What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 145 added, 107 removed, 201 unchanged (56% of the section changed)

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By providing wireless communications services across the globe, we meet our customers' increasing desire for connectivity.

We currently provide the following communications services, which are available only with equipment designed to work on our network:

We currently provide the following communications services:

• two-way voice communication and data transmissions using mobile or fixed devices, including our GSP-1600 and GSP-1700 phones and other fixed and data-only devices ("Duplex");

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In addition, our SPOT and Commercial IoT services employ a proprietary technology developed by us.

In 2019, we began the process to expand and enhance our gateway coverage and performance, including the deployment of new gateway antennas to our gateways around the world.

In connection with these efforts, during 2021, we purchased gateway assets, including operating licenses, from two former Independent Gateway Operators ("IGOs") in Australia and South Korea.

We compete aggressively on price.

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Integrated with this assessment is the development of a two-way reference design module to expand our Commercial IoT offerings, which is among our other current initiatives.

Our Commercial IoT use cases continue to expand, including deployments that support environmentally friendly initiatives.

Recent deployments include remote monitoring of fluid levels and tanks, which replaces the need for motor vehicles to access these assets, as well as asset monitoring solutions for solar lighting.

The specialized needs of our global customers span many industries.

As of March 31, 2021, we had approximately 742,000 subscribers worldwide, principally within the following markets:

As of June 30, 2021, we had approximately 749,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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We believe that our licensed 2.4 GHz band holds physical, regulatory, and ecosystem qualities that distinguishes it from other current and anticipated allocations, and that it is well positioned to balance favorable range, capacity and attenuation characteristics.

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 months ended March 31, 2021 partially reflect this impact;

As a result of COVID-19, we experienced a reduction in the volume of sales of our subscriber equipment, received requests for service pricing concessions from certain customers, and were impacted by certain of our customers not being able to pay outstanding balances.

Our results of operations for the three and six months ended June 30, 2021 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 months ended March 31, 2021 and 2020

Our results of operations for the three months ended March 31, 2021 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.

Comparison of the Results of Operations for the three and six months ended June 30, 2021 and 2020

Our revenue is categorized as service revenue and equipment revenue.

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

Total revenue decreased 16%, to $26.9 million for the three months ended March 31, 2021 from $32.2 million for the same period in 2020.

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

Total revenue decreased slightly to $30.3 million for the three months ended June 30, 2021 from $30.4 million for the same period in 2020 and decreased 9% to $57.2 million for the six months ended June 30, 2021 from $62.6 million for the same period in 2020.

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

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

Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2020

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

Revenue % of Total

Revenue Revenue % of Total

Service revenue:

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Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2020

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

Revenue % of Total

Revenue Revenue % of Total

Subscriber equipment sales:

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Average number of subscribers for the period:

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Service Revenue

Duplex service revenue decreased 13% for the three months ended March 31, 2021 due primarily to a decrease in average subscribers of 12%.

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

SPOT service revenue decreased 9% for the three months ended March 31, 2021 due to lower ARPU and average subscribers.

The 6% decrease in ARPU was due primarily to a mix of subscribers at various rate plans.

Lower priced service plans were introduced to new subscribers in mid-2019.

As we experience normal churn in our subscriber base, most of the subscribers that churn off of our network are on higher rate plans, while new subscribers activate on current, lower-priced plans.

These lower-priced plans contributed meaningfully to a 14% increase in gross activations from the first quarter of 2020 to the first quarter of 2021.

However, average subscribers were down 3% due to elevated churn experienced during 2020, particularly in the months following the start of the COVID-19 pandemic.

Churn has stabilized in our SPOT subscriber base during recent months.

Commercial IoT service revenue increased 4% for the three months ended March 31, 2021 due to a 6% increase in ARPU offset by a 2% decrease in average subscribers.

The increase in ARPU was due to the mix of our subscribers on higher rate plans compared to the previous year's quarter.

Duplex service revenue decreased 15% and 14%, respectively, for the three and six months ended June 30, 2021 due primarily to a decrease in average subscribers of 13% and 10%, respectively.

The decrease in average subscribers was driven by churn in the subscriber base exceeding gross activations over the last twelve months, including the deactivation of all Sat-Fi2® subscribers in the first quarter of 2021.

SPOT service revenue decreased 4% and 7%, respectively, for the three and six months ended June 30, 2021 due primarily to lower ARPU of 4% and 6%, respectively.

ARPU decreased due to the introduction of lower-priced service plans in mid-2019.

The portion of our subscriber base on these lower-priced plans has increased over the past two years and is expected to continue to increase over time.

As the number of subscribers on rate plans lower than our blended ARPU level increases, ARPU will continue to decrease.

These lower-priced plans contributed meaningfully to a 24% increase in gross activations from the first six months of 2020 to the first six months of 2021 and a 33% increase in gross activations from the second quarter of 2020 to the second quarter of 2021.

However, average subscribers were relatively flat for both of the three and six month periods ended June 30, 2021 compared to the same periods in 2020 due to elevated churn experienced during 2020, particularly in the months following the start of the COVID-19 pandemic.

Churn has recently stabilized in our SPOT subscriber base.

Commercial IoT service revenue increased 5% and 4%, respectively, for the three and six months ended June 30, 2021 due to a 6% and 7% increase, respectively, in ARPU offset partially by a 1% and 3% decrease, respectively, in average subscribers.

The increase in ARPU for both periods was due to higher usage and the mix of our subscribers on higher rate plans compared to the prior year periods.

The decrease in average subscribers is due to higher churn and fewer activations during most of 2020 resulting from the impact of COVID-19.

Gross activations increased slightly during the first quarter of 2021 compared to the fourth quarter of 2020, indicating a potential recovery in Commercial IoT demand.

Engineering and other service revenue decreased $3.9 million for the three months ended March 31, 2021 compared to the same period in 2020.

This decrease was driven primarily by $4.0 million of revenue recognized during the first quarter of 2020 associated with the completion of certain milestones for a specific contract that did not recur in the first quarter of 2021.

This customer behavior has changed in 2021, indicating a recovery in Commercial IoT demand.

Gross activations have increased each consecutive quarter since the fourth fiscal quarter of 2020 and churn was 20% lower during the first six months of 2021 compared to 2020.

Engineering and other service revenue increased $0.1 million and decreased $3.8 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

These fluctuations in engineering and other service revenue are due primarily to the timing and amount of revenue recognized associated with the completion of certain milestones for a specific contract.

Subscriber Equipment Sales

Revenue from Duplex equipment sales decreased $0.1 million for the three months ended March 31, 2021 compared to the same period in 2020.

Revenue from Duplex equipment sales decreased $0.3 million and $0.4 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

This decrease was driven primarily by a lower volume of Sat-Fi2® device sales.

Revenue from SPOT equipment sales increased $0.5 million for the three months ended March 31, 2021 compared to the same period in 2020.

A higher sales volume of our SPOT X® and Trace devices contributed to the increase in revenue.

Revenue from Commercial IoT equipment sales increased $0.1 million for the three months ended March 31, 2021 compared to the same period in 2020.

This increase resulted from a higher sales volume of certain devices, including our SmartOne devices and our new ST100 satellite transmitter, which was launched in June 2020.

We believe that this recent increase in demand is an indication of a recovery in Commercial IoT demand.

Revenue from SPOT equipment sales increased $0.5 million and $1.0 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

This increase in revenue was due to a higher sales volume of all of our SPOT devices, led by our two-way SPOT device and also impacted by the SPOT Gen4 TM , our latest SPOT Satellite GPS Messenger launched in 2020.

Revenue from Commercial IoT equipment sales increased $1.2 million and $1.3 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

This increase resulted from a higher sales volume of all of our IoT devices, primarily driven by our SmartOne devices.

We believe that the increase in demand during 2021 is an indication of a recovery in Commercial IoT.

Operating Expenses

Total operating expenses were generally flat for the three months ended March 31, 2021 compared to the same period in 2020.

Lower management, general and administrative ("MG&A") costs were offset by higher cost of services, cost of subscriber equipment and depreciation, amortization and accretion.

Total operating expenses increased 1% to $46.3 million from $45.7 million and increased 1% to $92.5 million from $92.0 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

Reductions in the value of inventory and an increase in cost of services drove the increase in operating expenses during 2021;

these increases were offset by lower management, general and administrative ("MG&A") costs.

The main contributors to the variance in operating expenses are explained in further detail below.

Cost of Services

Cost of services increased $0.3 million for the three months ended March 31, 2021 compared to the same period in 2020.

There were no individually significant items that contributed to the fluctuation in expense during the respective periods.

Cost of services increased $0.5 million and $0.8 million, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

The increase in cost of services for both periods was driven primarily by higher professional fees and licensing costs related to our implementation of a new enterprise resource planning ("ERP") system.

lease expense associated with new teleport leases that started in the second quarter of 2021 and personnel costs.

The increase in costs associated with our ERP was offset primarily by lower maintenance costs resulting from revisions to contract terms with certain vendors for gateway and software maintenance.

Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales increased $0.3 million for the three months ended March 31, 2021 from the same period in 2020.

While this increase is generally consistent with the increase in total revenue from subscriber equipment sales, the improved margin during the first quarter of 2021 was impacted by the mix of equipment sold during the respective periods, particularly higher sales of Commercial IoT devices and improved margin on our SPOT devices.

Cost of subscriber equipment sales decreased $0.1 million and increased $0.2 million, respectively, for the three and six months ended June 30, 2021 from the same periods in 2020.

During the second quarter of 2021, pursuant to regulatory developments, we reversed an accrual for potential tariffs owed on imports from China made prior to a ruling by the U.S Customs and Border Protection in September 2019 that we no longer believe will be due, resulting in an expense reduction of $0.9 million recognized during the quarter.

Excluding this reversal, cost of subscriber equipment sales increased for both periods, which is generally consistent with the increase in total revenue from subscriber equipment sales.

The improved margin during the three and six months ended June 30, 2021 was impacted by the mix of equipment sold during the respective periods, particularly higher sales of SPOT devices.

During 2021, our primary manufacturer's labor costs were reduced, offsetting the impact from higher component part prices;

therefore, there was no net impact on the margin generated from SPOT and Commercial IoT product sales.

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

During the second quarter of 2021, we recorded a reduction in the value of inventory totaling $0.8 million.

We wrote off certain Sat-Fi2 materials that are not likely to be used in production as well as defective inventory units that are not saleable.

Similar activity did not occur in 2020.

Marketing, General and Administrative

MG&A expenses decreased $1.0 million for the three months ended March 31, 2021, compared to the same period in 2020.

The most significant driver for the decrease in MG&A during 2021 is a fluctuation in bad debt expense;

during the first quarter of 2020, we recorded reserves related to certain customer receivable balances that were not expected to be collectible due to the impact of COVID-19.

During the first quarter of 2021, we recovered $0.3 million related to a previously reserved customer after a final ruling from the bankruptcy courts.

MG&A expense was also lower in 2021 due to lower travel costs.

Offsetting these decreases were higher professional and legal fees related to strategic opportunities.

MG&A expenses decreased $0.6 million and $1.6 million, respectively, for the three and six months ended June 30, 2021, compared to the same periods in 2020.

The most significant driver for the decrease in MG&A during 2021 was bad debt expense.

During the first half of 2020, we recorded reserves related to certain customer receivable balances that were not expected to be collectible due to financial difficulties resulting from the impact of COVID-19.

During the first and second quarters of 2021, we recovered a portion of these previously reserved customer balances.

Offsetting the favorable fluctuations in bad debt expense were higher subscriber acquisition costs for both the three and six months ended June 30, 2021, including increases in customer appeasement credits and commissions.

Other smaller items impacted MG&A expense in both periods, such as lower travel costs offset by higher professional and legal fees related to strategic opportunities.

Other (Expense) Income

Gain on Extinguishment of Debt

Gain on extinguishment of debt for the three and six months ended June 30, 2021 was $2.7 million.

In June 2021, the Small Business Administration ("SBA") approved our request for forgiveness of amounts outstanding under the Paycheck Protection Program ("PPP") loan.

Accordingly, we recorded a gain on extinguishment of debt totaling $5.0 million during the second quarter of 2021.

Offsetting this gain was a $2.3 million write-off of a portion of remaining deferred financing costs resulting from unscheduled principal repayments of the First Lien Facility Agreement during the second quarter of 2021.

Similar activity did not occur in 2020.

Interest Income and Expense

Interest income and expense, net, decreased $2.4 million during the three months ended March 31, 2021, compared to the same period in 2020 due to lower gross interest costs.

Interest income and expense, net, decreased $0.7 million and $3.2 million, respectively, during the three and six months ended June 30, 2021, compared to the same periods in 2020 due to lower gross interest costs and higher capitalized interest.

Gross interest costs decreased $0.4 million and $2.9 million, respectively, and capitalized interest increased $0.3 million in both periods, which decreased interest expense.

Gross interest costs were impacted by lower interest associated with the First Lien Facility Agreement and the Loan Agreement with Thermo;

these items were offset by higher interest on the Second Lien Facility Agreement.

Lower interest costs for the First Lien Facility Agreement were driven by reductions in the principal balance over the last twelve months as well as a decrease in the interest rate driven by a reduction in LIBOR.

As previously discussed, 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 the last twelve months, we made payments totaling $7.4 million, which reduced the principal amount outstanding and lowered interest costs.

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.

Interest costs associated with the First Lien Facility Agreement decreased $0.7 million (including $0.1 million of amortization of deferred financing costs) and interest costs associated with the Loan Agreement with Thermo decreased $2.9 million (including $0.7 million of accretion of debt discount).

These decreases were offset by $1.1 million of interest (including $0.2 million of accretion of debt discount and amortization of deferred financing costs) associated with the Second Lien Facility Agreement.

Derivative Loss

We recorded derivative losses of $1.1 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively.

Interest costs for the First Lien Facility Agreement were favorably impacted by reductions in the principal balance over the last twelve months as well as a decrease in the interest rate driven by a reduction in LIBOR.

As previously discussed, we have made principal payments of the First Lien Facility Agreement totaling $92.3 million in the last twelve months, which reduced the principal amount outstanding and lowered interest costs.

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.

For the three and six months ended June 30, 2021, interest costs associated with the First Lien Facility Agreement decreased $1.6 million and $2.3 million (including $0.4 million and $0.3 million of amortization of deferred financing costs), respectively, and interest costs associated with the Loan Agreement with Thermo decreased $2.9 million (including $0.7 million of accretion of debt discount) for the six month period.

These decreases were offset by $1.1 million and $2.2 million of interest (including $0.1 million and $0.3 million of accretion of debt discount and amortization of deferred financing costs), respectively, associated with the Second Lien Facility Agreement.

Derivative (Loss) Gain

We recorded derivative losses of $1.3 million and gains of $1.2 million for the three months ended June 30, 2021 and 2020, respectively, and losses of $2.4 million and gains of $0.3 million for the six months ended June 30, 2021 and 2020, 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 losses recorded during the three months ended March 31, 2021 were primarily impacted by increases in our stock price and stock price volatility, which are significant inputs used in the valuation of the embedded derivative associated with our 2013 8.00% Notes.

The loss recorded during the first quarter of 2020 was impacted by an increase in the discount yield used in the valuation of the embedded derivative associated with our Second Lien Term Loan Facility Agreement.

The losses recorded during the three and six months ended June 30, 2021 were primarily impacted by increases in our stock price and stock price volatility, which are significant inputs used in the valuation of the embedded derivative associated with our 2013 8.00% Notes.

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

For the first quarter of 2020, the assumed high probability of conversion of the Loan Agreement with Thermo, which occurred in February 2020, also 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

Foreign currency loss decreased by $4.7 million to $4.3 million for the three months ended March 31, 2021 from $9.0 million for the same period in 2020.

Foreign Currency Gain (Loss)

Foreign currency gain (loss) fluctuated by $3.1 million to a gain of $4.4 million for the three months ended June 30, 2021 from a gain of $1.3 million for the same period in 2020.

Foreign currency gain (loss) fluctuated by $7.7 million to a gain of $0.1 million for the six months ended June 30, 2021 from a loss of $7.6 million for the same period in 2020.

Changes in foreign currency gains and losses are driven by the remeasurement of financial statement items, which are denominated in various currencies, at the end of each reporting period.

For the three months ended March 31, 2021, the foreign currency loss was due to the weakening of the Euro and Brazilian real relative to the U.S.

For the three months ended March 31, 2020, the foreign currency loss was due to the weakening of the Brazilian real and the Canadian dollar relative to the U.S.

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

For the three months ended June 30, 2021, the foreign currency gain was due to the strengthening of the Euro, Canadian dollar and Brazilian real relative to the U.S.

For the six months ended June 30, 2021, the foreign currency gain was due to the strengthening of the Brazilian real and the Canadian dollar offset by weakening of the Euro relative to the U.S.

For the same periods in 2020, the strengthening of the Canadian dollar relative to the U.S.

dollar contributed to the foreign currency gain for the three months ended June 30, 2020 and the weakening of the Canadian dollar and Brazilian real relative to the U.S.

dollar contributed to the foreign currency losses for the six months ended June 30, 2020.

Liquidity and Capital Resources

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

Our principal near-term liquidity requirements include funding our operating costs and capital expenditures.

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

Beyond the next twelve months, our liquidity requirements also include paying our debt service obligations.

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

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 or refinance our debt obligations to improve the terms of our debt instruments and lower principal and interest payments.

During the first quarter of 2021, we received proceeds totaling $43.7 million from the exercise of the remaining outstanding warrants issued to the lenders of our Second Lien Facility Agreement in 2019.

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In April 2021, these proceeds were used to pay principal due under the Facility Agreement.

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.

As of March 31, 2021, we held cash and cash equivalents of $8.4 million and restricted cash of $98.4 million, of which $47.3 million and $51.1 million was recorded as current and non-current restricted cash, respectively, on our condensed consolidated balance sheet as required under our First Lien Facility Agreement.

The current portion of restricted cash was used in April 2021 to pay the First Lien Facility Agreement principal payment that would have been due in June 2021, with the remainder used to pay down a portion of the payment due in December 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.

In June 2021, we received an advance payment of $37.5 million from a customer pursuant to an agreement related to the Terms Agreement described in our 2020 Annual Report.

The advance payment is expected to be repaid from services provided by us under the Terms Agreement.

Any portion of the advance payment not repaid in services will be repaid in cash over time.

Upon receipt of the advance payment in June 2021, we used the proceeds to repay a portion of the amount outstanding under our First Lien Facility Agreement.

As of June 30, 2021, we held cash and cash equivalents of $15.7 million and restricted cash of $51.0 million on our condensed consolidated balance sheet.

Restricted cash will generally be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement in December 2022.

As of December 31, 2020, we held cash and cash equivalents of $13.3 million and restricted cash of $54.7 million.

The total carrying amount of our debt outstanding was $390.9 million at March 31, 2021, compared to $385.4 million at December 31, 2020.

At March 31, 2021, the current portion of our debt outstanding was $55.3 million and represents the scheduled principal payments under the Facility Agreement and the PPP Loan due within one year of the balance sheet date.

At December 31, 2020, the current portion of our debt outstanding was $58.8 million.

The $5.5 million increase in our total debt balance was due primarily to a higher carrying value of the Second Lien Facility Agreement of $8.8 million due to the accrual of PIK interest and the accretion of debt discount as well as $1.0 million related to the amortization of deferred financing costs for the First Lien Facility Agreement.

These items were offset by an unscheduled principal payment for our First Lien Facility Agreement of $4.4 million in March 2021 (discussed below).

Cash Flows for the three months ended March 31, 2021 and 2020

The total carrying amount of our debt outstanding was $313.4 million at June 30, 2021, compared to $385.4 million at December 31, 2020.

At June 30, 2021, there was no current portion of debt outstanding.

At December 31, 2020, the current portion of our debt outstanding was $58.8 million, which represented the scheduled payments under the First Lien Facility Agreement and the PPP Loan.

The $72.0 million decrease in carrying value of our debt was due primarily to principal payments of the First Lien Facility Agreement totaling $89.2 million during the first six months of 2021 (discussed below) as well as the forgiveness of the PPP Loan, totaling $4.9 million (net of less than $0.1 million of deferred financing costs prior to forgiveness).

Offsetting these debt reductions was a higher carrying value of the Second Lien Facility Agreement of $18.2 million due to the accrual of PIK interest and the accretion of debt discount as well as $3.9 million related to the amortization of deferred financing costs and write-off of deferred financing costs for the First Lien Facility Agreement.

Cash Flows for the six months ended June 30, 2021 and 2020

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

Three Months Ended

2021 March 31,

Six Months Ended

2021 June 30,

Net cash provided by operating activities $ 55,920 $ 8,859

Net cash used in investing activities (11,998) (4,879)

Net cash provided by (used in) financing activities 39,245 (421)

Net cash (used in) provided by financing activities (45,228) 3,969

Effect of exchange rate changes on cash, cash equivalents and restricted cash (9) (148)

Net increase in cash, cash equivalents and restricted cash $ 38,717 $ 2,451

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,315) $ 7,801

Cash Flows Provided by Operating Activities

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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 three months ended March 31, 2021 was $4.5 million compared to $4.6 million during the same period in 2020.

The slight decrease was due to lower net income after adjusting for non-cash items, offset partially by favorable working capital changes between the periods.

The decrease in net income after adjusting for non-cash items was due primarily to lower revenue, particularly driven by the timing of engineering services revenue.

The favorable working capital changes were due primarily to the timing of vendor payments and customer payments.

Net cash provided by operating activities during the six months ended June 30, 2021 was $55.9 million compared to $8.9 million during the same period in 2020.

The primary driver for the increase was prepayments made during 2021 by a customer totaling $51.6 million, which were recorded as deferred revenue (see Note 2:

Revenue to our condensed consolidated financial statements for further discussion).

The timing of vendor payments and receipts from customers also impacted the change in working capital.

Partially offsetting these favorable working capital changes was lower net income (after adjusting for non-cash items) due primarily to lower revenue, particularly driven by the timing of engineering services revenue.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $5.0 million for the three months ended March 31, 2021 compared to $1.6 million for the same period in 2020.

During both 2021 and 2020, the nature of our capital expenditures was related to network upgrades, including the procurement and deployment of new antennas for our gateways.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities was $39.2 million and net cash used in financing activities was $0.4 million, respectively, during each of the three month periods ended March 31, 2021 and 2020.

As previously disclosed, during the first quarter of 2021, we received $43.7 million in proceeds from the exercise of the warrants issued with our Second Lien Facility Agreement.

Offsetting these proceeds was an unscheduled principal payment of $4.4 million towards the First Lien Facility Agreement.

Net cash used in investing activities was $12.0 million for the six months ended June 30, 2021 compared to $4.9 million for the same period in 2020.

During both 2021 and 2020, the nature of our capital expenditures was related to network upgrades, including the procurement and deployment of new antennas for our gateways, as well as the purchase of intangible assets related to our MSS and terrestrial spectrum licensing initiatives.

Cash Flows (Used in) Provided by Financing Activities

Net cash used in financing activities was $45.2 million and net cash provided by financing activities was $4.0 million, respectively, during each of the six month periods ended June 30, 2021 and 2020.

As previously disclosed, during the first six months of 2021, we made principal payments of the First Lien Facility Agreement totaling $89.2 million (see further discussion below).

In March 2021, we received $43.7 million in proceeds from the exercise of the warrants issued with our Second Lien Facility Agreement.

Indebtedness and Available Credit

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

As of March 31, 2021, the principal amount outstanding under the Facility Agreement was $182.6 million, of which $53.1 million was recorded as current debt based on the contractual terms of the loan.

As of June 30, 2021, the principal amount outstanding under the Facility Agreement was $97.8 million.

The First Lien 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 obtain a waiver, we would be in default under the First Lien Facility Agreement, and the lenders could accelerate payment of the indebtedness.

The warrant proceeds received during the first quarter of 2021 would qualify as an Equity Cure Contribution, if needed for compliance with first half 2021 covenants.

We are also in discussions with our senior lenders to evaluate 2021 projected capital expenditures relative to covenant levels set forth in this agreement.

As of March 31, 2021, we were in compliance with the covenants of the First Lien Facility Agreement.

In anticipation of projected capital expenditures, in August 2021, we received a waiver from our senior lenders, increasing permitted capital expenditure limits under the First Lien Facility Agreement.

As of June 30, 2021, we were in compliance with 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 Facility Agreement) on a semi-annual basis.

During 2021, we were required to pay $4.4 million to our first lien lenders resulting from our Excess Cash Flow calculation as of December 31, 2020.

This payment reduces 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 March 31, 2021, the balance in the debt service reserve account was $51.1 million and is classified as non-current restricted cash on our condensed 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.

This payment reduced future principal payment obligations.

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 31, 2021.

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We received proceeds totaling $47.3 million, of which $3.6 million was received in December 2019 and the remaining $43.7 million was received during the first quarter of 2021.

The proceeds were retained in the equity proceeds account and recorded in current restricted cash on our condensed consolidated balance sheet as of March 31, 2021.

In April 2021, the proceeds were used towards the principal payment due on June 30, 2021 and then the remaining proceeds were applied to the next principal payment due on December 31, 2021.

In April 2021, the proceeds were used towards the principal payment due in June 2021 and then the remaining proceeds were applied to the principal payment due in December 2021.

Additionally, as previously disclosed, in June 2021, we received an advance payment of $37.5 million from a customer.

We used these proceeds to pay a portion of the remaining amount due under the First Lien Facility Agreement.

This payment was applied to the scheduled principal payments due in December 2021 and June 2022 and then the remaining proceeds were applied to the December 2022 principal payment.

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 June 30, 2021, the balance in the debt service reserve account was $51.0 million and is classified as non-current restricted cash on our condensed 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.

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

4 unchanged sentences

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

As of March 31, 2021, the principal amount outstanding under the Second Lien Facility Agreement was $238.4 million.

As of June 30, 2021, the principal amount outstanding under the Second Lien Facility Agreement was $246.5 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.

1 unchanged sentence

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

As of March 31, 2021, we were in compliance with all the covenants of the Second Lien Facility Agreement.

As of June 30, 2021, we were in compliance with all the covenants of the Second Lien Facility Agreement.

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

1 unchanged sentence

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 March 31, 2021, the principal amount outstanding of the 2013 8.00% Notes was $1.4 million.

As of June 30, 2021, 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.

2 unchanged sentences

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

As of March 31, 2021, we were in compliance with the terms of the 2013 8.00% Notes and the Indenture.

As of June 30, 2021, we were in compliance with 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.

Paycheck Protection Program Loan

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

As of March 31, 2021, the principal amount outstanding under the PPP Loan was $5.0 million, of which $2.2 million is classified as current based on the contractual terms of the loan (as modified).

We applied for loan forgiveness, in accordance with the terms of the CARES Act, based on payroll 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.

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

In June 2021, the SBA approved our request for forgiveness of all amounts outstanding, including accrued interest.

As of June 30, 2021, there was no principal amount or interest outstanding under the PPP Loan.

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

7 unchanged sentences

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