What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-03-04 · 191 added, 243 removed, 189 unchanged (70% of the section changed)

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Comparison of the Results of Operations for the years ended December 31, 2021 and 2020

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.

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 revenue is categorized as service revenue and equipment revenue.

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During the twelve months ended December 31, 2021, total revenue decreased $4.2 million to $124.3 million from $128.5 million in 2020.

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.

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Service Revenue:

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

Duplex $ 31,197 25 % $ 33,878 27 %

SPOT 46,040 37 % 46,417 36 %

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Total Service Revenue $ 106,464 85 % $ 113,191 88 %

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

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

The percentages of total revenue calculations also exclude this adjustment.

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

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Commercial IoT 414,689 414,452

IGO and Other 27,264 27,481

Other 26,864 27,264

Total 756,077 759,648

ARPU (monthly):

$ 56.33 $ 58.33

Duplex $ 56.78 $ 56.33

SPOT 14.28 14.44

Commercial IoT 3.61 3.45

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

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

When the out-of-period adjustment is included in the calculation, ARPU for the twelve months ended December 31, 2019 is $64.02.

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

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.

During the twelve months ended December 31, 2021, gross Duplex subscriber additions decreased 21% and SPOT subscriber additions increased 12%.

The decrease in Duplex gross subscriber additions from 2020 to 2021 was impacted by a limited inventory of phones as well as the discontinuation of Sat-Fi2® device sales (discussed further below).

The limited phone inventory restricts the volume of units that can be sold, activated and/or re-activated in a year.

SPOT gross subscriber

activations increased as we continue to see high demand for all of our SPOT devices, partially impacted by changes in consumer behavior resulting from COVID-19, driving more customers to purchase our SPOT products for outdoor recreational activities.

All of our SPOT device types experienced an increase in gross additions during 2021.

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.

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Service Revenue

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.

Duplex service revenue decreased 8% in 2021 due primarily to a decline in average subscribers of 9% offset by an increase in ARPU of 1%.

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 (approximately 2,000) in the first quarter of 2021.

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.

SPOT service revenue decreased 1% in 2021 due primarily to lower ARPU.

ARPU has decreased since the introduction of lower priced service plans in mid-2019.

The portion of our subscriber base on these lower-priced plans has increased over this period and are now fully absorbed into the subscriber base.

Although average subscribers were generally flat year over year, we experienced higher gross activations, lower churn and higher ending subscribers during 2021 compared to 2020.

Commercial IoT service revenue increased 5% in 2021 due to higher ARPU.

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

Although average subscribers were flat year over year, we experienced higher gross activations and lower churn during 2021.

We replenished our subscriber base during 2021 after the negative impact from COVID-19 in 2020.

Customer behavior has changed, indicating a recovery in demand.

Gross activations have increased 5% and churn was 18% lower since 2020.

Importantly, Commercial IoT equipment device sales increased approximately 40% compared to 2020 (discussed further below), which we believe is another indication that Commercial IoT service revenue is likely to grow in the future.

Engineering and other service revenue decreased $4.4 million in 2021.

This decrease was due primarily to the recognition of $2.9 million of revenue during the fourth quarter of 2020 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.

The remaining decrease was due to the timing and amount of revenue recognized associated with the completion of certain milestones under the Terms Agreement.

Among other items, the revenue recognized during 2021 included the reimbursement of costs associated with the gateway expansion project previously discussed.

Subscriber Equipment Sales

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 Duplex equipment sales decreased $0.9 million, or 46%, in 2021.

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

As previously discussed, we have temporarily ceased sales of and services to subscribers for certain Duplex devices, including Sat-Fi2®, as we continue to evaluate opportunities for these devices relative to other product and service offerings.

Revenue from SPOT equipment sales increased $1.3 million, or 15%, in 2021.

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.

Compared to 2020, we sold more component parts to our equipment manufacturer during 2021.

Higher volume of SPOT Trace as well as improved pricing for all products, specifically driven by the amount and timing of promotions, also favorably impacted revenue from SPOT equipment sales.

SPOT equipment sales were impacted by inventory shortages, which delayed the fulfillment of certain orders during the second half of 2021 and has continued into 2022.

Revenue from Commercial IoT equipment sales increased $2.0 million, or 39%, in 2021.

This increase resulted from a higher sales volume of all 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 has resulted in sales orders exceeding available inventory supply.

We 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 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.

Total operating expenses increased 1% to $189.8 million in 2021 from $187.7 million in 2020.

Higher cost of services, cost of subscriber equipment sales as well as reductions in the value of inventory contributed to the increase in total operating expenses.

Lower marketing, general and administrative costs and depreciation, amortization and accretion partially offset these increases.

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

Cost of Services

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 services increased $2.6 million, or 8%, to $37.4 million in 2021 from $34.8 million in 2020.

The increase in cost of services was driven primarily by lease expense associated with new teleport leases which commenced throughout the second half of 2021.

These leases were executed in connection with the gateway expansion project associated with the Terms Agreement, and the associated cost is being reimbursed to us beginning in December 2021 (as further discussed above in Engineering and other service revenue).

Higher professional fees and licensing costs related to the implementation of a new Enterprise Resource Planning ("ERP") system, which went live in January 2022, also contributed to the increase in expense during 2021.

These increases were offset slightly 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 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 increased by $0.3 million, or 2%, to $13.6 million in 2021 from $13.3 million in 2020.

Cost of subscriber equipment sales increased due to higher subscriber equipment sales, offset partially by the reversal of a prior year accrual for potential tariffs.

Pursuant to regulatory developments, we reversed this 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 $1.0 million recognized during 2021.

The improved equipment margin during 2021 was impacted by the mix of devices 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 minimal net impact on the margin generated from SPOT and Commercial IoT product sales.

This trend of lower labor costs was fully absorbed into our product costs during 2021 and is not expected to decrease costs in 2022.

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.

During 2021, we recorded a reduction in the value of inventory totaling $1.0 million, including the write-off of certain Sat-Fi2® materials that are not likely to be used in production as well as defective inventory units that are not saleable.

During 2020, we wrote down the 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.

Marketing, General and Administrative

Marketing, general and administrative expenses ("MG&A") decreased $0.3 million, or 1%, to $41.4 million in 2021 from $41.7 million in 2020.

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

During 2019, we recorded a reduction in the carrying value of long-lived assets of $1.1 million resulting from the change in classification from held and used to held for sale of our former gateway location in Nicaragua.

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

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.

This decrease is due primarily to lower credit losses, due in part to higher reserves recorded in 2020 related to specific customer receivable balances that were not expected to be collectible due to financial difficulties resulting from the impact of COVID-19;

during 2021, we successfully recovered a portion of these previously reserved customer balances.

Lower dealer commissions and advertising expense also contributed to the decrease in MG&A expenses.

Offsetting the favorable fluctuations in expenses were higher subscriber acquisition costs, including certain customer appeasement credits that are not expected to recur, as well as higher professional and legal fees for strategic opportunities.

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 into service our new billing system implemented in 2020.

Depreciation, amortization, and accretion expense decreased $0.6 million to $96.2 million in 2021 compared to $96.8 million in 2020.

During 2018, we placed into service software-related assets associated with our second-generation ground system;

a portion of these assets had a three year life and were fully depreciated in early 2021.

Other (Expense) Income:

Gain on Extinguishment of Debt

We recorded a net gain on extinguishment of debt totaling $3.1 million during 2021 related to the following items:

(i) gain on extinguishment of debt of $5.0 million resulting from the Small Business Administration's ("SBA") forgiveness of amounts outstanding under our Paycheck Protection Program ("PPP") loan and (ii) net losses on extinguishment of debt of $1.9 million resulting from the write off of deferred financing costs following unscheduled principal repayments of the 2009 Facility Agreement during 2021.

Similar activity did not occur in 2020.

Interest Income and Expense

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Interest income and expense, net, was also impacted by a decrease in interest income totaling $0.2 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.

Gross interest costs were impacted by lower interest associated with the 2009 Facility Agreement ($7.1 million) and the Loan Agreement with Thermo ($2.9 million);

these items were offset partially by higher interest on the 2019 Facility Agreement ($4.7 million) and imputed interest associated with the significant financing component related to advance payments from a customer ($1.9 million).

Interest costs for the 2009 Facility Agreement were favorably impacted by reductions in the principal balance over the last twelve months, including the final paydown in November 2021, as well as a decrease in the interest rate driven by a reduction in LIBOR.

As previously discussed, we made principal payments of the 2009 Facility Agreement totaling $187.0 million over the last twelve months, which reduced the principal amount outstanding to zero 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.

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

We recorded derivative gains of $2.9 million and $145.1 million in 2020 and 2019, respectively.

Higher costs associated with the 2019 Facility Agreement are due to the rate of PIK interest accrued on the loan.

Derivative (Loss) Gain

We recorded derivative losses of $1.0 million and gains of $2.9 million in 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 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.

The losses recorded during 2021 were due primarily to an increase 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 2020 were due primarily to a lower discount yield used in the valuation of the embedded derivative associated with our 2019 Facility Agreement.

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

Foreign Currency (Loss) Gain

Foreign currency (loss) gain fluctuated by $0.8 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.

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

Foreign currency (loss) gain fluctuated by $5.6 million to a loss of $6.3 million in 2021 from a loss of $0.7 million 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 each reporting period.

During 2021, the foreign currency loss was due primarily to the weakening of the Euro and Brazilian real relative to the U.S.

During 2020, the weakening of the Brazilian real relative to the U.S.

dollar contributed to the foreign currency losses;

these losses were partially offset by the strengthening of the Canadian dollar and the Euro.

Other income (expense) fluctuated to income of $0.4 million in 2021 compared to expense of $3.6 million in 2020.

The primary expense in this line item are the non-operating components of net periodic benefit cost, including activity related to settlement of our pension liability.

In December 2020, we settled a portion of our pension liability due to certain participants;

this settlement resulted in a loss of $2.1 million.

We also recorded legal and other adviser costs incurred related to the modification of our 2009 Facility Agreement to non-operating expense under applicable accounting guidance.

These costs decreased $0.9 million from 2020 to 2021.

Income Tax (Benefit) Expense

Income tax (benefit) expense fluctuated by $1.0 million to a benefit of $0.3 million in 2021 from expense of $0.7 million in 2020.

The primary income tax (benefit) 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, 2020 and 2019

Discussion of the results of operations for the years ended December 31, 2019 and 2018 can be found in the Globalstar Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 28, 2020.

Discussion of the results of operations for the years ended December 31, 2020 and 2019 can be found in the Globalstar Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 4, 2021.

Liquidity and Capital Resources

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).

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.

We expect that our current 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 indebtedness.

As of December 31, 2021, we held cash and cash equivalents of $14.3 million.

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

We used the funds received under the Terms Agreement together with cash on hand and in our restricted cash account to pay down the remaining outstanding balance of the 2009 Facility Agreement during 2021.

The total carrying amount of our long-term debt outstanding was $237.9 million at December 31, 2021, compared to $385.4 at December 31, 2020.

At December 31, 2021, there was no current portion of debt outstanding.

At December 31, 2020, the current portion of our debt outstanding was $58.8 million and represented the scheduled payments under the 2009 Facility Agreement and the Paycheck Protection Program PPP Loan due within one year of the balance sheet date.

The $147.5 million decrease in the carrying amount of our total debt balance was due primarily to principal payments of the 2009 Facility Agreement totaling $187.0 million during 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 2019 Facility Agreement of $38.1 million due to the accrual of PIK interest and the accretion of debt discount as well as $6.4 million related to the amortization of deferred financing costs and write-off of deferred financing costs for the 2009 Facility Agreement.

Cash Flows for the years ended December 31, 2021, 2020 and 2019

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Net cash used in investing activities (45,186) (14,536) (11,491)

Net cash provided by (used in) financing activities 1,164 (7,923) (18,196)

Net cash (used in) provided by financing activities (140,282) 1,164 (7,923)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (132) 52 4

Net increase (decrease) in cash, cash equivalents and restricted cash $ 8,895 $ (16,362) $ (29,789)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (53,719) $ 8,895 $ (16,362)

Cash Flows Provided by Operating Activities

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Net cash provided by operating activities was $131.9 million during 2021 compared to $22.2 million during 2020.

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.

During 2021, the primarily driver for the increase in cash flows provided by operating activities was advance payments received under the Terms Agreement by a customer totaling $111.4 million, which were recorded as deferred revenue (see Note 2:

Revenue in our Consolidated Financial Statements for further discussion).

During 2020, the primarily drivers for the increase in cash flows provided by operating activities were higher net income after adjusting for non-cash items due to lower interest payments and operating expenses.

Partially offsetting higher net income were unfavorable working capital changes 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 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.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $45.2 million during 2021 compared to $14.5 million during 2020.

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.

The nature of our capital expenditures for both 2021 and 2020 primarily relates to network upgrades.

The increase in net cash used in investing activities during 2021 was related primarily to network upgrades associated with the Terms Agreement, including higher costs associated with the procurement and deployment of new antennas for our gateways and the preparation and launch of our on-ground spare satellite.

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

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

As previously disclosed, our construction in progress balance has decreased significantly since 2018, specifically related to our ground network;

therefore, the amount of interest eligible to be capitalized is lower.

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.

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

Additionally, in both years, 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.

Cash Flows Provided by (Used in) Financing Activities

Net cash used in financing activities was $140.3 million in 2021 compared to net cash provided by financing activities of $1.2 million in 2020.

During 2021, we paid off the remaining principal balance due under the 2009 Facility Agreement of $187.0 million (see further discussion below).

In March 2021, we received $43.7 million in proceeds from the exercise of the warrants issued with our 2019 Facility Agreement and, in December 2021, we received a partial refund of premiums previously paid for the 2009 Facility Agreement of $2.6 million.

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 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 Facility Agreement lenders.

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

Indebtedness and Available Credit

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.

these proceeds were offset by mandatory prepayments of principal on our 2009 Facility Agreement totaling $3.4 million as well as the timing of payments for debt financing costs from our refinancing in 2019 totaling $1.1 million.

2019 Facility Agreement

In November 2019, we entered into a $199.0 million facility agreement with Thermo, an affiliate of EchoStar Corporation and certain other unaffiliated lenders (the "2019 Facility Agreement").

The 2019 Facility Agreement is scheduled to mature in November 2025.

The loans under the 2019 Facility Agreement bear interest at a blended rate of 13.5% per annum to be paid-in-kind (or in cash, at our option).

As of December 31, 2021, the principal amount outstanding under the 2019 Facility Agreement was $263.8 million.

During 2021, we fully paid down the remaining balance of the 2009 Facility Agreement.

As a result of this pay off, the lenders of the 2019 Facility Agreement are now senior lenders.

Our obligations under the 2019 Facility Agreement are guaranteed on a senior secured basis by all of our domestic subsidiaries' assets 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.

In anticipation of business strategies related to projected capital expenditures, potential future vendor financing, termination of the Globalstar pension plan, and expected redemption of the 2013 8.00% Notes, we received waivers from our senior lenders in August 2021 and January 2022 to permit such transactions.

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

All of these warrants have been exercised resulting in proceeds of $47.3 million.

The 2019 Facility Agreement contains customary events of default and requires us to satisfy various financial and non-financial covenants.

The compliance calculations of the financial covenants of the 2019 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 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 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 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.

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 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.

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 2019 Facility Agreement, and the lenders could accelerate payment of the indebtedness.

As of December 31, 2021, we were in compliance with all the covenants of the 2019 Facility Agreement.

The 2019 Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the 2019 Facility Agreement) on a semi-annual basis.

If we generate Excess Cash Flow in 2022, we will be required to make such prepayments.

These payments would reduce future principal payment obligations.

Long-Term Debt and Other Financing Arrangements in our Consolidated Financial Statements for further discussion of the 2019 Facility Agreement.

8.00% Convertible Senior Notes Issued in 2013

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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.

In February 2022, we notified the holders of the 8.00% Notes of our intention to redeem all of the outstanding amount of principal and accrued interest, totaling $1.5 million.

This redemption is expected to occur in March 2022 and be paid in cash if the holders do not convert their 8.00% Notes prior to the redemption date.

2009 Facility Agreement

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

The 2009 Facility Agreement was fully repaid in November 2021 prior to its scheduled maturity in December 2022.

As of December 31, 2021, there was no principal amount outstanding under the 2009 Facility Agreement.

The 2009 Facility Agreement required mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the 2009 Facility Agreement) on a semi-annual basis.

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

This payment reduced future principal payment obligations.

The amended and restated 2009 Facility Agreement included a requirement that we raise no less than $45.0 million from the sale of equity prior to March 30, 2021.

We fulfilled this requirement with proceeds from the exercise of all the warrants issued to the 2019 Facility Agreement lenders in November 2019.

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 2021.

In April 2021, the proceeds were used towards the principal balance outstanding.

Additionally, in 2021, we received two advance payments of $37.5 million each from a customer under the Terms Agreement.

We used these proceeds to pay a portion of the remaining amount due under the 2009 Facility Agreement.

In November 2021, we repaid the final outstanding amount totaling $60.3 million using cash on hand and restricted cash.

The 2009 Facility Agreement required us to maintain a debt service reserve account, which was pledged to secure all of our obligations under the 2009 Facility Agreement, and was previously classified as restricted cash on our consolidated balance

As a result of the early pay off of the 2009 Facility Agreement, in December 2021, we received a partial refund of premiums previously paid totaling $2.6 million.

Long-Term Debt and Other Financing Arrangements to our Consolidated Financial Statements for further discussion of the 2009 Facility Agreement.

Paycheck Protection Program Loan

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 December 31, 2021, there was no principal amount or interest outstanding under the PPP Loan.

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

Subsequent Event

In February 2022, we entered into the satellite Procurement Agreement (see below in Contractual Obligations and Commitments for further discussion).

This agreement provides for payment deferrals of milestone payments from February 2022 through August 2022, at a 0% interest rate.

In August 2022, all deferred payments are expected to become due by which time we intend to complete a senior secured financing.

This financing is intended to provide sufficient proceeds for the construction and launch of the satellites and we expect to refinance our current 2019 Facility Agreement concurrent with or after the financing.

Contractual Obligations and Commitments

Contractual obligations at December 31, 2020 are as follows (in thousands):

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

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

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

Operating lease obligations (5) 2,597 2,479 2,510 2,383 2,405 8,802 21,176

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 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 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.

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.

Contractual obligations arising in the normal course of business consist primarily of debt obligations (as discussed above), purchase commitments with vendors related to the procurement, deployment and maintenance of our network (totaling $6.8 million over the next two years), obligations for non-cancellable purchase orders for inventory ($17.3 million which we expect to be fulfilled in the next fifteen months based on current forecasted equipment sales), operating lease obligations (see Note 3:

Leases to our Consolidated Financial Statements for further discussion) and pension obligations (see Note 12:

Pensions and Other Employee Benefits to our Consolidated Financial Statements for further discussion).

In February 2022, we entered into the satellite Procurement Agreement with Macdonald, Dettwiler and Associates Corporation pursuant to which we will acquire 17 new satellites that will replenish our existing constellation of satellites and ensure long-term continuity of our mobile satellite services.

Globalstar is acquiring the satellites to provide continuous satellite services to the potential customer under the Terms Agreement, as well as services to our current and future customers.

The initial contract price is $327.0 million and we have the option of purchasing additional satellites at a lower cost per unit, subject to certain conditions.

We expect the satellites to be manufactured during the next three years.

Under the Terms Agreement, the counterparty is required to reimburse 95% of the capital expenditures and certain other costs incurred for this contract.

We plan to enter into additional agreements for launch services and launch insurance for these satellites.

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

Recently Issued Accounting Pronouncements

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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.

The complexities or judgements involved in revenue recognition are 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).

We record customer payments received in advance of the corresponding service period as deferred revenue.

We provide Duplex, SPOT and Commercial IoT services directly to customers and indirectly through resellers and IGOs.

We provide Duplex, SPOT and Commercial IoT services directly to customers and indirectly through resellers.

Credits granted to customers are expensed or charged against revenue or accounts receivable over the remaining term of the customer contract.

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We capitalize incremental costs to obtain a contract to the extent we expect to recover them;

these costs include internal and external initial activation commissions.

for our subscriber-driven contracts, these costs include internal and external initial activation commissions.

We also capitalize costs to fulfill a contract to the extent we expect to recover them;

for engineering and support service contracts, these costs may include certain expenses incurred by us prior to the customer benefiting from the service, such as personnel and contractor costs and other operating expenses.

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

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.

We also recognize revenue for airtime minutes and data in excess of the monthly access fees in the period such minutes or data are used.

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.

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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.

We assess the timing of the transfer of products or services to a customer as compared to the timing of payments made to us to determine whether a significant financing component exists.

In general, our subscriber-driven contracts are paid monthly or annually and the time between cash collection and performance is less than one year.

For certain engineering services provided pursuant to our previously described Terms Agreement, the length of time between receipt of payment by the customer and the transfer of services by us is greater than twelve months.

Accordingly, the payments made by the customer include a significant financing component.

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

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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.

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.

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There are various features embedded in our debt instruments that require bifurcation from the debt host.

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 Facility Agreement, we use a probability weighted discounted cash flow model to determine fair value.

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

For the mandatory prepayments in the 2019 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.

1 unchanged sentence

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 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