globalstar 2015-2016 burkenroad report

November 6, 2015

GLOBALSTAR INCORPORATED GSAT/NYSE Continuing Coverage: Globalstar: The FCC Won’t Let Me Be! Investment Rating: Market Outperform

PRICE: $ 2.10 S&P 500: 2,099.20 DJIA: 17,910.33 RUSSELL 2000: 1,199.75

Global expansion will increase subscriber base with little fixed cost and reduce dependence on North America

Ground infrastructure to support the second‐generation satellites will enable full use of capabilities

High levels of debt and contractual obligations represent a liquidity concern for the Company

Pending regulatory approval of the existing downlink S‐Band for Terrestrial Low Power Services will determine if the Company will have a new source of revenue

Our 12‐month target price is $2.60

Valuation 2014 A 2015 E 2016 E

EPS* $ (0.50) $ 0.07 $ (0.10)

P/E NM 30.5x NM

CFPS $ 0.00 $ (0.01) $ (0.01)

P/CFPS 1437.5x NM NM

* Excluding non‐recurring i tems

Market Capitalization Stock Data

Equity Market Cap (MM): $ 2,179 52‐Week Range: $1.45 ‐ $3.58

Enterprise Value (MM): $ 2,790 12‐Month Stock Performance: ‐19.85%

Shares Outstanding (MM): 1,038 Dividend Yield: 0.00%

Estimated Float (MM): 414 Book Value Per Share: $ 0.25

6‐Mo. Avg. Daily Volume: 1,895,780 Beta: 1.38

Company Quick View: Here it’s all about LEO (low earth orbit) satellites. From its headquarters on the north shore of Lake Ponchartrain, Globalstar provides mobile voice and data services in more than 120 countries. Globalstar Inc., headquartered in Covington, Louisiana, is a satellite telecommunication provider delivering voice and data services to remote areas underserved by traditional phone and Internet coverage. The Company operates a network of low orbit satellites and ground stations, serving more than 580,000 subscribers worldwide by focusing on the Americas and Europe. Customers include the U.S. government and companies in the maritime, energy, and mining industries. Globalstar also sells handheld satellite phones and GPS tracking devices, targeting adventure travelers and commercial clients.

Company Website: www.globalstar.com

Analysts: Investment Research Manager: Silvana Gomez Jed Vorhoff Natalie Yanko Thaddeus Pinakiewicz Ana Hernandez

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's Freeman School of Business. The reports are not investment advice and you should not and may not rely on them in making any investment decision. You should consult an investment professional and/or conduct your own primary research regarding any potential investment.

Wall Street's Farm Team

BURK

ENRO

AD R

EPO

RTS

4/1/13 4:47 PM

Globalstar Incorporated (GSAT) BURKENROAD REPORTS (www.burkenroad.org) November 6, 2015

2

Figure 1: Five‐year Stock Price Performance

Source: Google Finance November 6, 2015

INVESTMENT SUMMARY

We give Globalstar a rating of Market Outperform and a 12‐month target price of $2.60 per share. We applied a spectrum valuation method to derive the forecasted target price.

Based in Covington, Louisiana, Globalstar Inc. is a telecommunications services provider that specializes in delivering satellite services to geographic regions otherwise underrepresented by more traditional communication providers. The Company owns and operates 32 low‐earth orbit (LEO) satellites, which provide both one‐way and two‐way voice and data telecommunication capabilities to its customers. Most of Globalstar’s operations are currently based in North America and Europe; however, recent interest could push the Company to expand into the Central and South American markets. Although Globalstar is recovering from a highly leveraged debt position, we predict a rise in revenues due to the cash flows associated with the implementation of a second‐generation satellite network. Furthermore, the Company awaits a ruling from the Federal Communications Commission (FCC), which will determine if Globalstar will be able to make use of its full Terrestrial Lower Power Service (TLPS) spectrum. TLPS, as proposed, is a new WiFi channel that could significantly expand the effective data capacity of WiFi networks. If approved, TPLS could significantly increase the value Globalstar’s spectrum holdings.

Table 1: Historical Burkenroad Ratings and Prices

Report Date Stock Price* Rating 12 Month Target Price

11/11/2014 $2.60 Market Outperform $3.80

*Stock price at time of the report


3

INVESTMENT THESIS

For Globalstar Inc., our team established a 12‐month target price of $2.60 and a rating of Market Outperform.

Given the Company’s increasing subscriber base supported by a global expansion and the current deployment of ground infrastructure that will support the second‐generation of satellite services, we expect an upward trend in Globalstar’s service revenues. Despite concerns surrounding the elevated levels of debt and the associated leverage risks, both net income and cash flow are expected to increase in the upcoming periods. The Company has a large contractual debt obligation, referred to as the COFACE Facility Agreement, to finance both the launch of the second‐generation of satellites and the completion of the related ground facilities improvements. We expect an increase in net income and the Company’s overall liquidity position as debt repayment for the COFACE Facility Agreement has followed the settled payment schedule, and management does not foresee any debt restructuring needs in the next 18 months. The main source of expected revenue for the Company, however, still depends on the Federal Communications Commission’s (FCC) ruling to determine whether or not Globalstar will be able to broaden and utilize its full Terrestrial Lower Power Service (TLPS) spectrum, which would significantly increase the nation’s Wi‐Fi capacity.

Global expansion will increase subscriber base and reduce dependence on North America

Management has confirmed its intention to focus on increasing revenue from non‐North American operations. According to the third quarter results, revenue from non‐North American regions increased from 12% of total revenue in 2014, to 33% in the second quarter of 2015. Additionally, this non‐North American revenue is projected to reach approximately 55% by 2018. Key players in this geographical expansion are primarily Central and South America.

Given the current global currency markets environment, a concern arises regarding the exchange rate risk. The appreciation of the U.S. dollar poses a threat for Globalstar as the Company seeks to expand its subscriber base outside of North America. A significant part of Company revenues include Canadian dollars, Brazilian Reals, and Euros. Management has declared in the third quarter results earnings call that, although a strong dollar might negatively impact foreign revenue, it has not adversely affected the increase in non‐North American subscribers.

Ground infrastructure to support the second‐generation satellites will enable use of their full capabilities

After Globalstar launched its second‐generation satellites in 2013, the Company began the process of upgrading its ground infrastructure to utilize the satellites full capabilities. With the newly enhanced network, Globalstar can provide additional variety of products and services that will contribute to the expansion of the Company’s currently operating markets. As stated by management in the last conference call, the upgrades are expected to be completed in early 2016.


4

High levels of debt and contractual obligations represent a liquidity concern for the Company

When valuating and analyzing a company’s liquidity position, high levels of debt are usually a concern, as debt might drastically increase cash flow risk. As reflected in financial statements, Globalstar has high levels of debt and restricted cash. However, it is not unusual for companies operating in the satellite services industry to carry high debt levels and restricted cash. Such high debt levels are attributed to the massive capital investments required to maintain and enhance operations within the sector. As disclosed by management, current debt and contractual obligations for the Company are related to the intensive capital investments incurred while launching the second‐generation satellites in 2013 and in maintaining the satellite’s operation. As expected, Globalstar is still in the debt repayment process. Debt obligations for the next 12 months include repayment used to finance the launch of the new satellites and work underway to upgrade ground facility infrastructure to ensure proper functionality.

Pending regulatory approval of the existing downlink S‐Band for Terrestrial Low Power Services will determine if the Company will have a new source of revenue

On November of 2012, Globalstar initially filed for the Federal Communications Commission (FCC) approval to utilize its highest 22‐megahertz band, a channel within the 2.4 Ghz Wi‐Fi spectrum. After a three‐year process, the Company anticipates a final ruling within the next quarter. Over the past few months, several technical reports and pilot demonstrations have provided proof to the FCC that the utilization of the spectrum causes no interference or overlap with current Wi‐Fi operations. Such evidence supports Globalstar’s initial petition to reform the current regulatory framework as results have proven to increase the WiFi network’s capacity by a full third without obstructing current activity. Therefore, the FCC’s approval to control and utilize this spectrum would be beneficial for both Globalstar and the general public. Public Wi‐Fi networks would be less saturated and the Company would create a new source of revenue by leasing the use of the authorized spectrum. The FCC has not requested any further demonstrations since April, 2015, and a final decision should be disclosed in the near future.

VALUATION

To determine Globalstar’s 12‐month target price of $2.60 per share we used the megahertz‐population valuation method. For companies like Globalstar, with both historical and projected negative earnings and cash flows, traditional valuation methods such as the discounted cash flow model or the trading multiples method have limitations or do not accurately reflect the value of companies in this industry. For similar reasons, Globalstar is currently trading as an option contingent to the Federal Communications Commission’s (FCC) approval to use the unlicensed spectrum. Therefore, the most reasonable way to value the Company is to determine the potential value of the yet‐unlicensed spectrum broadband.


5

Megahertz‐Population Valuation Method

Satellite service companies like Globalstar often use the megahertz‐population (MHz‐POP) approach to valuate spectrum. The market prices spectrum in terms of MHz‐POP, which is the company’s spectrum width in megahertz (MHz) multiplied by the population covered in a specific service area.

′

The enterprise value of the company is determined by multiplying its MHz‐POP measure times the spectrum’s price per MHz‐POP.

Adding cash and subtracting debt to the company’s enterprise value calculates its equity value. Expected price per share, or equity value per share, results from dividing the equity value by the shares outstanding.

To replicate this valuation method and determine a share price for Globalstar, we established two base assumptions: a spectrum of 22 MHz, which is the currently unlicensed Terrestrial Low Power Service (TLPS) spectrum, and 318 million of covered population in the U.S. Additionally, we set a price range for the spectrum within a $0.20 per MHz‐POP low and a $0.90 high, considering previous effective bids on similar spectrum bands and holding a conservative approach. However, because we believe that the FCC will rule in favor of Globalstar more likely than not, we assigned the higher end prices a greater weight in the weighted average calculation for the final expected price per share, and disregarded the two cases in the middle section. Table 2 summarizes the data used to calculate the $2.60 target price.

Table 2: MHz‐POP Valuation for Globalstar

Price (p/MHz‐POP)

MHz‐POP

Enterprise Value ($MM)

Cash ($MM)

Debt ($MM)

Equity Value Per Share

Weight (%)

Weighted EV per Share

Average Final Price

0.90 6,996 6,296 28 (638) $5.14

75

$3.86

$ 3.40

$ 2.60

0.80 6,996 5,597 28 (638) $4.51 $3.38

0.70 6,996 4,897 28 (638) $3.88 $2.91

0.60 6,996 4,198 28 (638) $3.25 ‐

‐

0.50 6,996 3,498 28 (638) $2.61 ‐

0.40 6,996 2,798 28 (638) $1.98

25

$0.49

$ 0.30 0.30 6,996 2,099 28 (638) $1.35 $0.34

0.20 6,996 1,399 28 (638) $0.71 $0.18

Source: Burkenroad Analysis November 6, 2015


6

INDUSTRY ANALYSIS

The satellite telecommunications industry provides connections via satellite to broadcasters and other providers. It includes companies that either own and operate satellites or resell transmission capacity. The main activities in the industry include providing point‐to‐point communication services, data services, long distance or remote communication services, and reselling of satellite telecommunication services. In 2014, revenue for the industry was approximately $6.65 billion. Revenue volatility for the industry is considered low and has declined in the last five years. This decline in revenue volatility is attributed mostly to long term leasing contracts implemented by satellite operators, which have stabilized prices.

Even though the industry is currently at a mature stage in the industry life cycle, according to IBISWorld, it is still expected to grow at an average 3.8% rate during the next four years. Part of this growth will be the result of increased demand from key customers including the U.S. government, military operation agencies, and other companies in the oil and gas, mining, and maritime sectors. These customers increasingly rely on satellite telecommunication services as they require mobile phone and data services in areas that traditional communication industries cannot cover. The 3.8% expected growth rate in the satellite telecommunications industry exceeds the 3.2% average annual growth over the past five years and is even further above the expected 2.5% growth of the U.S. economy over that same period.

As seen in Figure 2, the top five companies controlled approximately 52.3% of total revenues in 2014. Globalstar alone controlled 1.4% of the market share in the same year. Nonetheless, the satellite telecommunications industry is not highly concentrated given the large amount of reseller companies. In line with other industry leaders, Globalstar maintains international operations. While generating the majority of its revenue from operations in North America and Canada, the Company’s service areas include territories in Europe, Asia, South America and Australia. The Company’s short‐term outlook is strong due to its continuous revenue growth since 2009, its launch of a second‐generation constellation of satellites in 2010, and its expansion of its coverage network.

Figure 2: Major Players in the Satellite Telecommunications Industry

Source: IBISWorld September 25, 2015

Intelsat Ltd.18% EchoStar Corp.

15.4% SES SA10.6% Inmarsat PLC

6.9% Globalstar1.4%

Other47.7%

0%

10%

20%

30%

40%

50%

60%

Market Share


7

Key Metrics and Ratios

Key metrics and ratios for the industry primarily include revenues, value added, employees, and wages. Industry value added (IVA) reflects the contribution of a particular industry to the national gross domestic product (GDP). Taking into account that revenues for the industry in 2014 were $6.65 billion, the IVA/revenue ratio has averaged 59.5% and, per IBISWorld, is expected to slightly decrease in the coming years to a projected 58.8% in 2019.

Wages/revenue is expected to decrease from 13.4% in 2014 to 12.7% in 2019, while revenue/employee is expected to increase from $748.600 to $819.100 in the same years. This behavior is positive for the industry as it denotes a higher productivity trend.

Threat of Entry

Barriers to entry for the industry vary across companies’ as they position themselves as either infrastructure owners or satellite providers. Globalstar and most of its competitors are involved in both aspects, but fall more precisely into the infrastructure owner segment since it ultimately drives its capacity to be a satellite signal provider. In contrast to satellite resellers, which face low to medium barriers of entry, infrastructure owners face high and steady barriers due to high capital intensity requirements. Launching a single satellite can cost up to $300 million in addition to significant costs involved in ensuring the life of the satellite constellation since failures are common. Additional barriers are also created by costs involved in utilizing the latest technologies and meeting demand for new high data rate multimedia services.

Regulation poses another hurdle. The Federal Communications Commission (FCC) requires licenses for the use of different spectrums and operational rights for satellite orbits. Long timelines for completing varied tasks and processes tie up capital, which increases the level of industry risk, since it can take more than two years to construct and launch a satellite. To reduce risk, companies are locking key customers to long‐term contracts, making it complex for new players to acquire large clients. Since customers primarily value long‐term history of high service availability, the lack of service history for new companies poses a significant threat.

Bargaining Power of Buyers

Generally, within the industry, market segmentation is fairly stable due to operators’ establishment of long‐term contracts, which causes a low to medium bargaining power of buyers. Commercial, the largest market, accounts for about 52% of the industry revenue and will continue to be the key market segment because companies require satellite services for operational reasons. Many of these businesses are highly dependent on satellite service providers because these customers operate in fixed‐line or terrestrial wireless communications services and cannot function without satellite services. This dependence upon specialized communication ends up decreasing customer bargaining power.


8

Increasing demand from government agencies, currently accounting for 12% of industry revenues, comes mainly from disaster relief, military operations, NASA, and Homeland Security. Satellite services are critical for some of these departments because disasters can occur in remote zones in which traditional communication channels are nonexistent or inoperable. Nonetheless, demand is unpredictable and inconsistent. Individual consumers also have medium power because they face lower switching costs, compared to the commercial segment. Individuals use a variety of industry services for traditional communications and leisure purposes, and many times these customers are not tied to long‐term contracts.

Telecommunication and media companies account for a total of 20% of industry revenue and have little bargaining power since this market has remained steady over the last five years. These companies often purchase capacity from infrastructure owners and sell it in bundles to consumers and businesses, causing these companies to be highly dependent on a single provider.

Availability of Substitutes

Satellite telecommunication providers compete with companies that operate in a variety of other telecommunication industries. Even though satellite firms offer the same type of service, levels of services vary. Since service coverage in other telecommunications industries is limited, the satellite industry competes by providing service in areas where other kinds of wireless communications services are not available, and, thus, threat of substitutes for this niche is low. Nonetheless, industry participants competing against other telecommunication companies that provide various terrestrial services may increase the availability of substitutes. Globalstar’s asset tracking devices, as well as other similar technology, may cause increased expenses for the telecommunication industry. This places significant pressure on profit margins and limits the industries price competitiveness against terrestrial services.

Competitive Rivals

Due to the capital‐intensive nature of launching and operating satellites, the Mobile Satellite Services (MSS) industry is incredibly small and relatively concentrated. Globalstar has several large competitive rivals within the MSS industry, and four major players control more than 5% of industry revenue: Inmarsat PLC (6.9%), SES SA (10.6%), Echostar Corp. (15.4%), and Intelsat Ltd (18%). Inmarsat PLC is a London‐based firm with a fleet of 11 satellites that provide global coverage focused on water mass. SES SA is based out of Luxembourg with a fleet of 55 satellites and earns only around a quarter of its revenue in the U.S., compared to Globalstar’s domestic earnings at 75%. Echostar Corp was founded in 2007 and has been growing rapidly since acquiring Hughes’ satellite fleet in 2012. The majority of Echostar’s revenue is now earned from its Hughes Communications business segment. Furthermore, EchoStar owns high amounts of intellectual property, as it was the former parent company and partner of DISH Network, a satellite television provider. Intelsat is the largest MSS provider according to share of industry revenue. It was formed in 1964 as a result of collaboration between various governments around the globe, and it is now the largest Fixed Satellite Service (FSS) provider in the world. Intelsat went private in 2001 and currently maintains a network of 50 satellites. Globalstar and other smaller firms account for the remaining 49% of industry revenue.


9

Industry Trends

Recent trends within the MSS industry include efforts to expand bandwidth and to improve wireless access. Many industry players have launched new generations of high throughput satellites to increase bandwidth in order to service modern, data‐hungry consumers. These new high throughput satellites fleets offer a budding opportunity for providing internet services to approximately all of the 5,000 planes that are in flight at any given time. In addition to expanding service access to previously underserved customers, some firms are developing new products to create a competitive edge. Many firms are taking advantage of the new high throughput satellites to make satellite Wi‐Fi hotspots that can provide stable internet access in incredibly remote areas. Other emerging innovative products include Thuraya Telecommunications SatSleeve, which provides a more convenient way to use satellite phone services. These product innovations speak to the intense competition and health within the MSS sector as the players vie for a piece of a relatively mature market.

ABOUT GLOBALSTAR

Globalstar Inc. (GSAT/NYSE), based in Covington, Louisiana, owns and operates low‐earth orbit (LEO) satellites that provide voice and data services for both corporate and retail customers. Globalstar’s primary business operation is to provide satellite telecommunication capability to remote areas that are not serviced, or underserviced, by traditional phone and internet systems. The Company provides both satellite service and equipment to 120 countries worldwide, operating primarily in the Americas and Europe. Figure 3 displays Globalstar’s service areas.

Globalstar was developed as a joint venture of Loral Corporation and Qualcomm in 1991 and became a limited partnership in 1994. After receiving spectrum allocation in the U.S. from the Federal Communications Commission (FCC) in 1995, Globalstar, L.P. launched its first satellites in 1998. In 2002, the limited partnership was forced to declare bankruptcy. In 2004, after a restructuring process, Thermo Capital Partners purchased the Company. Later in 2006, under new leadership, the Company reincorporated as Globalstar Inc. and issued its initial public offering (IPO) November of the same year. In August of 2007, Globalstar initiated a subsidiary called SPOT LLC and launched a new SPOT product line, which combined its existing products with GPS tracking capabilities.


10

Figure 3: Globalstar Service Areas

Dark shading Primary service area Strong Signal

Medium shading Extended Service Area Customers may experience weaker signal

Light shading Fringe service area Customers should experience weakest signal

Source: Globalstar Inc. September 11, 2015

Products

Globalstar has two primary service lines: Simplex and Duplex. Simplex is a one‐way data service that transmits information from a Simplex‐enabled device over the Globalstar network. This line is primarily used for communication of cargo locations, utility meter levels, and other pertinent measurements within governmental agencies and the military. A large component of the Simplex technology is the SPOT product line. Combining one‐way technology with GPS features, SPOT targets customers that require emergency location and messaging services outside traditionally covered areas. Duplex is a two‐way data service that uses both mobile and fixed devices in order to establish more sophisticated communication between two locations. Regarding the contribution of each segment to total revenues, the SPOT product line accounts for approximately 40% of Globalstar’s total revenue. Simplex (excluding SPOT) and Duplex lines account for approximately 17% and 37% of total revenue respectively. The remaining 6% of revenue is derived from other less significant sources of income for the Company.

Strategy

Globalstar’s strategy is centered on providing telecommunication opportunities for underserviced regions of the world. The goal is to provide service levels and call success rates equal to or better than its Mobile Satellite Services (MSS) competitors for a cheaper price. Globalstar formed a second‐generation constellation of LEO satellites in 2013, expanding and modernizing the Duplex system architecture. A current initiative to upgrade the ground stations, allowing for the development of mass‐marketable and consumer‐friendly high‐speed products, is scheduled for completion by 2016.


11

Competitors

Fellow global mobile satellite service providers, Inmarsat and Iridium, represent the most direct competition to Globalstar; however, significant barriers to entry prevent a vast amount of companies from entering the market. These barriers include significant time and costs associated with obtaining licenses and setting up a network of satellites. Additionally, the Company developed a competitive advantage through its 2009 acquisition of Axxon LLC, a manufacturer of asset tracking devices. As a vertically integrated company in the industry, Globalstar has the ability to further reduce costs, to increase manufacturing efficiency, and to improve quality of its product line.

Latest Developments

The most crucial recent development for this industry, and specifically Globalstar, is the possibility of establishing Terrestrial Low Power Services (TLPS). To alleviate the current congestion in the Wi‐Fi network, Globalstar proposes to use its current satellite spectrum, which is located adjacent to the Public Wi‐Fi Band, to increase the nations wireless network capacity by a full third. The Wireless Internet Service Providers Association (WISPA), along with Microsoft Corp. and Google Inc., are protesting the proposal expressing concerns related to the potential of TLPS operations interfering with the current Wi‐Fi channels. In 2012, Globalstar petitioned the Federal Communications Commission (FCC), for approval of TLPS. The FCC is expected to make a decision before the end of 2015, and, if the ruling is positive, Globalstar would quickly deploy these additional services while aiming to dominate a whole new space within the industry.

PEER ANALYSIS

The satellite telecommunications industry includes several publicly traded companies that offer similar products and services. These companies vary greatly in market capitalization and market share with a few companies accounting for most of the revenue. While it is difficult to identify all direct competitors to Globalstar, given its participation in multiple niche markets, five companies were chosen for the peer analysis. These companies represent the main players within the industry and are those with the highest market shares. While the products and services of the companies align, the sizes and revenues differ. Table 3 shows a comparison of a variety of recent data regarding the companies in question.

In order to get an indicator of the Company’s profitability it is common to analyze the earning per share (EPS) ratio. As shown in Table 3, among all six companies analyzed, Globalstar has the lowest EPS. However, the Company has one of the highest market capitalizations, meaning the combined value of its outstanding shares in the tradable market is still high.

When analyzing the price to book ratios (P/B), we find that Inmarsat and Globalstar’s ratios are considerably higher than those of its peers. The P/B ratio provides investors with a more conservative measure of the value of the firm. Finally, the debt‐to‐equity (D/E) ratio provides an insight of how much shareholder’s equity and debt is being used to finance assets.


12

Globalstar’s debt‐to‐equity ratio is the highest of the group, signaling that the Company has taken on proportionally more debt than its competitors. Normally, a high D/E ratio is a signal of high risks. However, in the telecommunication industry, high levels of debt are necessary because of the large capital expenditures required for satellite launches. Therefore, when interpreting D/E for Globalstar it is essential to consider the Company’s recent launch of a new second‐generation satellite constellation.

Table 3: Peer Analysis

Company Ticker Last Price

Market Cap

P/B D/E EPS ROA

Inmarstat PLC ISAT.L 982 4.41B 371.99 179.64 67.7 5.70%

Iridium Communication Inc.

IRDM 6.15 583.33M 0.45 109.12 0.74 3.10%

Intelsat S.A. I 6.43 689.94M n/a n/a 1.69 4.47%

EchoStar Corp. SATS 43.03 3.98B 1.07 60.33 2 3.09%

ViaSat Inc. VSAT 64.29 3.09B 2.85 80.17 1 2.75%

Average of Peers ‐ 220.38 856.95M 94.09 107.315 14.626 3.82%

Globalstar GSAT 1.57 1.63B 6.65 281.1 0.28 (0.41%)

Source: Yahoo Finance at market close September 30, 2015

Inmarsat PLC (ISAT.L/LSE)

Inmarsat PLC, formerly International Marine Satellite Communications Organization, is a London‐based firm with a fleet of 11 satellites that provide global coverage primarily on water mass. Inmarsat generates roughly a third of its revenues from maritime services and roughly the same amount of revenues generated from government contracts. Inmarsat provides mobile broadband and voice services via its satellite fleet, which are in direct competition with Globalstar’s product offerings. While Inmarsat maintains a distinct competitive advantage over Globalstar in service quality for maritime customers, Globalstar has an advantage over landmass.

Iridium Communications (IRDM/NASDAQ)

Iridium Communications, the world’s largest commercial satellite operation, maintains a fleet of 66 low‐earth‐orbit (LEO) satellites. Iridium plans on launching another generation of satellites in 2017 to further expand its constellation. Iridium’s single largest customer is the U.S. Government, which accounts for roughly 20% of its revenues. Iridium is in direct competition with Globalstar across all of Globalstar’s business segments by providing data, broadband, and satellite phone services.


13

Intelsat S.A. (I/NYSE)

Based out of Luxembourg, Intelsat is the largest satellite service provider by revenue. It was formed in 1964 as a result of collaboration between governments around the world and was reorganized as a private enterprise in 2001. Intelsat is now the largest Fixed Satellite Service (FSS) provider in the world with a network of 50 geostationary satellites. Intelsat provides data and broadband services comparable to Globalstar’s offerings but, unlike Globalstar, Intelsat does not provide satellite telephone services. Furthermore, the nature of Intelsat’s satellite constellation is geostationary and in high orbit. This differentiates Intelsat from Globalstar, whose constellation is mobile and in low orbit. Intelsat went public in 2013, and now has a negative book value.

Echostar (SATS/NASDAQ)

Founded in 2007 and based out of Englewood, Colorado, Echostar provides HD‐TV satellite services and is the former parent company of DISH Network. Echostar also owns Sling Media, which allows customers to view their home TV shows over the Internet. Echostar has been growing rapidly since its 2012 acquisition of Hughes’ satellite fleet, which boasts coverage of 99% of the world’s population. Echostar maintains a fleet of 24 satellites that provide video, data and telecommunications backbone services via satellite mainly for residential U.S. customers. Echostar competes with Globalstar in providing satellite broadband but does not directly compete in other satellite service markets. Additionally, Echostar does not provide emergency/GPS location services, asset tracking, or satellite phone services.

ViaSat Inc. (VSAT/NASDAQ)

ViaSat provides digital satellite and networking services as well as signal processing equipment. In 2009 the company purchased WildBlue, a commercial broadband supplier from Intelsat. Currently WildBlue accounts for roughly 30% of ViaSat's revenue. Similarly to Globalstar, the company also produces secure products for military communications systems via its fleet of over 25 satellites in geostationary orbit. Additionally, ViaSat conducts a significant portion of its business in providing secure communications for the government, while Globalstar focuses primarily on commercial clients.

Table 4 shows a summary of the current number of satellites in orbit for each of the companies analyzed as well as the type of orbit in which each of fleet operates.


14

Table 4: Number of Satellites and Type of Orbit

Company Number of

satellites in orbit Geo‐

stationary Low earth orbit (LEO)

Inmarstat PLC 11 X

Iridium Communication Inc. 66 X

Intelsat S.A. 50 X

EchoStar Corp. 24 X

ViaSat Inc. 25 X

Globalstar 32 X

Sources: Inmarsat; Iridium Communications; Intelsat; EchoStar; ViaSat; Globalstar Inc. September 30, 2015

MANAGEMENT PERFORMANCE AND BACKGROUND

Globalstar’s top management team is comprised of experts in a variety of fields, including engineering, finance, law, sales, and accounting. The following seven individuals, along with the Board of Directors, make up the Company’s Corporate Governance.

A company’s return on invested capital (ROIC), allows investors to evaluate how well management generates returns as a percentage of investment. It provides valuable insights in regards to efficiency of capital use and competitive positioning within the industry. As shown in Table 5, Globalstar’s ROIC during the last five years has been well below that of its peers, indicating unattractive results as negative ROIC indicates capital value destruction.

Table 5: Return on Invested Capital

Company Ticker 2015

(as of 6/30) 2014 2013 2012 2011

Inmarstat Plc ISAT.L 9.27% 13.75% 4.74% 10.16% 13.38%

Iridium Communication Inc.

IRDM 4.86% 4.20% 4.03% 6.07% 6.25%

Intelsat S.A. I 7.50% 8.13% 7.55% 7.26% 7.14%

EchoStar Corp. SATS 5.50% 6.60% (0.26%) 2.72% 0.43%

ViaSat Inc. VSAT 1.46% 3.67 0.06% (0.69%) (0.23%)

Globalstar GSAT (9.81%) (13.07%) (8.75%) (7.68%) (6.05%)

Source: Gurufocus October 7,2015

James “Jay” Monroe, III Executive Chairman of the Board of Directors and Chief Executive Officer

James “Jay” Monroe, III has served as Chairman of the Board of Directors since Globalstar was purchased by Thermo Companies in 2004, and he has been the Chief Executive Officer (CEO) since July 2011. He previously served as CEO from 2005 to 2009. He has been the majority owner of Thermo since it’s founding in 1984. Mr. Monroe is a graduate of Tulane University.


15

L. Barbee Ponder IV General Counsel and Vice President of Regulatory Affairs

L. Barbee Ponder IV was named General Counsel and Vice President of Regulatory Affairs for Globalstar in 2010. Prior to joining Globalstar, Mr. Ponder provided BellSouth Corporation with regulatory and taxation representation before various government entities. Mr. Ponder has previous commercial litigation experience, and is responsible for all of Globalstar’s legal and regulatory matters. Mr. Ponder earned his Bachelor’s degree from Tulane University and his Juris Doctorate from Emory University.

Rebecca S. Clary Vice President & Chief Financial Officer

Rebecca S. Clary was appointed Globalstar's Vice President and Chief Financial Officer (CFO) in 2014. She has been with the Company since 2010 and served as its Chief Accounting Officer. Prior to joining Globalstar, Ms. Clary served as manager in the Audit Services division of PricewaterhouseCoopers. She earned both her Bachelor’s and Master’s degrees in accounting from Louisiana State University and is a Certified Public Accountant.

Tim Taylor Vice President of Finance, Business Operations & Strategy

Along with his position in Globalstar, Tim Taylor is the Vice President of the Thermo Companies. Prior to joining Thermo and Globalstar in 2010, he served as an associate in the Mergers & Acquisitions group at Brown Brothers Harriman. Mr. Taylor earned his Bachelor’s degree from The University of Virginia.

Walter Debus Vice President, Engineering and Manufacturing

Walter Debus focuses on creating new products from the implementation of research and development, all the way up to manufacturing and introduction to the market. Prior to joining Globalstar, Mr. Debus served as an engineer and senior level manager at AT&T Bell Laboratories. Throughout his career he has received ten patents in various technical fields. Mr. Debus earned a Master’s degree in Electrical Engineering from the University of Massachusetts.

Jim Mandala Vice President and General Manager, International Sales, Canada and Europe

Jim Mandala was appointed General Manager of Globalstar Canada and Europe in 2010 after

spending two years as the Director of Sales and Marketing for Globalstar Canada. Prior to

joining Globalstar, Mr. Mandala served as the Director of Sales for Samsung Electronics,

Director of Operations for Handspring Canada, and Director of Sales and Marketing for Epson

Canada Ltd. Mr. Mandala earned his Bachelor’s degree from the University of Guelph.


16

James F. Lynch Director

Along with his role as a Director on the Board of Directors at Globalstar, a position he has held since 2003, Mr. Lynch has been the Managing Director of Thermo Capital Partners, LLC since 2001. He previously served as both Chairman and CEO of Xspedius Communications, LLC, another company affiliated with Thermo. He has a background in investment banking, an area in which he spent thirteen years prior to joining Thermo and co‐founding Thermo Credit. Mr. Lynch earned his Bachelors degree from Amherst College and his MBA from Yale University.

Kenneth M. Young Class C Director

Mr. Young is Globalstar’s most recent addition to the Board of Directors. He serves as President and CEO of Lightbridge Communications Corporation since 2008. Mr. Young earned a Bachelor of Science degree in Computer Science from Graceland College, and a Master's in Business Administration from the University of Southern Illinois. Throughout his career he has attained over 27 years of experience in the telecommunications industry.

Management Compensation and Incentives

The Nominating and Governance Committee serves as the management regulating entity within the organization. It performs numerous functions including recommendations of Board candidates and review of public policy matters of importance to stockholders along with the oversight of corporate responsibility programs.

Directors did not receive any cash or equity compensation during 2014. However, Directors,

with the exception of Mr. Monroe, received options to purchase 200,000 shares of common

stock designed to provide compensation over a three‐year period. The compensation

program for executive officers is intended to provide each officer with a conservative base

salary and create an incentive for retention and achievement of long‐term business goals

using multi‐year stock and discretionary bonuses which may be paid in cash or stock. In

summary, Globalstar aims to create performance‐based compensation and to motivate

management to increase stockholder value. CEO James Monroe currently receives no cash

compensation. Since compensation programs are limited, policies do not detail the specific

allocation of compensation.

SHAREHOLDER ANALYSIS

Globalstar (GSAT/NYSE) had 894,193,182 total shares of voting common stock outstanding and 392,922,724 free‐floating shares as of June 30, 2015. Of total shares outstanding, insiders hold approximately 57%, institutions hold 13%, and other investors hold the remaining 30%. Table 6 provides an overview of the main equity investment strategies of the Company’s shareholders.


17

A vast majority of Globalstar’s stock investors are hedge funds, index funds, and growth at a reasonable price (GARP) funds. Seeking to provide consistent positive returns, hedge funds typically aim to invest in companies like Globalstar to diversify portfolios and reduce risk by pursuing different long/short strategies to increase returns. Index and GARP funds usually look for stability, with the latter pursuing a strategy guided by investing in companies with slow and consistent earnings and relatively low price to earnings (P/E) multiples.

Table 6: Investor Style

Investor Style Number of Investors

% Shares Outstanding

Total Shares Held

Value ($MM)

Hedge Fund 70 13.44 120,147,133 253.51

Index Fund 28 8.04 71,863,976 151.63

GARP Fund 19 7.24 64,757,589 136.69

Aggres. Gr. 3 1.56 13,917,780 29.37

Deep Value 7 0.89 7,990,038 16.87

Core Growth 33 0.81 7,210,604 15.21

Broker‐Dealer 24 0.64 5,680,014 11.98

Income Value 5 0.12 1,079,703 2.28

VC/Private Equity 1 0.06 566,500 1.20

Core Value 16 0.06 537,222 1.14

Growth 9 0.03 312,385 0.66

N/A 1 0.00 30 0.00

Yield 2 0.00 0 0.00

Arbitrage 1 0.00 0 0.00

Event Driven 1 0.00 0 0.00

Source: Thompson One October 7, 2015

In more detail, Table 7 breaks down the top ten shareholders of Globalstar’s stock. Excluding the CEO James III Monroe and Director James F. Lynch, all other major investors are investment management funds in the U.S. Aside from Globalstar’s CEO, all other major stockholders control less than a 5% stake in the Company.

Table 7: Top Ten Shareholders

Investor Name % Shares

Outstanding Total Shares

Held

Monroe III (James) 54.64 488,596,201

Columbia Wanger Asset Management, LLC 4.11 36,756,705

York Capital Management 3.41 30,452,077

Steelhead Partners, LLC 3.40 30,438,243

The Vanguard Group, Inc. 3.37 30,163,470

BlackRock Institutional Trust Company, N.A. 2.80 25,009,088

Beck, Mack & Oliver LLC 2.29 20,504,540

Litespeed Management LLC 2.26 20,222,260

HHR Asset Management, LLC 1.55 13,820,800

Lynch (James F) 1.39 12,401,136



18

Insider Shareholders

Previously noting that the main shareholder of the Company is its CEO Jay Monroe, it is relevant to analyze insider shareholders of Globalstar in more depth. Table 8 presents a list of the main nine insider shareholders. Mr. Monroe owns roughly 55% of the total shares outstanding, followed by Director James F. Lynch. All other insider investors hold less than 1% of the total outstanding shares. Such a high percentage of shares outstanding owned by insiders is unusual in large companies; however, it is more plausible given that Globalstar is a small‐cap stock. Mr. Monroe and Mr. Lynch have both made several stock purchases in 2015, which could be an indicator that management perceives the Company to be undervalued by the market.

Table 8: Top 9 Insider Shareholders

Holder Name Title % Shares

Outstanding Total Shares

Held

Monroe (James III) Chief Executive Officer 54.65 488,666,201

Lynch (James F) Director 1.39 12,401,136

Navarra (Anthony J) Officer 0.04 327,631

Clary (Rebecca S) Chief Financial Officer 0.02 143,606

Ponder (L Barbee IV) General Counsel 0.01 107,223

McIntyre (J Patrick) Director 0.01 97,983

Kneuer (John) Director 0.01 80,500

Roberts (Richard S) Officer and Director 0.01 50,800

Stevenson (Mark_ Officer 0.00 23,842


RISK ANALYSIS AND INVESTMENT CAVEATS

When evaluating the performance of a company operating in the satellite telecommunications industry there are three categories of risks to analyze: operational, financial and regulatory. Operational risks include internal process failures, system breakdowns, and external events that affect the normal course of operation of the business. Financial risks include factors that increase the possibility of a company defaulting on its debt. Lastly, regulatory risks refer to change in regulations and laws that might impact the business or the whole industry.

Operational Risk

Satellite Failures/Service Interruption

Globalstar’s capital is composed primarily of investments in its satellite constellation. Its revenue is heavily dependent on the stable functioning of the satellite fleet, so any failures or degradation of the constellation will result in a massive disruption of business operations. Such a failure occurred in late 2010 across several of Globalstar’s satellites. Specifically, a failure in the C‐Band antennas rendered Globalstar’s first generation constellation to degrade causing unreliable service.


19

To amend the situation Globalstar took on a substantial debt load in order to finance capital expenditures to launch replacement satellites into orbit. Globalstar’s satellite constellation is now operating at full capacity with several backup satellites available, but the risk of degradation cannot be completely hedged. Insurance for satellite operations only covers launches and does not cover failure of satellites in orbit. Globalstar deals with the risk of satellite failure by maintaining spare satellites both in orbit and on ground. Nonetheless this does not protect against a constellation wide degradation, such as the previously mentioned S‐Band antenna amplifier failure. The probability of another constellation degradation is slim, but the effects of such a failure would be untenable given Globalstar’s currently highly indebted capital structure.

Technological Risks

Satellite service is a highly technical industry that relies on cutting edge research to improve the quality of products and services. As such, any firm that wishes to compete in the long run with other satellite service providers must invest in research and development to maintain a competitive advantage. Globalstar’s satellite technology faces competition from other satellite providers, terrestrial telecommunications providers, and other services that transmit data over portions of the electromagnetic spectrum. Even with sustained research and development, the nature of the satellite industry makes it incredibly vulnerable to technological developments that can result in satellites’ rapid obsolescence. Exacerbating this risk of obsolescence is the cost of updating a satellite constellation with new technology. Satellites constitute massive capital investments that are designed to operate for a decade or more, and upgrading a satellite network is a multi‐year process. Any upgrades require designing, manufacturing, and launching new satellites because older satellites cannot be repaired in space.

Market Entrants

As mentioned earlier, mobile satellite services, and satellite services in general require massive capital expenditures to be able to enter the market. Therefore the risk of new market entrants is relatively low, and those that do enter the market typically have large amounts of capital at hand. Several such firms, like SpaceX and Facebook, have announced the intention to enter the Mobile Satellite Services (MSS) market. On January 15, 2015, SpaceX announced plans to launch its own MSS satellite constellation during the unveiling of a new satellite factory. Launches are scheduled to begin and the end of the year and will continue through the first two quarters of 2016. Documents submitted to international regulators include plans for up to 4,000 satellites in Low Earth Orbit (LEO). Facebook recently entered into a partnership with Eutelsat to offer internet service via Facebook’s Internet.org initiative. Facebook plans to begin launching a self‐owned satellite fleet in 2016 in an attempt to provide internet access across the globe.


20

Financial Risk

Exchange Rate Risk

Globalstar has seen significant revenue growth in its international markets, with the majority of Globalstar’s international sales in Canadian dollars, Brazilian Reals, and Euros. Recent macroeconomic factors have resulted in increased exchange rate volatility. As uncertainty creeps into financial markets and many seek the safety of U.S. assets, the value of the dollar appreciates. Assuming volatility remains elevated and the dollar continues to appreciate in the short to medium term, Globalstar is exposed to significant downside exchange rate risk on its rapidly growing international earnings. Furthermore, Globalstar currently does not have any hedging strategies in place to ameliorate the foreign exchange risk.

Capital Structure Risk

Globalstar is highly leveraged with $609.43 million in long‐term debt, $223.79 million in stockholder’s equity, and a resulting debt‐to‐equity (D/E) ratio of 2.72. The D/E ratio is much lower than in previous periods, as Globalstar had negative stockholders’ equity on its balance sheet in four out of the last six quarters. The majority of Globalstar’s debt consists of a facility agreement with a principal of $579.07 million due to mature in 2022. The Facility Agreement is flexible, with creditors allowing Globalstar to make equity cure contributions, selling its own stock to make‐up interest payment shortfalls, but preventing Globalstar from raising more debt. To facilitate equity cure contributions, Globalstar maintains Common Stock Purchase Agreements with Thermo Capital Partners and Terrapin Partners for $30 million and $75 million respectively. These agreements give Globalstar the necessary flexibility to be able to continue complying with the covenants of its Facility Agreement. These agreements have been crucial to Globalstar’s operations in the past five years because the Company has not turned a profit over that period. Globalstar had operating losses of ($95.895) million in 2014, ($87.396) million in 2013, ($94.993) million in 2012, ($73.235) million in 2011, ($59.769) million in 2010, and ($53.791) million in 2009. The Common Stock Purchase Agreements are vital in maintaining the liquidity that Globalstar needs to operate, and the funds required to service Globalstar’s long‐term debt. If Thermo or Terrapin are unable to meet the conditions of the agreement, or if Globalstar is unable to produce income before reaching the maximum amount in the Common Stock Purchase Agreements, Globalstar will be in imminent danger of defaulting on its facility agreement.

Shareholder/activist risk

Globalstar has been the target of an aggressive short‐selling publicity campaign initiated by hedge fund Kerrisdale Capital, which began in October 2014. The public short‐selling campaign resulted in a drop of more than 50% in Globalstar’s market capitalization. As of September 30, 2015, there were 47.38 million shares shorted, representing 12.8% of the 408.33 million shares in float. While it is unknown how many of those short shares can be attributed to the Kerrisdale campaign, the hedge fund has not given up on its initiative, demonstrated by continued posts on investor forums and its own website, factsaboutglobalstar.com. Its continued campaign and short positions might keep some downward pressure on Globalstar’s stock in the short to medium term.


21

Equity Dilution

Globalstar has cash flow issues related to payments of its credit facility that, if not addressed, could put the Company in a difficult position by forcing it to choose between filling for chapter 11 and a secondary equity offering. Equity issuance would provide Globalstar with the cash flow to maintain operations, but it would also reduce the value of any current stockholders’ equity. This issue is pertinent as Globalstar has not posted a profit in the past five fiscal years and has acquired a large amount of debt in the form of its Credit Facility Agreement. Additionally, terms of the Credit Facility Agreement prohibit the issuance of any debt securities before the repayment of the Facility itself. That covenant prevents Globalstar from issuing debt if the need for additional capital arises, leaving equity issuance as the most viable alternative. Globalstar previously issued 1 share of Series A Convertible Preferred Stock in a financing agreement with Thermo, which was convertible into 126,174,034 shares of common stock. Globalstar’s certificate of incorporation authorizes the Board of Directors, controlled by Thermo Capital Partners, to issue up to 100 million shares of preferred stock without any approval from holders of common stock.

Regulatory Risk

Globalstar continues to hold licenses from the Federal Communications Commission (FCC) for the operation of its satellites and ground stations. Globalstar is currently in the filing process with the FCC over rulemaking, concerning use of additional segments of Globalstar’s spectrum to provide wireless broadband services. Although the petition was filed in November 2013, the process of authorization through the FCC has taken longer than management initially expected. The long deliberation is partially due to objections presented to the FCC over the Terrestrial Lower Power Service (TLPS) by several groups and firms, including the Wi‐Fi Alliance, the Wireless Internet Service Providers Association (WISPA), the National Cable & Telecommunications Association (NCTA), Google, and Microsoft. Globalstar has provided technology demonstrations conducted at the FCC’s Technology Experience Center (TEC) as evidence to address questions about adjacent Wi‐Fi channel interference with TLPS. Such evidence found no interference. Opponents, such as Microsoft, claim the demonstration at the TEC was insufficient and not representative of real‐life use of the technology. Furthermore, opponents claim that Globalstar’s technology will cause interference with adjacent Wi‐Fi channels and degrade overall signal quality. The abundance of opposition may increase the possibility of further delays or an ultimate rejection of Globalstar’s petition.

FINANCIAL PERFORMANCE AND PROJECTIONS

Globalstar has operated at a loss for several years. It has become over‐levered to the extent that it is no longer able to incur additional debt, and has instead reached an alternative agreement with Thermo Capital Partners and Terrapin Partners. The Thermo deal provides Globalstar with additional cash to sustain operations in exchange for common shares of the Company. Globalstar has been waiting since 2013 for approval from the Federal Communications Commission (FCC) to expand into Terrestrial Lower Power Service (TLPS) spectrum. Much of the Company’s future financial performance hinges on the FCC’s decision.


22

Operating Activities

Globalstar launched a second‐generation network of satellites in 2013, and the Company is currently expanding its subscriber base globally. Our projections for operating income, however, deeply depend on the ultimate verdict of the FCC in regard to the TLPS spectrum allocation. The shares of the firm have effectively become an option on this decision, as people buying the stock today, hovering at about $2, expect a positive ruling and for the stock price to rise nontrivially at that point. The Company would be able to undercut its competition by being the first to capitalize on this spectrum, since Globalstar has already purchased it for the purpose of TLPS.

Investing and Financing Activities

Globalstar’s agreement with Terrapin and Thermo Capital allows it to raise capital when needed, but the deal also imposes a threat to common shareholders in terms of increased dilution risk. The deal stipulates a non‐dilution clause for Terrapin and Thermo, which protects the hedge funds from diluting their portion of shares outstanding. This clause causes the rest of Globalstar’s shareholders to face dilution every time cash is borrowed, and consequently, new stock is issued.

The larger concern for Globalstar is that its financing structure is not sustainable for the long run. According to our projections, without a significant increase in revenue, the Company will run out of cash by the fourth quarter of 2016 and will be forced to take actions in order to stay afloat. Restructuring of debt or issuance of equity will be imminent by the end of 2016, under current conditions. Again, the main factor that could drive revenue higher in the near term is a favorable FCC ruling, allowing the Company to utilize the portion of its spectrum that remains unlicensed. The impact of the FFC’s ruling upon Globalstar revenue fuels the reasoning behind the Company’s option trading position.

SITE VISIT

On October 23, 2015, our analyst team visited the Globalstar Inc. headquarters in Covington, Louisiana. In 2011, the Company relocated its corporate headquarters from Silicon Valley, California to Covington, Louisiana, in an effort to reduce operating costs and to improve the speed at which it markets new products by vertically integrating with Covington‐based product manufacturer, Axxon. Upon our arrival, Senior Manager of Financial Analysis Shiv Thukral greeted us and led us into the conference room. He then introduced us to Vice President of Finance, Business Operations, and Strategy Tim Taylor, with whom we were able to discuss a wide array of subjects.

Mr. Taylor gave us a brief overview and described the importance of the research that was being conducted in Washington, D.C. into the Company’s potential use of Terrestrial Lower Power Service (TLPS). According to management, testing results have been overwhelmingly positive and have shown no evidence that the use of TLPS will interfere with other spectrums and signals in any way. Furthermore, the opposition has not found any evidence indicating that such interference exists either.


23

In regards to the ruling of Globalstar’s petition to the Federal Communications Commission (FCC) for allocation of the TLPS spectrum, management expects a ruling within the next three to four months even though they recognize that the FCC’s timing is glacial. In addition, the delay can be primarily attributed to both the precedence of filings from top companies and the intense workload of the FCC.

If the FCC eventually grants final approval, the use of TLPS will be all about the additional Wi‐Fi capacity. The service itself will not be a branded Globalstar product since the Company will lease out the spectrum to a third party. Conversation has already been established with possible customers, which include technology companies venturing into telecommunications as well as traditional signal providers such as AT&T, Verizon, and Sprint. Immediately following the approval, Globalstar will file for spectrum rights all around the world, fostering its international expansion and taking advantage of economies of scale.

During our meeting, Mr. Taylor and Mr. Thukral answered some more direct questions posed by our team. Globalstar’s lack of membership in the Satellite Industry Association (SIA) can be attributed to the Company’s focus on becoming more consumer‐oriented by concentrating its efforts on development of products and services. The Company previously spent over $150,000 per year on a membership that it considered to bring little or no benefit.

Plans for further capital expenditures are limited since around 95% of expenses for both launching the second‐generation satellite fleet, and for setting up all corresponding ground stations. Nonetheless, the Company foresees an average spending for maintenance that should not exceed $5 million per year.

As it relates to innovation, new product development is centered on exploiting capabilities of second‐generation satellites. A new and possibly subsidized version of the Sat‐Fi, a mobile satellite hotspot, is scheduled for release in the near feature with major improvements compared to its predecessor. Compared to the current Sat‐Fi, the new version will be one‐third of the size, one‐tenth of the cost, ten‐times faster, and have a built‐in battery pack. The Company will also release new devices that enable two‐way communication for its SPOT product line, technology that is already offered by competitors but not yet by Globalstar.

Our analyst team appreciated the opportunity to meet with Mr. Taylor and Mr. Thukral, who answered all of our questions openly. During the visit, we gained valuable insight on the current goals and operations of the Company as well as its future expectations and plans.


24

INDEPENDENT OUTSIDE RESEARCH

To accurately convey Globalstar’s position in the market, our team combined specific company‐wide data points with a diverse set of trends within the mobile satellite service industry (MSS). IBISWorld reports on the industry provided an initial perspective on sector dynamics and Globalstar’s current position in the market. In addition to the broader perspective, we proceeded to build an outlook for the Company using internal metrics. We gathered financial data from Globalstar’s quarterly and annual SEC reports, press releases, conference calls, and recent news concerning the Company. Sources used include Factiva, Bloomberg, Thomson One, and Yahoo Finance. Various analysts’ reports and coverages on the Company offered an overview of the market’s sentiment and consensus on future expected performance. The site visit to Globalstar’s headquarters in Covington, Louisiana gave us more in‐depth insight into management’s short‐ and long‐term perspectives.

Globalstar has been going through a highly publicized effort to get their TLPS technology approved by the FCC. The FCC ruling will have a material effect on Globalstar’s spectrum asset value; to evaluate the potential effect of the ruling, we reached out to experts in Wi‐Fi interference and spectrum utilization. Research into Wi‐Fi interference with Cisco led us to the author of several quoted whitepapers, Craig Mathais. Craig Mathais is principal at Farpoint Group, member of the Institute of Electrical and Electronic Engineers (IEEE), and an expert in wireless communications. We talked with Mr. Mathais about the viability of Globalstar’s TLPS technology compared to other developing wireless technologies that deal with wireless interference and lack of usable WiFi spectrum. He affirmed that wireless interference is only bound to increase over the coming years as internet capable devices continue to proliferate. He said that, if approved, Globalstar’s TLPS 2.4Ghz Wi‐Fi channel 14 would provide instant needed relief to Wi‐Fi channel congestion. However, Mr. Mathais stipulated the interference relief will likely be temporary as the 2.4Ghz spectrum comes closer to the point of saturation and as end users continue to migrate towards 5Ghz and Wi‐Fi spectrums at other frequencies.


25

ANOTHER WAY TO LOOK AT IT

ALTMAN Z‐SCORE

The Z‐Score was first introduced by New York University’s Professor Edward Altman in 1967, and is a formula that estimates the likelihood of a publicly‐traded company to file for bankruptcy within the next few years. Companies are classified into one of three categories: safe zone, grey zone or distress zone. The score is based upon five financial ratios and is calculated according to the following formula:

1.2 1.4 3.3 .6 4 1 5

Where:

= Working capital to total assets = Retained earnings to total assets = Earnings before interest and T=taxes (EBIT) to total assets = Market value of equity to book value of total liabilities = Sales to total assets

The company is in the safe zone if it has a Z‐score of 2.99 or higher, in the grey zone if it scores between 1.8 and 2.99, and in the distress zone if it scores below 1.8. Companies with lower Z‐scores have greater risk of bankruptcy.

Table 9 shows the historical Z‐scores for Globalstar. The Company has consistently been in Altman’s distress zone, which links it to a high risk of bankruptcy. The formula was originally developed to analyze asset‐heavy manufacturing companies, however, and it might not accurately assess Globalstar’s bankruptcy risk.

Table 9: Historical Z‐Scores for Globalstar

Year 2009 2010 2011 2012 2013 2014

Z‐score (0.25) (0.09) (0.25) (1.04) (1.89) (1.45)

Zone Distress Zone

Distress Zone

Distress Zone

Distress Zone

Distress Zone

Distress Zone

Source: Burkenroad Reports Analysis


26

PETER LYNCH EARNINGS MULTIPLE VALUATION

Peter Lynch, world‐renowned investor, reveals in his best‐selling book, One Up on Wall Street, one of the techniques he uses to evaluate investment decisions. According to Mr. Lynch, investors can determine if they should buy or sell a particular stock by plotting its historical price against what he refers to as the stock’s “earnings line.” This line is plotted by multiplying the company’s earnings per share by 15. When a stock’s price trades well below the earnings line, investors should buy the stock. Conversely, when the stock trades higher that the line, investors should sell it.

Figure 4 shows the Peter Lynch Analysis for Globalstar’s stock. As seen in the plotted graph, the stock has historically traded well above its earnings line for the past five years. As of November 6, 2015, the stock is trading at $2.10 and above 15‐times the earnings per share. According to his analysis, Mr. Lynch would not buy Globalstar’s stock at this time.

Figure 4: Peter Lynch Analysis

Source: Google Finance November 6, 2015

Earnings Line

Stock Price


27

WWBD? What Would Ben (Graham) Do?

Ben Graham, known by many as the father of value investing, developed a list of eight “hurdles” that evaluate the potential of investing in a selected stock. The first six hurdles on his list provide insight into the value of the company, while the last two hurdles test its growth potential. Mr. Graham would consider a stock to be an attractive investment if it passes at least four of the following eight hurdles

1. An earnings to price yield of two‐times the yield on the ten‐year Treasury 2. A P/E ratio down to one‐half of the stock’s highest in five years 3. A dividend yield of one‐half the yield on the ten‐year Treasury 4. A stock price less than 1.5‐times the book value 5. A total debt less than book value 6. A current ratio of two or more 7. An earnings growth rate of 7% or higher over past five years 8. A stable growth in earnings

Globalstar currently only passes the first hurdle on the list by having an earnings to price yield of 7.51%, which is higher than two‐times the yield on the ten‐year Treasury. The tests for all eight hurdles are shown in Figure 5. As a result, Ben Graham would not consider investing in this stock.

Figure 5: Ben Graham Analysis


28

Earnings per share (ttm) 0.16$ Price: 2.10$

Earnings to Price Yield 7.51%

10 Year Treasury (2X) 4.68%

P/E ratio as of 12/31/14 (5.6)

P/E ratio as of 12/31/13 (1.8)

P/E ratio as of 12/31/12 (1.1)

P/E ratio as of 12/31/11 (3.0)

P/E ratio as of 12/31/10 (4.3)

Current P/E Ratio 13.3

Dividends per share (ttm) ‐$ Price: 2.10$

Dividend Yield 0.00%

1/2 Yield on 10 Year Treasury 1.17%

Stock Price 2.10$

Book Value per share as of 9/30/15 0.26$

150% of book Value per share as of 9/30/15 0.38$

Interest‐bearing debt as of 9/30/15 638,479$

Book value as of 9/30/15 263,075$

Current assets as of 9/30/15 59,823$

Current liabilities as of 9/30/15 103,648$

Current ratio as of 9/30/15 0.6

EPS for year ended 12/31/10 (0.34)$






EPS for year ended 12/31/11 (0.18)$ ‐47%

EPS for year ended 12/31/12 (0.29)$ 61%

EPS for year ended 12/31/13 (0.96)$ 231%

EPS for year ended 12/31/14 (0.50)$ ‐48%

Stock price data as of November 6, 2015

No

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

No

Hurdle # 4: A Stock Price less than 1.5 BV

No

Hurdle # 5: Total Debt less than Book Value

No

Hurdle # 6: Current Ratio of Two or More

No

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years

No

Hurdle # 8: Stability in Growth of Earnings

No

GLOBALSTAR (NYSE: GSAT)

Ben Graham Analysis

Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

Yes

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

29

GLO

BALSTAR (NYSE: GSAT)

Quarterly and Annual Earnings

In thousands

For the period ended

2012 A

2013 A

2014 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

2015 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

2016 E

Revenues

Service revenue

57,468

64,644

69,823

17,107

18,616

19,644

18,202

73,569

17,358

15,737

16,431

16,025

65,551

Subscriber equipment sales

18,850

18,067

20,241

3,915

4,407

4,034

5,461

17,817

5,207

4,721

4,929

4,808

19,665

Total revenue

76,318

82,711

90,064

21,022

23,023

23,678

23,663

91,386

22,565

20,458

21,361

20,833

85,216

Operating expenses

Costs of services

30,071

30,210

29,668

7,434

8,027

7,761

8,058

31,280

7,477

6,525

6,738

7,159

27,899

Cost of subscriber equipment sales

13,280

13,623

14,857

3,131

2,983

2,914

3,823

12,851

3,645

3,305

3,451

3,365

13,766

Reduction in the value of equipment

1,397

5,794

21,684

Reduction in the value of assets

7,218

84

Contract term

ination charge

22,048

M

arketing, general, and administrative

27,496

29,888

33,520

8,596

10,159

9,675

9,819

38,249

9,364

8,489

8,864

8,645

35,362

Depreciation and amortization

69,801

90,592

86,146

19,046

19,271

19,417

20,346

78,080

20,789

21,175

21,561

21,763

85,289

Total operating expenses

171,311

170,107

185,959

38,207

40,440

39,767

42,046

160,460

41,275

39,494

40,614

40,932

162,315

Operating income (loss)

(94,993)

(87,396)

(95,895)

(17,185)

(17,417)

(16,089)

(18,383)

(69,074)

(18,710)

(19,036)

(19,253)

(20,100)

(77,098)

Other income (expense):

Loss on extinguisment of debt

(109,092)

(39,846)

(65)

(2,189)

(2,254)

Loss on future equity issuance

(16,701)

(2,912)

(2,920)

(5,832)

Interest expense

(21,486)

(67,828)

(43,233)

(8,517)

(9,244)

(9,019)

(9,111)

(35,891)

(9,005)

(8,888)

(8,770)

(8,652)

(35,315)

Interest rate derivative

gain (loss)

6,974

(305,999)

(286,049)

(107,865)

237,087

54,194

183,416

Other

(2,280)

(2,962)

3,038

4,133

(452)

(1,953)

1,728

Total other income (expense)

(16,792)

(502,582)

(366,090)

(112,314)

222,290

40,302

(9,111)

141,167

(9,005)

(8,888)

(8,770)

(8,652)

(35,315)

Income (loss) before income taxes

(111,785)

(589,978)

(461,985)

(129,499)

204,873

24,213

(27,493)

72,094

(27,715)

(27,924)

(28,023)

(28,752)

(112,414)

Income tax expense (benefit)

413

1,138

881

228

106

115

449

Net income (loss)

(112,198)

$

(591,116)

$

(462,866)

$

(129,727)

$

204,767

$

24,098

$

(27,493)

$

71,645

$

(27,715)

$

(27,924)

$

(28,023)

$

(28,752)

$

(112,414)

$

Net income (loss) per common share:

Basic

(0.29)

$

(0.96)

$

(0.50)

$

(0.13)

$

0.20

$

0.02

$

(0.03)

$

0.07

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.10)

$

Non‐recurring charges

(0.04)

$

(0.44)

$

(0.22)

$

(0.07)

$

0.14

$

0.03

$

0.11

$

Basic net of non‐recurring

(0.25)

$

(0.52)

$

(0.28)

$

(0.06)

$

0.06

$

(0.01)

$

(0.03)

$

(0.04)

$

Diluted

(0.29)

$

(0.96)

$

(0.50)

$

(0.13)

$

0.17

$

0.02

$

(0.03)

$

0.07

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.10)

$

Non‐recurring charges

(0.04)

$

(0.44)

$

(0.22)

$

(0.07)

$

0.12

$

0.03

$

0.11

$

Di luted net of non‐recurring

(0.25)

$

(0.52)

$

(0.28)

$

(0.06)

$

0.05

$

(0.01)

$

(0.03)

$

(0.04)

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.03)

$

(0.10)

$

Weighted average shares outstanding:

Basic

388,453

614,959

934,356

1,000,845

1,009,917

1,031,398

1,041,219

1,041,219

1,051,030

1,073,786

1,089,586

1,105,368

1,105,368

Diluted

388,453

614,959

934,356

1,000,845

1,205,450

1,234,551

1,041,219

1,041,219

1,051,030

1, 073,786

1,089,586

1,105,368

1,105,368

2016 E

2015 E

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

30

GLO


Quarterly and Annual Earnings

In thousands

SELECTED COMMON‐SIZE AMOUNTS

2012 A

2013 A

2014 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

2015 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

2016 E

Service revenue

75.30%

78.16%

77.53%

81.38%

80.86%

82.96%

76.92%

80.50%

76.92%

76.92%

76.92%

76.92%

76.92%

Subscriber equipment sales

24.70%

21.84%

22.47%

18.62%

19.14%

17.04%

23.08%

19.50%

23.08%

23.08%

23.08%

23.08%

23.08%


121.46%

140.14%

123.38%

111.33%

103.52%

98.84%

111.78%

106.13%

119.77%

134.56%

131.22%

135.81%

130.11%

Costs of services as %

of service revenue

52.33%

46.73%

42.49%

43.46%

43.12%

39.51%

44.27%

42.52%

43.08%

41.46%

41.01%

44.67%

42.56%

Cost of subscriber equipment sales as %

of equipment revenue

70.45%

75.40%

73.40%

79.97%

67.69%

72.24%

70.00%

72.13%

70.00%

70.00%

70.00%

70.00%

70.00%

M

arketing, general, and administrative

as %

of total revenue

36.03%

36.14%

37.22%

40.89%

44.13%

161.54%

41.50%

41.85%

41.50%

41.50%

41.50%

41.50%

41.50%


298.10%

263.14%

266.33%

223.34%

217.23%

202.44%

230.99%

218.11%

237.79%

250.97%

247.17%

255.42%

247.62%


‐165.30%

‐135.20%

‐137.34%

‐100.46%

‐93.56%

‐81.90%

‐100.99%

‐93.89%

‐107.79%

‐120.97%

‐117.17%

‐125.42%

‐117.62%

Other income (expense):


‐29.22%

‐777.46%

‐524.31%

‐656.54%

1194.08%

205.16%

‐50.05%

191.88%

‐51.88%

‐56.48%

‐53.37%

‐53.99%

‐53.87%


‐194.52%

‐912.66%

‐661.65%

‐756.99%

1100.52%

123.26%

‐151.04%

97.99%

‐159.67%

‐177.44%

‐170.55%

‐179.41%

‐171.49%


0.72%

1.76%

1.26%

1.33%

0.57%

0.59%

0.00%

0.61%

0.00%

0.00%

0.00%

0.00%

0.00%

Net income (loss)

‐195.24%

‐914.42%

‐662.91%

‐758.33%

1099.95%

122.67%

‐151.04%

97.38%

‐159.67%

‐177.44%

‐170.55%

‐179.41%

‐171.49%

YEAR TO YEAR CHANGE

Service revenue

3.74%

12.49%

8.01%

5.28%

4.08%

6.12%

5.98%

5.37%

1.46%

‐15.47%

‐16.35%

‐11.96%

‐10.90%


39.47%

29.79%

‐4.91%

‐18.37%

‐12.46%

‐7.74%

3.00%

‐9.36%

9.15%

9.88%

11.04%

6.97%

9.23%


17.29%

‐0.70%

9.32%

‐7.06%

‐17.52%

‐4.25%

‐22.55%

‐13.71%

8.03%

‐2.34%

2.13%

‐2.65%

1.16%


29.71%

‐8.00%

9.72%

‐16.48%

‐30.43%

‐11.08%

‐42.90%

‐27.97%

8.87%

9.30%

19.66%

9.34%

11.62%


‐192.25%

2892.98%

‐27.16%

‐51.12%

‐154.52%

‐72.69%

‐107.36%

‐138.56%

‐91.98%

‐104.00%

‐121.76%

‐5.03%

‐125.02%


103.12%

427.78%

‐21.69%

‐48.27%

‐147.34%

‐81.30%

‐130.00%

‐115.61%

‐78.60%

‐113.63%

‐215.73%

4.58%

‐255.93%


‐478.90%

175.54%

‐22.58%

18.13%

‐89.09%

29.21%

n/a

‐49.04%

n/a

n/a

n/a

n/a

n/a

Net income (loss)

104.28%

426.85%

‐21.70%

‐48.22%

‐147.21%

‐81.38%

‐129.88%

‐115.48%

‐78.64%

‐113.64%

‐216.29%

4.58%

‐256.90%

2015 E

2016 E

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

31

GLO


`

Quarterly and Annual Balance Sheets

In thousands

As of

31‐Dec‐12 A

31‐Dec‐13 A

31‐Dec‐14 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

31‐Dec‐15 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

31‐Dec‐16 E

Cash and cash equivalents

11,792

$

17,408

$

7,121

$

13,655

$

12,871

$

27,973

$

38,576

$

38,576

$

25,840

$

9,709

$

9,486

$

7,216

$

7,216

$

Restricted cash

46,777

Accounts receivables

13,944

15,723

15,015

15,300

16,653

14,051

16,400

16,400

16,024

14,384

14,850

14,431

14,431

Inventories

42,181

31,817

14,734

13,584

11,973

12,080

13,958

13,958

14,579

14,687

14,792

14,931

14,931

Deferred financing costs current

34,622

Advances for inventory

9,359

196

Prepaid expenses & other current assets

5,233

7,059

7,748

7,283

7,722

5,719

5,762

5,762

5,805

5,849

5,893

5,937

5,937

Total current assets

154,549

81,366

44,814

49,822

49,219

59,823

74,697

74,697

62,249

44,629

45,021

42,515

42,515

Total property, plant, and equipment net

1,215,156

1,169,785

1,113,560

1,100,504

1,090,085

1,083,516

1,072,170

1,072,170

1,052,631

1,032,706

1,012,395

991,882

991,882

Other assets:

Restricted cash

37,918

37,918

37,918

37,918

37,918

37,918

37,918

37,918

37,918

37,918

37,918

37,918

Deferred financing costs

16,883

76,436

63,862

60,989

58,056

61,164

58,831

58,831

56,497

54,164

51,830

49,497

49,497

Advances for inventory

9,158

Prepaid second‐generation ground costs

14,237

13,909

12,518

12,518

11,266

10,140

9,126

8,213

8,213

Inangible and other assets, net

8,029

7,103

8,266

9,436

10,767

10,979

10,979

10,979

10,979

10,979

10,979

10,979

10,979

Total assets

1,403,775

$

1,372,608

$

1,268,420

$

1,258,669

$

1,260,282

$

1,267,309

$

1,267,112

$

1,267,112

$

1,231,540

$

1,190,535

$

1,167,269

$

1,141,003

$

1,141,003

$

Current liabilities:

Current maturities of long‐term

debt

655,874

$

4,046

$

6,450

$

6,450

$

19,642

$

19,642

$

21,401

$

21,401

$

32,131

$

42,861

$

53,592

$

64,322

$

64,322

$

Accounts payable

35,685

14,627

6,922

5,010

5,468

9,653

11,241

11,241

10,998

10,035

10,151

10,150

10,150

Accrued contract term

ination charge

23,166

24,133

21,308

19,023

19,452

19,712

19,712

19,712

19,712

19,712

19,712

19,712

19,712

Accrued expenses

28,164

22,700

22,342

26,705

22,278

29,118

29,494

29,494

28,859

26,330

26,634

26,633

26,633

Payables to affiliates

230

202

481

376

456

536

457

457

447

408

413

413

413

Derivitive

liabilities

57,048

Deferred revenue

18,041

17,284

21,740

21,481

22,938

24,987

23,427

23,427

22,339

20,253

21,147

20,625

20,625

Total current liabilities

761,160

140,040

79,243

79,045

90,234

103,648

105,732

105,732

114,487

119,600

131,648

141,854

141,854

Long term

debt

95,155

665,236

623,640

626,653

609,433

618,837

610,628

610,628

591,689

572,750

553,811

534,872

534,872

Employee benefit obligations, net of current portion

7,221

3,529

5,499

5,478

5,440

5,537

5,537

5,537

5,537

5,537

5,537

5,537

5,537

Derivative

liabilites

25,175

405,478

441,550

548,526

292,293

238,087

238,087

238,087

238,087

238,087

238,087

238,087

238,087

Deferred revenue

4,640

7,079

6,572

6,517

6,526

6,334

7,099

7,099

6,769

6,137

6,408

6,250

6,250

Debt restructuring fees

20,795

20,795

20,795

20,795

20,795

20,795

20,795

20,795

20,795

20,795

20,795

20,795

Other non‐current liabilities

15,880

13,696

12,205

11,233

11,767

10,996

10,996

10,996

10,996

10,996

10,996

10,996

10,996

Total non‐current liabilities

148,071

1,115,813

1,110,261

1,219,202

946,254

900,586

893,142

893,142

873,874

854,303

835,634

816,537

816,537

Stockholders' equity:

Voting common stock, $.0001 par value:

35

54

86

87

89

90

91

91

92

94

96

98

98

Nonvoting common stock $.0001 par value

14

31

13

13

13

13

13

13

13

13

13

13

13

Additional paid‐in capital

864,175

1,074,837

1,503,619

1,516,141

1,574,297

1,590,094

1,622,750

1,622,750

1,625,405

1,626,780

1,638,155

1,649,530

1,649,530

Accumulated other comprehensive income (loss)

(1,758)

871

(2,898)

(4,188)

(3,741)

(4,356)

(4,356)

(4,356)

(4,356)

(4,356)

(4,356)

(4,356)

(4,356)

Retained earnings

(367,922)

(959,038)

(1,421,904)

(1,551,631)

(1,346,864)

(1,322,766)

(1,350,259)

(1,350,259)

(1,377,975)

(1,405,898)

(1,433,921)

(1,462,673)

(1,462,673)

Total stockholders' equity

494,544

116,755

78,916

(39,578)

223,794

263,075

268,238

268,238

243,180

216,633

199,986

182,611

182,611

Total liabilities and stockholders' equity

1,403,775

$

1,372,608

$

1,268,420

$

1,258,669

$

1,260,282

$

1,267,309

$

1,267,112

$

1,267,112

$

1,231,540

$

1,190,535

$

1,167,269

$

1,141,003

$

1,141,003

$

2016 E

2015 E

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

32

GLO


Quarterly and Annual Balance Sheets

SELECTED COMMON SIZE BALANCE SHEET AMOUNTS (% of net sales)

31‐Dec‐12 A

31‐Dec‐13 A

31‐Dec‐14 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

31‐Dec‐15 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

31‐Dec‐16 E

Accounts receivables

24.26%

24.32%

21.50%

89.44%

89.46%

71.53%

90.10%

22.29%

92.32%

91.40%

90.38%

90.05%

22.02%

Inventories

73.40%

49.22%

21.10%

79.41%

64.32%

61.49%

76.68%

18.97%

83.99%

93.33%

90.02%

93.17%

22.78%

Prepaid ex penses & other current assets

9.11%

10.92%

11.10%

42.57%

41.48%

29.11%

31.65%

7.83%

33.44%

37.17%

35.86%

37.05%

9.06%


268.93%

125.87%

64.18%

291.24%

264.39%

304.54%

410.37%

101.53%

358.63%

283.60%

274.00%

265.30%

64.86%

Total assets

2442.71%

2123.33%

1816.62%

7357.63%

6769.89%

6451.38%

6961.22%

1722.33%

7095.14%

7565.34%

7103.94%

7119.98%

1740.64%

Accounts payable

62.10%

22.63%

9.91%

29.29%

29.37%

49.14%

61.75%

15.28%

63.36%

63.77%

61.78%

63.34%

15.48%


0.40%

0.31%

0.69%

2.20%

2.45%

2.73%

2.51%

0.62%

2.58%

2.59%

2.51%

2.58%

0.63%


1324.49%

216.63%

113.49%

462.06%

484.71%

527.63%

580.86%

143.72%

659.58%

760.01%

801.20%

885.19%

216.40%

Long term

debt

165.58%

1029.08%

893.17%

3663.14%

3273.71%

3150.26%

3354.65%

830.00%

3408.84%

3639.58%

3370.47%

3337.66%

815.97%


12.57%

5.46%

7.88%

32.02%

29.22%

28.19%

30.42%

7.53%

31.90%

35.19%

33.70%

34.55%

8.45%


27.63%

21.19%

17.48%

65.66%

63.21%

55.98%

60.41%

14.95%

63.35%

69.87%

66.92%

68.62%

16.77%


257.66%

1726.09%

1590.11%

7126.92%

5083.01%

4584.53%

4906.71%

1214.01%

5034.56%

5428.73%

5085.63%

5095.28%

1245.65%

SELECTED COMMON SIZE BALANCE SHEET AMOUNTS (% of total assets)


11.01%

5.93%

3.53%

3.96%

3.91%

4.72%

5.90%

5.90%

5.05%

3.75%

3.86%

3.73%

3.73%

Accounts payable

2.54%

1.07%

0.55%

0.40%

0.43%

0.76%

0.89%

0.89%

0.89%

0.84%

0.87%

0.89%

0.89%

Accrued expenses

2.01%

1.65%

1.76%

2.12%

1.77%

2.30%

2.33%

2.33%

2.34%

2.21%

2.28%

2.33%

2.33%


0.02%

0.01%

0.04%

0.03%

0.04%

0.04%

0.04%

0.04%

0.04%

0.03%

0.04%

0.04%

0.04%

Deferred revenue

1.29%

1.26%

1.71%

1.71%

1.82%

1.97%

1.85%

1.85%

1.81%

1.70%

1.81%

1.81%

1.81%


54.22%

10.20%

6.25%

6.28%

7.16%

8.18%

8.34%

8.34%

9.30%

10.05%

11.28%

12.43%

12.43%

Long term

debt

6.78%

48.47%

49.17%

49.79%

48.36%

48.83%

48.19%

48.19%

48.04%

48.11%

47.45%

46.88%

46.88%


0.51%

0.26%

0.43%

0.44%

0.43%

0.44%

0.44%

0.44%

0.45%

0.47%

0.47%

0.49%

0.49%


1.13%

1.00%

0.96%

0.89%

0.93%

0.87%

0.87%

0.87%

0.89%

0.92%

0.94%

0.96%

0.96%


10.55%

81.29%

87.53%

96.86%

75.08%

71.06%

70.49%

70.49%

70.96%

71.76%

71.59%

71.56%

71.56%

Additional paid‐in capital

61.56%

78.31%

118.54%

120.46%

124.92%

125.47%

128.07%

128.07%

131.98%

136.64%

140.34%

144.57%

144.57%

Retained earnings

‐26.21%

‐69.87%

‐112.10%

‐123.28%

‐106.87%

‐104.38%

‐106.56%

‐106.56%

‐111.89%

‐118.09%

‐122.84%

‐128.19%

‐128.19%

Total stockholders' equity

35.23%

8.51%

6.22%

‐3.14%

17.76%

20.76%

21.17%

21.17%

19.75%

18.20%

17.13%

16.00%

16.00%

2015 E

2016 E

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

33

GLO


Quarterly and Annual Statements of Cash Flows

In thousands


2012 A

2013 A

2014 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

2015 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

2016 E

Cash Flow From Operations:

Net income (loss)

(112,198)

$

(591,116)

$

(462,866)

$

(129,727)

$

204,767

$

24,098

$

(27,493)

$

71,645

$

(27,715)

$

(27,924)

$

(28,023)

$

(28,752)

$

(112,414)

$

Adjustm

ents:


69,801

90,592

86,146

19,046

19,271

19,417

20,346

78,080

20,789

21,175

21,561

21,763

85,289

Change in fair value of derivatives

(6,974)

305,155

286,049

107,865

(237,087)

(54,194)

(183,416)

Stock‐based compensation expense

793

2,127

3,400

818

654

601

812

2,885

812

812

812

812

3,248

Acretion of debt discount

1,008

748

Provision for bad debts

1,097

2,321

2,281

690

1,210

1,135

947

3,982

903

818

854

833

3,409

Impairment of assets

8,615

5,794

21,768

Contract term

ination charge

22,048

Amortization of deferred financing costs

7,907

8,792

10,043

2,336

2,331

2,443

2,334

9,444

2,334

2,334

2,334

2,334

9,334

Non cash interest expense

6,525

44,488

16,214

2,578

3,134

2,669

8,381

Loss in equity method investee

335

Loss on extinguishment of debt

109,092

39,846

65

2,189

2,254

Loss on future equity issuance

16,701

2,912

2,920

5,832

Foreign currency and other, net

2,695

1,013

(4,059)

(4,030)

588

1,292

(2,150)

Other, net

1,370

945

304

314

(194)

424

Changes in operating assets and liabilites, net of acquisition

Accounts receivable

(2,875)

(4,321)

(2,200)

(1,309)

(2,343)

1,120

(3,296)

(5,828)

(527)

822

(1,321)

(414)

(1,440)

Inventory

(1,018)

3,124

4,187

794

1,768

(517)

(1,878)

167

(621)

(108)

(105)

(139)

(972)

Prepaid expenses and other current assets

855

(727)

(1,339)

201

(989)

1,537

(43)

706

(43)

(44)

(44)

(44)

(175)

Other assets

5,427

(89)

202

(476)

(17)

(155)

1,391

743

1,252

1,127

1,014

913

4,305

Accounts payable

3,431

(2,595)

(1,725)

3,641

(3,704)

4,597

1,588

6,122

(242)

(964)

116

(0)

(1,091)


(148)

(29)

279

(105)

80

80

(79)

(24)

(10)

(39)

5

(0)

(44)

Accrued expenses and emplyee benefit obligations

376

376

(636)

(2,528)

303

(1)

(2,861)


(224)

(1,079)

(619)

(163)

(266)

(475)

(904)

Deferred revenue

782

1,917

4,681

(7)

1,405

2,202

(795)

2,805

(1,417)

(2,718)

1,165

(681)

(3,651)

Net cash provided by (used in) operating activities

6,874

(6,462)

3,981

2,521

(3,783)

8,576

(5,791)

1,523

(5,122)

(7,237)

(1,329)

(3,376)

(17,064)

Cash flows from investing activities

Spare and second‐generation satellites and launch

costs

(56,679)

(43,693)

(14,604)

(4,018)

(6,326)

(5,140)

(9,000)

(24,484)

(1,250)

(1,250)

(1,250)

(1,250)

(5,000)

Property and equipment additions

(781)

(1,651)

(4,673)

(1,790)

(1,878)

(2,394)

(6,062)

Investm

ent in business

(550)

(634)

Restricted cash

8,859

Net cash used in investing activities

(58,010)

(37,119)

(19,277)

(5,808)

(8,204)

(7,534)

(9,000)

(30,546)

(1,250)

(1,250)

(1,250)

(1,250)

(5,000)

Cash flows from financing activities

Borrowings from facility agreement

7,375

672

Principal paym

ents of the Facility Agreement

(4,046)

(3,225)

(3,225)

Paym

ents to reduce

principal amount of exchanged 5.75% notes

(13,544)

Paym

ents for 5.75% notes not exchanged

(6,250)

Paym

ents to lenders and other fees associated with exchange

(2,482)

(6,450)

(6,450)

(8,209)

(8,209)

(8,209)

(8,209)

(32,835)

Proceeds from equity contributions

65,000

Proceeds from exercise of warrants and stock options

244

15,414

9,547

61

358

7

1,845

2,271

1,845

565

565

565

3,539

Proceeds from issuance

of stock to Terrapin and Therm

o6,000

10,000

14,000

15,000

30,000

69,000

10,000

10,000

20,000

Proceeds from contingent equity account

45,800

1,071

Deferred financing cost paym

ents

(1,033)

(16,909)

(164)

Net cash provided by (used in) financing activities

52,386

48,972

5,337

10,061

11,133

15,007

25,395

61,596

(6,364)

(7,644)

2,356

2,356

(9,296)

Effect of exchage rate on cash

591

225

(328)

(240)

70

(947)

(1,117)

Increase (decrease) in cash and cash equivalents

1,841

5,616

(10,287)

6,534

(784)

15,102

10,603

31,455

(12,736)

(16,131)

(223)

(2,270)

(31,360)

Cash and cash equivalents at beginning of year

9,951

11,792

17,408

7,121

13,655

12,871

27,973

7,121

38,576

25,840

9,709

9,486

38,576

Cash and cash equivalents at end of year

11,792

17,408

7,121

13,655

12,871

27,973

38,576

38,576

25,840

9,709

9,486

7,216

7,216

Operating cash flow per share

excluding changes in working capital

0.01

$

(0.01)

$

0.0015

$

(0.0008)

$

(0.0011)

$

0.0018

$

(0.0066)

$

(0.0066)

$

(0.0027)

$

(0.0009)

$

(0.0027)

$

(0.0024)

$

(0.0085)

$

Operating cash flow per share

including changes in working capital

0.02

$

(0.01)

$

0.00

$

0.00

$

(0.00)

$

0.01

$

(0.01)

$

0.00

$

(0.00)

$

(0.01)

$

(0.00)

$

(0.00)

$

(0.02)

$

2016 E

2015 E

Globalstar In

corporated (GSA

T)

BURKEN

ROAD REP

ORTS (www.burken

road

.org)

November 6, 2015

34

GLO


Ratios


2012 A

2013 A

2014 A

31‐M

ar‐15 A

30‐Jun‐15 A

30‐Sep‐15 A

31‐Dec‐15 E

2015 E

31‐M

ar‐16 E

30‐Jun‐16 E

30‐Sep‐16 E

31‐Dec‐16 E

2016 E

Productivity Ratios

Receivables turnover

4.55

4.36

4.54

1.13

1.17

1.28

1.20

4.68

1.07

1.04

1.12

1.09

4.25

Inventory turnover

1.67

2.45

3.70

1.35

1.51

1.61

1.56

5.44

1.46

1.45

1.46

1.46

5.90

Working capital turnover

‐0.22

‐0.19

‐1.50

‐0.54

‐0.53

‐0.46

‐0. 49

‐2.25

‐0.42

‐0.25

‐0.20

‐0.17

‐1.01

Net fixed asset turnover

0.05

0.05

0.06

0.02

0.02

0.02

0.02

0.07

0.02

0.02

0.02

0.02

0.06

Total asset turnover

0.04

0.05

0.05

0.01

0.01

0.02

0.01

0.06

0.01

0.01

0.01

0.01

0.05

# of days Sales in A/R

89

89

78

80

81

66

83

83

83

83

83

83

83

# of days Cost of Sales in Inventory

221

128

62

64

57

57

63

63

63

63

63

63

63

de

# of days Cash‐based expenses in payables

253

97

90

104

84

123

123

127

123

123

123

123

121

Liquidity Measures

Current ratio

0.20

0.58

0.57

0.63

0.55

0.58

0.71

0.71

0.54

0.37

0.34

0.30

0.30

Quick ratio

0.03

0.24

0.28

0.37

0.33

0.41

0.52

0.52

0.37

0.20

0.18

0.15

0.15

Cash ratio

0.03

0.24

0.28

0.37

0.33

0.41

0.52

0.52

0.37

0.20

0.18

0.15

0.15

Cash flow from operations ratio

0.01

‐0.05

0.05

0.03

‐0.04

0.08

‐0.05

0.01

‐0.04

‐0.06

‐0.01

‐0.02

‐0.12

Working capital

‐606,611

‐58,674

‐34,429

‐29,223

‐41,015

‐43,825

‐31,035

‐31,035

‐52,238

‐74,971

‐86,627

‐99,340

‐99,340

Financial Risk (Leverage) Ratios

Total debt/equity ratio

1.84

10.76

15.07

‐32.80

4.63

3.82

3.72

3.72

4.06

4.50

4.84

5.25

5.25

Debt/equity ratio (excluding deferred taxes)

1.84

10.76

15.07

‐32.80

4.63

3.82

3.72

3.72

4.06

4.50

4.84

5.25

5.25

Total LT debt/equity ratio

0.30

9.56

14.07

‐30.81

4.23

3.42

3.33

3.33

3.59

3.94

4.18

4.47

4.47

LT debt/equity (excluding deferred taxes)

0.30

9.56

14.07

‐30.81

4.23

3.42

3.33

3.33

3.59

3.94

4.18

4.47

4.47

Interest coverage ratio (Earnings = EBIT)

‐6.20

‐9.70

‐11.69

‐16.20

21.16

1.68

‐4.02

1.01

‐4.08

‐4.14

‐4.20

‐4.32

‐4.18

Interest coverage ratio (Earnings = EBI)

‐6.22

‐9.71

‐11.71

‐16.23

21.15

1.67

‐4.02

1.00

‐4.08

‐4.14

‐4.20

‐4.32

‐4.18

Total debt ratio

0.65

0.91

0.94

1.03

0.82

0.79

0.79

0.79

0.80

0.82

0.83

0.84

0.84

Debt ratio (excuding deferred taxes)

0.65

0.91

0.94

1.03

0.82

0.79

0.79

0.79

0.80

0.82

0.83

0.84

0.84

Profitability/Valuation M

easures

Gross profit margin

298.10%

263.14%

266.33%

223.34%

217.23%

202.44%

230.99%

218.11%

237.79%

250.97%

247.17%

255.42%

247.62%

Operating profit margin

‐165.30%

‐135.20%

‐137.34%

‐100.46%

‐93.56%

‐81.90%

‐100.99%

‐93.89%

‐107.79%

‐120.97%

‐117.17%

‐125.42%

‐117.62%

Return on assets

‐7.93%

‐42.58%

‐35.05%

‐10.27%

16.26%

1.91%

‐2.17%

5.65%

‐2.22%

‐2.31%

‐2.38%

‐2.49%

‐9.34%

Return on equity

‐21.85%

‐193.40%

‐473.11%

‐659.55%

222.31%

9.90%

‐10.35%

41.28%

‐10.84%

‐12.15%

‐13.45%

‐15.03%

‐49.87%

Earnings before interest margin

‐232.62%

‐1019.34%

‐724.83%

‐808.11%

1050.30%

76.76%

‐201.09%

48.60%

‐211.56%

‐233.92%

‐223.92%

‐233.40%

‐225.37%

EBITDA m

argin

‐43.84%

4.94%

‐13.96%

10.88%

9.96%

16.94%

10.79%

12.24%

11.98%

13.59%

14.05%

10.38%

12.49%

EBITDA/Assets

‐1.79%

0.23%

‐0.77%

0.14%

0.14%

0.26%

0.15%

0.68%

0.17%

0.17%

0.19%

0.14%

0.64%

2016 E

2015 E

BURKENROAD REPORTS RATING SYSTEM

MARKET OUTPERFORM: This rating indicates that we believe forces are in place that would enable this company's stock to produce returns in excess of the stock market averages over the next 12 months.

MARKET PERFORM: This rating indicates that we believe the investment returns from this company's stock will be in line with those produced by the stock market averages over the next 12 months.

MARKET UNDERPERFORM: This rating indicates that while this investment may have positive attributes, we believe an investment in this company will produce subpar returns over the next 12 months. BURKENROAD REPORTS CALCULATIONS

CPFS is calculated using operating cash flows excluding working capital changes.

All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance unless otherwise noted. Betas are collected from Bloomberg.

Enterprise value is based on the equity market cap as of the report date, adjusted for long‐term debt, cash, & short‐term investments reported on the most recent quarterly report date.

12‐month Stock Performance is calculated using an ending price as of the report date. The stock performance includes the 12‐month dividend yield.

2015‐2016 COVERAGE UNIVERSE Amerisafe Inc. (AMSF) Bristow Group Inc. (BRS) CalIon Petroleum Company (CPE) Cal‐Maine Foods Inc. (CALM) Carbo Ceramics Inc. (CRR) Cash America International Inc. (CSH) Conn's Inc. (CONN) Crown Crafts Inc. (CRWS) Denbury Resources Inc. (DNR) EastGroup Properties Inc. (EGP) Era Group Inc. (ERA) Evolution Petroleum Corp. (EPM) The First Bancshares (FBMS) Globalstar (GSAT) Gulf Island Fabrication Inc. (GIFI) Hibbett Sports (HIBB) Hornbeck Offshore Services Inc. (HOS) IBERIABANK Corp. (IBKC) ION Geophysical Corp. (IO) Key Energy Services (KEG)

Marine Products Corp. (MPX) MidSouth Bancorp Inc. (MSL) Newpark Resources Inc. (NR) PetroQuest Energy Inc. (PQ) Pool Corporation (POOL) Powell Industries Inc. (POWL) Rollins Incorporated (ROL) RPC Incorporated (RES) Ruth’s Hospitality Group Inc. (RUTH) Sanderson Farms Inc. (SAFM) SEACOR Holdings Inc. (CKH) Sharps Compliance Inc. (SMED) Spark Energy Inc. (SPKE) Stone Energy Corp. (SGY) Sunoco LP (SUN) Superior Energy Services Inc. (SPN) Superior Uniform Group Inc. (SGC) Team Incorporated (TISI) Vaalco Energy Inc. (EGY) Willbros Group Inc. (WG)

PETER RICCHIUTI Director of Research Founder of Burkenroad Reports [email protected] ANTHONY WOOD Senior Director of Accounting [email protected]

DANIEL BROWNFIELD GRACE CAMMACK ALAN POSNER RUBEN FLORES DELGADO Associate Directors of Research

BURKENROAD REPORTS Tulane University New Orleans, LA 70118‐5669 (504) 862‐8489 (504) 865‐5430 Fax

To receive complete reports on any of the companies we follow, contact:Peter Ricchiuti, Founder & Director of Research

Tulane UniversityFreeman School of BusinessBURKENROAD REPORTS

Phone: (504) 862-8489Fax: (504) 865-5430

E-mail: [email protected] visit our web site at www.BURKENROAD.org

Printed on Recycled Paper

Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulane’s business school, and funded through contributions from his family and friends, BURKENROAD REPORTS is a nationally recognized program, publishing objective, investment research reports on public companies in our region. Students at Tulane University’s Freeman School of Business prepare these reports.Alumni of the BURKENROAD REPORTS program are employed at a number of highly respected financial institutions including:ABN AMRO Bank · Aegis Value Fund · Invesco/AIM Capital Management · Alpha Omega Capital Partners · American General Investment Management · Ameriprise Financial · Atlas Capital · Banc of America Securities · Bank of Montreal · Bancomer · Barclays Capital · Barings PLC · Bearing Point · Bessemer Trust · Black Gold Capital· Bloomberg · Brookfield Asset Management · Brown Brothers Harriman Capital · Blackrock Financial Management · Boston Consulting Group · Buckingham Research · California Board of Regents · Cambridge Associates· Canaccord Genuity · Cantor Fitzgerald · Chaffe & Associates · Citadel Investment Group · Citibank · Citigroup Private Bank · City National Bank · Cornerstone Resources · Credit Suisse · D. A. Davidson & Co. · Deutsche Banc · Duquesne Capital Management · Equitas Capital Advisors· Factset Research · Financial Models · First Albany · Fiduciary Trust · Fitch Investors Services · Forex Trading · Franklin Templeton · Friedman Billings Ramsay · Fulcrum Global Partners · Gintel Asset Management · Global Hunter Securities · Goldman Sachs · Grosever Funds · Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment Services · Healthcare Markets Group · Capital One Southcoast · Howard Weil Labouisse Friedrichs · IBERIABANK Capital Markets · J.P. Morgan Securities · Janney Montgomery Scott · Jefferies & Co. · Johnson Rice & Co. · KBC Financial · KDI Capital Partners · Key Investments · Keystone Investments · Legacy Capital · Liberty Mutual · Lowenhaupt Global Advisors · Mackay Shields · Manulife/John Hancock Investments · Marsh & McLennan · Mercer Partners · Merrill Lynch · Miramar Asset Management · Moodys Investor Services · Morgan Keegan · Morgan Stanley · New York Stock Exchange · Perkins Wolf McDonnell · Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck Investment Services · RBC · Raymond James · Restoration Capital · Rice Voelker, LLC · Royal Bank of Scotland· Sandler O'Neill & Partners · Sanford Bernstein & Co. · Scotia Capital · Scottrade · Second City Trading LLC · Sequent Energy · Sidoti & Co · Simmons & Co. · Southwest Securities · Stephens & Co. · Sterne Agee · Stewart Capital LLC · Stifel Nicolaus · Sun-Trust Capital Markets · Susquehanna Investment Group · Thomas Weisel Partners · TD Waterhouse Securities · Texas Employee Retirement System · Texas Teachers Retirement System · ThirtyNorth Investments · Thornburg Investment Management · Tivoli Partners · Tudor Pickering & Co. · Tulane University Endowment Fund · Turner Investment Partners · UBS · Value Line Investments · Vaughan Nelson Investment Management · Wells Fargo Capital Management · Whitney National Bank · William Blair & Co. · Zephyr Management