford
My understanding was that at least one of these deals was for someone, an enterprise potentially with high value assets that need to be tracked far from any cellular site that wouldn't necessarily interfere with the company's ability to maintain kind of a holistic global spectrum asset that could be used in another fashion? Is that not the case?
Paul Jacobs
There's a number of initiatives that were underway when I came and so we're looking at all those and obviously whether or not they can coexist with the existing services both on the satellite and terrestrial side, those are the kinds of things that we're looking at.
spk06
Okay, and then
Mike Crawford
Given the fivefold increase in potential, I don't know, how do you say, utilization of spectrum with the XCOM IP, that ought to be a good and important differentiator when you're talking to companies about private networks. But to actually integrate that XCOM IP into a solution that you can go to market with, is that something that is still maybe like, 12 months out or is there a timeframe on when we might see not just a deal, but a deal including, uh, let's call it XCOM IP.
Paul Jacobs
Yeah. So XCOM labs was working on, uh, you know, productizing and, uh, working with on pilots with customers, uh, using the technology that wasn't, uh, that was in CBRS spectrum. And one of the reasons for the combination with Global Star and the licensing of the technology was that people who want to use cellular private networks are interested in mission-critical applications. If they weren't, they'd use Wi-Fi. So we've been using CBRS, but CBRS can come and go also. So it's extremely differentiating to have the Band 53 asset and that spectrum, which we can guarantee the availability of to a customer who wants a private network for mission-critical application. So that is underway. Now, the timing of the deals, and I saw this in my lights at Qualcomm, is that when you're introducing new technology, the start date is a little hard to predict because it's when some customer is willing to press a button to go on that new technology. We're very happy with how we've been proceeding with the customer trials, but we don't have somebody who has pushed the button to say go. And our desire and expectation is that that will happen within the next year, but as I said, it's always difficult to know when people are adopting new technology exactly when the start date is going to be.
spk06
Okay, thank you. And then I just have one final question.
Mike Crawford
Given that your guidance excludes any potential spectrum licensing revenue, why is there a $15 million range for fourth quarter revenue to what would be $44 million to $59 million? I'll let Rebecca answer that.
Rebecca
Yep. Sure, Paul. Thanks for the question, Mike. So, the range, as we've talked about before, is just due to the variability in our revenue predominantly. You know, we do not have a fixed revenue source. There's equipment sales timing, there's seasonality, there's variable components under our wholesale capacity contract that may in certain quarters, as we've seen in the past three quarters, may exceed, you know, kind of the core elements of that fee arrangement. And the timing of that, which is, you know, milestone completion-based or bonus achievement-based It's just unknown to get very precise, but we've closed the gap throughout the year, and now it's at a range that we feel like is appropriate given the balance of the year.
Mike Crawford
Okay. Rebecca, maybe just to follow on, I mean, even if there were zero equipment sales, the service revenue would have to drop pretty drastically to get down to just $40,000. $4 million for the quarter? What would have to happen in that somewhat draconian scenario?
Rebecca
Well, I think you're probably just looking at a run rate. And yeah, I mean, if you take a revenue year-to-date through September divided by 9 times 12, that gets you to that answer. But as we've said before, there's variable components, non-recurring components, let's say, in the first nine months. And the nature of some of those items aren't necessarily expected to recur in the fourth quarter, right? And so after you make those kinds of adjustments, it is perceivable that we do see a decline in fourth quarter revenue, right, from the first nine months. So it's just allowing for some of that variability that's inherent in our service revenue.
Mike Crawford
Okay, thank you very much.
Rebecca
You're welcome.
Operator
As a reminder, if you'd like to ask a question, please press star 1 1 on your phone. One moment for our next question. And our next question comes from George Sutton with Craig Hallam Capital.
George Sutton
Thank you. Paul, you mentioned you joined Global Star because it fits with your vision of where connectivity is headed. I wondered if you could put that in the context of more of what you mean. Is that a direct-to-device statement? Is that a satellite plus terrestrial connectivity statement? Just curious what you meant by that.
Paul Jacobs
Yeah, so I'm definitely excited by the combination of space assets and the terrestrial and Some of the opportunities that we see on the terrestrial side, which we were focused on at XCOM Labs, can be enhanced by the opportunities to have space-based tracking. So logistics and transportation is a great example of that. So that's what I was intending to say. It's both about the private network and the convergence between satellite and terrestrial networks.
George Sutton
Gotcha. Could you give us an update on where the two-way device sits in terms of potential beta customers when you might expect to have general availability there?
Paul Jacobs
Yeah, we don't have an update on that at this point, but that process is underway and the development of that technology is underway, and that's one of the things that I've been highly focused on as I came in with some other engineering resources from XCOM Labs is to review those projects as well. So we don't have an update on that at this point.
spk03
Okay. Thank you. One moment for our next question.
spk09
Our next question comes from Joe Gallone with LightShed.
Joe Gallone
Hi, Paul. It's actually Walt Pysak from LightShed. Hey, Walt. Hey, how's it going? So the past 30 years has been clearly dramatic change in the wireless industry. You've been kind of right along there and a key guy in terms of affecting some of that change. I'm just curious in terms of specifically this direct device market. What is the end game here? What is the ultimate... market opportunity, you know, in terms of functionality, given what we were seeing with Leo's and some of the other technology that has existed, what are we going to be capable of doing? You can put a timeframe on it if you want, but just where are we going to get to? And, you know, it would be great if you gave a timeframe. Does that happen the next five years, 10 years? Because it seems like a lot of people have perhaps undersized the functionality that can be accomplished and obviously the revenue that can fall off of this?
Paul Jacobs
Yeah, I think there's a lot of expectation that, you know, more and more traffic will go to space-based technologies. And, you know, that was the original idea of GlobalStar, obviously, way back when. And then as cellular technologies sort of rolled out across the world, that, you know, that market became more and more of a niche market. The question is, and there's a lot of people focused on direct-to-device and maybe pitching it as if that's going to be the main way that people get access. I don't necessarily believe that, but there's certainly plenty of places in the world where even when you have cellular coverage, you're not in coverage. You're in an area that says that it has coverage, but for whatever reason, you're upshadowing or there's other reasons why you don't have access. And I think the satellite technologies can be good for that kind of an infill, as well as obviously for just providing geographical coverage. You know, we have cellular networks have very great population coverage, but there's plenty of parts of the world where we don't have geographical coverage. Now, the lesson that we had in Omnitracks at Qualcomm was even when you, you know, we had a satellite system for long haul trucks there, and Even the main roads, they started out, you didn't have a lot of coverage. But by the end, that business moved pretty much to terrestrial cellular because the satellite system didn't provide enough incremental value. So these things where people are saying that you're going to have a lot of the traffic going over satellite, that I don't necessarily believe at this point. But I do believe that, and we're already seeing that, direct-to-device is there. It has excellent use cases already. And people will continue to try and improve the functionality there so that it can even get to the point where we might do cellular infill.
Joe Gallone
I mean, I happen to live in a metro market, and I'm not far out of it. There's lots of gaps of coverage based on what I've heard Telco say in terms of their CapEx plans and what my neighbors are trying to do to hold back any type of development. I don't think we're ever going to see coverage on certain locations. I can understand, I think, the initial target in terms of messaging. Will I be able in these locations to get more than just messaging and hence, obviously, expand that revenue opportunity? Is that a reasonable roadmap?
Paul Jacobs
Yeah, so I agree with you. It's cellular infill, so it's areas where you might be in what would nominally be coverage of a network, but you don't actually have coverage for whatever reason. So yeah, and then in terms of being able to do voice, for sure, the GlobalStar system originally was set up to do voice. The question is how much space resources required per call that you're connecting as you connected at higher and higher data rates. Now voice we can do over fairly low data rates, but that isn't really what people are using their phones for these days. People are using their phones for things that consume a lot more bandwidth. And bandwidth from space right now, is relatively expensive to provide. And so as we know, people are looking to build these mega constellations. I've obviously lived through some of that with OneWeb as well. And then you see people that are providing high speed right now are providing it using very large antennas. So the question is, what's the affordability of that? And what's the viability of that for mobile use? And so on and so forth. these things are going to play out over the next few years. We'll understand those better and better. But I would just say that, you know, it takes a lot of space resources to serve a phone at high bandwidth, high throughput. And so that's just going to, you know, that will turn into cost. And then I would believe that operators will make those costs trade-offs versus whether it's better to build out a device terrestrial based device or whether it's better to connect to a satellite when those services become more widespread.
Joe Gallone
So on that last point, assuming that they can get a return on what the cost is to pay a constellation for that capacity, obviously they're charging their customers more every year. Everyone's guiding for higher ARPU. If you need that capacity, is the end game here one constellation or does that mean that there's going to be multiple constellations that are going to have to service the demand that could exist? Again, assuming that the cost of that capacity works for the operator. And again, I would look at that in the context of the value of that picture that I'm uploading in that location in my town where I can't get anything right now is significantly higher than you know, whatever data costs me in the areas where I do have coverage, given that the operators doesn't seemingly ever going to get me coverage there because either my neighbor or their own CapEx plan. So I guess that the root question there is, can one constellation, is there going to be a one winner in this? Is there going to be two, three? Like, what is the end game in terms of number of constellations that can service that ultimate demand?
Paul Jacobs
Yeah, I think, look, there's plenty of... companies that are trying to compete in this mega constellation space. Obviously, there's one that's providing fixed wireless access right now. So, yeah, I think people are going to try for it. The question is, and as we've seen in the past, whether the economics actually work out. And that remains to be proven because it kind of goes to what you said, which is what incremental value is that created for a consumer device? or an enterprise to be willing to pay the cost of providing that kind of capability through a space-based system. What we've been focused on at Coblestar is sort of the low end of the market, like what can we do that's cheap and ubiquitous, very widespread, can serve a lot of users. And one of the ways of serving a lot of users is because users don't necessarily need to use the system all the time and so that just providing that connectivity not necessarily the throughput but the connectivity is what's important so that information can get back and then if you need to focus in on some given device and get more data out of it that would be kind of the next step of it so um so you know in summary i think it's going to depend on consumer willingness to pay for um you know having very high data rate connections through a satellite um And that, I think, remains to be seen.
Joe Gallone
Just one last question on that. Do you foresee that being achieved through the terrestrial spectrum being placed in satellites, you know, the stuff that's already in the cell phones, or the satellite spectrum being better utilized in the devices themselves?
Paul Jacobs
I mean, it depends on the frequency band. I mean, obviously, GlobalStar has a good frequency band for mobile devices. Some of the other ones are a little harder. So I think most of what you've seen has been some combination, but it's been low-band spectrum. Some people are trying spectrum that's already been licensed for cellular technology, and others like us are using spectrum that was allocated for satellite. So it's not really what the license regime is so much as what the bands are and how conducive they are to mobile use.
Joe Gallone
Which prefers low band is what you're saying?
Paul Jacobs
Yeah. I mean, the bands where we are seem quite good.
Joe Gallone
Understood. Thank you very much for the multiple questions.
spk03
Sure. Appreciate the questions.
Operator
I'm showing no further questions at this time. I would now like to turn it back to Paul for closing remarks.
Paul Jacobs
Great. Thanks, everybody, for joining us and for the great questions and the interest in GlobalSAR. Like I said, there's a lot underway at GlobalStar right now. We're working on the new satellites and we're working on new products and expanding the capabilities of the Band 53. Obviously, we've got a lot of work to build out new revenues both in the IoT space, in the private network space, on our legacy systems, and on our wholesale. All the pillars of the company. We're excited by it. I'm really happy to be here at GlobalStar. And I also just wanted to thank all the team members at GlobalStar for their hard work this quarter and for the great results. So thank you very much and look forward to talking to you at the next earnings call.
Operator
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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