What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-06 · 119 added, 102 removed, 240 unchanged (48% of the section changed)

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The specialized needs of our global customers span many industries.

As of June 30, 2020, we had approximately 752,000 subscribers worldwide, principally within the following markets:

As of September 30, 2020, we had approximately 751,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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As a result of COVID-19, we have experienced a reduction in the volume of sales of our subscriber equipment, received requests for service pricing concessions from certain customers, and expect an impact on the ability of certain of our customers to pay outstanding balances.

Our results of operations for the three and six months ended June 30, 2020 partially reflect this impact;

Our results of operations for the three and nine months ended September 30, 2020 partially reflect this impact;

however, we expect that this trend may continue and the full extent of the impact is unknown.

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• capital expenditures, which are an indicator of future revenue growth potential and cash requirements.

Comparison of the Results of Operations for the three and six months ended June 30, 2020 and 2019

Overall, our results of operations for the three and six months ended June 30, 2020 were impacted by COVID-19;

Comparison of the Results of Operations for the three and nine months ended September 30, 2020 and 2019

Overall, our results of operations for the three and nine months ended September 30, 2020 were impacted by COVID-19;

however, we cannot predict the full extent or duration of the future impact of COVID-19.

Certain trends or uncertainties related to COVID-19 that impact revenue or expense items are discussed below.

Total revenue decreased 3%, to $30.4 million for the three months ended June 30, 2020 from $31.2 million for the same period in 2019 and increased 2%, to $62.6 million for the six months ended June 30, 2020 from $61.3 million for the same period in 2019.

Total revenue decreased 15%, to $32.8 million for the three months ended September 30, 2020 from $38.6 million for the same period in 2019 and decreased 5%, to $95.3 million for the nine months ended September 30, 2020 from $99.9 million for the same period in 2019.

See below for a discussion of these fluctuations.

These variances were impacted by an out-of-period adjustment which increased Duplex service revenue by $3.9 million during the third quarter of 2019 related to a change in the calculation of the estimated impact from the initial adoption of ASC 606.

The following table sets forth amounts and percentages of our revenue by type of service (dollars in thousands).

Three Months Ended

June 30, 2020 Three Months Ended

June 30, 2019 Six Months Ended

June 30, 2020 Six Months Ended

June 30, 2019

September 30, 2020 Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

Revenue % of Total

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Service revenue:

Duplex $ 8,556 28 % $ 9,031 29 % $ 16,219 26 % $ 17,676 29 %

$ 9,956 30 % $ 12,704 37 % $ 26,175 27 % $ 30,380 32 %

SPOT 11,396 35 12,482 36 35,098 37 38,196 40

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Three Months Ended

June 30, 2020 Three Months Ended

June 30, 2019 Six Months Ended

June 30, 2020 Six Months Ended

June 30, 2019

September 30, 2020 Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2020 Nine Months Ended

September 30, 2019

Revenue % of Total

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Total $ 4,372 14 % $ 4,462 13 % $ 10,905 12 % $ 12,912 13 %

(1) As previously disclosed, we recorded an out-of-period adjustment of $3.9 million during the third quarter of 2019 as a result of a change in the estimated impact of ASC 606.

This adjustment, which increased Duplex service revenue, is excluded from Duplex service revenue in the table above.

The percentages of total revenue calculations also exclude this adjustment.

The following table sets forth our average number of subscribers and ARPU by type of revenue.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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ARPU (monthly):

Duplex $ 56.49 $ 51.32 $ 52.77 $ 49.43

$ 67.00 $ 74.17 $ 56.92 $ 57.79

SPOT 14.60 14.83 14.60 14.98

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IGO 1.20 1.76 1.25 2.03

(1) As previously disclosed, we recorded an out-of-period adjustment of $3.9 million during the third quarter of 2019 as a result of a change in the estimated impact of ASC 606.

This adjustment, which increased Duplex service revenue, is excluded from Duplex ARPU in the table above.

When the out-of-period adjustment is included in the calculation, ARPU for the three and nine month periods ended September 30, 2019 is $96.86 and $65.18, respectively.

The numbers reported in the above table are subject to immaterial rounding inherent in calculating averages.

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Service Revenue

Duplex service revenue decreased 5% and 8%, respectively, for the three and six months ended June 30, 2020 due primarily to a decrease in average subscribers of 14% for both periods.

The decrease in revenue due to fewer average subscribers was partially offset by increases in ARPU of 10% and 7%, respectively, for both the three and six month periods ended June 30, 2020.

The decrease in average subscribers was due to lower gross activations resulting from fewer equipment sales over the last twelve months as well as normal churn in the subscriber base.

The increase in ARPU was driven by the timing of revenue recognition for our usage-based subscribers.

SPOT service revenue decreased 8% for both the three and six months ended June 30, 2020 due primarily to lower ARPU after adjusting for non-revenue-producing subscribers, which were included in our subscriber count during the first half of 2019

and were subsequently involuntarily deactivated.

Over the last twelve months, we deactivated approximately 12,000 non-revenue-generating customers, particularly in Latin America, resulting from a cleanup of our subscriber base.

Excluding this involuntary churn, average subscribers would have decreased 3% for both the three and six month periods.

The decrease in ARPU was due to lower service plans rolled out to new subscribers in mid-2019 as well as revenue recorded for an event sponsorship in the first quarter of 2019 that did not recur in the first quarter of 2020.

Commercial IoT service revenue decreased 1% and increased 7%, respectively, for the three and six months ended June 30, 2020.

Excluding the out-of-period adjustment discussed above, Duplex service revenue decreased 22% and 14%, respectively, for the three and nine months ended September 30, 2020 due primarily to a decrease in average subscribers of 13% for both periods as well as a decrease in ARPU of 9% and 1%, respectively.

The decrease in average subscribers was due to normal churn in the subscriber base exceeding gross activations over the last twelve months.

Notably, gross activations during the third quarter of 2020 were up nearly 10% from the prior year's quarter following a higher volume of Duplex handset and hotspot sales during 2020.

The decrease in ARPU was driven by the timing of revenue recognition for our usage-based subscribers as well as the impact of unfavorable exchange rate movements.

SPOT service revenue decreased 9% and 8%, respectively, for the three and nine months ended September 30, 2020 due primarily to lower ARPU after adjusting for non-revenue-producing subscribers, which were included in our subscriber count during most of 2019 and were subsequently involuntarily deactivated.

During 2019, we deactivated approximately 12,000 non-revenue-generating customers, particularly in Latin America, resulting from a cleanup of our subscriber base.

Excluding this involuntary churn, average subscribers would have decreased 4% and 3%, respectively, for the three and nine month periods due to higher churn in our subscriber base during these periods.

The decrease in ARPU was due primarily to lower service plans rolled out to new subscribers in mid-2019 as well as revenue recorded for an event sponsorship in the first quarter of 2019 that did not recur in the first quarter of 2020.

Commercial IoT service revenue decreased 2% and increased 4%, respectively, for the three and nine months ended September 30, 2020.

For the three month period, the decrease in revenue was due to a 3% decline in ARPU driven by service pricing adjustments related to COVID-19 made for certain of our customers and unfavorable exchange rate movements.

The decrease in ARPU was offset by a 4% increase in average subscribers.

For the six month period, the increase in revenue was due to a 6% increase in average subscribers and a 1% increase in ARPU.

Average subscribers were higher during the three and six month periods in 2020 compared to 2019 despite end of period subscribers declining from 421,000 at December 31, 2019 to 414,000 at June 30, 2020 following lower activations and higher churn in recent months resulting from the impact of COVID-19.

Engineering and other service revenue increased $2.0 million and $6.3 million, respectively, for the three and six months ended June 30, 2020 compared to the same periods in 2019.

For the nine month period, the increase in revenue was due to a 5% increase in average subscribers offset by a 1% decrease in ARPU.

Average subscribers were higher during the three and nine month periods in 2020 compared to 2019 despite end of period subscribers declining from 421,000 at December 31, 2019 to 414,000 at September 30, 2020 following higher churn in recent months resulting from the impact of COVID-19.

Engineering and other service revenue increased $2.1 million and $8.4 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

These increases were driven by a higher volume of engineering services contracts during 2020, including the completion of certain milestones as discussed in Note 2:

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Subscriber Equipment Sales

Revenue from Duplex equipment sales increased $0.3 million and $0.5 million, respectively, for the three and six months ended June 30, 2020 compared to the same period in 2019.

For both the three and six month periods, the increase in revenue was driven by sales of our Sat-Fi2® Remote Antenna Station ("RAS") device launched in October 2019, and sales of our improved Sat-Fi2® device launched in September 2019, which expand the use cases for the Sat-Fi2® device.

Higher volume and pricing contributed to the increase in revenue from these devices;

Sat-Fi2® RAS is sold at a higher selling price than other Duplex devices.

Since the launch of our Sat-Fi2® RAS device, we have developed derivatives of this device, including a marine version, which also contributed to the increase in revenue during the year.

Revenue from SPOT equipment sales decreased $0.5 million and $0.7 million, respectively, for the three and six months ended June 30, 2020 compared to the same periods in 2019.

We sell component parts to our manufacturer to use in final products.

During the three and six months ended June 30, 2020 production of certain devices (and related volume of component part sales to our primary product manufacturer) decreased as compared to the prior year period due to sufficient inventory on hand to meet expected demand as well as supply chain delays caused by COVID-19, contributing $0.2 million and $0.6 million, respectively, to the revenue decrease.

For the three month period, the remaining decrease in revenue was due primarily to lower volume of SPOT Gen3® sales.

For the six month period, lower pricing for all of our SPOT products was offset by higher volume of SPOT X® sales.

Revenue from Commercial IoT equipment sales decreased $1.0 million and $1.7 million, respectively, for the three and six months ended June 30, 2020 compared to the same periods in 2019.

Revenue from Duplex equipment sales increased $0.2 million and $0.6 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

For both the three and nine month periods, the increase in revenue was driven primarily by sales of our Sat-Fi2® Remote Antenna Station ("RAS") device that launched in October 2019 and Sat-Fi2® device that launched in September 2019.

Higher pricing compared to our first generation devices also contributed to the increase in revenue.

Revenue from SPOT equipment sales increased $0.7 million for the three months ended September 30, 2020 and was flat for the nine months ended September 30, 2020 compared to the same periods in 2019.

For both the three and nine month periods, an increase in revenue was driven by a higher sales volume of SPOT X® and our refreshed SPOT Satellite GPS Messenger, SPOT Gen4 TM , which was launched in August 2020.

For the nine month period, the increase in volume was offset by lower component part sales of $0.6 million.

We occasionally sell component parts to our equipment manufacturer to use in final products;

these sales fluctuate based on the volume and price of parts that we directly source for the production of our equipment.

Compared to the corresponding prior year period, we sold fewer component parts to our equipment manufacturer during the first nine of months of 2020.

Revenue from Commercial IoT equipment sales decreased $0.9 million and $2.6 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

A decrease in demand for our Commercial IoT products resulting from the impact of COVID-19, particularly from our customers operating in the oil and gas industry, drove the variance in revenue.

Operating Expenses

Total operating expenses decreased 4% for each of the three and six months ended June 30, 2020 compared to the same periods in 2019.

Total operating expenses decreased 6% and 5%, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

Lower cost of services, cost of subscriber equipment sales and management, general and administrative costs contributed to the decrease in total operating expenses during the respective periods.

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Cost of Services

Cost of services decreased $0.7 million and $1.9 million, respectively, for the three and six months ended June 30, 2020 compared to the same periods in 2019.

For both the three and six month periods, lower research and development costs of $0.6 million and $1.0 million, respectively, as well as lower maintenance costs of $0.2 million for both periods, contributed to the decrease in expense.

Lower research and development costs are driven by the timing of new product development and lower maintenance costs are due to revisions to contract terms with certain vendors for gateway and software maintenance.

For the six month period, lower personnel and contractor costs of $0.3 million also contributed to the decrease in expense, due primarily to the timing of capital projects.

Other smaller items contributed to the remaining variances.

Cost of services decreased $0.6 million and $2.5 million, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

For both the three and nine month periods, lower maintenance costs of $0.6 million and $0.8 million, respectively, resulting from revisions to contract terms with certain vendors for gateway and software maintenance, contributed to the decrease in expense.

For the nine month period, lower research and development costs of $1.3 million, driven by the timing of new product development, contributed to the decrease in expense.

Other smaller items, such as lower travel and labor costs also contributed to the remaining variance.

Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales decreased $0.6 million and $1.1 million, respectively, for the three and six months ended June 30, 2020 from the same periods in 2019.

This decrease for both periods is generally consistent with the decline in total revenue generated from subscriber equipment sales, particularly driven by the decrease in Commercial IoT equipment.

Offsetting the decrease in cost of subscriber equipment sales for the quarter was the recognition of tariffs.

Cost of subscriber equipment sales decreased $0.5 million and $1.6 million, respectively, for the three and nine months ended September 30, 2020 from the same periods in 2019.

As previously disclosed in Note 10:

Contingencies of our 2019 Annual Report, in September 2019, U.S Customs and Border Protection ("CBP") issued a ruling related to the classification of certain of our core products imported from China, resulting in 25% tariffs upon import.

During the three and six months ended June 30, 2020, we recorded $0.2 million and $0.4 million, respectively, for tariffs, which increased our cost of subscriber equipment during the period (and was not incurred during the same periods in 2019).

As a result of this CPB ruling, during the third quarter of 2019, we expensed $0.9 million in tariffs for products sold from July 2018 through September 2019.

During the three and nine months ended September 30, 2020, we recorded $0.3 million and $0.6 million, respectively, for tariffs related to sales in the current period, which increased our cost of subscriber equipment during 2020.

The decrease in cost of subscriber equipment sales during 2020 was also impacted by the product mix of equipment sold during the respective periods and was generally in line with margin percentages from the prior year.

Marketing, General and Administrative

Marketing, general and administrative expenses ("MG&A") decreased $0.8 million and $1.3 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019.

We experienced lower MG&A costs during 2020 due in part to the impact of COVID-19.

During the three and six month periods, these reductions were driven primarily by:

1) lower subscriber acquisition costs (including advertising and trade shows) of $0.5 million and $1.0 million, respectively, 2) lower performance-based compensation costs of $0.7 million and $0.9 million, respectively, and 3) lower travel costs of $0.4 million and $0.5 million, respectively.

These decreases were offset by higher professional and legal fees of $0.4 million and $0.9 million, respectively, related to strategic opportunities.

Other smaller items contributed to the remaining variances.

Marketing, general and administrative expenses ("MG&A") decreased $2.8 million and $4.1 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

During the third quarter of 2019, we wrote off $2.1 million of financing costs associated with our efforts to refinance our debt obligations through the issuance of new first-lien debt.

This write-off was recorded following our decision to pursue an amendment to our existing Facility Agreement instead of issuing new first lien debt.

We also experienced lower MG&A costs during 2020 due in part to the impact of COVID-19.

During the three and nine month periods, these reductions were driven primarily by lower subscriber acquisition costs (including advertising and trade shows) of $0.5 million and $1.5 million, respectively, and lower travel costs of $0.3 million and $0.7 million, respectively.

For the nine month period, lower performance-based compensation costs were impacted by COVID-19 and reduced MG&A costs by $0.8 million.

Higher professional and legal fees related to strategic opportunities totaling $0.9 million partially offset the year-to-date variances.

Other Income (Expense)

Interest Income and Expense

Interest income and expense, net, decreased $1.3 million and $0.2 million, respectively, during the three and six months ended June 30, 2020, compared to the same periods in 2019.

For each of the three and six month periods, the decrease was driven by lower gross interest costs of $1.6 million and $0.1 million, respectively, and lower interest income of $0.4 million and $0.7 million, respectively;

these items were offset by higher capitalized interest of $0.1 million and $0.8 million, respectively (which decreases interest expense).

Gross interest costs were impacted by lower interest associated with the Facility Agreement and the Loan Agreement with Thermo offset by higher interest on the Second Lien Term Loan Facility that we entered into in November 2019.

For the three and six month periods, interest costs associated with the Facility Agreement decreased $5.0 million (including $1.3 million of amortization of deferred financing costs) and $9.7 million (including $2.6 million of deferred financing costs), respectively, and interest costs associated with the Loan Agreement with Thermo decreased $4.8 million (including $1.0 million of accretion of debt discount) and $6.5 million (including $1.3 million of accretion of debt discount), respectively;

these decreases were offset by $8.2 million of interest (including $1.1 million of accretion of debt discount and amortization of deferred financing costs) and $16.1 million of interest (including $2.1 million of accretion of debt discount and amortization of deferred financing costs), respectively, associated with the Second Lien Term Loan Facility.

Interest income and expense, net, decreased $3.1 million and $3.2 million, respectively, during the three and nine months ended September 30, 2020, compared to the same periods in 2019.

For each of the three and nine month periods, the decrease was driven by lower gross interest costs of $3.5 million and $3.6 million, respectively offset by lower interest income of $0.4 million and $1.2 million, respectively.

For the nine month period, higher capitalized interest of $0.8 million also decreased interest expense.

Gross interest costs were impacted by lower interest associated with the Facility Agreement, the Loan Agreement with Thermo, and the June 2019 Subordinated Loan Agreement;

these items were offset by higher interest on the Second Lien Term Loan Facility that we entered into in November 2019.

Lower interest costs for the Facility Agreement were due to the modification of the Facility Agreement in November 2019, which reduced the principal balance outstanding (resulting in lower interest expense) and the balance of deferred financing costs (resulting in lower amortization of deferred financing costs), as well as a decrease in the interest rate driven by a reduction in LIBOR.

Lower interest costs for the Loan Agreement with Thermo was driven by Thermo's conversion of the entire principal balance outstanding under the Loan Agreement in February 2020 (which resulted in no interest expense or accretion of debt discount after the date of conversion as the balances were written off upon conversion).

Lower interest costs for the Loan Agreement with Thermo was driven by Thermo's conversion of the entire principal balance outstanding under the Loan Agreement in February 2020.

Lower interest costs for the Subordinated Loan Agreement are due to the full repayment of this loan in November 2019.

For the three and nine month periods, interest costs associated with the Facility Agreement decreased $4.3 million (including $1.1 million of amortization of deferred financing costs) and $14.0 million (including $3.7 million of deferred financing costs), respectively, interest costs associated with the Loan Agreement with Thermo decreased $5.0 million (including $1.0 million of accretion of debt discount) and $11.5 million (including $2.3 million of accretion of debt discount), respectively and for both the three and nine month periods, interest costs associated with the Subordinated Loan Agreement decreased $2.7 million (including $0.4 million of amortization of deferred financing costs).

These decreases were offset by $8.5 million of interest (including $1.1 million of accretion of debt discount and amortization of deferred financing costs) and $24.6 million of interest (including $3.2 million of accretion of debt discount and amortization of deferred financing costs) for the three and nine month periods, respectively, associated with the Second Lien Term Loan Facility.

Derivative Gain

Derivative gains were $1.2 million and $35.1 million for the three months ended June 30, 2020 and June 30, 2019, respectively.

Derivative gains were $0.3 million and $92.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively.

Derivative gains were $1.2 million and $50.2 million for the three months ended September 30, 2020 and September 30, 2019, respectively.

Derivative gains were $1.6 million and $142.3 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

We recognize gains or losses due to the change in the value of certain embedded features within our debt instruments that require standalone derivative accounting.

The gains recorded during the three and six months ended June 30, 2020 were primarily impacted by fluctuations in the discount yield used in the valuation of the embedded derivative associated with our Second Lien Term Loan Facility Agreement.

The gains recorded during the three and six months ended June 30, 2019 were impacted primarily by the assumed high probability of conversion of the Loan Agreement with Thermo, which occurred in February 2020, and decreased the value of our derivative liabilities.

The gains recorded during the three and nine months ended September 30, 2020 were primarily impacted by fluctuations in the discount yield used in the valuation of the embedded derivative associated with our Second Lien Term Loan Facility Agreement.

The gains recorded during the three and nine months ended September 30, 2019 were impacted primarily by the assumed probability of conversion of the Loan Agreement with Thermo, which occurred in February 2020, and decreased the value of our derivative liabilities.

Fair Value Measurements to our condensed consolidated financial statements for further discussion of the computation of the fair value of our derivatives.

Foreign Currency (Loss) Gain

Foreign currency (loss) gain fluctuated by $0.4 million to a gain of $1.3 million for the three months ended June 30, 2020 from a gain of $0.9 million for the same period in 2019.

Foreign currency (loss) gain fluctuated by $8.6 million to a loss of $7.6 million for the six months ended June 30, 2020 from a gain of $1.0 million for the same period in 2019.

Foreign Currency Gain (Loss)

Foreign currency gain (loss) fluctuated by $2.5 million to a gain of $0.3 million for the three months ended September 30, 2020 from a loss of $2.2 million for the same period in 2019.

Foreign currency gain (loss) fluctuated by $6.2 million to a loss of $7.4 million for the nine months ended September 30, 2020 from a loss of $1.2 million for the same period in 2019.

Changes in foreign currency gains and losses are driven by the significant financial statement items we have denominated in various currencies.

The strengthening of the U.S.

dollar relative to the Brazilian real and the Canadian dollar during the six months ended June 30, 2020 unfavorably impacted our condensed consolidated statement of operations $4.7 million and $1.8 million, respectively, due primarily to the remeasurement of certain balances at the end of each reporting period.

For the three months ended September 30, 2020, the Canadian dollar strengthened relative to the U.S.

dollar favorably impacting the condensed consolidated statement of operations by $0.7 million.

This favorable variance was offset partially by the strengthening of the U.S.

dollar relative to the Brazilian real unfavorably impacting the condensed consolidated statement of operations by $0.7 million.

Other smaller items contributed to the remaining fluctuation during the three-month period.

For the nine months ended September 30, 2020, the strengthening of the U.S.

dollar relative to the Brazilian real and the Canadian dollar unfavorably impacted our condensed consolidated statement of operations $5.4 million and $1.1 million, respectively.

For both periods, the foreign currency gains and losses are due primarily to the remeasurement of certain balances at the end of each reporting period.

Liquidity and Capital Resources

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If we are unable to remain in compliance over the next twelve months, we may need to raise Equity Cure Contributions in future periods.

As of June 30, 2020, we held cash and cash equivalents of $12.1 million and restricted cash of $54.9 million.

As of September 30, 2020, we held cash and cash equivalents of $19.5 million and restricted cash of $54.9 million.

As of December 31, 2019, we held cash and cash equivalents of $7.6 million and restricted cash of $51.5 million.

The noncurrent portion of restricted cash on our condensed consolidated balance sheet will generally be used towards the final scheduled payment due upon maturity of the Facility Agreement in December 2022.

The carrying amount of our long-term debt outstanding was $324.2 million at June 30, 2020, compared to $464.2 million at December 31, 2019.

At June 30, 2020, the current portion of our debt outstanding was $45.0 million and represents the scheduled principal repayment under the Facility Agreement due within one year of the balance sheet date.

The carrying amount of our long-term debt outstanding was $330.1 million at September 30, 2020, compared to $464.2 million at December 31, 2019.

At September 30, 2020, the current portion of our debt outstanding was $45.5 million and represents the scheduled principal repayments under the Facility Agreement and the PPP Loan due within one year of the balance sheet date.

We had no current debt outstanding at December 31, 2019.

The $88.6 million decrease in the carrying amount of our total debt balance was due primarily to the conversion of the Loan Agreement with Thermo in February 2020 into shares of common stock, resulting in a $116.5 million reduction in net debt.

This decrease was offset by 1) a higher carrying value of the Second Lien Term Loan Facility of $15.1 million due to the accrual of PIK interest and the accretion of debt discount, 2) a higher carrying value of the Facility Agreement of $1.6 million due to amortization of deferred financing costs, and 3) the issuance of the PPP Loan (defined below) in April 2020 of $5.0 million.

Also contributing to the decrease in the carrying amount of our total debt balance were unscheduled mandatory principal payments for the First Lien Facility Agreement totaling $3.4 million during 2020.

This decrease was offset by 1) a higher carrying value of the Second Lien Term Loan Facility of $23.6 million due to the accrual of PIK interest and the accretion of debt discount, 2) a higher carrying value of the Facility Agreement of $2.9 million due to amortization of deferred financing costs, and 3) the issuance of the PPP Loan (defined below) in April 2020 of $4.9 million (net of debt issuance costs).

Indebtedness and Available Credit

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The Facility Agreement is scheduled to mature in December 2022.

As of June 30, 2020, the principal amount outstanding under the Facility Agreement was $190.1 million, of which $45.0 million was recorded as current debt based on the contractual terms of the loan.

As of September 30, 2020, the principal amount outstanding under the Facility Agreement was $187.0 million, of which $45.0 million was recorded as current debt based on the contractual terms of the loan.

The Facility Agreement contains customary events of default and requires that we satisfy various financial and non-financial covenants.

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If we violate any covenants and are unable to obtain a sufficient Equity Cure Contribution or a waiver, or are unable to make payments to satisfy our debt obligations under the Facility Agreement and are unable to obtain a waiver, we would be in default under the Facility Agreement, and the lenders could accelerate payment of the indebtedness.

As of June 30, 2020, we were in compliance with respect to the covenants of the Facility Agreement.

As of September 30, 2020, we were in compliance with respect to the covenants of the Facility Agreement.

We continue to monitor the impact of COVID-19 on our results of operations and liquidity relative to compliance with financial covenants, as previously discussed.

The Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the Facility Agreement) on a semi-annual basis.

During 2020, we were required to pay $0.3 million and $3.1 million to our first lien lenders resulting from our Excess Cash Flow calculations as of December 31, 2019 and June 30, 2020, respectively.

These payments reduce future principal payment obligations.

The Facility Agreement requires that we maintain a debt service reserve account that is pledged to secure our obligations under the Facility Agreement.

The required balance in the debt service reserve account must equal at least $50.9 million.

As of June 30, 2020, the balance in the debt service reserve account was $51.2 million and is classified as non-current on our condensed consolidated balance sheet as it is expected to be used towards the final scheduled payment due upon maturity of the Facility Agreement in December 2022.

As of September 30, 2020, the balance in the debt service reserve account was $51.2 million and is classified as non-current on our condensed consolidated balance sheet as it is expected to be used towards the final scheduled payment due upon maturity of the Facility Agreement in December 2022.

The amended and restated Facility Agreement includes a requirement that we raise no less than $45.0 million of equity prior to March 31, 2021 via the cash exercise of outstanding warrants or other equity to be applied towards the principal payment due on June 30, 2021 and then, if applicable, to the next scheduled principal payments.

We currently expect to fulfill this requirement with proceeds from the remaining warrants issued to the Second Lien Term Loan Facility lenders in November 2019;

in December 2019, we received proceeds of $3.6 million from the exercise of a portion of warrants issued to the Second Lien Term Loan Facility Agreement lenders, which is retained in the equity proceeds account under the Facility Agreement and is recorded in current restricted cash on our condensed consolidated balance sheet as of June 30, 2020 and is expected to be used to fulfill a portion of the $45.0 million requirement discussed above.

in December 2019, we received proceeds of $3.6 million from the exercise of a portion of warrants issued to the Second Lien Term Loan Facility Agreement lenders, which is retained in the equity proceeds account under the Facility Agreement and is recorded in current restricted cash on our condensed consolidated balance sheet as of September 30, 2020 and is expected to be used to fulfill a portion of the $45.0 million requirement discussed above.

Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Facility Agreement.

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The cash proceeds from this loan were net of a 3% original issue discount.

As of June 30, 2020, the principal amount outstanding under the Second Lien Term Loan Facility was $215.5 million.

As additional consideration for the loan, we issued the lenders warrants to purchase 124.5 million shares of common stock an exercise price of $0.38 per share.

As of September 30, 2020, the principal amount outstanding under the Second Lien Term Loan Facility was $222.9 million.

As additional consideration for the loan, we issued the lenders warrants to purchase 124.5 million shares of common stock at an exercise price of $0.38 per share.

These warrants expire on March 31, 2021.

As of June 30, 2020, approximately 115.0 million warrants remain outstanding.

As of September 30, 2020, approximately 115.0 million warrants remain outstanding.

The Second Lien Term Loan Facility contains customary events of default and requires us to satisfy various financial and non-financial covenants.

As of June 30, 2020, we were in compliance with all the covenants of the Second Lien Term Loan Facility.

As of September 30, 2020, we were in compliance with all the covenants of the Second Lien Term Loan Facility.

Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Second Lien Term Loan Facility.

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Our 2013 8.00% Notes are convertible into shares of our common stock at a conversion price of $0.69 (as adjusted) per share of common stock.

As of June 30, 2020, the principal amount outstanding of the 2013 8.00% Notes was $1.4 million.

As of September 30, 2020, the principal amount outstanding of the 2013 8.00% Notes was $1.4 million.

The 2013 8.00% Notes will mature on April 1, 2028, subject to various call and put features.

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The indenture governing the 2013 8.00% Notes provides for customary events of default.

As of June 30, 2020, we were in compliance under the terms of the 2013 8.00% Notes and the Indenture.

As of September 30, 2020, we were in compliance under the terms of the 2013 8.00% Notes and the Indenture.

Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the 2013 8.00% Notes.

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As previously discussed, we sought relief under the CARES Act, including receiving a $5.0 million loan under the payroll protection program (the "PPP") in April 2020 (the "PPP Loan").

As of June 30, 2020, the principal amount outstanding under the PPP Loan was $5.0 million, which is classified as non-current based on the contractual terms of the loan (as modified).

As of September 30, 2020, the principal amount outstanding under the PPP Loan was $5.0 million, of which $0.5 million is classified as current based on the contractual terms of the loan (as modified).

The Company expects to apply for loan forgiveness, in accordance with the terms of the CARES Act, based on payroll and other allowable costs incurred since the date of the loan.

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Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the PPP Loan.

Cash Flows for the six months ended June 30, 2020 and 2019

Cash Flows for the nine months ended September 30, 2020 and 2019

The following table shows our cash flows from operating, investing and financing activities (in thousands):

Six Months Ended

2020 June 30,

Nine Months Ended

September 30,

2020 September 30,

Net cash provided by operating activities $ 23,687 $ 6,044

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We use cash in operating activities primarily for personnel costs, inventory purchases and other general corporate expenditures.

Net cash provided by operating activities during the six months ended June 30, 2020 was $8.9 million compared to $1.8 million during the same period in 2019.

The increase was due primarily to higher net income after adjusting for non-cash items due to an increase in revenue as well as a reduction in operating expenses.

Offsetting the increase due to higher net income after adjusting for non-cash items were unfavorable working capital changes due primarily to the timing of vendor payments.

A decrease in our deferred revenue balance during the first half of 2020 also resulted in an unfavorable impact to cash flows from operations.

These items were offset partially by lower inventory purchases and favorable changes in prepaid and other current assets, driven in part by the final installment of $3.7 million received in January 2020 from the 2018 settlement of a business economic loss claim.

Net cash provided by operating activities during the nine months ended September 30, 2020 was $23.7 million compared to $6.0 million during the same period in 2019.

The increase was due primarily to higher net income after adjusting for non-cash items due to an increase in revenue and a reduction in operating expenses.

Favorable working capital changes also contributed to the increase in net cash provided by operating activities.

These favorable changes were due to lower inventory purchases and favorable changes in prepaid and other current assets, driven in part by the final installment of $3.7 million received in January 2020 from the 2018 settlement of a business economic loss claim.

Offsetting these items were lower accrued interest and a decrease in our deferred revenue balance during the first nine months of 2020.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $4.9 million for the six months ended June 30, 2020 compared to $5.1 million for the same period in 2019.

During 2020, the nature of our capital expenditures was related to the procurement and deployment of new antennas for our gateways, which will continue for the near future.

During 2019, the nature of our capital expenditures was related costs to bring our newly developed products into production, including software and other back-office efforts.

Net cash used in investing activities was $9.3 million for the nine months ended September 30, 2020 compared to $7.6 million for the same period in 2019.

During 2020, the nature of our capital expenditures was related to the procurement and deployment of new antennas for our gateways, which will continue for the near future, as well as other initiatives, such as the completion of our new billing system.

During 2019, the nature of our capital expenditures was related to costs to bring our newly developed products into production, including software and other back-office efforts.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $4.0 million and $13.7 million, respectively, during each of the six month periods ended June 30, 2020 and 2019.

Net cash provided by financing activities was $0.9 million and $13.6 million, respectively, during each of the nine month periods ended September 30, 2020 and 2019.

In April 2020, we received proceeds of $5.0 million from the PPP Loan (discussed above);

these proceeds were partially offset by the timing of payments for debt financing costs from our refinancing in 2019.

During the first six months of 2019, the Company raised $62.0 million from our Subordinated Loan Agreement (as discussed in our 2019 Annual Report), which was used predominantly to fund the June 2019 principal and interest payment under our Facility Agreement.

these proceeds were offset by mandatory prepayments of principal on our First Lien Facility Agreement totaling $3.4 million (discussed above) as well as the timing of payments for debt financing costs from our refinancing in 2019 totaling $1.1 million.

During the first nine months of 2019, the Company raised $62.0 million from our Subordinated Loan Agreement (as discussed in our 2019 Annual Report), which was used predominantly to fund the June 2019 principal and interest payment under our First Lien Facility Agreement.

Other smaller items contributed to the remaining items in each period.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis