What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-04 compared with 2020-02-28 · 248 added, 240 removed, 184 unchanged (73% of the section changed)

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• average monthly revenue per user, or ARPU, which is an indicator of our pricing and ability to obtain effectively long-term, high-value customers.

We calculate ARPU separately for each type of our Duplex, Commercial IoT, SPOT and IGO revenue;

We calculate ARPU separately for each type of our subscriber-driven revenue, including Duplex, Commercial IoT and SPOT;

• operating income and adjusted EBITDA, both of which are indicators of our financial performance;

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Comparison of the Results of Operations for the years ended December 31, 2020 and 2019

During the twelve months ended December 31, 2019, total revenue in creased $ 1.6 million to $ 131.7 million from $ 130.1 million in 2018 .

This increase was impacted by an out-of-period adjustment of $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.

Excluding this adjustment, total revenue de creased $2.3 million from 2018.

This de crease was due primarily to a $1.6 million de crease in service revenue, driven by fewer Duplex subscribers as well as lower revenue recognized from government contracts.

These items were offset by increases in Commercial IoT subscribers and ARPU as well as Duplex ARPU.

Revenue generated from subscriber equipment sales decreased $0.7 million , which resulted primarily from lower volume and pricing of Duplex and SPOT units sold.

Our results of operations for the twelve months ended December 31, 2020 were impacted by COVID-19.

While 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.

Our revenue is categorized as service revenue and equipment revenue.

We provide services to customers using technology from our satellite and ground network.

Equipment revenue is generated from the sale of devices that work over our network.

During the twelve months ended December 31, 2020, total revenue decreased $3.2 million to $128.5 million from $131.7 million in 2019.

This variance was due primarily to an out-of-period adjustment, which increased Duplex service revenue by $3.9 million during 2019, related to a change in the calculation of the estimated impact from the initial adoption of ASC 606.

See below for a further discussion of the fluctuation in revenue.

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

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December 31, 2019

Revenue % of Total

Revenue Revenue % of Total

Service Revenue:

$ 33,878 27 % $ 39,794 31 %

SPOT 46,417 36 % 50,461 40 %

Commercial IoT 17,174 13 % 16,972 13 %

Engineering and Other 15,722 12 % 2,274 1 %

Total Service Revenue $ 113,191 88 % $ 109,501 85 %

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

The percentage of total revenue calculations also exclude this adjustment.

The percentages of total revenue calculations also exclude this adjustment.

The following table sets forth amounts and percentages of our revenue generated from equipment sales (dollars in thousands).

December 31, 2019

December 31, 2020 Year Ended

December 31, 2019

Revenue % of Total

Revenue Revenue % of Total

Equipment Revenue:

Duplex $ 1,883 1 % $ 1,325 2 %

SPOT 8,176 7 % 7,617 6 %

Commercial IoT 5,140 4 % 9,300 7 %

Other 97 — % 90 — %

Total Equipment Revenue $ 15,296 12 % $ 18,332 15 %

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Average number of subscribers for the year ended:

Duplex 50,116 56,856

SPOT 267,816 281,584

Commercial IoT 414,452 399,960

IGO and Other 27,264 27,481

Total 759,648 765,881

ARPU (monthly):

$ 56.33 $ 58.33

SPOT 14.44 14.93

Commercial IoT 3.45 3.54

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

During the twelve months ended December 31, 2019 , gross Duplex and SPOT subscriber additions were 9,516 and 70,471 , respectively.

During 2018 , gross Duplex and SPOT subscriber additions were 11,589 and 69,607 , respectively.

Duplex gross subscriber additions were higher in 2018 as we experienced higher demand due to lower service plan prices in effect and higher availability of inventory.

SPOT gross subscriber activations increased slightly from 2018 to 2019 due primarily to sales of SPOT X ® , despite a high volume of sales from its launch in May 2018;

the increase in SPOT X ® activations was offset by lower activations of other SPOT products.

During the twelve months ended December 31, 2020, gross Duplex and SPOT subscriber additions increased 1% and 12%, respectively.

The increase in Duplex gross subscriber additions from 2019 to 2020 was driven primarily by activations of Sat-Fi2 ® due to increased demand as we launched an improved version in September 2019;

fewer activations from legacy devices partially offset this increase.

Also, lower service plan prices continue to drive gross Duplex activations.

SPOT gross subscriber activations increased from 2019 to 2020 driven by a higher volume of unit sales, particularly of our SPOT X ® device as well as SPOT Gen4 TM , our refreshed SPOT Satellite GPS Messenger launched in 2020.

We are also seeing changes in consumer behavior resulting from COVID-19, driving more customers to purchase our SPOT products for outdoor recreational activities.

Because our Commercial IoT subscribers are able to activate and deactivate their units several times during the year, gross Commercial IoT subscriber additions are not considered to be a meaningful metric.

We count "subscribers" based on the number of devices that are subject to agreements that entitle them to use our voice or data communications services rather than the number of persons or entities who own or lease those devices.

Other service revenue includes revenue generated primarily from sources which are not subscriber driven, such as engineering services.

Accordingly, we do not present ARPU for other service revenue in the table above.

Engineering and other service revenue includes revenue generated primarily from certain governmental and engineering service contracts which are not subscriber driven.

Accordingly, we do not present ARPU for engineering and other service revenue in the table above.

Service Revenue

As discussed above, we recorded a one-time out-of-period adjustment of $3.9 million during the third quarter of 2019, which increased Duplex service revenue.

Excluding this adjustment, Duplex service revenue decreased 3% in 2019 driven by a decrease in average subscribers offset partially by an increase in ARPU.

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.

We have various initiatives underway to drive higher Duplex activations.

We released an improved Sat-Fi2 ® device during September 2019 as well as a derivative product, the Sat-Fi2 ® Remote Antenna Station ("RAS"), during October 2019 to expand the use cases for the Sat-Fi2 ® device.

Further development efforts are underway to launch additional derivative products of this device.

As shown in the table above, excluding the one-time adjustment during 2019, ARPU increased 11% due to rate plan changes from previous periods that have now been rolled out to most of the subscriber base.

SPOT service revenue decreased 4% in 2019 due primarily to a 3% decrease in average subscribers.

During 2019, the Company deactivated approximately 10,000 nonpaying customers, particularly in Latin America, and approximately 5,000 customers due to inadvertent credit card processing issues resulting from a change in merchant service processors.

Excluding this involuntary churn, ending SPOT subscribers would have been in line with 2018 and average subscribers would have decreased 1% .

ARPU remained relatively flat for 2019 compared to 2018;

however, it was impacted by the timing and amount of certain transactions during 2018 that did not recur during 2019, including primarily incremental revenue recorded during the second quarter of 2018 of $0.4 million related to the collection of a customer account that was previously treated as uncollectible.

Commercial IoT service revenue increased 26% in 2019 due to increases in both ARPU and average subscribers.

Higher ARPU contributed $1.8 million to the increase in service revenue from 2018.

The increase in ARPU was driven in part by higher usage and a more favorable blend of rate plans in place during 2019.

Higher average subscribers contributed $1.7 million to the increase in Commercial IoT service revenue from 2018.

The increase in average subscribers was driven by higher Commercial IoT equipment sales during the last twelve months, primarily due to continued success with our SmartOne family of asset tracking units.

Other service revenue decreased $ 1.3 million , or 42% , in 2019 .

Lower revenue generated from government contracts due to regulatory delays represented nearly all of the decline.

Excluding the out-of-period adjustment discussed above, Duplex service revenue decreased 15% in 2020 due primarily to a decline in average subscribers and ARPU of 12% and 3%, respectively.

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

The decrease in ARPU was driven primarily by lower priced service plans and promotional pricing in place during 2020, as well as unfavorable exchange rate movements for various currencies.

SPOT service revenue decreased 8% in 2020 due to lower ARPU and average subscribers.

The 5% decrease in ARPU was due primarily to lower priced service plans introduced to new subscribers in mid-2019.

The 3% decrease in average subscribers (after adjusting for non-revenue-producing subscribers previously in the base) was due to elevated churn experienced during 2020, particularly in the months following the start of the COVID-19 pandemic.

Although we had a record number of subscriber activations during 2020, churn more than offset these gross additions.

Commercial IoT service revenue increased 1% in 2020 due to a 3% increase in average subscribers, offset partially by a 2% decrease in ARPU.

Average subscribers were higher during 2020 compared to 2019 despite end of period subscribers declining from 421,000 at December 31, 2019 to 408,000 at December 31, 2020 following higher churn from the impact of COVID-19.

The decrease in ARPU was due to the impact of unfavorable exchange rate movements, specifically the strengthening of the U.S.

dollar relative to the Brazilian real.

Engineering and other service revenue increased $13.4 million in 2020.

This increase was driven primarily by a higher volume of engineering services contracts during 2020, including the completion of certain milestones associated with the contract previously discussed, which generated $10.0 million of revenue during 2020.

Additionally, in the fourth quarter of 2020, we recognized $2.9 million of revenue associated with a contract that was executed in 2007 for the construction of a gateway in Nigeria, upon its termination due to lack of performance by the partner, and our performance of all obligations in accordance with the terms of the contract.

These remaining contract proceeds were previously held in non-current deferred revenue.

Subscriber Equipment Sales

Revenue from Duplex equipment sales decreased $0.7 million , or 35% , in 2019 .

The decline in revenue was driven primarily by a lower sales volume of Duplex accessories as well as fixed devices and data modems due to the availability of these first-generation products.

In April 2018, we released a second-generation Duplex device, Sat-Fi2 ® .

Based on initial customer feedback, we slowly released this product into the market as we focused on optimizing functionality, performance and usability;

therefore, sales of this device have been lower than expected.

We released an improved Sat-Fi2 ® device during the third quarter of 2019 and a Sat-Fi2 ® RAS device in October 2019.

Development efforts are underway to launch further derivative products of the Sat-Fi2 ® device.

Revenue from SPOT equipment sales decreased $0.8 million , or 10% , in 2019 .

The decrease was driven by lower volume and pricing of certain SPOT products.

The impact due to pricing was driven by more aggressive discounts and promotions offered during 2019;

these promotions are expected to contribute to higher activations and service revenue in future periods.

The impact due to a lower sales volume was due primarily to fewer sales of our SPOT Gen3 ® device, which was driven by various factors, including higher service pricing in effect during most of 2019 and the success of SPOT X ® .

Sales of our SPOT X ® device, our first two-way SPOT product, increased year over year and are sold at a higher price than our other SPOT products, positively impacting revenue from SPOT equipment sales.

Revenue from Commercial IoT equipment sales increased $0.9 million , or 10% , in 2019 .

Volume for almost all Commercial IoT devices increased from 2018 to 2019;

however, for certain products, the revenue contribution was flat due to pricing.

The increase in revenue from Commercial IoT equipment sales is attributable primarily to sales of our new SmartOne Solar TM .

Revenue from Duplex equipment sales increased $0.6 million, or 42%, in 2020.

This increase in revenue was driven primarily by sales of our second-generation Duplex devices launched in the second half of 2019;

these units are sold at higher prices compared to our first generation devices.

Additionally, sales of our GSP-1700 phones also increased year over year.

The vast majority of our device sales during the past two years were of our first-generation phones and accessories.

We are evaluating the profitability of our second-generation devices relative to our other product and service offerings and the cost to maintain our second-generation ground infrastructure and technology.

While we believe that our second-generation products could contribute meaningfully to our future Duplex revenue, our past financial results are an important component of our overall profitability analysis.

Revenue from SPOT equipment sales increased $0.6 million, or 7%, in 2020.

This increase in revenue during 2020 was driven by a higher sales volume of SPOT X® and SPOT Gen4 TM , which is our refreshed SPOT Satellite GPS Messenger launched in August 2020.

Included in our SPOT Gen4 TM sales were 8,500 units sold to Battlbox, a subscription box service, in December 2020.

We expect to see an increase in gross subscriber activations during 2021 following distribution of these boxes to Battlbox subscribers.

Offsetting the increase in volume were lower component part sales of $0.8 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 2019, we sold fewer component parts to our equipment manufacturer during 2020.

Revenue from Commercial IoT equipment sales decreased $4.2 million, or 45%, in 2020.

This decrease in revenue resulted from a decrease in demand following the start of the COVID-19 pandemic.

We have experienced lower demand particularly from our customers operating in the oil and gas industry.

Offsetting this decline were sales of our recently-launched ST100, a one-way satellite transmitter IoT board.

Numerous resellers are currently conducting trials with this device and we expect additional sales in 2021.

Operating Expenses :

Total operating expenses increased $ 18.3 million , or 10% , to $195.8 million in 2019 from $177.5 million in 2018 .

As discussed further below, the increase in total operating expenses was driven primarily by a $20.5 million revision to our contract termination charge with Thales during 2018 that reduced operating expenses in 2018 and did not recur in 2019.

Increases in depreciation, amortization and accretion expense, higher cost of subscriber equipment sales and reductions in the value of both long-lived assets and inventory also contributed to higher operating expenses.

Offsetting these increases were lower marketing, general and administrative costs.

Total operating expenses decreased 4% to $187.7 million in 2020 from $195.8 million in 2019.

Lower cost of services, cost of subscriber equipment sales, and marketing, general and administrative costs primarily contributed to the decrease in total operating expenses.

The main drivers of the variance in operating expenses are explained in further detail below.

Cost of Services

Cost of services decreased $ 0.1 million , or less than 1%, to $ 37.5 million in 2019 from $37.6 million in 2018 .

The decrease was driven by a decrease in vendor support costs for our ground network of $0.9 million .

Lower research and development costs of $0.2 million associated with the timing and scope of product development initiatives also contributed to the decrease.

These decreases were offset by higher personnel costs of $1.0 million , due to the timing and scope of capital projects.

Cost of services decreased $2.7 million, or 7%, to $34.8 million in 2020 from $37.5 million in 2019.

The decrease in cost of services during 2020 was driven primarily by 1) lower maintenance costs of $1.3 million resulting from revisions to contract terms with certain vendors for gateway and software maintenance and 2) lower research and development costs of $1.1 million driven by the timing of new product development.

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

Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales increased by $1.4 million , or 10% , to $15.8 million in 2019 from $14.4 million in 2018 .

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.

This classification, which carries 25% tariffs upon import, is inconsistent with the classification we previously used based on external legal advice.

As a result of the CBP ruling, during 2019 we have expensed $1.2 million in tariffs for products sold since July 2018.

We plan on filing a protest against this ruling to challenge the classification and reduce the amounts owed but cannot provide any assurance that we may be successful in achieving a favorable outcome.

Excluding the $1.2 million increase in cost of equipment sales due to the China tariff ruling, the remaining fluctuation is generally consistent with the changes in revenue generated from subscriber equipment sales during the respective periods.

Cost of subscriber equipment sales decreased by $2.5 million, or 16%, to $13.3 million in 2020 from $15.8 million in 2019.

This decrease is generally consistent with the decline in total revenue from subscriber equipment sales, particularly driven by the decrease in Commercial IoT equipment, as explained above.

Cost of Subscriber Equipment Sales - Reduction in the Value of Inventory

During 2020, we wrote down the carrying value of inventory by $0.7 million following our decision to discontinue production of a second-generation Duplex device, as well as an evaluation of excess or obsolete inventory related to end of life products and technology.

During 2019, we wrote down the value of inventory by $0.4 million after adjusting for changes in the net realizable value of gateway spare parts due to excess.

A similar inventory reserve was not required during 2018.

Marketing, General and Administrative

Marketing, general and administrative expenses decreased $ 10.2 million , or 18% , to $ 45.2 million in 2019 from $55.4 million in 2018 .

2018 included costs to support the now-terminated merger and associated litigation (see Note 10:

Contingencies for further discussion);

these costs did not recur at the same level in 2019, resulting in a decrease in costs of $13.0 million , including a gain of $1.7 million for an insurance recovery (previously treated as a contingent gain) related to this shareholder litigation.

We also had a decrease in stock based compensation of $1.3 million driven by additional grants to certain employees during the fourth quarter of 2018, including the modification of certain stock awards resulting from the departure of four members of the Board of Directors in December 2018.

Offsetting these expense reductions was the write-off of $3.1 million of previously-capitalized financing costs associated with our initial efforts to refinance our debt obligations through the issuance of a new first lien facility.

This write-off was made during the third and fourth quarters of 2019 following the amendment of our existing Facility Agreement and closing of our Second Lien Term Loan Facility in November 2019.

Occupancy costs also increased $1.2 million , resulting primarily from our move into a new headquarters location in February 2019.

As a result of this relocation, our annual rent expense, including associated taxes and other operating costs, has increased;

the estimated annualized impact of these higher occupancy costs is $1.5 million .

Other smaller items contributed to the remaining change.

Marketing, general and administrative expenses ("MG&A") decreased $3.5 million, or 8%, to $41.7 million in 2020 from $45.2 million in 2019.

MG&A expense was lower in 2020 due in part to the impact of COVID-19, including lower subscriber acquisition costs (such as advertising and trade shows) of $1.8 million and lower travel costs of $1.0 million.

Other smaller items, such as personnel costs and credit losses also reduced MGA expense during 2020.

Offsetting these decreases were higher professional and legal fees related to strategic opportunities of $2.3 million.

Additionally, during 2019, we wrote off $3.1 million of financing costs associated with our efforts to refinance our debt obligations.

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

Reduction in the Value of Long-Lived Assets

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We reduced the carrying value to the lower of cost or fair value less estimated cost to sell during the fourth quarter of 2019.

Revision to Contract Termination Charge

In May 2018, the statute of limitations for Thales to enforce the arbitration award pursuant to the Federal Arbitration Act expired.

Accordingly, we believe that payment of the contract termination charge is not probable, and we removed this liability from our consolidated balance sheet during the second quarter of 2018, resulting in a reduction in operating expenses of €17.5 million, or $20.5 million.

Contingencies in our Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for further discussion.

During the fourth quarter of 2020, we signed a contract for the sale of this property;

the final selling price (net of estimated cost to sell) is $0.3 million and, as a result, the Company recorded an additional impairment totaling $0.2 million during 2020.

Additionally, during the fourth quarter of 2020, we wrote down $0.2 million related to the ground portion of construction in progress for one of our gateways resulting from an analysis made over these balances.

Depreciation, Amortization and Accretion

Depreciation, amortization, and accretion expense increased $1.0 million to $96.8 million in 2020 compared to $95.8 million in 2019.

This increase was due primarily to placing our next-generation ground infrastructure into service during 2018.

Since April 1, 2018, we have placed into service approximately $220.4 million of construction in progress (including capitalized interest) associated with our next-generation ground infrastructure.

The costs placed into service represent primarily the gateways capable of supporting commercial traffic from Sat-Fi2 ® , the first device to work on our upgraded network.

We expect depreciation expense for these assets to be approximately $3.7 million per quarter for an estimated life of fifteen years.

Other Income (Expense):

This increase was due primarily to placing into service our new billing system implemented in 2020.

Other (Expense) Income:

Interest Income and Expense

Interest income and expense, net, increased $ 18.9 million to expense of $ 62.5 million for 2019 compared to expense of $ 43.6 million for 2018 .

This increase was driven by an increase in gross interest costs of $12.5 million as well as a reduction to capitalized interest of $6.6 million (which increases interest expense).

These increases were partially offset by higher interest income of $0.2 million earned on our restricted cash account.

The increase in gross interest costs was impacted by a few items, including $4.5 million of interest (including $0.5 million of amortization of deferred financing costs) associated with the Subordinated Loan Agreement that we entered into in June 2019 (which was repaid in November 2019), $2.9 million of interest (including $0.3 million of accretion of debt discount and amortization of deferred financing costs) associated with the Second Lien Term Loan Facility that we entered into in November 2019 and $2.2 million of interest (including $0.4 million of accretion of debt discount) driven by a higher principal balance outstanding on our Loan Agreement with Thermo.

Amortization related to the Facility Agreement also increased interest expense by $5.4 million , including primarily the write-off of a portion of remaining deferred financing costs resulting from the modification of the Facility Agreement in November 2019.

Offsetting these increases was a decrease of $2.3 million in interest for our Facility Agreement driven by a lower principal amount outstanding and other interest costs of $0.2 million .

Interest income and expense, net, decreased $14.1 million to expense of $48.4 million for 2020 compared to expense of $62.5 million for 2019.

This decrease was driven by lower gross interest costs totaling $14.7 million as well as an increase to capitalized interest of $0.8 million (which decreases interest expense).

Interest income and expense, net, was also impacted by a decrease in interest income totaling $1.4 million.

Gross interest costs were impacted by lower interest associated with the First Lien 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 Facility Agreement that we entered into in November 2019.

Lower interest costs for the First Lien Facility Agreement were due to the modification of the First Lien Facility Agreement in November 2019, which reduced the principal balance outstanding 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 were 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.

Interest costs associated with the First Lien Facility Agreement decreased $24.2 million (including $11.7 million of amortization of deferred financing costs), interest costs associated with the Loan Agreement with Thermo decreased $16.6 million (including $3.4 million of accretion of debt discount) and interest costs associated with the Subordinated Loan Agreement decreased $4.5 million (including $0.5 million of amortization of deferred financing costs).

These decreases were offset by $30.6 million of interest (including $4.0 million of accretion of debt discount and amortization of deferred financing costs) associated with the Second Lien Facility Agreement.

Derivative Gain

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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.

Although fluctuation in our stock price is a significant cause for the change in value of these derivative instruments, other inputs impact the value including stock price volatility, discount rate, maturity date, probabilities of conversion and change of control, the base conversion rate and changes in the principal amount of notes outstanding.

During 2019, the derivative gains were recognized primarily due to the assumed high probability of conversion of the Loan Agreement with Thermo in early 2020, which decreases the value of our derivative liabilities.

The gains recorded during 2020 were primarily impacted by fluctuations in the discount yield used in the valuation of the embedded derivative associated with our Second Lien Facility Agreement.

The gains recorded during 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 the associated derivative liability.

Fair Value Measurements to our Consolidated Financial Statements for further discussion of the computation of the fair value of our derivatives.

Gain on Legal Settlement

In May 2018, we concluded the settlement of a business economic loss claim in which we received proceeds of $7.4 million , net of legal fees.

We received the two installments of $3.7 million in each of January 2019 and 2020.

During the second quarter of 2018, we recorded $6.8 million , the present value of such proceeds, as other income in our consolidated statement of operations.

During the second quarter of 2019, in connection with a follow-on settlement related to this matter, we received additional proceeds of $0.1 million and recorded the gross amount of these proceeds as other income in our consolidated statement of operations.

Contingencies to our Consolidated Financial Statements for further discussion.

Other expense decreased to $ 2.8 million in 2019 compared to $3.3 million in 2018 .

Changes in other income (expense) are due primarily to foreign currency gains and losses recognized during the respective periods given the significant financial statement items we have denominated in foreign currencies, including primarily the Brazilian real, euro and Canadian dollar.

Total foreign currency losses were $3.1 million in 2018 compared to gains of $0.1 million in 2019.

Offsetting this decrease were $2.1 million in legal and other adviser costs incurred related to the modification of our Facility Agreement during 2019 (see Note 6:

Long-Term Debt and Other Financing Arrangements for further discussion), which were recorded to non-operating expense under applicable accounting guidance.

We also record the non-operating components of net periodic benefit cost to other income (loss), which increased $0.5 million from 2018 to 2019 due primarily to the settlement of a portion of our pension liability related to terminated vested employees in December 2019.

Foreign Currency (Loss) Gain

Foreign currency (loss) gain fluctuated by $0.8 million to a loss of $0.7 million in 2020 from a gain of $0.1 million 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 unfavorably impacted our consolidated statement of operations $4.0 million;

this unfavorable impact was partially offset by the strengthening of the Canadian dollar and the Euro relative to the U.S.

dollar, $1.3 million and $1.7 million, respectively.

Other smaller items contributed to the remaining fluctuation.

Foreign currency gains and losses are due primarily to the remeasurement of certain balances at the end of each reporting period.

Other expense increased to $3.6 million in 2020 compared to $2.9 million in 2019.

We record the non-operating components of net periodic benefit cost to other expense, including activity related to settlement of our pension liability.

In December 2020 and 2019, we settled portions of our pension liability due to certain participants;

these settlements resulted in losses of $2.1 million and $0.5 million for each of 2020 and 2019, respectively.

Offsetting this increase in expense were lower legal and other adviser costs incurred related to the modification of our First Lien Facility Agreement, which were recorded to non-operating expense under applicable accounting guidance.

Income Tax Expense

Income tax expense increased $0.2 million to $0.7 million in 2020 compared to $0.5 million in 2019.

During 2019, we recorded a deferred state tax liability with an offsetting expense of $0.4 million related to net operating loss limitations on deferred tax balances in certain states within the United States.

The primary income tax expense is related to deferred state tax liabilities associated with net operating loss limitations.

Comparison of the Results of Operations for the years ended December 31, 2019 and 2018

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Liquidity and Capital Resources

Our principal liquidity requirements include paying our debt service obligations and funding our operating costs, including certain contractual obligations discussed in the " Contractual Obligations and Commitments " section below .

Our principal sources of liquidity include cash on hand, restricted cash and cash flows from operations.

Our principal liquidity requirements include paying our debt service obligations and funding our operating costs.

Our principal sources of liquidity include cash on hand, cash flows from operations and anticipated proceeds from the exercise of warrants held by our Second Lien Facility Agreement lenders.

Our operating cash flows are likely to continue to be negatively impacted by COVID-19, as previously discussed.

The uncertainties due to COVID-19 continue to evolve and we are monitoring our financial position as circumstances develop.

We expect to use proceeds from the exercise of warrants to meet our obligations to raise no less than $45.0 million of equity prior to March 30, 2021.

A portion of these proceeds will be used to pay the next scheduled principal payment due under the First Lien Facility Agreement in June 2021;

the remaining proceeds will be used towards the following scheduled payment due in December 2021.

A longer-term source of liquidity also includes restricted cash held in our debt service reserve account.

Although there are uncertainties related to the future impact from COVID-19, we currently expect that sources of liquidity over the next twelve months will be sufficient for us to cover our obligations.

We may also access equity and debt capital markets from time to time, as needed, such as for liquidity, to improve terms of our debt instruments and to lower our principal and interest requirements.

As of December 31, 2020, we held cash and cash equivalents of $13.3 million and restricted cash of $54.7 million, of which $3.6 million and $51.1 million are recorded as current and non-current restricted cash, respectively, on our consolidated balance sheet required under our First Lien Facility Agreement.

The current portion of restricted cash on our consolidated balance sheet will be used towards the next principal payment, which is scheduled for June 2021.

The non-current portion of restricted cash on our consolidated balance sheet will generally be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement in December 2022 (see below for further discussion).

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

The carrying amount of our long-term debt outstanding was $385.4 million at December 31, 2020, compared to $464.2 million at December 31, 2019.

At December 31, 2020, the current portion of our debt outstanding was $58.8 million and represents the scheduled principal payments under our First Lien 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 $78.8 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.

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 Facility Agreement of $32.4 million due to the accrual of PIK interest and the accretion of debt discount, 2) a higher carrying value of the First Lien Facility Agreement of $3.8 million due to amortization of deferred financing costs, and 3) the issuance of the PPP Loan in April 2020 of $4.9 million (net of debt issuance costs).

Cash Flows for the years ended December 31, 2020, 2019 and 2018

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Cash Flows Provided by Operating Activities

Net cash provided by operations includes primarily cash receipts from subscribers related to the purchase of equipment and satellite voice and data services.

Net cash provided by operations includes primarily cash receipts from subscribers related to the purchase of equipment and satellite voice and data services as well as cash received from the performance of engineering and other services.

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

Net cash provided by operating activities was $22.2 million during 2020 compared to $3.0 million during 2019.

This increase was due primarily to higher net income after adjusting for non-cash items due to lower interest payments and operating expenses.

Partially offsetting this variance were working capital changes, which were more unfavorable in 2020 than in 2019.

These unfavorable changes were due primarily to an increase in accounts receivable and a decrease in deferred revenue, which were both driven by the timing of services delivered under our subscriber and engineering service contracts relative to the timing of cash receipts.

Offsetting these unfavorable items were higher inventory sales as well as fewer 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 was $3.0 million during 2019 compared to $5.9 million during 2018.

This decrease was due primarily to lower net income after adjusting for non-cash items.

Lower net income was driven by:

1) higher interest expense driven by a lower amount of cash interest capitalized during 2019 as well as higher gross interest payments due to the payment of accrued interest on the Subordinated Loan Agreement in November 2019, 2) costs associated with efforts to refinance our debt obligations, including a) the write-off of financing costs for the issuance of new first-lien debt that was ultimately not pursued, as well as third-party costs to support the modification of our Facility Agreement and b) the write-off of a portion of remaining deferred financing costs resulting from the partial paydown of the Facility Agreement, and 3) the higher cost of goods sold for tariffs resulting from a recent ruling on the classification of certain of our products.

1) higher interest expense driven by a lower amount of cash interest capitalized during 2019 as well as higher gross interest payments due to the payment of accrued interest on the Subordinated Loan Agreement in November 2019, 2) costs associated with efforts to refinance our debt obligations, including a) the write-off of financing costs for the issuance of new first-lien debt that was ultimately not pursued, as well as third-party costs to support the modification of our First Lien Facility Agreement and b) the write-off of a portion of remaining deferred financing costs resulting from the partial paydown of the First Lien Facility Agreement, and 3) the higher cost of goods sold for tariffs resulting from a recent ruling on the classification of certain of our products.

Offsetting the decrease due to lower net income were favorable working capital changes, including primarily the timing of prepaid and other assets as well as other non-current liabilities.

Net cash provided by operating activities was $5.9 million during 2018 compared to $13.9 million during 2017.

This decrease was due to unfavorable changes in certain operating assets and liabilities, primarily resulting from the timing of prepaid assets.

These unfavorable changes were offset by higher net income, after adjusting for non-cash items, driven in part by price increases for our Duplex and SPOT subscribers, coupled with higher Commercial IoT and SPOT equipment sales.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $14.5 million during 2020 compared to $11.5 million during 2019.

During both 2020 and 2019, the nature of our capital expenditures was related to the procurement and deployment of new antennas for our gateways.

Additionally, in both 2020 and 2019, we incurred costs for other initiatives, including our new billing system, which was placed into service in April 2020, as well as product development, including software and other back-office efforts.

Net cash used in investing activities was $11.5 million during 2019 compared to $17.4 million during 2018.

This decrease was due primarily to a reduction in the amount of cash interest capitalized of $2.9 million.

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Also contributing to the variance in cash used in investing activities were fewer property and equipment purchases related to our ground network and product development, including software and other back-office efforts.

Net cash used in investing activities was $17.4 million during 2018 compared to $20.8 million during 2017.

This decrease was driven by lower second-generation network additions in 2018 as we substantially completed the deployment of our next-generation ground infrastructure.

This decrease was offset partially by higher property and equipment additions during 2018 as we incurred costs to bring our newly developed products into production, including software and other back-office efforts.

Cash Flows Provided (Used in) by Financing Activities

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities was $1.2 million in 2020 compared to net cash used in financing activities of $7.9 million in 2019.

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

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

Net cash used in financing activities was $7.9 million in 2019 compared to $18.2 million in 2018.

In June 2019, we entered into a $62.0 million Subordinated Loan Agreement, the proceeds from which were used in part to pay principal of $47.4 million towards our Facility Agreement.

In November 2019, we completed a broad refinancing, which included the issuance of a $193.0 million Second Lien Term Loan Facility.

The proceeds, net of a $6.0 million, or 3% OID, combined with cash on hand and restricted cash were used to prepay a portion of our Facility Agreement of $151.6 million .

Proceeds from the Second Lien Term Loan Facility were also used to pay off the entire balance of the Subordinated Loan Agreement of $62.0 million plus accrued interest of $4.0 million.

In June 2019, we entered into a $62.0 million Subordinated Loan Agreement, the proceeds from which were used in part to pay principal of $47.4 million towards our First Lien Facility Agreement.

In November 2019, we completed a broad refinancing, which included the issuance of a $193.0 million Second Lien Facility Agreement.

The proceeds, net of a $6.0 million, or 3% OID, combined with cash on hand and restricted cash were used to prepay a portion of our First Lien Facility Agreement of $151.6 million.

Proceeds from the Second Lien Facility Agreement were also used to pay off the entire balance of the Subordinated Loan Agreement of $62.0 million plus accrued interest of $4.0 million.

We incurred $6.2 million in debt financing costs associated with the November 2019 refinancing.

Additionally, we issued warrants to purchase shares of our common stock to each of the Second Lien Term Loan Facility lenders.

Additionally, we issued warrants to purchase shares of our common stock to each of the Second Lien Facility Agreement lenders.

In December 2019, Thermo exercised 9.5 million warrants resulting in cash proceeds to us of $3.6 million.

Net cash used in financing activities was $18.2 million in 2018 compared to cash provided by financing activities of $63.8 million in 2017.

The change in financing activities was driven primarily by lower cash proceeds from equity financings in 2018, resulting in a decline of cash provided to us of $100.9 million, offset partially by lower debt service payments due primarily by the payment of a $20.8 million debt restructuring fee in 2017 that did not recur in 2018.

As of December 31, 2019 , we held cash and cash equivalents of $ 7.6 million and restricted cash of $51.5 million, consisting of the balance in our debt service reserve account under our Facility Agreement.

The Facility Agreement restricts the use of these funds to making principal and interest payments under the Facility Agreement.

See below for further discussion.

As of December 31, 2018 , we held cash and cash equivalents of $15.2 million and had $60.3 million in restricted cash.

The carrying amount of our long-term debt outstanding was $ 464.2 million at December 31, 2019 , compared to current and long-term debt of $96.2 million and $367.2 million , respectively, at December 31, 2018 .

The current portion of our debt represents primarily principal payments under our Facility Agreement scheduled to occur within 12 months of the balance sheet date.

We had no current debt outstanding at December 31, 2019 following the amendment to the principal amortization schedule in our Facility Agreement in November 2019.

The $0.8 million increase in the carrying amount of our total debt balance was due to the following:

1) the issuance of the Second Lien Term Loan Facility in November 2019;

the carrying value of the Second Lien Term Loan Facility was $166.0 million at December 31, 2019 , which includes PIK interest of $2.5 million and is net of a $35.4 million debt discount, 2) a higher carrying value of the Loan Agreement with Thermo due to interest accruing on that debt and accretion of the debt discount of $19.5 million, and 3) a higher carrying value of the Facility Agreement due to accretion and a partial write-off of debt financing costs of $14.2 million following the Facility Agreement amendment.

This increase in our total debt balance was offset partially by principal payments of $199.0 million of the Facility Agreement, including $24.6 million using proceeds from the debt service reserve account and cash on hand in November 2019, and $174.5 million using proceeds from the Subordinated Loan Agreement and Second Lien Term Loan Facility.

Indebtedness and Available Credit

Facility Agreement

In 2009, we entered into the Facility Agreement, which was amended and restated in July 2013, August 2015, June 2017 and November 2019.

The Facility Agreement is scheduled to mature in December 2022.

Our indebtedness under the Facility Agreement bears interest at a floating rate of LIBOR plus 4.25% through June 2020, increasing by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%.

Interest on the Facility Agreement is payable semi-annual in arrears in June and December of each calendar year.

Ninety-five percent of our obligations under the Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S.

("BPIFAE") (formerly COFACE).

Our obligations under the Facility Agreement are guaranteed on a senior secured basis by all of our domestic subsidiaries and are secured by a first priority lien on substantially all of our assets and our domestic subsidiaries (other than their FCC licenses), including patents and trademarks, 100% of the equity of our domestic subsidiaries and 65% of the equity of certain foreign subsidiaries.

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

The compliance calculations of the financial covenants of the Facility Agreement permit us to include certain cash funds we receive from the issuance of our common stock and/or subordinated indebtedness.

First Lien Facility Agreement

In 2009, we entered into the First Lien Facility Agreement, which was amended and restated in July 2013, August 2015, June 2017 and November 2019.

The First Lien Facility Agreement is scheduled to mature in December 2022.

As of December 31, 2020, the principal amount outstanding under the First Lien Facility Agreement was $187.0 million, of which $57.5 million was recorded as current debt based on the contractual terms of the loan.

Our indebtedness under the First Lien Facility Agreement bears interest at a floating rate of LIBOR plus a margin that increases by 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%.

Interest on the First Lien Facility Agreement is payable semi-annually in arrears in June and December of each calendar year.

Ninety-five percent of our obligations under the First Lien Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S.

Our obligations under the First Lien Facility Agreement are guaranteed on a senior secured basis by all of our domestic subsidiaries and are secured by a first priority lien on substantially all of our assets and our domestic subsidiaries (other than their FCC licenses), including patents and trademarks, 100% of the equity of our domestic subsidiaries and 65% of the equity of certain foreign subsidiaries.

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

The compliance calculations of the financial covenants of the First Lien Facility Agreement permit us to include certain cash funds we receive from the issuance of our common stock and/or subordinated indebtedness.

We refer to these funds as "Equity Cure Contributions".

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 December 31, 2019 , we were in compliance with respect to the covenants of the Facility Agreement.

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

As part of the amendment to the Facility Agreement in November 2019, the required balance in the debt service reserve account is now fixed.

As of December 31, 2019 , the balance in the debt service reserve account was approximately $51.5 million , of which $50.9 million is classified as non-current restricted cash on our consolidated balance sheet as it will be used towards the final scheduled payment due upon maturity of the Facility Agreement in December 2022.

The remaining balance of $0.6 million is classified as current and represents the portion of the debt service reserve account in excess of the required balance.

We expect to receive this amount from our lenders during the next twelve months.

In November 2019, we amended and restated the Facility Agreement and entered into a Fourth Global Amendment and Restatement Agreement (the “2019 GARA”).

The 2019 GARA, among other things, revised the remaining principal amortization schedule to reflect, in part, a $151.6 million prepayment (using primarily the proceeds from the Second Lien Term Loan Facility discussed below);

reduced the required balance in the debt service reserve account;

required us to raise no less than $45.0 million of equity prior to March 31, 2021 via the cash exercise of outstanding warrants to be applied towards the principal payment due on June 30, 2021;

reset financial covenant levels;

and extended our ability to make Equity Cure Contributions through the maturity date.

Long-Term Debt and Other Financing Arrangements to our Consolidated Financial Statements for further discussion of the Facility Agreement.

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

As of December 31, 2020, we were in compliance with respect to the covenants of the First Lien Facility Agreement.

The First Lien Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the First Lien 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.

We expect to make another prepayment in 2021 from Excess Cash Flow as of December 31, 2020.

These payments reduce future principal payment obligations.

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

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

As of December 31, 2020, the balance in the debt service reserve account was approximately $51.1 million and is classified as non-current restricted cash on our consolidated balance sheet as it will be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement in December 2022.

The amended and restated First Lien Facility Agreement includes a requirement that we raise no less than $45.0 million from the sale of equity prior to March 30, 2021.

These proceeds will 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 exercise of the remaining warrants issued to the Second Lien Facility Agreement lenders in November 2019.

We will access equity and debt capital markets, if necessary to fund any remaining requirements not satisfied through warrant proceeds.

In December 2019, we received proceeds of $3.6 million from the exercise of a portion of warrants issued to the Second Lien Facility Agreement lenders, which is retained in the equity proceeds account under the First Lien Facility Agreement and is recorded in current restricted cash on our consolidated balance sheet as of December 31, 2020.

Since December 31, 2020, certain of the Second Lien Facility Agreement lenders exercised approximately 5.5 million warrants at a price of $0.38 per share, the proceeds of which will be used to fulfill a portion of the $45.0 million requirement discussed above.

Long-Term Debt and Other Financing Arrangements to our Consolidated Financial Statements for further discussion of the First Lien Facility Agreement.

Subordinated Loan Agreement

On July 2, 2019, we entered into a Subordinated Loan Agreement (the “Subordinated Loan Agreement”), effective as of June 28, 2019, with Thermo Funding Company LLC (an affiliated entity to Thermo, as previously defined in this filing), and certain other unaffiliated parties (together with Thermo, the “Lenders”).

Under the Subordinated Loan Agreement, we borrowed $62.0 million from the Lenders on June 28, 2019 for the primary purpose of funding the June 30, 2019 scheduled payment of interest and principal under our Facility Agreement and maintaining compliance with the financial covenants thereunder.

The proceeds from the Subordinated Loan Agreement qualified as an Equity Cure Contribution under the Facility Agreement.

Under the Subordinated Loan Agreement, we borrowed $62.0 million from the Lenders on June 28, 2019 for the primary purpose of funding the June 30, 2019 scheduled payment of

interest and principal under our First Lien Facility Agreement and maintaining compliance with the financial covenants thereunder.

The Subordinated Loan Agreement accrued interest at 15% per annum, which was capitalized and added to the outstanding principal in lieu of cash payments.

Prior to repayment, the Subordinated Loan Agreement had accrued a total of $4.0 million.

In November 2019, the Subordinated Loan Agreement was paid in full from a portion of the proceeds from the Second Lien Term Loan Facility (see further discussion below).

There were no unamortized deferred financing costs on the repayment debt.

Second Lien Term Loan Facility

In November 2019, we entered into a $199.0 million Second Lien Term Loan Facility with Thermo, EchoStar Corporation and certain other unaffiliated lenders.

The Second Lien Term Loan Facility is scheduled to mature in November 2025.

The loans under the Second Lien Term Loan Facility bear interest at a blended rate of 13.5% per annum to be paid-in-kind (or in cash at our option, subject to restrictions in the Facility Agreement).

In November 2019, the Subordinated Loan Agreement was paid in full from a portion of the proceeds from the Second Lien Facility Agreement (see further discussion below).

Second Lien Facility Agreement

In November 2019, we entered into a $199.0 million Second Lien Facility Agreement with Thermo, EchoStar Corporation and certain other unaffiliated lenders.

The Second Lien Facility Agreement is scheduled to mature in November 2025.

The loans under the Second Lien Facility Agreement bear interest at a blended rate of 13.5% per annum to be paid-in-kind (or in cash at our option, subject to restrictions in the First Lien Facility Agreement).

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

As of December 31, 2020, the principal amount outstanding under the Second Lien Facility Agreement was $230.6 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.

These warrants expire on March 31, 2021.

In December 2019, Thermo exercised 9.5 million warrants resulting in cash proceeds of $3.6 million to the Company.

A portion of the proceeds from the Second Lien Term Loan Facility was used to repay all of our obligations under the Subordinated Loan Agreement.

The remaining proceeds of the Second Lien Term Loan Facility were used towards the prepayment of scheduled principal payments under the Facility Agreement.

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

As of December 31, 2019 , we were in compliance with all the covenants of the Second Lien Term Loan Facility.

Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of the Second Lien Term Loan Facility.

As of December 31, 2020, approximately 115.0 million warrants remain outstanding.

Subsequent to December 31, 2020, an additional 5.5 million warrants were exercised at price of $0.38 per share.

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

As of December 31, 2020, we were in compliance with all the covenants of the Second Lien Facility Agreement.

Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of the Second Lien Facility Agreement.

Thermo Loan Agreement

We have an amended and restated loan agreement with Thermo (the “Loan Agreement”).

Our obligations to Thermo under the Loan Agreement are subordinated to all of our obligations under the Facility Agreement and the Second Lien Term Loan Facility.

The Loan Agreement is convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock.

Amounts outstanding under the Loan Agreement accrue interest at 12% per annum, which we capitalize and add to the outstanding principal in lieu of cash payments.

As of December 31, 2019 , the principal amount outstanding was $135.1 million , including $91.6 million of interest that had accrued since 2009 under the Loan Agreement.

Principal and interest under the Loan Agreement become due and payable six months after the obligations under the Facility Agreement have been paid in full;

however, the November 2019 Finance Documents (including the amended and restated Facility Agreement and the Second Lien Term Loan Facility) permit the conversion of all amounts outstanding under the Loan Agreement by June 30, 2022, or earlier if there is a change in control or any acceleration of the maturity of the loans under the Facility Agreement or Second Lien Term Loan Facility occurs.

In connection with the November 2019 refinancing, Thermo committed to convert the total principal balance outstanding under the Loan Agreement by March 31, 2020;

on February 19, 2020, Thermo converted the entire principal balance outstanding resulting in the issuance of 200.1 million shares of common stock.

We had an amended and restated loan agreement with Thermo (the “Loan Agreement”).

Our obligations to Thermo under the Loan Agreement were subordinated to all of our obligations under the First Lien Facility Agreement and the Second Lien Facility Agreement.

The Loan Agreement was convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock and accrued interest at 12% per annum, which we capitalized and added to the outstanding principal in lieu of cash payments.

On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement, which totaled $137.4 million and included accrued interest since inception of $93.9 million.

This conversion resulted in the issuance of 200.1 million shares of common stock.

Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of the Thermo Loan Agreement.

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We pay interest in cash at a rate of 5.75% per annum and by issuing additional 2013 8.00% Notes at a rate of 2.25% per annum.

A holder of 2013 8.00% Notes has the right, at the holder’s option, to require us to purchase some or all of the 2013 8.00% Notes on April 1, 2023 at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest.

A holder of 2013 8.00% Notes has the right to require us to purchase some or all of the 2013 8.00% Notes on April 1, 2023 at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest.

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

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Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of the 2013 8.00% Notes.

Payroll Protection Program Loan

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

As of December 31, 2020, the principal amount outstanding under the PPP Loan was $5.0 million, of which $1.4 million is classified as current based on the contractual terms of the loan (as modified).

The Company applied for loan forgiveness in December 2020, in accordance with the terms of the CARES Act, based on payroll and other allowable costs incurred since the date of the loan.

Any amount not forgiven by the Small Business Administration (the "SBA") is subject to an interest rate of 1.00% per annum commencing on the date of the loan with principal and interest payments beginning after the SBA has concluded on forgiveness, subject to the PPP rules.

Our first and second lien lenders will require us to accelerate the repayment of any portion of the loan amount that is not forgiven.

Long-Term Debt and Other Financing Arrangements to our Consolidated Financial Statements for further discussion of the PPP Loan.

Contractual Obligations and Commitments

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Contractual Obligations:

2021 2022 2023 2024 2025 Thereafter Total

Debt obligations (1) $ 57,468 $ 129,520 $ 1,455 $ — $ — $ 446,782 $ 635,225

Interest on long-term debt (2) 8,996 7,030 41 — — — 16,067

Network purchase obligations (3)

Purchase obligations (3) 1,585 4,220 2,280 — — — 8,085

Inventory purchase obligations (4) 6,430 — — — — — 6,430

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Pension obligations 502 505 497 510 526 2,604 5,144

Total $ 77,578 $ 143,754 $ 6,783 $ 2,893 $ 2,931 $ 458,188 $ 692,127

(1) These amounts include principal and payment in kind interest payments.

Interest on the Loan Agreement with Thermo accrues at 12% per annum and is capitalized and added to the total outstanding principal in lieu of cash payments.

Principal and interest under the Loan Agreement with Thermo was due and payable in June 2023.

Thermo converted the principal amount outstanding under the Loan Agreement into shares of common stock on February 19, 2020;

therefore, we show this payment in 2020.

In connection with the 2019 GARA, we were required to sweep excess cash in January 2020, measured as of December 31, 2019.

The total payment of $0.3 million was calculated according to the Facility Agreement and is shown in the table above in 2020.

This payment reduced the next principal payment under the Facility Agreement, which is scheduled for June 2021.

Interest on the 2013 8.00% Notes is payable semi-annually in cash at a rate of 5.75% per annum and in additional notes at a rate of 2.25% per annum.

The maturity date of the 2013 8.00% Notes is April 1, 2028;

however, the holders of these notes can require us to purchase any or all of the notes at par in cash on April 1, 2023.

For purposes of this schedule, we show these notes as due in 2023 because of this put option.

Interest on the Second Lien Term Loan Facility accrues interest at a blended rate of 13.5% per annum and is capitalized and added to the total outstanding principal in lieu of cash payments.

Principal and interest under the Second Lien Term Loan Facility become due and payable in November 2025.

Interest on the Second Lien Facility Agreement accrues interest at a blended rate of 13.5% per annum and is capitalized and added to the total outstanding principal in lieu of cash payments.

Principal and interest under the Second Lien Facility Agreement become due and payable in November 2025.

We have $5.0 million outstanding under the PPP Loan.

We applied for loan forgiveness, including both principal and interest, in accordance with the terms of the CARES Act.

Any amounts not forgiven are subject to an interest rate of 1.00% per annum.

As we expect the entire $5.0 million to be forgiven, this amount is excluded from the table above.

Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of these debt arrangements.

(2) Amounts include projected interest payments to be made in cash.

Debt outstanding under our Facility Agreement bears interest at a floating rate and, accordingly, we estimated our interest costs in future periods.

Amounts also include projected cash interest to be paid on the 2013 8.00% Notes through April 1, 2023 (see further discussion above).

We have purchase commitments with certain vendors related to the procurement, deployment and maintenance of our second-generation network.

We intend to continue to purchase maintenance and warranties for our second-generation network.

However, there is no contractual obligation at this time for future annual payments;

therefore, we have excluded maintenance and warranty payments for these contracts in the table above.

Amounts in the table above include the minimum purchase commitment of LEO tracking antennas.

Additionally, in connection with this contract, we are obligated to incur additional costs for auxiliary equipment at each installation site as well as costs for installing the antennas at each of our gateways;

these amounts are not included in the table above as we can perform some of the work internally or through other vendors.

The additional installation costs above and beyond the minimum purchase commitment are approximately $1.0 million in each of 2020, 2021 and 2022.

Commitments in our Consolidated Financial Statements for discussion on our contractual commitments.

Debt outstanding under our First Lien Facility Agreement bears interest at a floating rate and, accordingly, we estimated our interest costs in future periods.

(3) We have purchase commitments with certain vendors related to the procurement, deployment and maintenance of our network.

In prior disclosures, our contractual obligations table included a contract that we previously had with MIL-SAT LLC for the procurement and production of new antennas for our gateways.

While there are no remaining purchase commitments under this contract, we expect to purchase additional antennas for certain gateways in the future directly from the manufacturer.

Commitments and Contingencies in our Consolidated Financial Statements for discussion on our contractual commitments.

(4) Amounts include obligations for non-cancelable purchase orders for inventory as of December 31, 2020.

This amount is reflected in 2020 based on current forecasted equipment sales.

Off-Balance Sheet Transactions

We have no material off-balance sheet transactions.

We expect to fulfill these purchase orders during 2021 based on current forecasted equipment sales.

(5) As of December 31, 2020, we executed additional operating leases, primarily for new gateway locations, that are expected to commence during 2021.

Accordingly, these leases are not included on the balance sheet as of December 31, 2020 or in the table above.

We are in the process of evaluating these lease obligations.

Recently Issued Accounting Pronouncements

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Revenue Recognition

Our primary types of revenue include (i) service revenue from two-way voice communication and data transmissions and one-way data transmissions between a mobile or fixed device and (ii) subscriber equipment revenue from the sale of fixed and mobile devices as well as other products and accessories.

Additionally, we generate revenue by providing engineering and support services to certain customers.

Our primary types of revenue include (i) service revenue from two-way voice communication, and one-way and two-way data transmissions between a mobile or fixed device, (ii) subscriber equipment revenue from the sale of fixed and mobile devices as well as other products and accessories, and (iii) service revenue from providing engineering and support services to certain customers.

The complexities or judgements involved in revenue recognition is discussed in detail below by type of revenue.

Unless otherwise disclosed, service revenue is recognized over a period of time (consistent with the customer's receipt and consumption of the benefits of our performance) and revenue from the sale of subscriber equipment is recognized at a point in time (consistent with the transfer of risks and rewards of ownership of the hardware).

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All other subscriber acquisitions costs are expensed at the time of the related sale.

Duplex Service Revenue

We recognize revenue for monthly access fees in the period services are rendered.

For Duplex service revenue, we recognize revenue for monthly access fees in the period services are rendered.

Access fees represent the minimum monthly charge for each line of service based on its associated rate plan.

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Under certain annual plans whereby a customer prepays for a predetermined amount of minutes and data, revenue is recognized consistent with the customer's expected pattern of usage, based on historical experience because we believe that this method most accurately depicts the satisfaction of our obligation to the customer.

The estimated timing of revenue recognition for these usage-based customers is driven by historical customer usage patterns.

For annual plans where the customer is charged an annual fee to access our system, we recognize revenue on a straight-line basis over the term of the plan.

SPOT Service Revenue

We sell SPOT services as monthly, annual or multi-year plans and recognize revenue on a straight-line basis over the service term, beginning when the service is activated by the customer.

Commercial IoT Service Revenue

We sell Commercial IoT services as monthly, annual or multi-year plans and recognize revenue ratably over the service term or as service is used, beginning when the service is activated by the customer.

IGO Service Revenue

We earn a portion of our revenues through the sale of airtime minutes or data on a wholesale basis to IGOs.

Revenue from services provided to IGOs is recognized based upon airtime minutes or data packages used by customers of the IGO and in accordance with contractual fee arrangements.

Other Service Revenue

We provide certain engineering services to assist customers in developing new applications related to our system.

We generally recognize the revenues associated with these services when the services are rendered and our obligation to the customer is satisfied.

Equipment Revenue

Subscriber equipment revenue represents the sale of fixed and mobile user terminals, SPOT and Commercial IoT products, and accessories to these products.

We recognize revenue upon shipment provided control has transferred to the customer.

We sell equipment designed to work on our network through various channels.

Multiple-Element Arrangement Contracts

We provide certain engineering services to assist customers in developing new applications to operate on our network.

We generally recognize the revenues associated with these services when the performance obligations are performed, the timing of which may involve complex judgements by management.

At times, we sell subscriber equipment through multiple-element arrangement contracts with services.

When we sell subscriber equipment and services in bundled arrangements and determine that we have separate performance obligations, we allocate the bundled contract price among the various performance obligations based on relative stand-alone selling prices at contract inception of the distinct goods or services underlying each performance obligation and recognizes them when, or as, each performance obligation is satisfied.

Determination of the relative stand-alone selling prices is complex and involves judgement, as prices may vary based on many factors, such as promotions, customer, volume and/or type of equipment sold.

Property and Equipment

The vast majority of our property and equipment is costs incurred related to the construction of our second-generation constellation and ground station upgrades.

Accounting for these assets requires us to make complex judgments and estimates.

We capitalize costs associated with the design, manufacture, test and launch of our low earth orbit satellites.

We track capitalized costs associated with our satellites by fixed asset category and allocate them to each asset as it comes into service.

For assets that are sold or retired, including satellites that are de-orbited and no longer providing services, we remove the estimated cost and accumulated depreciation.

We recognize a loss from an in-orbit failure of a satellite equal to its net book value, if any, in the period it is determined that the satellite is not recoverable.

We depreciate satellites over their estimated useful lives, beginning on the date each satellite is placed into service.

We evaluate the appropriateness of estimated depreciable lives assigned to our property and equipment and revise such lives to the extent warranted by changing facts and circumstances.

Estimating the useful life of our assets is complex and involves judgement;

to the extent the useful life of our significant assets changes, this could impact our operating results.

The estimated useful lives of our assets is based on many factors, including estimated design life, information from our engineering department and our overall strategy for the use of the assets.

A one year reduction in the estimated useful life of our second-generation satellites and ground network would result in an annual increase to depreciation expense of $5.2 million and $1.1 million, respectively.

We capitalize costs associated with the design, manufacture and test of our ground stations and other capital assets.

We track capitalized costs associated with our ground stations and other capital assets by fixed asset category and allocate them to each asset as it comes into service.

We evaluate the appropriateness of estimated depreciable lives assigned to our property and equipment and revise such lives to the extent warranted by changing facts and circumstances.

We review the carrying value of our assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable.

We look to current and future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability.

If we determine that impairment exists, we calculate any related impairment loss based on fair value.

If indicators of impairment exist, we compare future undiscounted cash flows to the carrying value of the asset group.

If an asset is not recoverable, its carrying value would be adjusted down to fair value and an impairment loss would be recorded.

Key assumptions in our impairment tests include projected future cash flows, the timing of network upgrades and current discount rates.

Additionally, from time to time, we perform profitability analyses to determine if investments in certain products and/or services remain viable.

In the event we determine to no longer support a product or service, or that an asset is not expected to generate future benefit, the asset may be abandoned and an impairment loss may be recorded.

We use the asset and liability method of accounting for income taxes.

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For the conversion options and the contingent put features in the Loan Agreement with Thermo and the 2013 8.00% Notes, we use a Monte Carlo simulation model to determine fair value.

For the mandatory prepayments in the Second Lien Term Loan Facility, we use a probability weighted discounted cash flow model to determine fair value.

For the mandatory prepayments in the Second Lien Facility Agreement, we use a probability weighted discounted cash flow model to determine fair value.

The timing and amount of these cash flows involve significant judgement.

Valuations derived from these models are subject to ongoing internal and external verification and review.

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.

Our financial position and results of operations may vary materially from quarter-to-quarter based on conditions other than our operating revenues and expenses.

Our financial position and results of operations may vary materially from quarter-to-quarter based on changes to the inputs and assumptions used in the derivative valuation models changes in these estimates.

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-K

Item 7. Management’s Discussion and Analysis