Globalstar’s stock skyrocketed on Friday, surging by a remarkable 32.90% to $1.39 per share, following the company’s announcement of a significant expansion of its strategic partnership with tech giant Apple Inc. (AAPL). This expansion takes the form of a newly updated $1.1 billion services agreement, signifying a major leap forward in their collaboration.
Under this expanded deal, Globalstar commits to providing Apple with enhanced satellite services, a move that goes beyond their existing partnership. This enhanced offering includes the development, launch, and operation of a brand-new mobile satellite services (MSS) network. To facilitate this ambitious undertaking, Globalstar will establish a subsidiary known as Globalstar Licensee, which will own the new MSS network. Globalstar will continue to manage and operate this subsidiary, ensuring seamless integration and continuity of service.
To support the construction and operational phases of this Extended MSS Network, Apple has pledged substantial prepayments, potentially reaching up to $1.1 billion. These funds will cover the network’s development, infrastructure, and debt repayment. In a further demonstration of their commitment, Apple has agreed to acquire 400,000 Class B Units in Globalstar Licensee, securing a 20% equity stake in the subsidiary for $400 million.
In exchange for these expanded satellite services, Apple will pay Globalstar incremental service fees. These fees will be tied to the cost of the MSS network, additional services, and associated expenses. The agreement also includes performance-based bonuses, highlighting the emphasis on delivering high-quality service. A portion of these payments will be contingent on achieving certain milestones, including service levels and regulatory approvals. Additionally, the deal stipulates annual service fees of $30 million, which are poised to accelerate under the new agreement terms.
The agreement between Globalstar and Apple includes a structured mechanism for the quarterly redemption of Apple’s Class B Units. This redemption process will commence once Apple recovers the full amount of its prepayment. Globalstar retains the right to repurchase these units under specific conditions. Apple, in turn, can initiate redemption if Globalstar breaches specific contract terms.
Furthermore, the parties have adjusted Globalstar’s 2023 Funding Agreement. Key adjustments include the removal of cash sweeps, relaxation of certain covenant conditions, deferment of repayment start dates to 2026, and strengthening Globalstar’s obligations under the 2024 Prepay Agreement through additional lien security.
Globalstar’s financial performance has been strong, reporting a 10% increase in fiscal second-quarter 2024 sales, reaching $60.4 million, exceeding the consensus estimate of $57.2 million. Adjusted EBITDA came in at $32.6 million. The company projects revenue in the range of $235 million to $250 million, slightly ahead of the consensus estimate of $237.5 million.
This strategic partnership between Globalstar and Apple underscores the growing importance of satellite communication technology. With Apple’s significant investment and commitment, Globalstar is poised to play a pivotal role in shaping the future of mobile satellite services.
