What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 116 added, 115 removed, 231 unchanged (50% of the section changed)

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We designed our second-generation satellites to last twice as long in space, have 40% greater capacity and be built at a significantly lower cost compared to our first-generation satellites.

We achieved this longer life by increasing the solar array and battery capacity, using a larger fuel tank, adding redundancy for key satellite equipment, and improving radiation specifications and additional lot level testing for all susceptible electronic components, in order to account for the accumulated dosage of radiation encountered during a 15-year mission at the operational altitude of the satellites.

The second-generation satellites use passive S-band antennas on the body of the spacecraft providing additional shielding for the active amplifiers which are located inside the spacecraft, unlike the first-generation amplifiers that were located on the outside as part of the active antenna array.

Each satellite has a high degree of on-board subsystem redundancy, an on-board fault detection system and isolation and recovery for safe and quick risk mitigation.

Our goal is to provide service levels and call or message success rates equal to or better than our MSS competitors so our products and services are attractive to potential customers.

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Compared to other satellite and network architectures, we offer superior call clarity with virtually no discernible delay.

Our system architecture provides full frequency re-use.

This maximizes satellite diversity (which maximizes quality) and network capacity as we can reuse the assigned spectrum in every satellite beam in every satellite.

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.

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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.

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 and other renewable energy sources.

The specialized needs of our global customers span many industries.

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

As of September 30, 2021, we had approximately 760,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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Terrestrial Authority for Globalstar's Licensed 2.4GHz Spectrum

In December 2016, the FCC unanimously adopted a Report and Order permitting us to seek modification of our existing MSS licenses to provide terrestrial broadband services over 11.5 MHz of our licensed Mobile Satellite Services spectrum at 2483.5 to 2495 MHz, throughout the United States of America and its Territories.

In August 2017, the FCC modified Globalstar's MSS licenses, granting us authority to provide terrestrial broadband services over that 11.5 MHz portion of our satellite spectrum.

Specifically, the FCC modified our space station authorization and our blanket mobile earth station license to permit a terrestrial network using 11.5 MHz of our licensed mobile-satellite service spectrum.

We need to comply with certain conditions in order to provide terrestrial broadband service over this spectrum.

In August 2017, the FCC modified Globalstar's MSS licenses, granting us authority to provide terrestrial broadband services over 11.5 MHz of our licensed Mobile Satellite Services spectrum, subject to compliance with certain conditions, at 2483.5 to 2495 MHz throughout the United States of America and its Territories.

In December 2018, we successfully completed the Third Generation Partnership Project (“3GPP”) standardization process for the 11.5 MHz of spectrum terrestrially authorized by the FCC.

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We believe that our offering has competitive advantages over other conventional commercial spectrum allocations.

Such other allocations must meet minimum population coverage requirements, which effectively prohibit the exclusive use of most carrier spectrum for dedicated small cell deployments.

In addition, low frequency carrier spectrum is not physically well suited to high-density small cell topologies, and mmWave spectrum is subject to range and attenuation limitations.

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 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;

As a result of COVID-19, we experienced an initial 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 nine months ended September 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 and six months ended June 30, 2021 and 2020

Comparison of the Results of Operations for the three and nine months ended September 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 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.

Total revenue decreased less than 1% to $32.6 million for the three months ended September 30, 2021 from $32.8 million for the same period in 2020 and decreased 6% to $89.8 million for the nine months ended September 30, 2021 from $95.3 million for the same period in 2020.

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

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Three Months Ended

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Revenue % of Total

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Three Months Ended

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Revenue % of Total

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

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

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

2021 2020 2021 2020

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Service Revenue

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.

Duplex service revenue decreased 3% and 10%, respectively, for the three and nine months ended September 30, 2021 due to a decrease in average subscribers of 9% for both periods.

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.

As previously disclosed, we continue to see a shift in demand across the MSS industry from full Duplex voice and data services to IoT-enabled devices;

accordingly, we expect the decline in our Duplex subscriber base to continue as we focus our investments on IoT-enabled devices and services.

Additionally, the increase in ARPU during the third quarter of 2021 was due primarily to a one-time reclassification of foreign sales tax related to our Brazilian subsidiary, which increased Duplex service revenue and decreased Commercial IoT service revenue by $0.4 million each.

SPOT service revenue increased 4% and decreased 3%, respectively, for the three and nine months ended September 30, 2021.

For the three-month period, the increase in SPOT service revenue was due to higher average subscribers of 4%, resulting from higher gross subscriber activations of 17% over the last twelve months.

For the nine-month period ended September 30, 2021, the decrease in SPOT service revenue was due primarily to lower ARPU of 4% offset partially by a 1% increase in average subscribers.

ARPU decreased during the year-to-date period 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.

Consistent with the three-month period, average subscribers for the nine-month period increased slightly, reflecting higher gross activations as well as a recent stabilization of churn in our SPOT subscriber base after elevated levels of churn following the COVID-19 pandemic in 2020.

Commercial IoT service revenue increased 1% and 3%, respectively, for the three and nine months ended September 30, 2021.

For both the three and nine periods, Commercial IoT service revenue increased due to a 2% and 5% increase in ARPU, respectively, partially offset by fewer average subscribers of 1% and 2%, respectively.

The increase in ARPU 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.

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.

Gross activations have continued to increase since the fourth quarter of 2020 and churn was 11% lower over the last twelve months compared to the prior year period.

Importantly, Commercial IoT equipment sales increased approximately 50% compared to both prior year periods (discussed further below) which we believe is another indication that Commercial IoT service revenue is likely to grow in the

As discussed above in Duplex Service Revenue, Commercial IoT ARPU was negatively impacted by a $0.4 million reclassification of foreign sales tax from Duplex to Commercial IoT during the third quarter 2021.

Engineering and other service revenue decreased $0.7 million and $4.5 million, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in 2020.

Subscriber Equipment Sales

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.

Revenue from Duplex equipment sales decreased $0.2 million and $0.7 million, respectively, for the three and nine months ended September 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 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.

Revenue from SPOT equipment sales was flat and increased $1.1 million, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in 2020.

For the three month period, the fluctuation in revenue from SPOT equipment sales was driven by a higher volume of component parts sold to our equipment manufacturer during the third quarter of 2021 compared to the same period in 2020.

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.

Offsetting the increase in component parts sold during the quarter was lower volume of SPOT X ® and SPOT Gen4 TM due in part to inventory shortages, which delayed the fulfillment of certain orders into the fourth quarter of 2021.

We have generally been successful in managing supply chain disruptions caused by component part shortages;

however, demand exceeded supply at times during the third quarter of 2021 and, while difficult to forecast, we expect the component chip shortage to extend into 2022.

For the nine month period, the increase in revenue from SPOT equipment sales was driven by higher volume of SPOT Trace, improved pricing for SPOT Trace and SPOT X ® , which increased revenue year over year, and an increase in component parts (discussed above).

Revenue from Commercial IoT equipment sales increased $0.6 million and $1.8 million, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in 2020.

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

Sales were higher than the prior year despite the same component part shortage issues discussed above, which resulted in sales orders exceeding available inventory supply during the third quarter of 2021.

We continue to believe that the increase in demand during 2021 is an indication of a recovery in Commercial IoT after the oil and gas industry and COVID-related downturns experienced in 2020.

Operating Expenses

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;

Total operating expenses decreased slightly to $47.3 million from $47.4 million and increased slightly to $139.8 million from $139.4 million, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in 2020.

Reductions in the value of inventory, an increase in cost of services and higher cost of subscriber equipment sales drove the increase in operating expenses during 2021;

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

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Cost of Services

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.

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 services increased $1.1 million and $1.9 million, respectively, for the three and nine months ended September 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, which is expected to go-live in the first quarter of 2022 as well as lease expense associated with new gateway teleport leases that started in the second quarter of 2021.

For the nine-month period, these increases were offset primarily by lower maintenance costs resulting from revisions to contract terms with certain vendors for gateway and software maintenance that was completed during the first half of 2021.

Cost of Subscriber Equipment Sales

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.

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

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

Offsetting the increase in expense for the nine-month period was the reversal of an accrual for potential tariffs.

The improved margin during the three and nine months ended September 30, 2021 was impacted by the mix of equipment sold during the respective periods, particularly higher sales of Commercial IoT 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.

therefore, there was minimal net impact on the margin generated from SPOT and Commercial IoT product sales.

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

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Marketing, General and Administrative

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.

MG&A expenses decreased $0.9 million and $2.4 million, respectively, for the three and nine months ended September 30, 2021, compared to the same periods in 2020.

For both the three- and nine-month periods, lower dealer commissions as well as stock-based compensation contributed to the decrease in expenses.

For the nine-month period, decreased credit losses also contributed to the decrease in MG&A during 2021.

During 2020, we recorded credit loss 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.

Offsetting the favorable fluctuations in credit losses were higher subscriber acquisition costs for the nine months ended September 30, 2021, including increases in customer appeasement credits that are not expected to recur at this level.

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.

Gain (Loss) on Extinguishment of Debt

We recorded gain on extinguishment of debt during the second quarter of 2021 totaling $5.0 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.

Offsetting this gain during the nine-month period were the write-offs of a portion of remaining deferred financing costs totaling $2.3 million and $0.8 million during the second and third quarters of 2021, respectively, resulting from unscheduled principal repayments of the First Lien Facility Agreement in those quarters.

Similar activity did not occur in 2020.

Interest Income and Expense

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.

Interest income and expense, net, was generally flat and decreased $3.2 million, respectively, during the three and nine months ended September 30, 2021, compared to the same periods in 2020.

For the three-month period, there were no significant items impacting the increase in expense.

For the nine-month period, the decrease in interest income and expense, net, was due to lower gross interest costs and higher capitalized interest.

Gross interest costs decreased $2.7 million and capitalized interest increased $0.6 million, 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;

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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 recorded derivative gains of $0.2 million and of $1.2 million for the three months ended September 30, 2021 and 2020, respectively, and losses of $2.2 million and gains of $1.6 million for the nine months ended September 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 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.

The gains recorded during the three months ended September 30, 2021 were primarily impacted by a decrease in our stock price, which is a significant input used in the valuation of the embedded derivative associated with our 2013 8.00% Notes.

Conversely, the loss recorded during the nine months ended September 30, 2021 was primarily impacted by increases in our stock price and stock price volatility.

The gains recorded during the three and nine months ended September 30, 2020 were impacted by fluctuations in a lower 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.

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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.

Foreign currency gain (loss) fluctuated by $5.1 million to a loss of $4.8 million for the three months ended September 30, 2021 from a gain of $0.3 million for the same period in 2020.

Foreign currency gain (loss) fluctuated by $2.8 million to a loss of $4.6 million for the nine months ended September 30, 2021 from a loss of $7.4 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 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.

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

For the nine months ended September 30, 2021, the foreign currency loss was due to the weakening of the Euro and Brazilian real relative to the U.S.

For the same periods in 2020, the strengthening of the Canadian dollar was offset by the weakening of the Brazilian real, both relative to the U.S.

dollar, which contributed to the foreign currency gain for the three months ended September 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 nine months ended September 30, 2020.

Liquidity and Capital Resources

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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 also have a source of liquidity in our debt service reserve account, which is classified as non-current restricted cash consistent with the associated principal balance of our First Lien Facility Agreement.

We currently expect that sources of liquidity over the next twelve months will be sufficient for us to cover our obligations.

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

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.

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

The advance payments are expected to be repaid primarily 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.

We used the proceeds from these advance payments to repay a portion of the amount outstanding under our First Lien Facility Agreement.

As of September 30, 2021, we held cash and cash equivalents of $11.3 million and restricted cash of $51.1 million on our condensed consolidated balance sheet.

Restricted cash will be used towards the final payment due under 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 $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).

The total carrying amount of our debt outstanding was $286.9 million at September 30, 2021, compared to $385.4 million at December 31, 2020.

At September 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 $98.5 million decrease in carrying value of our debt was due primarily to principal payments of the First Lien Facility Agreement totaling $126.7 million during the first nine 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 $27.9 million due to the accrual of PIK interest and the accretion of debt discount as well as $5.1 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

Cash Flows for the nine months ended September 30, 2021 and 2020

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

Six Months Ended

2021 June 30,

Nine Months Ended

September 30,

2021 September 30,

Net cash provided by operating activities $ 107,166 $ 23,687

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

Net cash provided by operating activities during the six months ended June 30, 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:

Net cash provided by operating activities during the nine months ended September 30, 2021 was $107.2 million compared to $23.7 million during the same period in 2020.

The primary driver for the increase was prepayments made during 2021 by a customer totaling $95.9 million, which were recorded as deferred revenue and recoupment liability (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 $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.

Net cash used in investing activities was $30.0 million for the nine months ended September 30, 2021 compared to $9.3 million for the same period in 2020.

During both 2021 and 2020, the nature of our capital expenditures was related to network upgrades.

Specific projects during 2021 include costs associated with the procurement and deployment of new antennas for our gateways, the preparation and launch of our on-ground spare satellite, 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).

Net cash used in financing activities was $82.7 million and net cash provided by financing activities was $0.9 million, respectively, during each of the nine month periods ended September 30, 2021 and 2020.

As previously disclosed, during the first nine months of 2021, we made principal payments of the First Lien Facility Agreement totaling $126.7 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.

During 2020, we received proceeds from the Paycheck Protection Program totaling $5.0 million, which was offset by mandatory prepayments of principal on our First Lien Facility Agreement totaling $3.4 million as well as payments for debt financing costs of $1.1 million.

Indebtedness and Available Credit

2 unchanged sentences

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

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

As of September 30, 2021, the principal amount outstanding under the Facility Agreement was $60.3 million.

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

3 unchanged sentences

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.

As of September 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.

5 unchanged sentences

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.

Additionally, as previously disclosed, in June and September 2021, we received two advance payments of $37.5 million each from a customer.

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

1 unchanged sentence

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.

As of September 30, 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 consistent with the remaining principal outstanding due December 2022.

We currently intend to pay off the remaining principal balance during the fourth quarter of 2021.

In connection with the anticipated early pay off, we expect to receive a partial refund of premiums previously paid.

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

Second Lien Facility Agreement

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

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

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

1 unchanged sentence

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

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

As of September 30, 2021, the principal amount outstanding under the Second Lien Facility Agreement was $255.0 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 June 30, 2021, we were in compliance with all the covenants of the Second Lien Facility Agreement.

As of September 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 June 30, 2021, the principal amount outstanding of the 2013 8.00% Notes was $1.4 million.

As of September 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 June 30, 2021, we were in compliance with the terms of the 2013 8.00% Notes and the Indenture.

As of September 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.

2 unchanged sentences

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.

As of September 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.

Contractual Obligations and Commitments

There have been no significant changes to our contractual obligations and commitments since December 31, 2020.

Off-Balance Sheet Transactions

4 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