What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 148 added, 127 removed, 215 unchanged (56% of the section changed)

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These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

Forward-looking statements, such as the statements regarding our ability to develop and expand our business (including our ability to monetize our spectrum rights), our anticipated capital spending, our ability to manage costs, our ability to exploit and respond to technological innovation, the effects of laws and regulations (including tax laws and regulations) and legal and regulatory changes (including regulation related to the use of our spectrum), the opportunities for strategic business combinations and the effects of consolidation in our industry on us and our competitors, our anticipated future revenues, our anticipated financial resources, our expectations about the future operational performance of our satellites (including their projected operational lives), our expectations for future increases in our revenue and profitability, our performance and financial results under the Service Agreements, the expected strength of and growth prospects for our existing customers and the markets that we serve, commercial acceptance of new products, problems relating to the ground-based facilities operated by us or by independent gateway operators, worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis, business interruptions due to natural disasters, unexpected events or public health crises, including viral pandemics such as the COVID-19 coronavirus, and other statements contained in this Report regarding matters that are not historical facts, involve predictions.

Forward-looking statements, such as the statements regarding our ability to identify and realize opportunities and to generate the expected revenues and other benefits of the License Agreement, our ability to integrate the licensed technology into our current line of business, the ability of Dr.

Jacobs and other new employees to drive innovation and growth, our ability to develop and expand our business (including our ability to monetize our spectrum rights), our anticipated capital spending, our ability to manage costs, our ability to exploit and respond to technological innovation, the effects of laws and regulations (including tax laws and regulations) and legal and regulatory changes (including regulation related to the use of our spectrum), the opportunities for strategic business combinations and the effects of consolidation in our industry on us and our competitors, our anticipated future revenues, our anticipated financial resources, our expectations about the future operational performance of our satellites (including their projected operational lives), our expectations for future increases in our revenue and profitability, our performance and financial results under the Service Agreements, the expected strength of and growth prospects for our existing customers and the markets that we serve, commercial acceptance of new products, problems relating to the ground-based facilities operated by us or by independent gateway operators, worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis, business interruptions due to natural disasters, unexpected events or public health crises, including viral pandemics such as the COVID-19 coronavirus, and other statements contained in this Report regarding matters that are not historical facts, involve predictions.

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

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

Recent Developments

In August, 2023, we entered into an Intellectual Property License Agreement (the “License Agreement”) with XCOM Labs, Inc.

(“Licensor” or “XCOM”).

Under the License Agreement, we purchased an exclusive right and license (the “License”) as well as certain Intellectual Property Assets (as defined in the License Agreement) relating to the development and commercialization of XCOM’s key novel technologies for wireless spectrum innovations, including XCOMP, XCOM’s commercially available coordinated multi point radio system.

XCOMP delivers substantial capacity gains in dense, complex, challenging wireless environments in sub 7 GHz spectrum.

We also gained exclusive access to XCOM’s peer-to-peer connectivity technologies that could have applications across cellular and satellite devices.

As part of the License Agreement, certain XCOM employees, including engineering, test, product and R&D professionals who helped develop the licensed technologies, will continue to further commercialize the technology on behalf of Globalstar.

Bringing together Globalstar’s terrestrial spectrum and relationships with leading partners around the world with XCOM’s differentiated technology, which is well suited for high-performance applications, creates a significant opportunity to deliver for private network customers with mission-critical needs.

Globalstar System

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

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

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

In February 2022, we entered into a satellite procurement agreement with Macdonald, Dettwiler and Associates Corporation ("MDA") pursuant to which we expect to 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 Partner under the Service Agreements, 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.

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

In addition, MDA will procure a satellite operations control center for $4.9 million.

Under the Service Agreements, subject to certain terms and conditions, Partner has agreed to make service payments equal to 95% of the approved capital expenditures under the satellite procurement agreement (to be paid on a straight-line basis over the useful life of the satellites) and certain other costs incurred for the new satellites, as adjusted based on certain provisions, beginning with the Phase 2 Service Period.

In February 2022, we entered into a satellite procurement agreement with Macdonald, Dettwiler and Associates Corporation ("MDA") pursuant to which we expect to acquire at least 17 and up to 26 satellites that will replenish our HIBLEO-4 U.S.-licensed system and ensure long-term continuity of our MSS.

We have committed to purchase these new satellites for an initial total contract price of $327.0 million and have the option to purchase up to nine 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 second-generation satellites.

The satellite procurement agreement requires delivery of the 17 new satellites by 2025.

We have also entered into a Launch Services Agreement with Space Exploration Technologies Corp.

(“SpaceX”) and certain related ancillary agreements (the “Launch Services Agreements”), providing for the launch of the first set of these satellites.

The Launch Services Agreements provide a launch window in 2025.

Under the Service Agreements, subject to certain terms and conditions, we will receive payments equal to 95% of the approved capital expenditures under the satellite procurement agreement and Launch Services Agreements (to be paid on a straight-line basis over the useful life of the satellites) beginning with the Phase 2 Service Period.

For our subscriber driven revenue, the specialized needs of our global customers span many industries.

As of June 30, 2023, we had approximately 766,000 subscribers worldwide, principally within the following markets:

As of September 30, 2023, we had approximately 773,000 subscribers worldwide, principally within the following markets:

recreation and personal;

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animal tracking and transportation.

Our subscriber count does not include our Partner's subscribers.

Our subscriber count only includes our MSS subscribers.

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

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In recent years, the number of Commercial IoT devices on our network has increased significantly.

In addition to our subscribers, we also provide services to our Partner under the Service Agreements.

In addition to our subscribers, we also provide services under the Service Agreements.

Our FCC license allows us to provide service over our network to up to 250 million users in the United States.

For the six months ended June 30, 2023 and 2022, our Partner under the Service Agreements was responsible for 49% and 22%, respectively, of our revenue;

For the nine months ended September 30, 2023 and 2022, our wholesale capacity customer under the Service Agreements was responsible for 49% and 21%, respectively, of our revenue;

no other customer was responsible for more than 10%.

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

Comparison of the Results of Operations for the three and six months ended June 30, 2023 and 2022

Comparison of the Results of Operations for the three and nine months ended September 30, 2023 and 2022

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 June 30, 2023, total revenue increased 50% to $55.1 million from $36.8 million for the same period in 2022.

For the six months ended June 30, 2023, total revenue increased 63% to $113.7 million from $69.6 million for the same period in 2022.

For the three months ended September 30, 2023, total revenue increased 53% to $57.7 million from $37.6 million for the same period in 2022.

For the nine months ended September 30, 2023, total revenue increased 60% to $171.4 million from $107.2 million for the same period in 2022.

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

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Three Months Ended

June 30, 2023 Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

September 30, 2023 Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

Revenue % of Total

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Three Months Ended

June 30, 2023 Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

September 30, 2023 Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

Revenue % of Total

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Equipment Revenue:

Duplex $ 17 — % $ 143 — % $ 36 — % $ 273 — %

SPOT $ 1,746 3 % $ 1,558 4 % $ 6,185 3 % $ 4,707 5 %

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

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

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

2023 2022 2023 2022

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Service Revenue

Duplex service revenue decreased $0.6 million, or 8%, and $1.0 million, or 7%, respectively, for the three and six month periods ended June 30, 2023, compared to the same periods in 2022.

Duplex service revenue decreased $1.0 million, or 12%, and $2.0 million, or 9%, respectively, for the three and nine month periods ended September 30, 2023, compared to the same periods in 2022.

For both periods, the decrease in revenue was due primarily to a decrease in average subscribers, offset partially by higher ARPU.

The decrease in average subscribers is due to churn exceeding gross activations over the last twelve months as we no longer manufacture and sell Duplex devices, and instead focus our investments on IoT-enabled devices and wholesale capacity services.

SPOT service revenue decreased 4% and 2%, respectively, for the three and six months ended June 30, 2023, compared to the same periods in 2022.

For both the three and six month periods, the decrease in SPOT service revenue was due primarily to fewer average subscribers.

SPOT service revenue decreased 3% and 2%, respectively, for the three and nine months ended September 30, 2023, compared to the same periods in 2022.

For both the three and nine month periods, the decrease in SPOT service revenue was due primarily to fewer average subscribers, offset partially by higher ARPU.

Average subscribers were impacted by lower equipment sales, and therefore gross subscriber activations, during 2022 due to supply chain issues that lowered the number of devices available in the sales channel.

Commercial IoT service revenue increased 6% and 9%, respectively, for the three and six months ended June 30, 2023, compared to the same periods in 2022.

The increases for both periods were due primarily to an increase in average subscribers driven by a 21% increase in gross subscriber activations when compared to the preceding twelve month periods.

Wholesale capacity service revenue increased $16.7 million and $40.2 million, respectively, for the three and six months ended June 30, 2023 compared to the same periods in 2022.

The increase in revenue recognized during the three and six months ended June 30, 2023 is due primarily to consideration received for service fees under the Service Agreement which commenced after service launch in November 2022.

Revenue for both periods also increased due to the amount of revenue recognized for our performance associated with the construction of additional satellites for Partner.

Additionally, in connection with the

amendment of the Service Agreements in February 2023, Partner agreed to pay us $6.5 million as consideration related to performance obligations completed in prior periods.

The Company recognized this revenue during the first quarter of 2023.

Higher ARPU was due to the mix of subscriber rate plans during the respective periods.

Commercial IoT service revenue increased 36% and 17%, respectively, for the three and nine months ended September 30, 2023, compared to the same periods in 2022.

The increases for both periods were due to both higher average subscribers and ARPU.

The increase in average subscribers was due to a 26% increase in gross subscriber activations when compared to the preceding twelve month periods.

Higher ARPU was due to higher usage as well as product mix.

Wholesale capacity service revenue increased $20.5 million and $60.8 million, respectively, for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

The increase in revenue during 2023 is due to consideration earned under the Service Agreements following the commencement of service in November 2022.

Revenue during 2023 under this arrangement includes recurring service fees as well as consideration for our performance associated with the construction of additional satellites, gateway site improvements, and the achievement of certain milestones and bonuses.

For instance, revenue recognized during the third quarter of 2023 reflected approximately $4.4 million for a bonus earned for the maintenance of our global MSS authorizations;

the nine months ended September 30, 2023 also included $6.5 million received in connection with the amendment of the Service Agreements in February 2023 as consideration related to performance obligations completed in prior periods.

Subscriber Equipment Sales

Revenue from Duplex equipment sales decreased $0.1 million and $0.2 million, respectively, for the three and six months ended June 30, 2023 compared to the same periods in 2022.

These decreases were due to a lower sales volume of phones and accessories we discontinued from our product offerings.

Revenue from SPOT equipment sales increased $0.8 million, or 50%, and $1.3 million, or 41%, respectively, for the three and six months ended June 30, 2023 compared to the same periods in 2022.

During 2022, due to component part shortages, we experienced production delays resulting in a back order position for most of the year.

Starting in the second quarter of 2023, all SPOT products returned to ordinary production levels;

therefore, we expect equipment sales to continue to increase year-over-year as we move through 2023.

Revenue from Commercial IoT equipment sales increased $2.0 million and $4.0 million, respectively, for the three and six months ended June 30, 2023 compared to the same periods in 2022.

Revenue from SPOT equipment sales increased $0.2 million, or 12%, and $1.5 million, or 31% for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

During 2022, due to component part shortages, we experienced production delays resulting in a back order position for most of the year.

Starting in the second quarter of 2023, all SPOT products returned to ordinary production levels, contributing to increases in revenue during 2023.

Revenue from Commercial IoT equipment sales decreased $0.5 million and increased $3.5 million for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

During 2022, we experienced intermittent production delays due to component part shortages for certain of our products.

These issues have been resolved and all products are being manufactured in the ordinary course of business.

therefore, we expect equipment sales to continue to increase year-over-year as we move through 2023.

Production issues for our SmartOne Solar device were resolved prior to the third quarter of 2022, resulting in a significant volume of equipment sales in the prior year's quarter.

Strong demand for this product has continued.

For the nine month period, higher volume of both our SmartOne Solar and SmartOne C devices contributed to the increase in revenue.

Operating Expenses

Total operating expenses increased to $52.5 million from $48.2 million and to $103.9 million from $94.6 million for the three and six months ended June 30, 2023 compared to the same periods in 2022, respectively.

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

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

Total operating expenses decreased for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

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

Cost of Services

Cost of services increased $1.6 million and $2.6 million for the three and six months ended June 30, 2023 compared to the same periods in 2022, respectively.

For these periods, higher lease expense associated with new gateway sites contributed $0.6 million and $1.5 million, respectively, to the total increases.

These leases were executed in connection with the gateway expansion project associated with the Service Agreements;

these lease and related costs are being reimbursed to us, and this consideration is being recognized as revenue (as further discussed above in "Wholesale Capacity Service Revenue").

Higher information technology maintenance totaling $0.4 million and $0.6 million, respectively, also contributed to the total increases for both periods.

Personnel costs were also up for both periods due to the impact of merit and headcount increases in 2023 offset partially by non-recurring personnel costs from the first quarter of 2022 related to annual cash bonuses and separation pay.

Cost of services increased $2.6 million and $5.2 million for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

These increases are due to network expansion and upgrade work completed in connection with services provided under the Service Agreements, and a substantial portion of these costs are reimbursed thereunder and this consideration is being recognized as revenue.

Lease, maintenance, security, IT and personnel costs have increased in line with this new and improved ground infrastructure.

As discussed in Note 2:

License Agreement to our condensed consolidated financial statements, in connection with the License Agreement with XCOM, we entered into a Support Services Agreement (the “SSA”).

Pursuant to the SSA, XCOM is required to provide services to assist us with certain operations of the business.

We prepaid for the initial SSA service period (covering nine months from the License Agreement effective date) in shares of Globalstar common stock.

During the third quarter of 2023, we recognized $0.7 million in expense associated primarily with these SSA and other ancillary costs.

Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales increased $2.5 million and $4.3 million for the three and six months ended June 30, 2023 from the same periods in 2022, respectively.

This increase is consistent with the increase in total revenue from subscriber equipment sales.

Margin percentages on subscriber equipment narrowed slightly for both the three and six month periods due to the mix of products sold in each respective period.

Cost of subscriber equipment sales was generally flat and increased $4.3 million for the three and nine months ended September 30, 2023 from the same periods in 2022, respectively.

These fluctuations are consistent with the increase in total revenue from subscriber equipment sales.

Margin percentages on subscriber equipment narrowed for both the three and nine month periods due to the mix of products sold in each respective period.

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

During the third quarter of 2022, we recorded a reduction in the value of inventory totaling $8.5 million.

In September 2022, in connection with the launch of Phase 1 services under the Service Agreements, our strategy relative to second-generation Duplex assets shifted.

Due to this shift in strategy, we concluded that there was no remaining net realizable value of our second-generation Duplex inventory, resulting in an $8.5 million reduction in value of inventory.

Similar activity did not recur in 2023.

Marketing, General and Administrative

MG&A expenses increased $3.0 million and $7.0 million for the three and six months ended June 30, 2023 compared to the same periods in 2022, respectively.

Higher personnel costs of $1.7 million and $3.8 million, respectively, contributed to the increase in MG&A expense, due primarily to stock-based compensation and, to a lesser extent, merit and headcount increases.

Also contributing to the MG&A increase for both periods were higher legal and professional fees of $0.9 million and $1.6 million, respectively, for various efforts, including increased regulatory work, government relations and negotiations of new commercial arrangements.

These increased costs are in part due to the upcoming World Radio Conference and our ongoing efforts to remove interference into the Globalstar System being received from China.

For the year to date period, the increase was also impacted by a $1.0 million accrual reversal in the first quarter of 2022 to professional services associated with the 2018 shareholder litigation.

MG&A expenses increased $3.5 million and $6.7 million for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

In connection with the License Agreement (discussed above), during the third quarter of 2023, we incurred $2.9 million in transaction fees, including legal, accounting and other professional fees.

Additionally, other legal and professional fees totaling $0.5 million and $2.1 million, respectively, for various efforts, including increased regulatory work, government relations and negotiations of new commercial arrangements, also contributed to the increase in MG&A during 2023 These increased costs are in part due to our preparation for, and participation in, the upcoming World Radio Conference to protect our licensed spectrum rights globally from interference.

Higher personnel costs due to merit and headcount increases also contributed to the increase in MG&A expense.

For the year to date period, the increase was also impacted by a $1.0 million accrual reversal in 2022 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 a decrease in MG&A expense in the first quarter of 2022.

Other smaller items contributed to the remaining increase for the year to date period.

Other immaterial items contributed to the remaining increase for the year to date period.

Stock-Based Compensation

Stock-based compensation expense increased $2.2 million and $6.1 million for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

The increase for both periods was due primarily to the modification of certain awards as well as restricted stock units granted in connection with the License Agreement.

Additionally, we have an annual bonus plan, which is generally paid in the form of Globalstar common stock, designed to reward key employees' efforts to meet and exceed Globalstar's financial performance target for the designated calendar year.

Our projected financial performance compared to our target drove the remaining increase in stock-based compensation expense year over year.

Reduction in Value of Long-Lived Assets

During the third quarter of 2022, we recorded a reduction in the value of long-lived assets totaling $166.0 million.

In September 2022, in connection with the launch of Phase 1 services under the Service Agreements, our strategy relative to our second-generation Duplex assets shifted.

Due to this shift in strategy, we re-assessed our asset grouping for long-lived assets

and determined that the second-generation Duplex assets (including the gateways (and related technology) capable of providing commercial traffic to support Sat-Fi2®) were no longer part of our overall satellite and ground network.

These second-generation Duplex assets no longer provided future cash flows to us - these assets totaled approximately $161.2 million prior to their write down in September 2022.

Our first-generation Duplex assets (i.e., handsets and related ground infrastructure) were not impacted.

Also reflected in the reduction in the value of long-lived assets were certain prepaid licenses and royalties necessary for the manufacture and distribution of second-generation Duplex products and services.

These prepaid items were no longer considered recoverable as there are no longer separately identifiable cash flows for such assets - these assets totaled approximately $4.7 million prior to their write down in September 2022.

Depreciation, Amortization and Accretion

Depreciation, amortization and accretion expenses decreased $2.2 million and $4.1 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022 due to a net reduction in total property and equipment.

In connection with Partner's announcement concerning the Services in September 2022, our strategy relative to our second-generation Duplex assets shifted.

Due to this shift in strategy, we re-assessed our asset grouping for long-lived assets and determined that the second-generation Duplex assets were no longer part of our overall satellite and ground network.

These assets totaled approximately $161.2 million prior to their write down in September 2022.

Our first-generation Duplex assets (i.e.

handsets and related ground infrastructure) were not impacted.

Offsetting this decrease is depreciation expense from the on-ground spare satellite that was launched and placed into service in June 2022.

Depreciation, amortization and accretion expenses decreased $2.4 million and $6.5 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 following a net reduction in total property and equipment due to the factors discussed in the " Reduction in Value of Long-Lived Assets" section above.

Partially offsetting this decrease is depreciation expense from the on-ground spare satellite that was launched and placed into service in June 2022.

Other (Expense) Income

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Interest Income and Expense

Interest income and expense, net, decreased $2.1 million and $9.6 million during the three and six months ended June 30, 2023, compared to the same periods in 2022, respectively.

For these periods, these decreases were due primarily to lower gross interest costs totaling $1.9 million and $5.1 million, respectively.

For the six month period, higher capitalized interest (which decreases interest expense) of $4.2 million, due to higher construction in progress, also reduced expense.

For the three and six month periods, gross interest costs were lower due to $10.7 million and $15.1 million, respectively, less interest under the 2019 Facility Agreement (as defined below) due to the partial paydown in November 2022 and the final paydown in March 2023.

Offsetting this decrease was a $7.1 million increase in interest associated with the 2023 13% Notes (as defined below), which commenced in the second quarter of 2023, as well as interest and the accretion of debt discount associated with the 2023 and 2021 Funding Agreements (as defined below), which also commenced in the second quarter of 2023, and totaled $2.8 million.

Finally, we incurred interest of $1.2 million due to MDA under the vendor financing arrangement during the first quarter of 2023 that was not in place during the first half of 2022.

This vendor financing arrangement was fully repaid during the first quarter of 2023.

Derivative Gain (Loss)

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.

For the three and six months ended June 30, 2023, we recorded derivative gains of $0.3 million, respectively.

For the three and six months ended June 30, 2022, we recorded derivative losses of $1.2 million and $1.7 million, respectively.

The gains recorded during 2023 were impacted by a decrease in the discount rate and the timing of cash flow utilized in the valuation of the embedded derivative within the 2023 Funding Agreement.

The losses recorded during 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.

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

Foreign Currency (Loss) Gain

Interest income and expense, net, decreased $3.7 million and $13.3 million during the three and nine months ended September 30, 2023, compared to the same periods in 2022, respectively.

For these periods, the decreases were due primarily to lower gross interest costs totaling $1.1 million and $6.3 million, respectively, and higher capitalized interest (which decreases interest expense) of $1.9 million and $6.0 million, respectively, due to higher construction in progress.

For the three and nine month periods, gross interest costs were lower due to $11.1 million and $26.1 million, respectively, less interest under the 2019 Facility Agreement (as defined below) due to the partial paydown in November 2022 and the final paydown in March 2023.

Offsetting this decrease were increases for the three and nine month periods of $7.1 million and $14.3 million, respectively, in interest associated with the 2023 13% Notes (as defined below), which commenced in the second quarter of 2023, as well as interest and the accretion of debt discount associated with the 2023 and 2021 Funding Agreements (as defined below), which also commenced in the second quarter of 2023, and totaled $3.8 million and $6.6 million, respectively.

Finally, we incurred higher interest of $1.0 million due to MDA under the vendor financing arrangement during the 2023 compared to the same period in 2022.

Other immaterial items contributed to the remaining difference.

Foreign Currency Loss

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.

We recorded foreign currency gains of $2.0 million and $3.9 million, respectively, during the three and six months ended June 30, 2023.

We recorded foreign currency losses of $7.1 million and $3.9 million, respectively, during the three and six months ended June 30, 2022.

During 2023, the foreign currency gains were due to the weakening of the U.S.

dollar relative to other currencies.

During 2022, the foreign currency losses were due to the strengthening of the U.S.

We recorded foreign currency losses of $4.2 million and $0.2 million, respectively, during the three and nine months ended September 30, 2023.

We recorded foreign currency losses of $9.4 million and $13.3 million, respectively, during the three and nine months ended September 30, 2022.

The foreign currency losses were due to the strengthening of the U.S.

dollar relative to other currencies.

Liquidity and Capital Resources

Our principal sources of liquidity include cash on hand, cash flows from operations and proceeds from the funding agreement with our Partner under the Service Agreements.

Our principal sources of liquidity include cash on hand, cash flows from operations and proceeds from the funding agreement under the Service Agreements.

These liquidity sources are expected to meet our short-term and long-term liquidity needs for funding our operating costs, capital expenditures and financing obligations, including scheduled recoupments under the 2021 Funding Agreement (defined below), interest on our 13% Notes (defined below), and dividends on our perpetual preferred stock.

As of June 30, 2023 and December 31, 2022, we held cash and cash equivalents of $65.3 million and $32.1 million, respectively, on our consolidated balance sheet.

The total carrying amount of our debt and vendor financing outstanding was $336.6 million at June 30, 2023, compared to $191.7 million at December 31, 2022.

The $144.9 million increase was driven by the sale of $200.0 million in aggregate principal amount of 2023 13% Notes (as defined below), which were issued net of a 5% OID of $10 million and $7.2 million in financing costs, net of accretion since issuance.

Also contributing to this increase was the recognition of the 2021 and 2023 Funding Agreements (as defined below), $87.7 million and $88.0 million, respectively, of principal amount, net of debt discounts and accretion totaling $10.0 million and $11.9 million, respectively.

Offsetting these increases was the payoff of the remaining balances due under the 2019 Facility Agreement (defined below) and the vendor financing arrangement of $132.1 million and $59.6 million, respectively.

Cash Flows for the six months ended June 30, 2023 and 2022

As of September 30, 2023 and December 31, 2022, we held cash and cash equivalents of $64.1 million and $32.1 million, respectively, on our consolidated balance sheet.

The principal amount of our debt and vendor financing outstanding was $375.4 million at September 30, 2023, compared to $202.8 million at December 31, 2022.

This increase was due to the following:

• Issuance of 2023 13% Notes (as defined below) with an aggregate principal amount of $206.0 million (including initial sale of $200.0 million plus PIK interest payment of $6.0 million);

• Reclassification of the 2021 Funding Agreement (as defined below) from deferred revenue to debt with an outstanding principal balance as of September 30, 2023 of $81.7 million;

• Issuance of debt under the 2023 Funding Agreement (as defined below) totaling $88.0 million;

• Payment of PIK interest of $5.1 million as well as the payoff of the remaining balance of $148.3 million due under the 2019 Facility Agreement (defined below);

• Payoff of the remaining balance of $59.6 million due under the vendor financing arrangement.

Cash Flows for the nine months ended September 30, 2023 and 2022

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

Six Months Ended

2023 June 30,

Nine Months Ended

September 30,

2023 September 30,

Net cash provided by operating activities $ 68,556 $ 31,705

Net cash used in investing activities (142,385) (25,306)

Net cash provided by financing activities 114,822 449

Net cash provided by (used in) financing activities 105,902 (5,886)

Effect of exchange rate changes on cash and cash equivalents (19) (68)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 33,252 $ (1,163)

Net increase in cash, cash equivalents and restricted cash $ 32,054 $ 445

Cash Flows Provided by Operating Activities

1 unchanged sentence

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

Net cash provided by operating activities during the six months ended June 30, 2023 was $43.0 million compared to $20.8 million during the same period in 2022.

Net cash provided by operating activities during the nine months ended September 30, 2023 was $68.6 million compared to $31.7 million during the same period in 2022.

The primary driver for the increase was higher net income after adjusting for noncash items due primarily to higher wholesale capacity service fees under the Service Agreements following service launch in November 2022.

Revenue to our condensed consolidated financial statements for further discussion.) This activity was offset partially by an unfavorable change in working capital due primarily to the recognition of deferred revenue under the Service Agreements.

Revenue to our condensed consolidated financial statements for further discussion.) This activity was offset partially by an unfavorable change in working capital due primarily to the timing of recognition of deferred revenue under the Service Agreements.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $124.6 million for the six months ended June 30, 2023 compared to $22.4 million for the same period in 2022.

The increase is due primarily to payments to MDA during 2023 totaling $108.7 million during the first six months of 2023 (we did not make cash payments under this agreement during the same period in 2022).

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $114.8 million during the six month period ended June 30, 2023 compared to $0.4 million for the same period in 2022.

This increase was due to proceeds from the 2023 13% Notes and the 2023 Funding Agreement (as discussed in more detail below).

Net cash used in investing activities was $142.4 million for the nine months ended September 30, 2023 compared to $25.3 million for the same period in 2022.

The increase is due primarily to payments to MDA totaling $110.5 million and payments of capitalized interest totaling $8.8 million during 2023;

we did not make these types of payments during the same period in 2022.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities was $105.9 million during the nine month period ended September 30, 2023 compared to net cash used in financing activities of $5.9 million for the same period in 2022.

This fluctuation was due to proceeds from the 2023 13% Notes $190.0 million and the 2023 Funding Agreement of $87.7 million (as discussed in more detail below).

The proceeds from the 2023 13% Notes were used to pay the remaining principal amount due under the 2019 Facility Agreement of $148.3 million and financing costs of $8.6 million.

The payment of cash dividends totaling $9.3 million was also a use of cash during 2023 that did not occur during the comparable period in 2022.

Finally, pursuant to the terms of the 2021 Funding Agreement, the first recoup payment of $6.3 million was made during the third quarter of 2023.

During 2022, we made an unscheduled principal repayment of the 2019 Facility Agreement in August 2022 of $6.3 million.

For further discussion on all of our debt and other financing arrangements, see Note 6:

1 unchanged sentence

2023 Funding Agreement

In February 2023, Globalstar and Partner agreed to amend the Service Agreements to provide for, among other things, Partner’s payment of up to $252 million to us (the “2023 Funding Agreement”) to fund 50% of amounts due under our previously disclosed Satellite Procurement Agreement with MDA, as well as launch, insurance and ancillary costs incurred in connection with the construction and launch of these satellites.

The 2023 Funding Agreement replaced our requirement to raise third-party financing for such costs as previously required under the Service Agreements and will be funded on a quarterly basis, subject to certain conditions therein.

Our previously disclosed Service Agreements provide for, among other things, payment of up to $252 million to us (the “2023 Funding Agreement”) which we will use to fund 50% of amounts due under the satellite procurement agreement with MDA, as well as launch, insurance and ancillary costs incurred in connection with the construction and launch of these satellites.

The 2023 Funding Agreement will be funded on a quarterly basis, as needed and subject to certain conditions therein.

The remaining amount of the satellite costs is expected to be funded from our operating cash flows.

Partner made the first payment under the 2023 Funding Agreement in April 2023 in an amount of $87.7 million.

The first payment under the 2023 Funding Agreement was made in April 2023 in an amount of $87.7 million.

These proceeds were used to pay amounts owed to MDA for milestones completed as of the payment date.

The amount of the Funding Agreement and fees payable thereon are expected to be recouped from amounts payable by our Partner for services provided by us under the Service Agreements.

The 2023 Funding Agreement is expected to be recouped in installments for a period of 16 quarters beginning no later than the third quarter of 2025.

The 2023 Funding Agreement may also be repaid over time through excess cash flow sweeps or voluntary prepayments, as provided under the terms of the 2023 Funding Agreement.

No additional amounts were funded through September 30, 2023.

The amount of the Funding Agreement and fees payable thereon are expected to be recouped from amounts payable for services provided by us under the Service Agreements in installments for a period of 16 quarters beginning no later than the third quarter of 2025.

For as long as any portion of the 2023 Funding Agreement is outstanding, we will be subject to certain covenants including (i) minimum cash balance of $30 million, (ii) interest coverage and leverage ratios, and (iii) limitations on certain asset transfers, expenditures and investments.

Amounts payable by us in connection with the 2023 Funding Agreement are expected to be guaranteed by Thermo under a guarantee agreement among Thermo, Globalstar and Partner.

Thermo has agreed to provide support of certain of our obligations under the 2023 Funding Agreement.

Currently, this support agreement is directly between Thermo and Partner, and the parties have agreed to replace it with an agreement between Thermo, us and the Partner.

Entry into this guarantee agreement received shareholder approval in June 2023, and it is expected to be effective during the third quarter of 2023.

Entry into this guarantee agreement received shareholder approval in June 2023, and it is expected to be effective during the fourth quarter of 2023.

2021 Funding Agreement

During 2021, we received payments from Partner totaling $94.2 million (the "2021 Funding Agreement"), which were recorded as deferred revenue.

This funding is expected to be recouped as services are performed by us over the Phase 1 Service Period.

In connection with the February 2023 amendment of the Service Agreements, certain terms of the 2021 Funding Agreement were amended to align with the terms of the 2023 Funding Agreement, including granting Partner a first-priority lien in all of our assets to secure our repayment of amounts funded by Partner.

This amendment resulted in re-characterizing the previously recorded deferred revenue balance to debt.

During 2021, we received payments totaling $94.2 million (the "2021 Funding Agreement"), which were recorded as deferred revenue.

This funding is expected to be recouped as services are performed by us over the Phase 1 Service Period, and our repayment obligations are secured by a first-priority lien on substantially all of our assets.

Our previously disclosed amendment to this agreement resulted in re-characterizing the previously recorded deferred revenue balance to debt in 2023.

During 2023, $12.5 million has been recouped.

2023 13% Notes

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The 2023 13% Notes were sold at an issue price of 95% of the principal amount and bear interest at a rate of 13.00% per annum payable semi-annually in arrears.

The Company has agreed with its Partner under the Service Agreements to pay cash interest on the 2023 13% Notes at a rate of 6.5% per annum and paid-in-kind ("PIK") interest at a rate of 6.5% per annum.

The Company has agreed under the Service Agreements to pay cash interest on the 2023 13% Notes at a rate of 6.5% per annum and paid-in-kind ("PIK") interest at a rate of 6.5% per annum.

The 2023 13% Notes may be redeemed at the option of the Company at any time, subject to the conditions of the Indenture.

23 unchanged sentences

April 1, 2023 - June 30, 2023 June 2023 2,644

July 1, 2023 - September 30, 2023

September 2023 2,673

The shares of Series A Preferred Stock do not possess voting rights, other than certain matters specifically affecting the rights and obligations of the Series A Preferred.

4 unchanged sentences

Recently Issued Accounting Pronouncements

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.

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.

Critical Accounting Policies and Estimates

There have been no material changes in our Critical Accounting Policies and Estimates from the information provided in the "Critical Accounting Policies and Estimates" section of "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.

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