A half-billion dollar satellite contract between MDA and Globalstar might be in trouble.
In February 2022, MDA signed a contract with Globalstar. MDA pledged to be the prime contractor for at least 17 of Globalstar’s new constellation satellites – with an option to expand by an additional 9.
The contract was a big deal for MDA and its subcontractor, Rocket Lab, which is just starting to launch partially reusable small rockets in the U.S. following years of success in New Zealand. The initial Globalstar contract was valued at US$327 million (CA$415M at the time of signing). If the contract option was exercised, that would add another US$102.6 million (CA$130M) for a total contract value of CA$545 million.
Globalstar is best known for developing the SPOT Satellite GPS Messenger, which is a tool of personal safety, along with “next-generation IoT [Internet of Things] products and modules, and cloud-based telematics solutions.” MDA is known for satellite delivery antenna and electronic subsystems, but had not been a prime contractor for satellite constellations prior to this deal (other than for the Canadian government’s RADARSAT Constellation Mission.)
The deal also forged a new relationship between MDA and Rocket Lab. Rocket Lab was expected to design and manufacture the satellite bus, then deliver buses to MDA for assembly, integration and testing of the satellites. MDA also would have developed the payload.
But there was an asterisk in the 2022 press release indicating that Globalstar had a “potential customer” – not named – pledging to “reimburse Globalstar for 95 percent of the approved capital expenditures Globalstar makes in connection with the new satellites.”
In November Apple announced an Emergency SOS via satellite for iPhone 14 models. As part of the announcement Apple would invest US$450M in US infrastructure. The new SOS service would use Globalstar’s infrastructure and while there was no mention of a new satellite constellation, the press release did say “a majority of the funding goes to Globalstar.”
What happened next is unclear, but a Feb. 6 filing with the U.S. Securities and Exchange Commission suggests the deal is under financial stress. SpaceQ reached out to media representatives at both Globalstar and MDA for comment. Globalstar did not respond to requests. MDA directed all queries to Globalstar.
The brief filing – available here – states that Globalstar entered a forbearance agreement, its second, with MDA and Rocket Lab on Jan. 31. Per contract terms, Globalstar has paid in cash US$20 million (CA$26M under current exchange rates).
The first forbearance agreement between the entities was on Oct. 28, 2022. The filings also say that the contractor – that would be MDA – “agreed to forbear from the exercise of remedies in respect of amounts due and unpaid … through March 15, 2023.”
Globalstar, the filings add, is “required to pay all other amounts then due and payable” on March 15, which is called a “forbearance date.” Details are laid out under the satellite procurement agreement on Feb. 21, 2022 and in the first forbearance agreement of Oct. 28.
Rocket Lab may also receive payment by other means. MDA, Rocket Lab and Globalstar have also agreed to a mechanism “pursuant to which the parties may agree to allow the company to satisfy certain amounts due under the contractor agreements by delivery of shares of its common stock,” par value $0.0001 per share USD.
The shares would be delivered to Rocket Lab, the subcontractor, “at an effective price equal to the market price of the common stock at the time of delivery, adjusted for certain expenses of the subcontractor.” But the agreement is not binding, as the filing indicates:
“The contractor and the subcontractor are under no obligation to agree to permit the company to make any stock payment, the company is under no obligation to make any stock payment, and any stock payment would be made only pursuant to definitive agreements between the parties, which are expected to include a purchase agreement and a registration rights agreement,” the filing says.
Globalstar, the filing continues, “cannot currently predict whether the contractor and the subcontractor will agree to allow a stock payment or whether the company will elect to make one. If one or more stock payments are made, the company expects that such payment(s) would not exceed $40 million in total.” (That would be equivalent to CA$53 million under current exchange rates.)
Globalstar is also “exploring financing options for satisfying its remaining payment obligations under the contractor agreements,” the filing says, and examining an obligation to refinance under a 2019 facility agreement. But Globalstar again warns it cannot predict if the financing would be available, or under what terms; “maximizing shareholder value is the driving consideration,” the filings state.
This part about the facility agreement is referring to a refinancing of Globalstar’s capital structure on Nov. 26, 2019 that amended an existing senior secured credit facility – and raised a new six-year second lien term loan facility co-led by controlling shareholder Thermo, and satellite communications provider EchoStar Corp. Full terms of this refinancing are available in a 2019 press release.
Even if the deal gets back on track, there may be delays to the launch date. At deal announcement time, the 17 satellites were supposed to be done by 2025 and launched at the end of the year. No launch provider had yet been named, but Rocket Lab – which offers the service frequently – presumably had an inside track.
The larger implications for Globalstar may not be discussed until their next financial disclosure date to investors. The third quarter financial results of 2022, released in early November but dating to Sept. 30 of that year, was described as “transformational” by CEO Dave Kagan. Year-over-year revenue was up 19 percent through the first nine months of 2022, he said in a press release, “and we look forward to continued growth from here.”
The company, he added, “is now well-positioned as a next-generation telecom infrastructure provider, offering long-term connectivity solutions to customers from space and over terrestrial networks, with stable cash flows that will drive innovation and growth into the future. In addition to meaningful operational highlights that represent a series of successful milestones across wholesale services, terrestrial spectrum and product innovation, we continue to report strong financial results.”
Net loss for the quarter was $204.4 million (all figures in USD) for the third quarter of 2022, compared with $30.9 million in the third quarter of 2021. Globalstar said issues such as foreign currency losses, a loss from a terminated pension plan and a gain on extinguished debt that did not recur that year contributed to the loss – but a lower interest expense partially counteracted it.
Adjusted EBITDA was $14.2 million in the same period, up $3.7 million or 35 percent from 2022’s third quarter. Full-year guidance for fiscal year 2023 includes total revenue of $185 million to $230 million, and adjusted EBITDA of about 55 percent, up from 36 percent during the nine months ended Sept. 30, 2022.