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Globalstar (NYSEMKT:GSAT)

Q2 2014 Results Earnings Conference Call

August 11, 2014, 5:00 p.m. ET

Executives

Jay Monroe - Chairman and CEO

Tim Taylor - VP, Finance

Analysts

Jim McIlree - Chardan Capital

Jason Bernstein - Odeon Capital

Steve Sweeney - Elevation

Operator

Welcome to the Globalstar Inc. second quarter 2014 earnings conference call. [Operator instructions.] I’d now turn the call over to Kathryn Singer. Ms. Singer, you may begin.

Kathryn Singer

Thank you, operator. Good afternoon, everyone. Thank you for joining us for today’s conference call to discuss Globalstar’s three month results for the period ended June 30, 2014.

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 are 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, August 11, 2014.

The second quarter 2014 press release that was issued this afternoon is available on the company’s web site at www.globalstar.com. Later today, an audio recording of this conference call will also made available via telephone dial-in and a webcast recording, along with a copy of the slide presentation, will also be made available on the company web site.

Today’s call is being presented by Mr. Jay Monroe, chairman and CEO; and Tim Taylor, vice president of finance. Tim is filling in for Rebecca Clary, Globalstar’s chief accounting officer and corporate controller, while she is on maternity leave. We would like to congratulate Rebecca on the birth of her healthy son earlier this quarter.

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

Tim Taylor

Thank you, and good afternoon everyone. As we stated on last quarter’s conference call, Q2 represented an important period for the company, since it was the first seasonally favorable quarter following the completion of the second generation satellite network last year.

We view the financial results from this quarter as an important test period to demonstrate operating performance resurgence, and I am pleased to report that the results were strong across all principal metrics that drive our business. These results leverage the restoration of two-way communication services and provide a strong indication of continued growth over the coming quarters and years.

Total revenue for the second quarter was $24 million, up 21% compared to the second quarter of 2014. Growth was driven by a combination of both service and equipment revenue, as average subscribers, ARPU, and equipment sales experienced strong gains over the prior year period.

Consolidated service revenue increased 16%, and total equipment revenue increased 38%. The primary driver of service revenue growth was the 29% increase in Duplex, as paying subscribers and adjusted ARPU increased 17% and 23% respectively over Q2 2013.

For the next several quarters, we will continue to present both adjusted subscriber and adjusted ARPU metrics to reflect the deactivation of 26,000 suspended, low-paying, and nonpaying legacy subscribers in March of this year.

New additions have become the principal driver of increased service revenue, accounting for approximately 60% of Duplex service growth. The improvement in ARPU was driven by the migration of subscribers to higher-priced plans over the past 12 months, combined with increased [unintelligible] on variable rate plans.

The subscriber migration process is winding down and will be complete in the coming quarters. Gross Duplex subscriber additions during the quarter of 5,500 increased 32% over Q2 of last year, and net Duplex subscriber growth of 3,300, compared to less than 1,000 net additions in the same period a year ago.

Over the past year, service revenue growth was further driven by a 50,000, or 24% increase in the Simplex subscriber base, as Simplex service revenue improved 36%. Subscriber equipment sales increased 38% in the second quarter over the prior year period. This increase was driven primarily by a 76% improvement in SPOT equipment revenue and a 52% increase in Simplex equipment revenue.

These increases were offset by a 12% decrease in Duplex equipment revenue, due to high volumes in the prior year period associated with the initial release of the SPOT global phone. Simplex equipment revenue was aided by the shipment of the next tranche of 6,000 SmartOne units delivered for Ecuador’s commercial fishing fleet.

We announced Globalstar’s winning bid for this deal in May, and to date have shipped 10,000 units, which provide emergency service connectivity for the country’s national emergency response system. We expect additional product shipments in 2015, as the outfitting and installation of these units progress.

From a geographical perspective, while North America continues to be the dominant market across all product lines, as we have communicated over the past several quarters, we see material growth opportunities within our global footprint. For example, our initial area of expanded focus has been South America, where we have three gateways in Brazil.

Historically, prior to acquiring these gateways, we had received only a modest stream of wholesale revenue from our independent partner. Post-acquisition, as opposed to receiving limited wholesale revenue, this market now provides direct retail revenue as we fully control the operations and retain 100% of the generated subscriber revenue.

After our satellite service was restored last year, we committed the resources necessary to both upgrade the ground infrastructure in Brazil and build out a new sales and marketing organization. The fundamentals of this market make it the most favorable initial expansion opportunity given the preexisting ground infrastructure in place, combined with poor terrestrial coverage in areas of heavy industry, where satellite connectivity is in high demand.

We are beginning to see a favorable diversification shift within the business overall, with an increasing contribution from non-North American operations, even as we experience accelerating growth in North America.

While the makeup of the company’s total duplex subscriber base ending June 30 was only 10% outside of North America, these markets delivered 15% of the gross subscriber additions for the quarter, up from 6% of the total from Q2 of last year.

We view gross additions as a strong leading indicator of the direction of future revenue mix. As we look out over the next three years, our goal is for non-North American subscriber to compose one half of the total subscriber base.

The initial results in Brazil are favorable, and demonstrate that we can compete in any market where we have a combination of quality coverage and properly allocated sales and marketing resources. In the near term, we are expanding further in South and Central America and Europe, and are analyzing greenfield opportunities in Africa. We are also evaluating certain Asian markets, including territories where we can leverage existing gateway infrastructure in both Korea and Southeast Asia.

Turning back to the quarter’s financial results, adjusted EBITDA increased 70% to $5 million during the second quarter. This was driven by a $4.2 million increase in total revenue, offset by a $2.1 million increase in operating expenses, excluding EBITDA adjustments.

The increase in operating expenses was primarily due to higher cost of equipment sales associated with equipment revenue growth and an increase in SG&A expenses in the amount of $1.7 million over the prior year period.

As of June 30, we held an unrestricted cash balance of $23.8 million. The Terrapin equity line remains in place, with $24 million of availability. Our debt service reserve account totals $37.9 million and is restricted to the payment of principal and interest amounts due under the COFACE facility.

Our contractual obligations over the next 12 months include primarily debt service payments and capital expenditure obligations. Debt-related items include the first two principal payments due under the COFACE facility agreement of $4 million and $3.2 million in December 2014 and June 2015, as well as semiannual cash interest payments due under the COFACE facility and subordinated notes, which in aggregate are estimated to be $20 million.

Cash capital expenditure obligations which are predominantly to support our next-generation ground infrastructure are expected to be $14.1 million through year-end and $26.4 million over the next 12-month period.

The delevering of our balance sheet accelerated during the quarter as the remaining $38 million of our 2009 8% convertible notes was fully equitized. This event resulted from the automatic conversion provision in the supplemental indenture governing the notes, which provided for the immediate equitization of the bonds after 30 trading days above 200% of the underlying conversion price.

The conversion eliminated the future derivative liabilities tied to these notes from our balance sheet. Moreover, in May, we reached the one-year anniversary of the 2013 8% notes, which triggered the effectiveness of the make-whole provision. This provision prompted equity conversions of $17 million, which convert over a 40-day period. Over the past 12 months, the conversion of the company’s subordinated debt reduced the company’s indebtedness by $110.4 million.

In summary, we are pleased to see solid financial progress across all business lines as we reestablish market share in our core North American markets and are also pleased to see encouraging data points related to our international expansion efforts. Moving forward, we believe that growth will continue to accelerate and Jay will provide additional detail on the company’s core drivers behind this growth.

I will now turn the call over to Jay.

Jay Monroe

Thanks, Tim. The second quarter was an important time for the company on so many fronts. We listed the New York Stock Exchange, experienced strong growth across our main financial metrics. We launched the integrated cellular satellite Sat-Fi product, and completed the initial comment and reply comment periods for our TLPS proceeding at the FCC.

While we’ve had a very productive first half of 2014, we remain sharply focused on driving future milestones, both operationally and on the regulatory fronts. We’ve reached a critical turning point in the core business, making the transition from construction and stabilization to expansion and growth.

As we announced on the last earnings call, our operational focus has transitioned from years devoted to launching a new satellite network to a sales first organization today. This shift in focus helps drive the quarter’s financial results and we’re encouraged that our increased attention to sales and marketing is leading to an increase in market share.

When we restored the satellite constellation last year, we knew this quarter would be an important time, allowing us to reassess our positioning in the industry. While we are now the highest-growth company in MSS by several measures, we still need to achieve substantial scale.

Quarter after quarter, our scale is building, and we expect to continue to restore market share in North America, develop and deploy our new suite of Duplex, Simplex, and SPOT products; expand into overseas markets where we have existing infrastructure, and to invest in new greenfield markets.

For instance, in July of this year, 100 Globalstar satellite handsets were used to provide clear and reliable communications across the U.K. stage of the Tour de France. The handsets were used by members of the organizing team as well as by support and emergency crews. We also provided satellite communications for the 2014 Boston Marathon, what is now one of the largest security events in the U.S., to ensure safety and seamless communications throughout the race.

While we restored quality network coverage last year, we have worked this year to implement operational changes in sales and marketing to improve flexibility of our service offerings and our competitive positioning. During the quarter, we announced the availability of prepaid plans, which are the primary pricing structure of our competitors, and are now available as an option for Globalstar subscribers.

While prepaid is a complementary option in North America, it is a critical component to success abroad. To also help promote inter-regional usage, we announced large home zone initiatives which extend home areas so they will no longer subject to roaming charges. As opposed to a subscriber paying roaming rates when calling outside of their home market, under our previous plans, the large home zone allow the subscriber to roam freely when making or receiving calls across Canada, the U.S., Brazil, North Africa, as well as the Atlantic, Mediterranean, and North Seas.

This no-roaming footprint will be expanded to include additional territories over time and should drive increased usage in the attractiveness of our offering at the point of sale. Before prepaid in the large home zone, though our service quality and basic pricing levels have been the best in the industry, our legacy pricing structure created barriers that have now been removed.

With our new initiative, we can aggressively compete and take market share in absolutely any region where we deploy our resources. This quarter’s results help to affirm this view and give us confidence as we continue to the expansion of these initiatives.

Our focus on new products has continued, and recently we released SatFi in the STX3 Simplex transmitter. SatFi allows our commercial subscriber in such industries as maritime, oil and gas, emergency management, and so on to connect any smartphone, tablet, or computer to our satellite radio system, enabling seamless connectivity when out of cellular range.

The MSS industry is going through a major industry shift where the integration of satellite and terrestrial products, an idea that’s really been around for more than a decade, is now being realized. SatFi provides our commercial customers with the capability to use their preferred, primary device for voice and data over the satellite network.

The SatFi hardware today is priced at $1,000, which we plan to reduce over time as scale increases and the bill of material costs decreases. It was a significant milestone to prove out this technology. Now, our R&D efforts are focused on reducing the cost of each component, reducing the form factor, and adding to the product’s functionality and flexibility.

While the current version of the product has received a number of favorable reviews from independent sources, including a leading article in Wired Magazine, we remain committed to future versions of the product, with the goal of developing a $100 consumer-focused device when our next-generation ground infrastructure is completed next year.

In order to set a baseline for this opportunity, note that we have 230,000 subscriber using our one-way SPOT devices today. The next-generation SatFi will provide subscribers two-way voice, data, tracking, and texting capabilities for approximately the same cost as a SPOT device, which should dramatically increase the addressable market for us.

With this increased functionality and low cost, we believe our business will evolve over the years such that SatFi and its future iterations will become our leading products. Over the past few months, we’ve made significant progress on our next-generation ground infrastructure, which will allow for these new products and services.

The first new radio access network, or RAN, from Hughes, will be delivered early in 2015, with the full rollout in all of North America expected by the end of next year. This will improve our data speeds by as much as 25x.

Importantly, the transition from the legacy Qualcomm network to a Hughes-based network architecture will allow us to roll out new products using all modern components and technology. This is central to our product development effort and our drive to reduce costs.

On another subscription, over the past several months, the world has become increasingly aware of the technology void associated with air traffic communications and tracking. Globalstar has been working for many years to develop the technology to support ground-based ADS-B with complementary space-based technology.

Together with our partners at ADS-B Technologies, we believe we have a superior system that is deployable in the near term and has favorable technical and cost attributes. We look forward to continuing our work and the approval process with the FCC and other international agencies.

This month, in support of that approval, we’re completing a four-day test prototype trip from Anchorage to Corpus Christi, across the Gulf of Mexico to Tampa, followed by a return trip to Alaska. This trip will provide the most comprehensive real-time flight test data over any satellite network ever, and we will look to demonstrate the capabilities of our space-based system over land, rough terrain, and water. We remain on track to have an FAA approval of this system next year.

And now I’d like to turn to an update on the FCC proceeding. We completed two important milestones in Q2, which were the initial and reply comments to the commission’s notice of proposed rulemaking. We want to acknowledge and thank the many parties that filed in support of our proceeding.

The reply period, which ended in early June, gave us the opportunity to respond to issues that were raised in the initial comment round. We continue to believe very pleased with the state of public comments and the support developed in this proceeding.

Additionally, our work has continued with a diverse set of potential partners across industry sectors as these companies test TLPS technology and the annualized post-rollout business models. We expect additional testing to take place over the coming months by both U.S. and international parties.

Potential partners are proving out the ability to utilize existing infrastructure in the deployment of TLPS, and are becoming educated on the fact that this is the only spectrum of its kind that represents a global opportunity for many of them.

TLPS can also offer multiples of the capacity of an LTE macro-cellular network, effectively creating a much larger spectrum resource from a single 22 MHz channel. With millions of uncoordinated APs and end devices, traditional wifi has reached exhaustion. As a licensed service, TLPS will provide a sustainable, high-performance wireless broadband resource. The spectrum will result in a material improvement to the quality of service while buildout cost and time to monetization are negligible as compared to any new alternative spectrum band.

We recently completed a request for information process that engaged equipment providers, network management companies, and service partners regarding all aspects of a TLPS rollout. This RFI was originally focused on the 20,000 access points we will deploy to support improved broadband in public schools and colleges across the country.

We received responses from more than a dozen leading global companies representing both end user devices and infrastructure. We are now expanding these discussions to include broader nationwide deployment plans.

In the weeks following the reply period, we filed a series of ex partes in the FCC proceeding summarizing initial post-comment period meetings which were held between Globalstar and the bureaus, the offices of the commissioners, and the office of the chairman.

During these meetings, we encouraged the commission to move expeditiously with a report and order in our proceeding. We believe they understand and agree that TLPS can quickly add 22 MHz to the nation’s broadband spectrum inventory and help ease acute congestion. We continue to believe that the commission can adopt a final order by the end of this year and look forward to working with the FCC over the coming months.

This concludes our prepared remarks. Operator, would you please open up the call for Q&A?

Question-and-Answer Session

Operator

[Operator instructions.] And we have a question from Jim McIlree of Chardan Capital.

Jim McIlree - Chardan Capital

Jay, in your comments about the TLPS testing, you mentioned potential international partners. Were you referring to internationally domiciled partners who would be testing in the U.S.? Or are you also testing this now in international locations?

Jay Monroe

Jim, we are not testing it internationally. The companies that I was referring to could be on the infrastructure side, developing part of the technology for us. As you know, some of those companies are not domiciled in the United States, and some of those people that are testing it currently, which are international tech companies, are domiciled here. But I didn’t want to imply that we were testing it overseas at this point.

Jim McIlree - Chardan Capital

And this RFI that you referred to, what’s the next step on that process?

Jay Monroe

Well, for the moment, we’re compiling the information from everybody who provided information to us. And we’re going back to them and studying opportunities with each of them. As you might imagine, there were some pretty interesting features that came out of that process, which have been interesting for us to work through with those parties.

For the moment, many of them are asking what a larger deployment might look like. They’re seeking from us numbers for access points and devices potentially, and though those subjects are interesting, they’re a bit open-ended, because the parties that we would collaborate with in any development of TLPS are not yet known.

So I think it’s interesting that everybody we had communications with, that was a substantial company, responded, that they’re excited about it, and we’re excited about working with them. But until we get done with the FCC process, we won’t have the ability to nail anything down with any of them, except with respect to work that we do around the 20,000 access points in support of the [Connect Ed] program.

Jim McIlree - Chardan Capital

And are you committed to that Connect Ed program regardless of the decision the FCC makes on TLPS?

Jay Monroe

No, we’re not. In fact, I don’t honestly believe that we could roll out a broad-based Connect Ed program without approval for TLPS, since you would be forced to roll out individual experimental licenses for each of those locations, which is impractical. But we want to be prepared, as soon as the FCC gives us the authorization to move forward quickly with that, because it represents something that has a social purpose. It represents something that we promised, and it represents a fantastic test environment for us, since the schools are really a mess when it comes to their RF environment, and so what TLPS should provide will be, I think, interesting for other market participants to witness.

Jim McIlree - Chardan Capital

And Tim, can you just talk about the ARPU for Duplex going forward, if you’re expecting to see an increase from here, or if this stabilizes at these levels? And on a similar vein, gross adds in Duplex, do you think that’s sustainable at this 5,500 or so level? Or does that increase? And churn as well. Is churn sustainable? Or is that too high or too low in this quarter?

Tim Taylor

We’ve experienced a pretty substantial increase in adjusted ARPU over the last eight quarters or so. Even looking back to the beginning of 2012, we were below 16 on a blended basis, and today, we’re close to 40. I don’t believe that that number is going to materially increase above $38. I think that long term, we’re going to be in the $35 to $40 range.

You know, most of our pricing plans and the new gross adds that are electing those plans are electing plans right around the $40 range, but there’s also additional plans above that are being elected that, over time, may blend that number slightly higher. But in terms of modeling, I wouldn’t feel comfortable with anything much above $40, and I like the $35 to $40 range.

Gross adds for the quarter were a little over 5,5000 on the Duplex front. If you look at the company historically, in just North America, we were doing about 40,000 gross adds per year. And of course, the run rate for where we are today is about 20,000 for the year, so half of what we were doing historically, in the pre-20006 period.

So I do expect, in North America, long term gross adds are going to ramp up, and we should be able to get back to a 40,000 level or above. But then importantly, what’s going to be the biggest driver over the next five years, is going to be the contribution from the international business, where, I think I said in my script, that long term, we want to make sure that the international base represents about 50% of the total sub base. And that, over time, of course means that it’s going to be 50% of the gross additions as well.

So, again, we want to be something like or exceeding 40,000 gross adds in the Duplex business, and about the same number internationally, and I think those are reasonable numbers, and I think there’s still upside to them.

Jim McIlree - Chardan Capital

The SG&A you mentioned was up fairly sharply over the last year, so 8.2 right now, is there something special in that for the quarter? Or does that come down? Does it go higher? What’s the trajectory on the SG&A no?

Tim Taylor

There are a couple of one-time items that in total represent $1 million, in comparison to Q2 of 2013. So in terms of using a good baseline number going forward, a $600,000 increase is appropriate, but $1 million is related to one-time events that we certainly do not expect to repeat. So I think the increase in terms of core recurring number is more like $600,000 as opposed to the $1.6 million or so that’s represented in the financials.

Operator

And our next question comes from Jason Bernstein of Odeon Capital.

Jason Bernstein - Odeon Capital

Jay, could you handicap where the potential partners are coming from? Are they traditional telcos? Or would you characterize them as high tech companies with regard to potential partners for TLPS?

Jay Monroe

I think of them as in four categories. Let me start with probably the most challenging, or least likely category, is probably the tower companies. The tower companies could take this technology of course and create a neutral hosting environment that I think would underlie a small cell development well.

But you know, those guys operate a business which is growing well. It’s got pretty much a formula to it. And so until they reach the conclusion that spectrum is readable, which I believe they could get comfortable with, I don’t think this is their first place to spend money.

Then, in no particular order, the next groups that we deal with are cable, the carriers, and the tech companies. Clearly, the cable guys have a reason to move to a channel like this. Their attempts at wifi are challenged by the RF environment. They’re challenged in 5 gigs by the relatively limited propagation of 5 gigs. So this spectrum, for them, is truly Goldilocks spectrum.

And I think, for them to take the next step, to develop a wifi first mobile strategy for voice and mobile data, and for them to take products like XFINITY on the road, so that if you really want to use it outside of your house, at a coffee shop, or at your office, or something like that, they need to have a more robust, clean, and a channel that allows them to monitor careful and control over time, so that it’s protected, which of course can’t come about in either 5 gigs or in the balance of wifi. So there’s a real reason for those people to stay very close to us. And they are a group that we spend a lot of time with.

Then the carriers, and the carriers benefit in the obvious ways. But I think the carriers understand the RF environment very well. And so they don’t need to do a lot of testing in order to verify it. And they’ve made comments to that effect to us. What is fascinating for the carriers is that you get this enormous capacity off of TLPS network infrastructure. Maybe as much as 1,000x the amount of bits and bytes that can flow over a common bit of geography, when compared to a macro cellular LTE environment.

And so from the carriers’ perspective, they say, my lord, it doesn’t cost anything from a capex perspective relative to what a macro costs, and the capacity that it can move is extraordinarily greater than a macro. Now, it won’t be all things to all parties. There’s a need for the macro, but there’s a need for this kind of capacity.

And whether they roll it out in a business model that includes your house and Starbucks, or whether they roll it out as a component of a small cell architecture remains to be seen. But the value of that much capacity and zero capex is not lost on them.

Lastly, we’ve got the tech companies, and the tech companies have many, many, many different thoughts on business models. And as I’ve said repeatedly, they don’t share all of their ideas with us. They’re getting more and more exposed to the technology. They understand how it functions. They were not what I would consider to be the most facile with all aspects of the RF environment, because it isn’t what they do for a living generally. But they’re very smart people, and so they’ve come up to speed well.

But what their internal business model thinking is they just don’t share with us. We’ve shared with them a ton of different business models that we know that they understand, but my guess is they have more than what they share. So all of those are companies or groups of companies that we’re having a lot of conversations with, doing a lot of testing with, and they’re becoming much more familiar with the technology.

What that means in terms of timing, of course, is anybody’s guess. And at this moment, none of it really matters, until the FCC gives us the approval that we seek.

Operator

We have a question from Steve Sweeney of Elevation.

Steve Sweeney - Elevation

I just had a quick question on the 1.6 GHz spectrum. I know there’s been a little bit of confusion over the past two weeks or three weeks. I was wondering if you could just clarify your near term and long term strategy for the use of the 1.6 GHz spectrum.

Jay Monroe

First, I do think there was some confusion that came about as a result of a report written by a law firm, and that circulated pretty broadly. It was followed up shortly thereafter with a clarification, which was helpful, because I think the points that they were making were a little bit misunderstood.

So, for clarity, first, we do not believe there are any impediments to Globalstar’s use, on an uplink band basis, for our L band spectrum. It is not, in any way, consistent with the plans for similar spectrum that were developed by LightSquared. It’s the polar opposite of that.

There are, always, some questions that have to be answered, but you may or may not recall that many years ago we went through these very questions with the FCC, when we were going to use it for uplink. And they established very strict out of band emissions limits, and because of the low power uplink and the out of band emissions limits, it was still terrific spectrum for someone to use as uplink.

So that is definitely our position in terms of the technology. We’ve spent a good bit of time with the GPS industry to make sure that they understood that, and they do, and time will tell how that plays out. But, on the issue of timing, it is also our position that we don’t want to do anything with the spectrum until TLPS is certified and done, nor do we really want to do anything with the spectrum until LightSquared plays itself out and that issue is off the table, because to be associated with that is not a good thing for us.

So it’s an important asset. It’s an asset that will mean a lot to some company that needs uplink spectrum, but it is not anything that we intend to focus on until after the FCC and after LightSquared is done.

Operator

We have a question from Jim McIlree of Chardan Capital.

Jim McIlree - Chardan Capital

Tim, you went a little bit fast for me on the debt payment schedule for the next few quarters. Could you just go over that again, please?

Tim Taylor

Sure. In terms of total P&I, I’ll go through it in six-month increments. So, for the second half of 2014, total P&I is $14.2 million. Of course, it’s variable based on six-month LIBOR, but it will certainly be right around $14.2 million for the next six months. For the first half of 2015, that’s actually reduced a bit because of a reduction in the total principal payment, so that will be $13 million.

So if you look into the second half of 2015, that number decreases again, slightly, to $12.9 million, again because of a slight reduction in the principal payment, but also a reduction in the interest given the lower balance in the COFACE facility. Those numbers are inclusive of the cash portion of the 8% notes as well.

Operator

We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating.

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