What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-05 · 138 added, 85 removed, 194 unchanged (53% of the section changed)

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

In June 2022, we successfully launched our on-ground spare second-generation satellite.

T his satellite is expected to remain as an in-orbit spare and will only be raised to its operational orbit at a future date if needed.

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

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

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

Our Commercial IoT use cases continue to expand.

In June 2022, we introduced the Realm Enablement Suite, an innovative portfolio of satellite asset tracking hardware and software solutions featuring a powerful application enablement platform for processing smart data at the edge.

With Realm, partners can accelerate new solutions to market with smart

applications that generate an advanced level of telematics data.

Realm Enablement Suite introduces Integrity 150, the first solar-powered, deployment-ready satellite asset tracking device with an application enablement platform;

ST150M satellite modem module that drastically simplifies product development;

and Realm application enablement platform, offering tools and an extensive library for quickly accessing and developing smart applications at the edge for vertical-specific solutions.

We also continue to expand deployments that support environmentally friendly initiatives.

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

The specialized needs of our global customers span many industries.

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

As of June 30, 2022, we had approximately 762,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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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.

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

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

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

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

• capital expenditures, which are an indicator of future revenue growth potential and cash requirements.

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

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

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.

For the three months ended June 30, 2022, total revenue increased 21% to $36.8 million from $30.3 million for the same period in 2021.

For the six months ended June 30, 2022, total revenue increased 22% to $69.6 million from $57.2 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

March 31, 2022 Three Months Ended

March 31, 2021

June 30, 2022 Three Months Ended

June 30, 2021 Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Revenue % of Total

Revenue Revenue % of Total

Service Revenue:

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Three Months Ended

March 31, 2022 Three Months Ended

March 31, 2021

June 30, 2022 Three Months Ended

June 30, 2021 Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Revenue % of Total

Revenue Revenue % of Total

Equipment Revenue:

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Average number of subscribers for the period:

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Service Revenue

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

Duplex service revenue decreased 4% and 6%, respectively, for the three and six months ended June 30, 2022 due primarily to a decrease in average subscribers of 3% and 6%, respectively.

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.

SPOT service revenue increased 4% and 3%, respectively, for the three and six months ended June 30, 2022 due primarily to an increase in average subscribers of 5% and 4%, respectively.

Lower churn during 2022 has positively contributed to the increase in average subscribers, while gross activations are down slightly compared to the prior twelve month period.

Supply chain disruptions over the past few quarters (discussed further below) have reduced equipment sales, and therefore activations, during 2022.

However, we have recently experienced growth in our Latin American subscriber base;

average subscribers for this region increased 13% and 3% for the three and six month periods respectively, and represents 10% and 3% of our average subscriber growth in total over the same periods.

ARPU decreased by 1% for both the three and six months ended June 30, 2022 due to the mix of subscriber rate plans, including the continued popularity of our flex plans which carry lower rates than our traditional prepaid unlimited plans.

Commercial IoT service revenue increased 12% and 8%, respectively, for the three and six months ended June 30, 2022 due to a 6% increase in average subscribers for both periods.

The increase in average subscribers is driven by higher gross subscriber activations of 25% 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.

Despite supply chain issues causing significant production delays in 2022, Commercial IoT equipment sales increased over the last twelve months compared to the prior year period (discussed further below), which contributed to higher subscriber activations.

Similar to SPOT, we have recently experienced steady growth in our Latin American subscriber base;

average subscribers for this region increased 63% and 55% for the three and six month periods, respectively, and represent 9% and 7% of our average subscriber growth in total.

For the three and six month periods, ARPU increased 6% and 2%, respectively, driven by the favorable mix of subscribers on various rate plans.

Engineering and other service revenue increased $6.8 million and $13.1 million for the three and six months ended June 30, 2022 compared to the same periods 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.

The increase in revenue recognized during 2022 is due primarily to 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.

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Subscriber Equipment Sales

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.

Revenue from Duplex equipment sales decreased $0.2 million and $0.4 million for the three and six months ended June 30, 2022 compared to the same periods in 2021.

These decreases were 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 $0.6 million and $1.0 million for the three and six months ended June 30, 2022 compared to the same periods in 2021.

These decreases resulted from a lower sales volume.

Two of our core SPOT products are on back order due to inventory shortages, which delayed the fulfillment of orders during the first half 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.

We are actively working to address this issue and expect production to resume in the third quarter of 2022.

Revenue from Commercial IoT equipment sales decreased $0.2 million and increased $0.1 million for the three and six months ended June 30, 2022 compared to the same periods in 2021.

IoT equipment sales continue to be negatively impacted by component part shortages, which has impacted our ability to produce inventory at sufficient quantities to fulfill sales orders.

This situation has resulted in significant back orders of two of our most profitable products.

We expect these production issues to be resolved during the third quarter of 2022.

Despite these challenges, sales volume of our SmartOne Solar was up 11% year over year and up 10% over the last twelve months.

Operating Expenses

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.

Total operating expenses increased to $48.2 million from $46.3 million and increased to $94.6 million from $92.5 million, respectively, for the three and six months ended June 30, 2022 compared to the same periods in 2021.

For both the three and six month periods, higher cost of services and a reduction in value of long-lived assets were offset by a reduction in the value of inventory.

For the six month period, lower management, general and administrative ("MG&A") costs partially offset the increases noted above.

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

Cost of Services

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.

Cost of services increased $1.6 million and $3.3 million for the three and six months ended June 30, 2022 compared to the same periods in 2021.

For the three and six month periods, personnel costs increased $0.4 million and $1.3 million, respectively;

the year to date variance included $0.7 million related to annual cash bonuses and non-recurring separation pay during the first quarter of 2022.

Higher lease expense associated with new teleport leases (including associated occupancy costs, such as utilities and other building services), which commenced throughout the second half of 2021, contributed to $0.5 million and $1.0 million, respectively, 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.

Higher professional fees and licensing costs related to our implementation of a new enterprise resource planning ("ERP") system, which went live in January 2022, as well as other costs for information technology security and maintenance contributed $0.3 million and $0.8 million, respectively, to the total increase.

Cost of Subscriber Equipment Sales

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.

Cost of subscriber equipment sales increased $0.2 million and decreased $0.1 million for the three and six months ended June 30, 2022 from the same periods in 2021.

These fluctuations are generally consistent with the fluctuations in total revenue from subscriber equipment sales, and were also impacted by the reversal of a prior year accrual for tariffs during the second quarter 2021.

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 $0.9 million.

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 at a significant level in 2022.

Marketing, General and Administrative

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.

MG&A expenses were flat for the three month period and decreased $0.7 million for the six month period ended June 30, 2022, compared to the same periods in 2021.

MG&A expense for both periods was impacted by certain non-recurring items, including lower subscriber acquisition costs of $0.5 million and $0.9 million, respectively, which was due primarily to the one-time deactivation of all Sat-Fi2 subscribers during the first half of 2021.

Additionally, during 2021, we terminated our dealer program and reduced advertising spend for Duplex products and services;

these items contributed $0.5 million and $1.0 million, respectively, to the decrease in MG&A expense for the three and six month periods.

Finally, during the first quarter of 2022, we reversed a $1.0 million accrual related to professional services associated with the 2018 shareholder litigation based on our assessment of the likelihood of payment.

Offsetting these decreases was an increase in personnel costs totaling $0.4 million and $1.6 million, for the three and six month periods;

of which $0.3 million and $1.2 million, respectively were related to annual cash bonuses and non-recurring separation pay.

Other smaller items contributed to the remaining variance in expense for both periods.

Reduction in Value of Long-Lived Assets

During the second quarter of 2022, we recorded a reduction in the value of intangible and other assets totaling $0.5 million.

We wrote off work in progress associated with spectrum licensing efforts in certain countries around the world.

We determined that attainment of such licenses was no longer probable based on discussions with regulators and other circumstances.

Other (Expense) Income

Gain on Extinguishment of Debt

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

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

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

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

Similar activity did not occur in 2022.

Interest Income and Expense

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.

Interest income and expense, net, decreased $3.6 million and $5.6 million during the three and six months ended June 30, 2022, compared to the same periods in 2021.

The decrease for both periods was primarily driven by higher capitalized interest (which decreases interest expense) of $3.9 million and $4.8 million, respectively.

Lower gross interest costs totaling $1.0 million also contributed to the decrease in expense for the six month period.

Gross interest costs were generally flat for the three month periods and down $1.0 million for the six month period.

For the three month period, lower interest of $2.2 million associated with the 2009 Facility Agreement was offset by higher interest of $1.3 million on the 2019 Facility Agreement and imputed interest associated with the significant financing component related to advance payments from the customer under the Terms Agreement of $0.8 million.

For the six month period, lower interest of $5.6 million associated with the 2009 Facility Agreement was offset by higher interest of $2.6 million on the 2019 Facility Agreement and imputed interest associated with the significant financing component related to advance payments from the customer under the Terms Agreement of $1.8 million.

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 recorded derivative losses of $1.2 million and $1.3 million for the three months ended June 30, 2022 and 2021, respectively.

We recorded derivative losses of $1.7 million and $2.4 million for the six months ended June 30, 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.

The losses recorded during the three and six months ended June 30, 2022 were impacted primarily by an increase in the discount rate used in the valuation of the derivative associated with our 2019 Facility Agreement.

For the six month period, the loss was offset partially by 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.

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

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 $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.

Foreign Currency (Loss) Gain

Foreign currency (loss) gain fluctuated by $11.5 million to a loss of $7.1 million for the three months ended June 30, 2022 from a gain of $4.4 million for the same period in 2021.

Foreign currency (loss) gain fluctuated by $4.0 million to a loss of $3.9 million for the six months ended June 30, 2022 from a gain of $0.1 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 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.

For the three months ended June 30, 2022, the foreign currency loss was due to the weakening of the Canadian dollar, the Euro and the Brazilian real relative to the U.S.

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

For the six months ended June 30, 2022, the foreign currency loss was due to the weakening of the Canadian dollar and the Euro real relative to the U.S.

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

dollar largely offset by the weakening of the Euro relative to the U.S.

Liquidity and Capital Resources

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

We also expect sources of liquidity to include funds from other debt or equity financings that have not yet been arranged;

we are actively pursuing a new debt financing arrangement to repay and fund amounts due under the Procurement Agreement.

With this financing, we expect that our current sources of liquidity over the next twelve months will be sufficient for us to cover our obligations.

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 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.

As of June 30, 2022 and December 31, 2021, we held cash and cash equivalents of $13.1 million and $14.3 million, respectively, on our condensed consolidated balance sheet.

The total carrying amount of our debt outstanding was $257.5 million at June 30, 2022, compared to $237.9 million at December 31, 2021.

The $19.5 million increase in carrying value of our debt was due to a higher carrying value of the 2019 Facility Agreement of $20.9 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

Cash Flows for the six months ended June 30, 2022 and 2021

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

Three Months Ended

2022 March 31,

Six Months Ended

2022 June 30,

Net cash provided by operating activities $ 20,771 $ 55,920

Net cash used in investing activities (22,392) (11,998)

Net cash provided by financing activities 8 39,245

Net cash provided by (used in) financing activities 449 (45,228)

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

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

Net decrease in cash and cash equivalents $ (1,163) $ (1,315)

Cash Flows Provided by Operating Activities

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

Net cash provided by operating activities during the three months ended March 31, 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.

Net cash provided by operating activities during the six months ended June 30, 2022 was $20.8 million compared to $55.9 million during the same period in 2021.

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

During 2021, working capital changes were favorably impacted by prepayments made by the customer to the Terms Agreement totaling $51.6 million, which were recorded as deferred revenue (see Note 2:

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

The timing of vendor payments also impacted the change in working capital to a lesser extent.

Cash Flows Used in Investing Activities

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.

Net cash used in investing activities was $22.4 million for the six months ended June 30, 2022 compared to $12.0 million for the same period in 2021.

Net cash used in investing activities during both periods 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, which occurred in June 2022.

Cash used in investing activities increased in 2022 due primarily to costs to support the spare satellite launch, offset partially by lower costs associated with gateway upgrades as that portion of the project nears completion.

Purchases of intangible assets related to our MSS and terrestrial spectrum licensing initiatives were also uses of cash during both periods.

Cash Flows Provided by (Used in) Financing Activities

Net cash used in financing activities was $45.2 million during the six month period ended June 30, 2021, including principal payments of the 2009 Facility Agreement totaling $89.2 million and $43.7 million received in proceeds from the exercise of the warrants issued with our 2019 Facility Agreement.

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

For further discussion on all of our debt and other financing arrangements, see Note 5:

Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements.

2019 Facility Agreement

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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.

As of June 30, 2022, the principal amount outstanding under the 2019 Facility Agreement was $282.0 million.

As of June 30, 2022, we were in compliance with all the covenants of the 2019 Facility Agreement, except as it relates to capital expenditures.

In August 2022, we received a waiver letter from our lenders increasing permitted capital expenditures for 2022.

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.

We generated excess cash flow for the six-month measurement period ended June 30, 2022 and expect to make a prepayment of approximately $6.0 million in August 2022.

8.00% Convertible Senior Notes Issued in 2013

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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.

Vendor Financing

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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.

Deferred payments are due in August 2022 under the terms of the agreement.

We intend to seek an extension of the maturity date while we pursue a new debt financing for the funding of the construction and launch costs for these satellites.

Off-Balance Sheet Transactions

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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