It was with a touch of understatement that Bernard Schwartz ended a conference call with Globalstar Telecommunications investors Monday.
"This has been a tough day," said Schwartz, 74, who serves as CEO and chairman of both Globalstar (GSTRF) and parent company Loral Space & Communications (LOR), following a tense hour-long exchange with analysts.
Shares of Globalstar -- which operates a global satellite phone service that transmits calls out of the range of standard mobile networks -- tumbled 60 percent following an earnings report that fell short of Wall Street expectations.
In the three-month period ending Sept. 30, the company reported a loss of $219 million -- or $1 per share. The loss was greater than forecasted by analysts, who expected a loss of 90 cents a share, according to First Call/Thomson Financial.
At the same time, Globalstar reported that it had signed up a total of just 21,300 subscribers at the end of the quarter, a growth rate that Schwartz conceded was "unacceptably slow."
The report was followed by a raft of downgrades and reports from investment analysts that were, to say the least, rather negative.
"We feel that the equity value of Globalstar's shares is zero," wrote Merrill Lynch's Marc Nabi in a report downgrading the stock from "neutral" to "sell."
Included in his list of reasons to ditch Globalstar was a reference to a Wall Street Journal article that indicated that Loral would cut off financial support if its prodigy doesn't sufficiently improve its bottom line.
"It has become increasingly difficult for Globalstar to service its debt interest costs over the long term as a result of its poor marketing programs," wrote Nabi.
All told, it was not a very good day to be a Globalstar shareholder, let alone a CEO.
Schwartz faced a rapid-fire sequence of questions asking him not only to defend the lackluster quarter of earnings, but also to make a case for the very survival of the company.
"Globalstar is not on life support. It has adequate funds to operate on," Schwartz said. At the end of the quarter, Globalstar had $286 million in cash, approximately enough to fund its operations through May of 2001.
Schwartz adamantly maintained that Globalstar, despite a slow launch of services, has no intention of going the way its onetime rival -- Iridium, which filed for bankruptcy less than a year after launching commercial service, having failed to find enough subscribers to support its costly network.
In Iridium's case, the troubles were partly technical and partly the result of misguided marketing. While the company advertised telephone service that worked anywhere on Earth's surface, its handsets often didn't work indoors. In addition, the company miscalculated the extent to which increasingly sophisticated cellular and PCS services would compete with its pricey calling plans.
In Globalstar's case, the criticism from investors was less about the company's technology and more about its lengthening trail of red ink.
Even though the company is making progress in its drive to draw new users, the latest earnings results indicate that "financial difficulties hinder the company's ability to operate," said William Kidd, satellite analyst with C. E. Unterberg, Towbin.
As of Monday's close, Globalstar had a stock market value of just over $250 million, with shares trading for less than one-twentieth of their yearlong high. The company is also in the process of raising additional funds through a $105 million share purchase agreement with Bear Stearns, although a rapidly deteriorating stock price could affect that transaction.
"I frankly am surprised at the weakness of the stock," said Schwartz, who proceeded to lay out a list of initiatives to get more customers and more billable minutes.
High on the roster was data. In the next few weeks, Globalstar plans to roll out a U.S. service offering Internet and e-mail access through handsets or by connecting phones to laptops or handheld computers. The company is also putting out a pilot production of modems geared for utility companies and other industrial customers who need to send data from remote locations.
Globalstar also touted an agreement with aviation communications firm ARNAV to develop a system for delivering weather and other data to planes and helicopters, along with a souped-up advertising campaign and a marketing drive directed at large corporations.
Still, Globalstar is shadowed by the hefty expenses it has already swallowed. According to Schwartz, Globalstar spent in the vicinity of $3 billion to put up its constellation of 48 satellites and network of ground stations. In Monday's earnings report, the company put its debt burden at $2.9 billion.
Globalstar executives couldn't say when those sunk costs might be recouped. They did confirm, however, that it won't happen for quite some time.
"We're rolling out a consumer effort globally," Schartz said. "No consumer rollout has had instant success. They've all grown after a slow start and a steady buildup."
In Globalstar's case, however, investors show little indication that they'll have the patience to wait through a slow, steady buildup.
