Globalstar's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.10.14 | About: Globalstar, Inc. (GSAT)

Globalstar, Inc. (NYSEMKT:GSAT)

Q4 2013 Earnings Conference Call

March 10, 2014 5:00 PM ET

Executives

Kathryn Singer - IR

Jay Monroe - Chairman and CEO

Rebecca Clary - CAO and Corporate Controller

Tim Taylor - VP of Finance

Analysts

Jim McIlree - Chardan Capital

Marco Rodriguez - Stonegate Securities

Lance Vitanza - CRT Capital Group

Dan Weiss - Credit Suisse

Operator

Welcome to the Globalstar Inc. Fourth Quarter and Full Year 2013 Earnings Conference Call. My name is Sherry and I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. Please note that this conference is being recorded.

I’d like to turn the call over to Kathryn Singer. Kathryn, please go ahead.

Kathryn Singer

Thank you, operator. Good afternoon, everyone. Thank you for joining us for today’s conference call to discuss Globalstar’s three and 12 month results for the period ended December 31, 2013.

Before we begin, please note the following. This call may contain forward-looking statements within the meaning of federal securities laws. Factors that could cause results to differ materially are described in the Safe Harbor section of recent press releases and in Globalstar’s SEC filings, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

The press release, this conference call and the associated slide presentation, which is available on the Investor Relations page of Globalstar’s website, include discussions of certain non-GAAP financial measures, as defined under SEC rules. The press release provides a reconciliation of each of those non-GAAP measures to the most comparable GAAP measure.

Please note that the information in this call is accurate only as of today, Monday, March 10, 2014. The fourth quarter and full year 2013 press release that was issued this afternoon, which contains certain financial information, is available on the Company website at www.globalstar.com. Later today an audio recording of this conference call will also be available via telephone dial-in and a webcast recording, along with the copy of the slide presentation will also be made available on the Company website.

Today’s call is being presented by Mr. Jay Monroe, Chairman and CEO; and Rebecca Clary, Chief Accounting Officer and Corporate Controller. Joining Jay and Rebecca for the question-and-answer session will be Tim Taylor, Vice President of Finance.

Now it's my pleasure to turn the call over to Jay.

Jay Monroe

Good afternoon, everyone and thank you for joining us today. 2013 represented a truly historic year for Globalstar. And after a multiyear period of difficulties and delays this was the year we were able to emerge with a fully operational second-generation constellation, a materially improved balance sheet, additional liquidity, an improved growth profile, and the initiation of an important regulatory proceeding. Looking back at the position we were in just a year ago, I am very proud of the Company’s ability to have skillfully navigated these issues, and it was driven by our resolute belief in the opportunities that remained before us at Globalstar.

We are driven mainly by the fundamental belief that the removal of certain impediments which set the Company on a path to long-term prosperity. Our opportunities where at the centre of a global revolution in the communications industry and we look forward to being a major participant in solving the world’s demand for connectivity, whether it’s satellite markets outside terrestrial networks, mobile broadband access outdoors, in-homes, in the workplace and classrooms or by providing critical communications for close disaster recovery operations, globally. No other single company, satellite or terrestrial, has similar global assets with the potential for competitive and market disruptive telecommunications offerings everywhere.

Simply put, we have the opportunity to deliver bits and bytes, faster, at the lowest cost while covering billions of people within our global footprint. Globalstar’s unique and expansive potential is what has driven you, our investors, to stick with us during some very dark days. Our employees continually innovated and improved operations in the face of uncertainty and for me personally to develop my firm’s capital and 10 years of my life to help position the Company to capitalize on its inherent that often overlooked opportunities.

While we worked hard to be in a position that we are in today, we’re not pausing for a moment even as we celebrate recent successes. In the past year we cleared many obstacles, but our focus remains on the near and long-term growth opportunities to maximize the utilization of our unique asset base including ensuring the success of our ongoing regulatory process.

Before I provide additional updates and we open for Q&A, let’s turn to Rebecca to review Q4 and full year 2013 financial results. Rebecca?

Rebecca Clary

Thank you, Jay and good afternoon everyone. Our financial performance in 2013 was marked by significant improvements throughout our business. We were successful in cleaning up our balance sheet, particularly as it relates to the amendment of our COFACE Facility agreement and the exchange of our five and three quarters note. We were also successful in growing our Duplex business by leveraging the completed constellation. With our final satellite being placed into service in August, we were able to capitalize on this milestone in the last few months of the year, and even with only four months of contribution including three months of slow sales from a seasonality perspective our annual 2013 results were strong.

Key metrics from our Duplex business experienced material growth on a year-over-year basis from 2012 with service revenues up 24%, equipment revenues up 90%, ARPU up 29% and gross subscriber additions more than doubling. The successes in our SPOT and Simplex lines of business further supplemented Duplex growth.

Now focusing on a quarter-over-quarter financial performance. As shown on Slide 3, total revenue was 21 million in the fourth quarter of 2013 compared to 19.1 million in the fourth quarter of 2012. This increase was driven by growth in the service and equipment revenue. Service revenue increased 10% to 16.8 million during the fourth quarter of 2013 due primarily to an expansion in our total subscriber base and improved ARPU and equipment revenue increased 12% to 4.2 million over the same period due primarily to an increase in the volume of units sold.

Service revenue from our Duplex, SPOT and Simplex lines of business improved 1.8 million or 15% from the fourth quarter of 2012. SPOT and Simplex service revenue experienced slight increases, while Duplex service revenue contributed 1.5 million to the total increase, representing a 33% increase over the prior year’s quarter. Driving the increase in Duplex service revenue was a 35% increase in ARPU which grew from $18 in the fourth quarter of 2012 to almost $25 in the fourth quarter of 2013. The continued increase in ARPU is due to an improvement in the quality of our subscriber base.

Over the past 12 months, we have continued to successfully win back old subscribers, while adding over 15,000 new ones to the network. Our process of migrating legacy subscribers to current rate plans has led to the conversion of over 22,000 loyal customers to higher rate plans. As well as churn of over 9,000 others, which were generating little to no revenue and therefore were not contributed to ARPU. All of these factors have driven the continued increase in ARPU over the past several quarters. We expect further increases throughout 2014 while total subscribers will continue to be impacted by forced churn of low revenue generating subscribers as we continue to cleanse the base. While total subscribers is a metric we closely monitor, we are not focused on simply growing the number of total Duplex subscribers on the network. But instead on continuing to improve the value and revenue generated from the base to improve service revenue. We expect the migration program to be completed by the end of this year.

Subscriber equipment sales increased 13% to 4.2 million in the fourth quarter of 2013. This increase was driven primarily by a 70% increase in Duplex equipment revenue and a 30% increase in SPOT equipment revenue. These increases were offset by a decrease in Simplex equipment revenue of 0.5 million or 28% due primarily to the mix of products sold during the respective quarters. Consistent with trends we have seen over the past few quarters, we continue to experience resurgence of our Duplex business. One clear data point is the significant increase in the number of phone sales from 2012. Total unit sales including both Globalstar and SPOT handsets increased nearly 50% from the fourth quarter of 2012.

Regarding SPOT equipment revenue, we experienced higher sales volume due to a full quarter of sales from the SPOT Gen3 and through the introduction of the SPOT Trace following its launch in November 2013. We are optimistic that these products will continue to have a meaningful impact on our future financial results. SPOT Gen3 is sold at a higher margin than its predecessor and the SPOT Trace is targeted to a much broader consumer audience than our legacy SPOT products.

The substantial increase in net loss during the fourth quarter of 2013 from the fourth quarter of 2012 was driven primarily by non-cash items including a $189 million fluctuation in derivative valuation adjustments from a gain in the fourth quarter of 2012 to a loss in the fourth quarter of 2013. Although not intuitive, the derivative loss recorded during the fourth quarter of 2013 was driven by the over 60% increase in the Company stock price from September 30, 2013 to December 31, 2013. Also driving the increase in net loss was a $20 million increase in non-cash interest expense associated primarily with the conversion of our remaining 5% convertible notes in November 2013, which also was due to the increase in our stock price.

Other non-cash items including the impairment of certain excess Duplex accessories held in inventory as well as higher depreciation expense also contributed to the increase in net loss.

Adjusted EBITDA increased 58% to 3.9 million during the fourth quarter of 2013 as compared to the prior year’s quarter. This increase was driven primarily by a $1.9 million increase in total revenue offset partially by a $0.5 million increase in operating expenses excluding EBITDA adjustments. The continued improvement in our Duplex business drove the increase in total revenue, contributing 2.1 million to the overall increase. Customer demand in our Duplex business continues to increase due to the product and service offerings that are available to our subscribers and the improved network performance from 2012, which is bolstering higher minutes of use and growth activations.

Higher operating expenses excluding EBITDA adjustments were largely driven by increased sales and marketing expenditures due to new product introductions, service offerings and distribution channels. These investments in our future growth added an incremental 1.2 million in the fourth quarter of 2013 as compared to the fourth quarter of 2012.

Our ability to successfully promote and build awareness around the recent expansion of our network coverage has allowed us to drive increasing subscriber additions and improve the overall quality of our subscriber base which is resulting in the continued increase in service and equipment revenue particularly in our Duplex line of business.

Now let’s look back at our historical performance as shown on Slide 4. Our financial results last peaked in 2006, a year when our business was centered predominantly around Duplex with little to no contribution from one-way products and operated almost exclusively in North America. During that year, we recognized total revenue of 137 million and adjusted EBITDA of 34 million. From that point, our financial performance was significantly impaired after the constellation degradation in 2007.

As we worked to rebuild and restore our services levels during these difficult years, we took necessary steps to retain subscribers. We significantly reduced pricing for both handsets and rate planes and we turned our focus to building auxiliary businesses in SPOT and Simplex. We emerged from this period with a more balanced business plan, with 39% of our total revenues in 2013 coming from SPOT and 16% from Simplex. We also acquired network assets around the world and are beginning to leverage these assets to expand in international markets. The contribution from these markets during 2013 was 10% of our total revenue. We expect this to grow in the coming quarters.

Last quarter we discussed investments we had made to restore our gateway infrastructure in Brazil. We are focused on these Latin American regions as well as future expansion opportunities across Asia, Africa and Europe. Our reflection on 2006 financial performance should not be viewed as guidance for future results as the MSS industry has transformed over the years, but should be considered as an indicator of what our traditional Duplex business has produced in the past.

And now an update on the Company’s liquidity position at year-end. We ended 2013 with an unrestricted cash balance of 17.4 million after drawing 6 million from the Terrapin equity lines during the fourth quarter, $24 million remains available under this commitment through June 2015. Additionally $5 million remains available under the funding bad stock from Thermo. We also retained $37.9 million in the debt service reserve account which is restricted to make payments towards principle and interest amounts due under the COFACE Facility.

Another source of liquidity will come from our inventory balance which was 31.8 million as of December 31, 2013. The majority of which is comprised of Duplex handsets and accessories. This balance will continue to be reduced overtime as Duplex sales accelerate without the need for immediate expenditures for inventory replacement. We also expect to receive proceeds from the exercise of in the money warrants and stock options during 2014. The expense of these proceeds will depend on how many warrants are exercised on a cash basis.

Our contractual obligations during 2014 include primarily debt service payments and capital expenditure obligations. Our debt related payments include the first principle payments due under the COFACE Facility agreement of $4 million in December 2014 as well as semi-annual interest payments due under the facility agreement and 8% notes that were issued in 2013, which are estimated to be $20 million in the aggregate.

Our capital expenditure obligations which are predominantly to support our gateway related effort, are estimated to be 25 million in 2014. One of our ground vendors has recently elected payment in stock in lieu of cash for their past milestone work. We expect to provide a similar stock payment option for future work to be performed by these vendors although neither vendor have contractually committed to accept the formal payment.

Looking forward, we continue to see the positive trends we expected from our Duplex business. Increasing Duplex ARPU, improving phone sales and rising minutes of use are all strong indicators of future revenue growth. We also are confident in the market’s reaction to the new suite of Duplex, SPOT and Simplex products we have introduced in 2013 and will continue to introduce in the coming months.

Overall, we had a strong year, particularly in a second half as we were able to successfully leverage our restored constellation and new products offering. With the return of our Duplex business and a concentration on driving meaningful contribution from various international markets and new products into the coming quarters, we remain optimistic about our future growth potential.

I will now turn the call back over to Jay.

Jay Monroe

Thanks, Rebecca. Although all second-generation satellites were in-service for only last four months of 2013, which is a seasonally weak period for us each year. Globalstar experienced a return to robust Duplex growth as new subscribers in the MSS market have once again started to choose us over the competition. We have always had the market’s finest voice quality, leased expense apprising and fastest mobile data rates and last year’s restoration of service reestablishes the Company’s position in these areas.

While we think our competitors will retain their leading positions in the deep ocean maritime markets, we expect Globalstar’s share of the industries land mobile and coastal markets to continue to increase. After years of struggling to compete and being forced to slash pricing, while at the same time diversifying our product offering to include mass consumer products, our network has been restored so we can capitalize on the inherent advantages of Globalstar’s network architecture.

Last year these technical advantages and improved product offerings drove material growth across our primary Duplex metrics, including as Rebecca said, rapidly growing gross additions up 126%, equipment revenue which increased 90% during that time, ARPU which increased 29% and service revenue which grew 24%. All this drove EBITDA up by 58% quarter-over-quarter. We’re now beyond the inflection point we’ve talked about over the past several quarters and look to emerge as the industry’s leading Duplex operator with the highest growth rate. Duplex is our highest margin business line and we will drive EBITDA and cash flow over the coming years from this.

The fixed cost nature of our asset base results in highly EBITDA accretive service revenue, service revenue driven by a combination of increased usage, new subscriber contribution and the continued migration of existing subscribers at a higher rate plans.

Let’s turn to Slide 7 to review Simplex and SPOT product lines. These services are designed to address the global demand for small, superpower efficient and cost effective first data products for M2M, asset monitoring and personal tracking solutions. The Company benefits from global trends that are continuing to drive the demand for machine-to-machine connectivity. Our customers are able to realize advantages from tracking assets on a single network worldwide as oppose to [hoch cog] of several regional systems.

Simplex provides the low cost geo-location data necessary to track and monitor remote assets and we expect continued strong Simplex growth driven by favorable macro M2M trends and the increasing functionality in cost advantages of our newly developed Simplex chipsets. These chips allow our value added resellers to reduce the form factor and the pricing of their end products, improving the economic rationale for tracking the in ever increasing set of commercial assets.

Our SPOT products provide consumer asset tracking as well as emergency services using all of our L-band spectrum globally and with our extraordinary partner GEOS, SPOT has already been responsible for over 2,800 successful emergency life saves since its launch. With over 0.5 million units sold to-date the success of SPOT validates the massive consumer market for the future of satellite-based products if the devices can be built and operated economically, two of our demonstrated strengths.

We expect both our new SPOT Gen3 and SPOT Trace to drive material increase in 2014 SPOT growth rates. Trace is a consumer opportunity with an expanded target market incremental to our current distribution. To-date although our SPOT products have been distributed through a network of retailers focused primarily on outdoor enthusiasts. Trace targets all consumers who own assets that they want to track or keep secure. It’s a P1 product priced at $100 and Trace has the potential to be sold everywhere from local hardware stores, mass market retail and into the OEM markets.

In fact we are already developing an industrial version of Trace for the non-consumer space. We also believe Trace can serve as the beach head for new consumer products in previously uncapped channels and expanded distribution is critical to this effort.

Slide 8 provides a summary of the principle growth strategies for 2014. As we discussed last quarter, we are committed to international expansion and now have the capital required in the market demand to upgrade gateway infrastructure build for sales and marketing operations and to aggressively promote Globalstar’s products in underserved and un-served regions.

Initially we were focused on Central and South America but we’ll continue expansion in areas where we have existing gateway assets and also into Greenfield territories. Historic distribution channels are in the early stages of reengaging with the Company’s product line and we’re continuing to win back channel partners while building non-overlapping and non-traditional distribution.

We will continue to maintain two brand identities with Globalstar serving the government in commercial markets, while leveraging the established brand equity of SPOT for a continued push into mass consumer retail. For example, our SPOT Global Phone comprised 38% of our unit growth since its arrival in the consumer retail channel in 2013.

We have also refocused our sales and marketing efforts with a combination of new service offerings and an expanded advertising campaign to set rollout in the second quarter. In order to align our available plans with consumer preference for flexible service options, we’ve just developed a prepaid offering in Europe and plan to rollout this offering in all markets this summer. Additionally, while previous service plans did not encourage intra-territory usage, given the somewhat hard to understand roaming structure, we will soon allow subscribers to roll in many foreign markets without the occurrence of roaming charges. This is an important step in simplifying the user experience and improving the subscriber satisfaction.

In addition to these initiatives, we also look to win back subscribers lost over the constellation and reconstruction period. We have introduced a new program, we call, Trade-In Trade-Up. This allows users on competitors’ networks to switch to Globalstar without the expense of purchasing a new phone. They simply turn in their non-Globalstar phone and they’re often running. We believe this will accelerate the customers’ decision to switch while providing them with the opportunity to immediately reduce their recurring service bill, simultaneously enjoy improved service quality.

On Page 9, we summarize the high level MSS competitive landscape and provide a snapshot of Globalstar’s reemergence with simple indisputable market facts, including our growth profile that is indicative of changing industry dynamics as we regain market share. We will continue to offer the most competitive service plans while maintaining the industry’s lowest fixed cost operating structure. The MSS market as a whole has matured over the past several years and our primary competitors have exhibited only modest growth. We believe this has been due to saturation in traditional markets and from the high equipment cost and service fees charged by these competitors.

What is mandatory for market growth is a commitment to continuance and dynamic product service and pricing evolution which will expand the relevance of these MSS products. Globalstar is committed to not only recapturing share in traditional markets, but expanding the market by driving down product costs and market prices, reducing product form factor and materially enhancing the functionality. We have been successful in these efforts with our Simplex and SPOT products and we believe the opportunity is even more profound in the two-way voice and data markets.

For instance our Sat-Fi which was a multiyear product development effort announced last month turns any Wi-Fi enabled smartphone, tablet or computer into a satellite phone or satellite gated device operable on our satellite network. We believe Sat-Fi will lead the industry’s drive towards converged satellite and terrestrial products. Sat-Fi extends the connectivity of a subscribers’ existing device beyond terrestrial coverage, an area that includes 75% of the landmass of the earth. Sat-Fi has already been tested and used by numerous parties including governmental agencies and multinational companies in diverse industries. The results have been remarkable. We expect the initial version in the market soon to penetrate the commercial, government, coastal marine and other vertical markets. We’re even more bullish about Sat-Fi’s evaluation when the Hughes ground infrastructure becomes available.

Hughes-based devices can provide an integrated product comparable in size to a standard computer mouse. We’re targeting a retail price of only $100, a price point that will radically expand the addressable market. Top help frame this opportunity and establish a data point Globalstar has sold over a 0.5 million SPOT units, a product with one-way functionality and with no voice or data capabilities. It’s been priced at retail overtime between $100 and $200 with two-way voice, texting and data connectivity and the ability to use your existing smartphone beyond cellular, we believe Sat-Fi represents the most exciting MSS product ever and at a $100 price will excite potential subscribers in both developed and emerging markets that without otherwise never even considered traditional satellite products. We look forward to introducing the first commercial version of Sat-Fi upon receiving product certification expected in the second quarter and are working to complete our ground infrastructure upgrade enabling a mass consumer market version of Sat-Fi late next year.

Turning to the update on the FCC’s notice of proposed rulemaking for TLPS, we’re pleased to have hit another process milestone in February with the publication of the NPRM in the Federal Register. This event establishes the comment cycle with initial comments due May 5th and required comments due June 4th. With the comments cycle closing at early June, we believe the FCC can reach a final position adopting the proposed rules this year perhaps as early as late in third quarter. We’re pleased that recent real world experiential testing has continued to confirm the technical capability of TLPS. TLPS not only offers vastly superior range and throughput capabilities versus traditional Wi-Fi, but it’s capable of immediate deployment with attractive build out economics.

Cellular power deployment and operating cost are the most significant cost in any traditional wireless network. TLPS provides insanely low cost coverage given the network topology, which is essentially just carrier grade Wi-Fi access points using existing power and backhaul that we all already have on our homes, our offices, our schools and other desks. We look forward to the deployment of a service that will immediately free-up 20 megahertz of nationwide spectrum. We have often spoken of the need to release the existing Wi-Fi traffic jam and the need is greatest in our nation’s classrooms. That’s why we have committed to provide the unique capabilities of TLPS to 1,000s of schools of across the country offer the wireless experience unparallel by any other technology. With swift regulatory approval Globalstar’s offering will help meet the President’s connected goals which Globalstar’s fully supports.

With this, we conclude the prepared remarks. Operator, would you please given instructions for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Jim McIlree of Chardan Capital.

Jim McIlree - Chardan Capital

Thank you and good afternoon. Jay, can you just give us an update on any changes that might be occurring and how you’re viewing the TLPS partnerships or monetization? I know that there is a lot of different scenarios out there, but I’m just wondering if anything has changed in terms of what might be looking better or worse as you discuss this with financial partners?

Jay Monroe

Jim, not much has changed except that we have a pulled a couple of additional experimental licenses for our parties who are now testing TLPS, so we’re encouraged both by the actual results of those tests, but also the interest from several different parties. But there has been no substantial change in the nature and timing of the dialog with third-parties at this point. Many of whom are exceedingly interested enough to test, but are watching the regulatory process currently.

Jim McIlree - Chardan Capital

And are these experimental licenses in the same geographies that prior to experimental licenses were located?

Jay Monroe

There is one that’s recently been pulled on the far Eastern side of the United States. I recall that another one was pulled a while ago in Boston, but some on the West Coast and I know some others are working their way through the process now.

Jim McIlree - Chardan Capital

Okay. Rebecca you talked about cleansing the base in 2014, I was hoping that I could get a little bit more clarity on what you mean by that. So, if in terms of the Duplex base 86,000-87,000, or so, how much of that needs to be cleansed still?

Rebecca Clary

So I would say about 20% or so, 20% to 30% and I mean when I say cleansing the base is just really working through various subscribers who aren’t generating a significant amount of revenue. The major subscribers that we transitioned to purely usage based plans just to retain the customer relationship and that was several years ago when we were working to rebuild our constellation. And now that we’re back and we’ve got coverage and service levels that are more than commercially acceptable. We’re trying to convert those customers to our current rate plans. And so it’s a process and we’re dealing with that many subscribers in terms of reaching out to them, building awareness, letting them know that we’re back and then getting them on current rate plans. So these are more price sensitive subscribers because they are not heavy users and that’s why you’re kind of seeing like increased churn levels like you did this past quarter. And so as we kind of finish the migration process we might expect to see those same churn levels.

Jim McIlree - Chardan Capital

Okay. And what were the gross-adds for Duplex in Q4?

Rebecca Clary

There were about a 4,500-5,000, 3,500, sorry Jim.

Jim McIlree - Chardan Capital

3,500?

Rebecca Clary

Yes.

Jim McIlree - Chardan Capital

Okay, great. And I’m sorry Rebecca but if you could just repeat a couple of things. You said, you were talking about interest expense and it sounds like you mentioned something kind of different and then lastly you talked about the Terrapin commitment and I wrote down 24 million. Can you just confirm that that’s the right number?

Rebecca Clary

Yes, that is the right number.

Jim McIlree - Chardan Capital

Okay, great and then the interest expense?

Rebecca Clary

On the interest side, so we had the remaining 5% notes convert during the quarter in November we referenced it on the last call that -- so those conversions basically that bad debt and the related discount was in-charge to interest expense during the quarter so is a non-cash event that is not going to recur.

Jim McIlree - Chardan Capital

Right, and the amount of that non-cash conversion cost was what?

Rebecca Clary

For the year I think it was about 16 million no again I have to check that number and then the remaining amount relates to just less interest being capitalized which we’ve seen over the past several quarters and I think that number was about 6 million for the year.

Jim McIlree - Chardan Capital

Okay, great. Thanks a lot.

Jay Monroe

Sure thing, thanks.

Operator

Thank you. Our next question comes from Marco Rodriguez of Stonegate Securities.

Marco Rodriguez - Stonegate Securities

Good afternoon and thanks for taking my questions. I was wondering if you could talk a little bit more about the Sat-Fi product, if you can perhaps provide some more color surrounding the launch date, how it’s going to be basically launched through channels and maybe you can talk a little bit about how you might be thinking about any kind of potential cannibalization of other products?

Jay Monroe

Marco, this is Jay. We intend to sell Sat-Fi through our existing distribution channels, mostly the channel which includes our vertical market channels and to directly to government in certain cases. We don’t expect it to be high a cannibalization product at this point. I guess overtime as the price comes down and we create something which is Hughes-based we expect it to pretty dramatically expand the marketplace for other customers so once again wouldn’t necessarily anticipate a lot of cannibalization. We do expect it in the second quarter we’re on-tap to deliver it then, assuming that we get the approvals from the FCC which is the regulatory certification process that’s ongoing now.

Marco Rodriguez - Stonegate Securities

Okay. And is the service somewhat different in regard to the normal Duplex MSS service where you’re not really expecting that much cannibalization?

Jay Monroe

Marco, the way I think about this is that it will be interesting to see how people utilize it, because they can use their existing device. It seems intuitive that they will use it more. But we really don’t have any experience with that yet, so can’t say. We do expect to sell high ARPU plans associated with the product and time will tell how that is received in the marketplace, but we’re pretty bullish on it right now. We’ve been using it a couple of beta customers have been using it, some government customers have been using it and the voice quality on it is just remarkable and the other services around it are just amazing. And so we anticipate good, good things to come of it, but we don’t have experience with it yet so we don’t have much to base that upon except history when we launch new products.

Marco Rodriguez - Stonegate Securities

Got it, okay. And then coming back here to the Duplex results here in Q4, the growth seemed a little bit lower than I was anticipating as well as the ARPU. Did you see any sort of increased competition in the quarter or what was kind of driving those results there?

Rebecca Clary

No, Marco, not necessarily increased competition, I’d point more towards seasonality just fourth quarter’s historically low for us.

Marco Rodriguez - Stonegate Securities

Okay, great, thanks guys.

Jay Monroe

Thank you, Marco.

Operator

Thank you. And our next questions from Lance Vitanza.

Lance Vitanza - CRT Capital Group

Hi, it’s Lance Vitanza, CRT, thanks for taking the questions. I just wanted to ask you, you mentioned during prepared remarks I believe that you might be issuing some more stock to vendors in lieu of some cash payments. And I’m wondering if you could provide any incremental color there in terms of the sort of the dollar amounts of the CapEx that this would involve and potentially any color on how the stock grants would be priced?

Jay Monroe

Sure, sure. Lance, think about it this way just to put it in a macro perspective, we have probably 25 million of CapEx plus or minus that we’ll do this year and if the vendors all took 25 million that would compare to roughly a fully diluted 2.5 billion of Globalstar market cap, so the implication would be 1% and the price is at a very modest discount to the 10 day or longer weighted average price of Globalstar stock, so it can be thought of as being slightly but just slightly below market.

Lance Vitanza - CRT Capital Group

Thanks very much.

Jay Monroe

You’re welcome.

Operator

Thank you. Our next question comes from Dowey Dreyer.

Unidentified Analyst

Hello all can you hear me?

Jay Monroe

Yes we can.

Unidentified Analyst

Okay, listen question is -- Jay I want you to pass my regards on to being higher [indiscernible], but I want to go -- what is our association with Orbcomm and Inmarsat?

Jay Monroe

That’s actually one that we’re involved in as well Dewey and what we’ll doing is…

Unidentified Analyst

Jay, it’s Uncle Dowey…

Jay Monroe

Yes Dowey.

Unidentified Analyst

If you’re black you call me Dewey, if you’re white you call me Dowey.

Jay Monroe

Yes Dowey excuse me.

Unidentified Analyst

Alright, no problem.

Jay Monroe

Yes, that is a partnership between us as well as the guys from Inmarsat and Orbcomm, so that different types of connectivity are in new Orbcomm devices and therefore if somebody wants a certain type of service which might be one data speed or whether it’s one-way or two-way, and whether it is store and forward or other than they will activate the service within that Orbcomm modem to provide that service. There are actually four services in many of the Orbcomm products, one of which would be a cellular connectivity. So this is a partnership that we’re all involved in, we’re creating standards around it so that it makes it easy for other people to build back-office solutions and others and broaden the marketplace for it. And it should be pretty interesting over the next couple of years.

Unidentified Analyst

Yes okay good. I am also an owner of Orbcomm, but not yet of Inmarsat. Listen you guys are doing a great job I want to thank you very much. I have been a stockholder from -- and I am going to be it -- it’s been a while, but I thank you very much for your time and thank you for coming to work. Okay I will take your leave. I’m retired, next question.

Jay Monroe

Thank you very much. Bye, bye.

Unidentified Analyst

Thank you.

Operator

Thank you. Our next question comes from Dan Weiss.

Dan Weiss - Credit Suisse

Thank you for taking my question and this is Dan Weiss from Credit Suisse. My question is regarding the recent headlines on the 5 gigahertz spectrum. I was hoping that you could clarify what Globalstar’s existing spectrum rights are in 5 gigahertz as well as whether you view any expansion of Wi-Fi in the 5 gigahertz’s band as potential competition for the TLPS network? And then kind of part three to that, is that do you think by kind of working with the FCC to expand or rather loosen the interference standards in 5 gigahertz, that will kind of help your case for TLPS passage moving forward?

Jay Monroe

Okay, I can answer those questions. First of all the rights, we have the rights as the licensed interest in the 5 gigahertz channels that we operate in. And the unlicensed spectrum users have to abide by the rules that exist in the FCC. And those rules basically say that unlicensed interest cannot cause harmful interference to the licensed interest. So in that sense, we have the rights and we’re content with those. However, in recognition of what the FCC is trying to accomplish with spectrum policy generally, they came to us through this proceeding and asked that we be flexible and work with them and work the 5 gigahertz unlicensed interests in order to make some of the 5.1 gigahertz spectrum available to them on a largely non-interfering basis. And we worked through a process with them that’s lasted the last six months, but the last two months in the furnace and the folks from NCTA which represent a bunch of the cable interests came up with a good solution from Globalstar’s perspective, I think it’s a good solution from the FCC’s perspective and it’s clearly a good solution from their perspective, which eliminates truly harmful interference to us as we view it. It will interfere with Globalstar a little bit, but we hope that it is not harmful and it’s based upon relatively conservative assumptions of what will be rolled out in that band.

Now, there is little question that the 5 gigahertz band operates quite differently than the 2.4 gigahertz band and therefore our TLPS offering and regular Wi-Fi. The nature of it is because of its propagation that it is not a long distance solution, it’s a good high capacity solution close to an access point. And so it will serve a lot of purposes, I mean if you think about it from an indoor perspective it will be very helpful and the 802.11 AC standard is designed in order to enhance capacity in close ranges to access points. So I don’t view it as competitive so much as an augment to what happens in the 2.4 and regular Wi-Fi channels. Does our help in resolving the 5.1 competitive situation help us with the FCC in 2.4? Yes, I think so. I mean clearly we were trying to work with a group to create something that protected Globalstar, but we did it with the FCC helping us and we did it with them helping us. And trying to be a reasonable soldier can only honor to our benefit long-term.

Dan Weiss - Credit Suisse

Certainly. And where exactly are your spectrum rights within 5 gigahertz can clarify that?

Jay Monroe

Sure, 51-50 to 52-50.

Dan Weiss - Credit Suisse

And that’s just for the geography surrounding your actual ground based satellites correct or I used the wrong term but?

Jay Monroe

The gateways?

Dan Weiss - Credit Suisse

Correct. Sorry.

Jay Monroe

Actually, it’s not. The nature of the interference is something that is felt by the satellites. The impact is felt on the feeder links, but it originates from the satellites. And without getting too technical, all I can say is that wherever there are access points if they hadn’t come with the standards that the FCC and NCTA worked out and they were just looking up the sky and impacting the satellite, it has the effect of diminishing the capacity. The actual impact though is not based upon close proximity to the visible gateways on the ground.

Dan Weiss - Credit Suisse

Understood that 51-50 to 52-50 though that’s not the equivalent of your globally harmonized spectrum rights for example in S&L band. This I meant are the spectrum rights more geographically constrained?

Jay Monroe

No, it is identical in that sense. We have the rights to that spectrum wherever we operate globally as part of the architecture and the original licenses with the ITL.

Dan Weiss - Credit Suisse

Thank you and one last follow-up question on related well to 5 gigahertz, have you received any comments thus far for TLPS, the NPRM?

Jay Monroe

No, we haven’t. But that’s not unusual generally speaking the way these processes operate is no one files before the last day. And the obvious reason is that nobody wants anyone else to see what their position will be. And therefore can respond in fact a second time. So no one really responds until the 75th day.

Dan Weiss - Credit Suisse

Okay, thank you very much.

Jay Monroe

Okay.

Operator

Thank you. Our next question comes from Gary Jacoby.

Unidentified Analyst

Good afternoon and thanks for staying so late and taking questions. A couple of questions about this year, 2014, if you haven’t talked too much about your expectations would you spend a minute in terms of market share and any financial discussion you are willing to have about 2014?

Jay Monroe

Sure. First in terms of just pure guidance Gary that is something that we do not offer, so sorry about that but that’s just the way that we have operated. And in terms of market share, I think when you stand back and look what -- at Globalstar’s results from 2013 and with only a constellation completed for less than all of the year in 2013 you’ve already seen a manifest pickup in our subscriber editions. Other sub-editions for the other companies are relatively flat. Ours have been growing nicely. And I think it’s really indicative of two factors; number one, the voice quality, and if you haven’t used Globalstar before, I encourage you to try sometime, it is really remarkable, it is as good as landline quality and that differentiates us.

And the other is that we’ve been very cautious in how we priced things and tried to make sure that our equipment prices are extremely competitive relative to our peers. And so we’ve been picking up subs rather dramatically and our competitors have really not been. We expect that to continue. How that translates into market share, I’d have to think about and work through some math on. But certainly, it will be a positive impact on market share. However, long-term our objective is clear which is to make a bigger market rather than to be in a position where all we’re doing is taking share from others.

Unidentified Analyst

Okay. Do you anticipate as the year goes on that you’ll give a little color into what your expectations are as we move forward?

Jay Monroe

It’s doubtful.

Unidentified Analyst

Okay, thank you very much again, have a nice evening.

Jay Monroe

Thank you, Gary.

Operator

Thank you. And our final question comes from Steve Sweeney.

Unidentified Analyst

Hi. Thanks for taking my question. I had a follow-up on the 5 gigahertz FFC filing. I know you’ve answered the question. Does the agreement sort of give you some goodwill with the FCC on your TLPS NPRM? I was thinking along the lines of -- you came up this agreement with the cable industry and the NCTA, does it sort of make some strategic partnerships with maybe some cable companies or something along those lines more probable or do you sort of paved the way for something like that?

Jay Monroe

Well, I think we’ve been pretty upfront in the past about the work that we’re doing with various groups of partners meaning industry segments and cable is clearly one of those. There is a lot of reason why what we do at the TLPS level should be and in fact is interesting to the cable interests and though these two processes are not strictly linked, either in the cable companies minds or in our ours, again I think we worked well with them, this was a great solution, they came up with it. Not that we didn’t prod, but they came up with it themselves and we’re pleased that they did, so I think all in all augers well for us long term.

Unidentified Analyst

I mean when I first saw the dispute, I guess I don’t know, a few, a month ago or so it seemed like it was going to be a longer process and I guess I was a little surprised at how quickly it was resolved. That was the -- I guess it was the reason for the question, but I had one follow-up on the migration of the Duplex base from the non-paying subscribers. When you say you are successful in getting them to upgrade to the rate plans, can they use their old handsets and equipment, I mean it seems like if the constellation went down or was degraded several years ago, they’d probably need a handset upgrade, I just wanted to see how that works, do they need new handsets or can they use their old stuff?

Rebecca Clary

No, they should be able to use their old stuff and to the extent that they need a battery then we would of course supply that but they’re going to use their old handsets with no problem.

Unidentified Analyst

Okay. And then one last question on the Sat-Fi service, in the experimental or the trial runs what kind of bandwidth, what’s a realistic bandwidth rate you can get on the data part of it?

Jay Monroe

Right now Sat-Fi operates just exactly like the regular Globalstar network over the Qualcomm chipsets, so it’s 9.6 speeds plus compression which is 4 times that of Iridium and Inmarsat handset doesn’t actually accommodate data, so it’s still very nice option for people that know how to utilize it and we provide a layer of software that makes that easy for them.

Unidentified Analyst

Okay, great, thanks a lot for taking the questions and have a good night.

Jay Monroe

You’re welcome. Okay operator, I think that was the last question. So thank you all for your participation today, we’ll keep you informed of the ongoing operational progress. I mean our regulatory milestones as those all occur, as I mentioned earlier we’re not pausing for a moment and continue to work every day to ensure the Company fully capitalizes on the opportunities in front of us this year. Thanks again and have a good evening.

Operator

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!