What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 152 added, 220 removed, 127 unchanged (75% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements.

Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (the "Report"), other than purely historical information, including, but not limited to, estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (this "Report"), other than purely historical information, including, but not limited to, estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions, although not all forward-looking statements contain these identifying words.

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Risks and uncertainties that could cause or contribute to such differences include, without limitation, those in Item 1A.

Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (the "SEC") on March 4, 2021 (the "2020 Annual Report").

Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the "SEC") on February 25, 2022 (the "2021 Annual Report").

We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

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We currently provide the following communications services:

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

• two-way voice communication and data transmissions via our GSP-1600 and GSP-1700 phone ("Duplex");

• one-way or two-way communication and data transmissions using mobile devices, including our SPOT family of products, such as SPOT X ® , SPOT Gen4 ™ and SPOT Trace ® , that transmit messages and the location of the device ("SPOT");

• one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including our commercial IoT products, such as our battery- and solar-powered SmartOne, STX-3 and ST100 ("Commercial IoT");

• engineering services to assist certain customers in developing new applications to operate on our network, enhancements to our ground network and other communication services using our MSS and terrestrial spectrum licenses ("Engineering and Other").

Our constellation of Low Earth Orbit ("LEO") satellites includes second-generation satellites and certain first-generation satellites, which are currently being used as in-orbit spares.

We also have one on-ground spare second-generation satellite that we may include in a future launch.

• engineering services to assist certain customers (including our customer under the Terms Agreement (discussed in Note 8:

Commitments and Contingencies to our Condensed Consolidated Financial Statements)) in developing new applications to operate on our network, making enhancements to our ground network, and providing other communication services using our MSS and terrestrial spectrum licenses ("Engineering and Other").

Our constellation of Low Earth Orbit ("LEO") satellites includes second-generation satellites and certain first-generation satellites.

We also have one on-ground spare second-generation satellite that we plan to launch in the near future.

We designed our satellite network to maximize the probability that at least one satellite is visible from any point on the Earth's surface between the latitudes 70° north and 70° south.

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GEO satellite signals must travel approximately 42,000 additional miles on average, which introduces considerable delay and signal degradation to GEO calls.

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

We are acquiring the satellites to provide continuous satellite services to the potential customer under the Terms Agreement (defined below), as well as services to our current and future customers.

We have committed to purchase these new satellites for a total contract price of $327.0 million and have the option to purchase additional satellites at a lower per unit cost, subject to certain conditions.

The technical specifications and design of these new satellites are similar to our current second-generation satellites.

Rocket Lab USA, Inc.

is the Vendor’s satellite bus subcontractor under the Procurement Agreement.

The agreement requires the Vendor to deliver the initial 17 new satellites by 2025, all of which are expected to be launched by the end of 2025.

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

Our ground network includes our ground equipment, which uses patented CDMA technology to permit communication to multiple satellites.

Patented receivers in our handsets track the pilot channel and signaling channel as well as three additional communications channels simultaneously.

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

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

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

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, we have developed a proprietary technology for our SPOT and Commercial IoT services.

We compete aggressively on price.

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As technological advancements are made, we continue to explore opportunities to develop new products and provide new services over our network to meet the needs of our existing and prospective customers.

We are currently pursuing initiatives that we expect to expand our satellite communications business and to more effectively utilize the capacity of our network assets.

We are currently pursuing initiatives that we expect will expand our satellite communications business and more effectively utilize the capacity of our network assets.

These initiatives include evaluating our product and service offerings in light of the shift in demand across the MSS industry from full Duplex voice and data services to IoT-enabled devices.

To align our business model with this evolution, we have temporarily ceased sales of and services to subscribers for certain Duplex devices, such as Sat-Fi2®.

We are currently evaluating the profitability of these devices relative to other product and service offerings as well as the capacity required to support these devices relative to other possible uses for the capacity.

We are currently evaluating opportunities for these devices relative to other product and service offerings as well as the capacity required to support these devices relative to other possible uses for the capacity.

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

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The specialized needs of our global customers span many industries.

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

As of March 31, 2022, we had approximately 747,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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construction;

and transportation.

animal tracking and transportation.

In response to Russia's invasion of Ukraine, during the first quarter of 2022, we disconnected satellite services to gateways in Russia that were operated by an independent gateway operator.

Accordingly, approximately 25,000 subscribers that previously received satellite services through these gateways were removed from our subscriber count.

Our system is able to offer our customers cost-effective communications solutions completely independent of cellular coverage.

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Terrestrial Authority for Globalstar's Licensed 2.4GHz 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.

In August 2017, the FCC modified our MSS licenses, granting us authority to provide terrestrial broadband services over the 11.5 MHz portion of our licensed MSS 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.

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

The 3GPP designated the band as Band 53.

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Additional follow-on 3GPP specifications and approvals are expected in the future.

During 2019, we executed a spectrum managers lease with Nokia in order to permit Nokia to utilize Band 53 within its equipment domestically and have such equipment type-certified for sale and deployment.

During 2019, we executed a spectrum manager lease agreement with Nokia in order to permit Nokia to utilize Band 53 within its equipment domestically and have such equipment type-certified for sale and deployment.

In February 2021, Qualcomm Technologies announced its new Snapdragon X65 modem-RF System, which includes support for Band n53.

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We believe our MSS spectrum position provides potential for harmonized terrestrial authority across many international regulatory domains and have been seeking approvals in various international jurisdictions.

To date, we have received terrestrial authorizations in various countries, including Brazil, Canada, and South Africa, among others.

To date, we have received additional terrestrial authorizations in various countries, including Brazil, Canada, and South Africa, among others.

We expect this global effort to continue for the foreseeable future while we seek additional terrestrial approvals to internationally harmonize our S-band spectrum across the entire 16.5 MHz authority for terrestrial mobile broadband services.

We expect our terrestrial authority will allow future partners to develop high-density dedicated networks using the TD-LTE protocol for private LTE networks as well as the densification of cellular networks.

We expect our terrestrial authority will allow future partners to develop high-density dedicated networks using the TD-LTE and 5G protocols for private networks as well as the densification of cellular networks.

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

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.

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.

Performance Indicators

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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 nine months ended September 30, 2021 and 2020

Comparison of the Results of Operations for the three months ended March 31, 2022 and 2021

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 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.

For the three months ended March 31, 2022, total revenue increased 22% to $32.8 million from $26.9 million for the same period in 2021.

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

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Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

March 31, 2022 Three Months Ended

March 31, 2021

Revenue % of Total

Revenue Revenue % of Total

Service Revenue:

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Engineering and other 7,273 22 966 3

Total $ 27,848 85 % $ 28,385 86 % $ 76,551 85 % $ 84,410 88 %

Total Service Revenue $ 29,344 89 % $ 23,086 86 %

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

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

March 31, 2022 Three Months Ended

March 31, 2021

Revenue % of Total

Revenue Revenue % of Total

Subscriber equipment sales:

Equipment Revenue:

Duplex $ 130 — % $ 293 1 %

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Other 17 — 114 —

Total $ 4,766 15 % $ 4,372 14 % $ 13,271 15 % $ 10,905 12 %

Total Equipment Revenue $ 3,428 11 % $ 3,843 14 %

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Average number of subscribers for the period:

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Commercial IoT 423,519 409,089

IGO and Other 26,848 27,361 26,732 27,158

Other 13,346 27,487

Total 757,293 743,434

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

As previously discussed, during the first quarter of 2022, approximately 25,000 subscribers previously recorded in Other in the table above were removed from our subscriber count.

Service Revenue

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.

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 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.

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 ongoing contract.

Duplex service revenue decreased 8% for the three months ended March 31, 2022 due primarily to a decrease in average subscribers of 5%.

The decrease in average subscribers is due to fewer gross subscriber activations over the last twelve months.

In line with the shift in demand across the MSS industry from full Duplex voice and data services to IoT-enabled devices, 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 increased 2% for the three months ended March 31, 2022 due primarily to an increase in average subscribers of 6%, resulting from higher gross subscriber activations of 10% and lower subscriber churn over the last twelve months.

ARPU decreased by 4% due to the mix of subscribers on various rate plans compared to the prior period, including the continued popularity of subscribers activating on our flex plans.

These flex plans drive more seasonality in SPOT ARPU since subscribers can suspend their service when they are not using their device.

Commercial IoT service revenue increased 4% for the three months ended March 31, 2022 due to a 4% increase in average subscribers.

The increase in average subscribers is driven by higher gross subscriber activations of 19% and lower churn over the last twelve months.

Importantly, Commercial IoT equipment sales increased nearly 70% over the last twelve months compared to the prior year period (discussed further below), which we believe is an indication that Commercial IoT service revenue is likely to continue to grow in the future.

Engineering and other service revenue increased $6.3 million for the three months ended March 31, 2022 compared to the same period in 2021.

Fluctuations in engineering and other service revenue are due primarily to the timing and amount of revenue recognized associated with the Terms Agreement.

During the first quarter of 2022, we recognized revenue primarily for consideration received for performance obligations associated with our work to expand and upgrade our gateways around the globe and under the satellite procurement agreement.

As previously discussed, we disconnected service to approximately 25,000 subscribers in Russia.

During 2021, we billed less than $0.3 million to these subscribers and the revenue associated with these subscribers was recorded in Engineering and other service revenue.

Subscriber Equipment Sales

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 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.

Revenue from Duplex equipment sales decreased $0.2 million for the three months ended March 31, 2022 compared to the same period in 2021.

This decrease was driven primarily by a lower sales volume of phones and accessories due to a lack of available inventory since these devices are no longer being manufactured.

Revenue from SPOT equipment sales decreased $0.4 million for the three months ended March 31, 2022 compared to the same period in 2021.

This decrease resulted from a lower sales volume since two of our core SPOT products are on back order due to inventory shortages, which delayed the fulfillment of certain orders during the first quarter of 2022.

We continue to see demand exceeding supply resulting from supply chain disruptions caused by component part shortages.

We are actively working to address this issue, but expect this trend to continue through at least the second quarter of 2022.

Revenue from Commercial IoT equipment sales increased $0.3 million for the three months ended March 31, 2022 compared to the same period in 2021.

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

Sales were higher than the prior quarter despite the same component part shortage issues discussed above, which resulted in sales orders exceeding available inventory supply during the first quarter of 2022.

Many of our IoT devices were on back order at March 31, 2022.

We are actively working to address this issue and expect to resume production of our SmartOne products in the coming weeks.

Operating Expenses

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.

Total operating expenses increased to $46.5 million from $46.2 million for the three months ended March 31, 2022 compared to the same periods in 2021.

Higher cost of services was offset by lower management, general and administrative ("MG&A") costs, depreciation, amortization and accretion expense and cost of subscriber equipment sales.

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

Cost of Services

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 services increased $1.7 million for the three months ended March 31, 2022 compared to the same period in 2021.

Higher personnel costs contributed to $0.9 million of the total increase, of which $0.7 million was related to annual cash bonuses and non-recurring separation pay during the first quarter of 2022.

Higher lease expense associated with new teleport leases, which commenced throughout the second half of 2021, contributed to $0.6 million of the total increase.

These leases were executed in connection with the gateway expansion project associated with the Terms Agreement;

these lease and related costs are being reimbursed to us, and this consideration is being recognized as revenue (as further discussed above in Engineering and other service revenue).

Higher professional fees and licensing costs related to our implementation of a new enterprise resource planning ("ERP") system, which went live January 2022, as well as other costs for information technology security and maintenance contributed $0.5 million to the total increase.

Cost of Subscriber Equipment Sales

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.

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 second quarter of 2021.

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 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

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

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

Similar activity did not occur in 2020.

Cost of subscriber equipment sales decreased $0.3 million for the three months ended March 31, 2022 from the same period in 2021.

Cost of subscriber equipment sales decreased, which is generally consistent with the decrease in total revenue from subscriber equipment sales.

Marketing, General and Administrative

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 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.

MG&A expenses decreased $0.8 million for the three months ended March 31, 2022, compared to the same period in 2021.

During the first quarter, and consistent with our accounting policy, we assessed the likelihood of payment of a $1.0 million accrual related to professional services associated with the 2018 shareholder litigation.

Based on our assessment and considering the passage of time, we concluded it was appropriate to release the accrual, which resulted in an offsetting reduction of MG&A expense in the first quarter.

Additionally, subscriber acquisition costs were lower by $0.4 million, which was due to the one-time deactivation of all Sat-Fi2 subscribers during the first quarter of 2021.

Advertising costs and sales and dealer commissions decreased $0.5 million in total driven in part by the termination of our dealer program and reduction in advertising spend associated with our Duplex products and services.

Offsetting these decreases was an increase in personnel costs totaling $1.1 million.

Approximately $0.9 million of this increase was related to annual cash bonuses and non-recurring separation pay during the first quarter of 2022.

Other (Expense) Income

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.

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, 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;

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

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

As previously discussed, we have made principal payments of the First Lien Facility Agreement totaling $126.7 million in the last twelve months, which reduced the principal amount outstanding and lowered interest costs.

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

Derivative (Loss) Gain

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 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.

Interest income and expense, net, decreased $2.0 million during the three months ended March 31, 2022, compared to the same period in 2021.

This decrease was primarily driven by lower gross interest costs totaling $1.2 million as well as an increase to capitalized interest of $0.9 million (which decreases interest expense).

Gross interest costs were impacted by lower interest associated with the 2009 Facility Agreement ($3.4 million).

This decrease was offset by higher interest on the 2019 Facility Agreement ($1.3 million) and imputed interest associated with the significant financing component related to advance payments from a customer under the Terms Agreement ($1.0 million).

Interest costs for the 2009 Facility Agreement were favorably impacted by reductions in the principal balance during 2021, including the final paydown in November 2021.

Derivative Loss

We recorded derivative losses of $0.5 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.

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

The loss recorded during the three months ended March 31, 2022 was impacted primarily by an increase in the discount rate used in the valuation of the derivative associated with our 2019 Facility Agreement.

Partially offsetting this loss was a gain on the valuation adjustment of the embedded derivative associated with our 2013 8.00% Notes.

During the first quarter of 2022, the remaining holders of our 2013 8.00% Notes converted the principal balance into shares of Globalstar common stock.

As a result of these conversions, we marked-to-market the embedded derivative and recorded a net gain due to a decrease in our stock price and a shorter term to maturity.

The loss recorded during the three months ended March 31, 2021 was impacted primarily by an increase in our stock price and stock price volatility, which increased the value of the underlying instrument to the holder and, therefore, our derivative liability.

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

Foreign Currency Gain (Loss)

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.

Foreign currency gain (loss) fluctuated by $7.5 million to a gain of $3.2 million for the three months ended March 31, 2022 from a loss of $4.3 million for the same period in 2021.

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 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.

For the three months ended March 31, 2022, the foreign currency gain was due to the strengthening of the Canadian Dollar and the Brazilian real relative to the U.S.

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

Liquidity and Capital Resources

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.

Our principal near-term liquidity requirements include funding our operating costs, capital expenditures, and repayment of amounts being financed through our satellite vendor under the Procurement Agreement.

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

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

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.

We may also access equity and debt capital markets from time to time or refinance our debt obligations to improve the terms of our debt instruments and lower principal and interest payments.

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

As of March 31, 2021, all of the warrants issued to our lenders have been exercised resulting in total proceeds since issuance of $47.3 million.

These proceeds were used to meet our obligation to raise no less than $45.0 million of equity prior to March 30, 2021.

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

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 $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 nine months ended September 30, 2021 and 2020

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 March 31, 2022 and December 31, 2021, we held cash and cash equivalents of $11.5 million and $14.3 million, respectively, on our condensed consolidated balance sheet.

The total carrying amount of our debt outstanding was $246.8 million at March 31, 2022, compared to $237.9 million at December 31, 2021.

The $8.8 million increase in carrying value of our debt was due to a higher carrying value of the 2019 Facility Agreement of $10.2 million due to the accrual of PIK interest and the accretion of debt discount offset by a reduction in the remaining principal balance of the 2013 8.00% Notes totaling $1.4 million, which were converted into shares of Globalstar common stock during the first quarter of 2022.

Cash Flows for the three months ended March 31, 2022 and 2021

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

Nine Months Ended

September 30,

2021 September 30,

Three Months Ended

2022 March 31,

Net cash provided by operating activities $ 7,569 $ 4,512

Net cash used in investing activities (10,451) (4,974)

Net cash (used in) provided by financing activities (82,725) 872

Effect of exchange rate changes on cash, cash equivalents and restricted cash (57) (56)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (5,649) $ 15,208

Net cash provided by financing activities 8 39,245

Effect of exchange rate changes on cash and cash equivalents 89 (66)

Net (decrease) increase in cash and cash equivalents $ (2,785) $ 38,717

Cash Flows Provided by Operating Activities

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

Net cash provided by operating activities during the 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).

Net cash provided by operating activities during the three months ended March 31, 2022 was $7.6 million compared to $4.5 million during the same period in 2021.

The primary driver for the increase was higher net income after adjusting for noncash items, offset partially by unfavorable working capital changes.

Cash Flows Used in Investing Activities

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 $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

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 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.

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

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

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

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 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.

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

This payment reduced future principal payment obligations.

The amended and restated First Lien Facility Agreement includes a requirement that we raise no less than $45.0 million from the sale of equity prior to March 31, 2021.

We fulfilled this requirement with proceeds from the exercise of all the warrants issued to the Second Lien 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 the first quarter of 2021.

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

Additionally, as previously disclosed, in June 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.

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

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

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, an affiliate of 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 Facility Agreement).

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

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.

All of these warrants were exercised prior to their expiration on March 31, 2021, resulting in proceeds of $47.3 million.

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

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.

Net cash used in investing activities was $10.5 million for the three months ended March 31, 2022 compared to $5.0 million for the same period in 2021.

Net cash used in investing activities during the first quarter of 2022 and 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.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $39.2 million during the three month period ended March 31, 2021.

In 2021, we received $43.7 million in proceeds from the exercise of the warrants issued with our 2019 Facility Agreement.

Offsetting these proceeds was an unscheduled principal payment of $4.4 million towards the 2009 Facility Agreement.

There were no meaningful cash flows from financing activities during the first quarter of 2022.

2019 Facility Agreement

In 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, subject to restrictions in the Facility Agreement).

As of March 31, 2022, the principal amount outstanding under the 2019 Facility Agreement was $272.7 million.

As of March 31, 2022, 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 to our condensed consolidated financial statements for further discussion of the 2019 Facility Agreement.

8.00% Convertible Senior Notes Issued in 2013

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 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.

Interest on the 2013 8.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year.

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

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

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

In May 2013, we issued $54.6 million aggregate principal amount of its 2013 8.00% Notes.

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 interest in March 2022.

Prior to our intended redemption of the 8.00% Notes in March 2022, the holders converted the remaining principal amount outstanding into 2.3 million shares of Globalstar common stock at a conversion price of $0.69 (as adjusted) per share of common stock.

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

Interest on the 2013 8.00% Notes was payable semi-annually in arrears on April 1 and October 1 of each year.

We paid interest in cash at a rate of 5.75% per annum and issued additional 2013 8.00% Notes at a rate of 2.25% per annum.

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

Paycheck Protection Program Loan

As previously discussed, we sought relief under the CARES Act, including receiving a $5.0 million loan under the 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 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.

Vendor Financing

In February 2022, we entered into a satellite procurement agreement (see Note 8:

Commitments and Contingencies to our condensed consolidated financial statements 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 will 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.

We also expect to refinance our current 2019 Facility Agreement concurrent with or after the financing.

Off-Balance Sheet Transactions

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Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting guidance and the expected impact that the guidance could have on our condensed consolidated financial statements, see Recently Issued Accounting Pronouncements in Note 1:

Basis of Presentation to our condensed consolidated financial statements in Part 1, Item 1 of this Report.

We review recently issued accounting guidance as new standards are issued.

Certain accounting standards issued or effective may be applicable to us;

however, we have not identified any standards that will have a material impact on our condensed consolidated financial statements.

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