SEC Info - Globalstar, Inc. - ‘10-Q’ for 3/31/23

Service revenue:

Subscriber services

Duplex

i 5,751

i i 6,146 /

SPOT

i 11,314

i 11,255

Commercial IoT

i 5,178

i 4,670

Wholesale capacity services

i 30,411

i 6,843

Engineering and other services

i 300

i 430

Total service revenue

i 52,954

i 29,344

Subscriber equipment sales:

Duplex

i 19

i 130

SPOT

i 1,926

i 1,475

Commercial IoT

i 3,812

i 1,806

Other

( i 67)

i 17

Total subscriber equipment sales

i 5,690

i 3,428

Total revenue

i 58,644

i 32,772

In September 2022, Apple Inc. (“Partner”) announced new satellite-enabled services for certain of its products (the “Services”). The Company is the satellite operator for these Services pursuant to the agreement (the “Service Agreement”) and certain related ancillary agreements (such agreements, together with the Service Agreement, the “Service Agreements”). The Service Agreements generally require Globalstar to allocate network capacity to support the Services, which launched in November 2022. Revenue associated with the Service Agreements is included in "Wholesale capacity services" in the table above.

As consideration for the services provided by Globalstar under the Service Agreements, Partner makes payments to Globalstar, including a recurring service fee, payments relating to certain service-related operating expenses and capital expenditures, and potential bonus payments subject to satisfaction of certain licensing, service and other related criteria. In connection with the amendment of the Service Agreements in February 2023, Partner agreed to pay the Company $ i 6.5 million as consideration related to performance obligations completed in prior periods. The Company recognized this revenue during the first quarter of 2023.

The Company attributes equipment revenue to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. The following table discloses revenue disaggregated by geographical market (amounts in thousands):

Three Months Ended

Service revenue:

United States

i 45,061

i 22,288

Canada

i 3,829

i 3,689

Europe

i 1,513

i 1,483

Central and South America

i 2,367

i 1,736

Others

i 184

i 148

Total service revenue

i 52,954

i 29,344

Subscriber equipment sales:

United States

i 1,983

i 1,556

Canada

i 2,306

i 798

Europe

i 820

i 636

Central and South America

i 577

i 429

Others

i 4

i 9

Total subscriber equipment sales

i 5,690

i 3,428

Total revenue

i 58,644

i 32,772

Accounts Receivable

The Company records trade accounts receivable from its customers, including MSS subscribers and Partner under the Service Agreements, when it has a contractual right to receive payment either on demand or on fixed or determinable dates in the future. In addition to receivables arising from the sale of goods or services, the Company also has certain arrangements whereby it acts as an agent to procure goods and perform services on behalf of Partner under the Service Agreements.

Receivables are included in "Accounts receivable, net of allowance for credit losses," on the Company's consolidated balance sheets except for the long-term portion of the wholesale capacity accounts receivable, which is included in "Prepaid satellite construction costs and related customer receivable." i The Company's receivable balances by type and classification are presented in the table below net of allowance for credit losses and may include amounts related to earned but unbilled receivables (amounts in thousands).

As of:

Accounts receivable, net of allowance for credit losses

Subscriber accounts receivable

i 15,460

i 14,850

Wholesale capacity accounts receivable

i 11,204

i 7,234

Agency agreement accounts receivable

i 1,343

i 4,245

Total accounts receivable, net of allowance for credit losses

i 28,007

i 26,329

Long-term wholesale capacity accounts receivable

i 124,386

i 111,026

Total accounts receivable (short-term and long-term), net of allowance for credit losses

i 152,393

i 137,355

In February 2022, the Company entered into an agreement for the purchase of new satellites that will replenish the Company's existing satellite constellation. Under the Service Agreements, subject to certain terms and conditions, Partner has agreed to make service payments equal to i 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 may be adjusted pursuant to the Service Agreements, beginning with the Phase 2 Service Period. As the Company incurs construction in progress associated with the contract with Macdonald, Dettwiler and Associates Corporation ("MDA"), it earns the right to receive certain payments from Partner associated with this phase of the Service Agreements. In accordance with the

expected timing of payment from Partner, $ i 7.2 million is recorded in "Wholesale capacity accounts receivable" and $ i 124.4 million is recorded as in "Long-term wholesale capacity accounts receivable" in the table above. The remaining amount recorded in "Wholesale capacity accounts receivable" as of March 31, 2023 consists of invoices for performance obligations completed as of the balance sheet date that are due within the next twelve months.

Contract Liabilities

Contract liabilities, which are included in deferred revenue on the Company’s consolidated balance sheet, represent the Company’s obligation to transfer service or equipment to a customer from whom it has previously received consideration. Contract liabilities reflect balances from its customers, including MSS subscribers and the Partner under the Service Agreements. The Company's contract liabilities by type and classification are presented in the table below (amounts in thousands).

As of:

Short-term contract liabilities

Subscriber contract liabilities

i 20,981

i 21,987

Wholesale capacity contract liabilities

i 59,892

i 52,652

Total short-term contract liabilities

i 80,873

i 74,639

Long-term contract liabilities

Subscriber contract liabilities

i 1,981

i 1,704

Wholesale capacity contract liabilities, net of contract asset

i 155,114

i 156,099

Total long-term contract liabilities

i 157,095

i 157,803

Total contract liabilities

i 237,968

i 232,442

For subscriber contract liabilities, the amount of revenue recognized during the three months ended March 31, 2023 and 2022 from performance obligations included in the contract liability balance at the beginning of these periods was $ i 8.4 million and $ i 9.9 million, respectively. For wholesale capacity contract liabilities, the amount of revenue recognized during the three months ended March 31, 2023 and 2022 from performance obligations included in the contract liability balance at the beginning of these periods was $ i 22.0 million and less than $ i 0.1 million, respectively.

The duration of the Company’s contracts with subscribers is generally one year or less. As of March 31, 2023, the Company expects to recognize $ i 21.0 million, or approximately i 91%, of its remaining performance obligations to its subscribers during the next i twelve months. The Service Agreements have no expiration date; therefore, the related contract liabilities may be recognized into revenue over various periods driven by the expected related service or recoupment periods. As of March 31, 2023, the Company expects to recognize $ i 59.9 million, or approximately i 28%, of its remaining performance obligations to this customer during the next i twelve months.

The components of wholesale capacity contract liabilities are presented in the table below (amounts in thousands).

Wholesale capacity contract liabilities, net:

Advanced payments for services expected to be performed with the second-generation satellite constellation during Phase 1 (1)

i 94,323

i 99,671

Advanced payments for services expected to be performed with the recently launched ground spare satellite during Phases 1 and 2

i 24,992

i 25,438

Advanced payments (both received and contractually owed) for services expected to be performed with the next-generation satellite constellation during Phase 2

i 129,147

i 117,466

Advanced payments for the Phase 1 service fee and service-related operating expenses and capital expenditures

i 19,871

i 18,872

Contract asset (2)

( i 53,327)

( i 52,696)

Wholesale capacity contract liabilities, net

i 215,006

i 208,751

(1)In accordance with applicable accounting guidance, the Company records imputed interest associated with the significant financing component, totaling $ i i 5.3 / million as of March 31, 2023 and December 31, 2022, respectively, which is included in deferred revenue and represents the remaining amount to be recognized over the Company's performance obligations.

(2)In November 2022, the Company issued Warrants (as defined) to Partner (see Note 15: Stock Compensation for further discussion). The initial fair value of the Warrants at the time of issuance was $ i 48.3 million and recorded in equity with an offset to a contract asset on the Company's consolidated balance sheets. The fair value of the Warrants is recorded as a reduction to revenue over the period in which the Company performs its performance obligations through the estimated completion of the contract term, consistent with the period in which the customer benefits from the services provided.

i i

3. LEASES

The following tables disclose the components of the Company’s finance and operating leases (amounts in thousands):

As of:

Operating leases:

Right-of-use asset, net

i 33,583

i 30,859

Short-term lease liability (recorded in accrued expenses)

i 2,731

i 2,747

Long-term lease liability

i 28,788

i 27,635

Total operating lease liabilities

i 31,519

i 30,382

Finance leases:

Right-of-use asset, net (recorded in intangible and other current assets, net)

i 99

i 104

Short-term lease liability (recorded in accrued expenses)

i 16

Long-term lease liability (recorded in non-current liabilities)

i 67

i 71

Total finance lease liabilities

i 83

i 87

Lease Cost

i The components of lease cost are reflected in the table below (amounts in thousands):

/ /

Three Months Ended

Operating lease cost:

Amortization of right-of-use assets

i 684

i 733

Interest on lease liabilities

i 615

i 660

Capitalized lease cost

i —

( i 536)

Finance lease cost:

Amortization of right-of-use assets

i 5

i 1

Short-term lease cost

i 241

i 80

Total lease cost

i 1,545

i 938

In accordance with the Service Agreements, the Company has capitalized certain costs to fulfill this contract, including lease expense, as shown in the table above. These capitalized lease costs will be amortized over the expected term of the related performance obligation.

Interest on finance lease liabilities was less than $ i i 0.1 / million for the three months ended March 31, 2023 and 2022; accordingly, these amounts are not shown in the table above.

Weighted-Average Remaining Lease Term and Discount Rate

The following table discloses the weighted-average remaining lease term and discount rate for finance and operating leases.

As of:

Weighted-average lease term

Finance leases

i 4.4 years

i 4.6 years

Operating Leases

i 10.3 years

i 10.1 years

Weighted-average discount rate

Finance leases

i 10.2

Operating leases

i 8.6

i 8.5

Supplemental Cash Flow Information

The below table discloses supplemental cash flow information for operating leases (in thousands):

Three Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases

i 1,712

i 1,357

Operating and financing cash flows from finance leases were each less than $ i i 0.1 / million for each of the three months ended March 31, 2023 and 2022; accordingly, these cash flows are not shown in the table above.

Maturity Analysis

i i The following table reflects undiscounted cash flows on an annual basis for the Company’s lease liabilities as of March 31, 2023 (amounts in thousands): /

Operating Leases

Finance Leases

2023 (remaining)

i 4,040

i 19

2024

i 5,253

i 23

2025

i 5,281

i 23

2026

i 5,328

i 23

2027

i 5,207

i 15

Thereafter

i 22,364

i —

Total lease payments

i 47,473

i 103

Imputed interest

( i 15,954)

( i 20)

Discounted lease liability

i 31,519

i 83

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):


	March 31, 2023		December 31, 2022
Globalstar System:
Space component	$	i 1,246,343	$	i 1,246,343

Ground component	i 98,328		i 98,128
Construction in progress:
Space component	i 129,320		i 110,068
Ground component	i 9,427		i 5,316
Other	i 10,261		i 9,167
Total Globalstar System	i 1,493,679		i 1,469,022
Internally developed and purchased software	i 22,868		i 22,509
Equipment	i 8,622		i 8,042
Land and buildings	i 1,704		i 1,681
Leasehold improvements	i 2,085		i 2,083
Total property and equipment	i 1,528,958		i 1,503,337
Accumulated depreciation	( i 964,531)		( i 942,966)
Total property and equipment, net	$	i 564,427	$	i 560,371

/ /

In 2022, the Company entered into an agreement with MDA for the purchase of new satellites that will replenish the Company's existing satellite constellation. This agreement has an initial contract price of $ i 327 million, of which $ i 110.6 million had been incurred as of March 31, 2023 and $ i 98.5 million as of December 31, 2022. The "space component" of construction in progress in the table above includes costs incurred under the MDA contract as well as associated personnel costs and capitalized interest. Accrued expenses on the Company's condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 included $ i 48.6 million and $ i 36.1 million, respectively, of work completed under the satellite procurement agreement. Nearly all of this amount was paid in April 2023 using proceeds from the Prepayment Agreement with its Partner under the Service Agreements (refer to Note 5 for further discussion). As of March 31, 2023 and December 31, 2022, the Company also recorded $ i 10.8 million and $ i 11.5 million as prepaid satellite construction costs for the first milestone payment made upon signing of the contract.

5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Long-term debt and vendor financing consists of the following (in thousands):

Principal
Amount

Unamortized Discount and Deferred Financing Costs

Carrying
Value

Principal
Amount

Unamortized Discount and Deferred Financing Costs

Carrying
Value

i 13% Senior Notes

i 200,000

i 17,757

i 182,243

i —

2019 Facility Agreement

i —

i 143,213

i 11,098

i 132,115

Vendor financing

i —

i 59,575

i —

i 59,575

Total debt and vendor financing

i 200,000

i 17,757

i 182,243

i 202,788

i 11,098

i 191,690

Less: current portion

i —

i 59,575

i —

i 59,575

Long-term debt and vendor financing

i 200,000

i 17,757

i 182,243

i 143,213

i 11,098

i 132,115

The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion. All amounts outstanding associated with the Company's vendor financing arrangement were due in March 2023 and, therefore, were reflected as a current liability on the Company's consolidated balance sheet as of December 31, 2022.

13% Senior Notes

On March 31, 2023, Globalstar, Inc. (the “Company”) completed the sale of $ i 200.0 million in aggregate principal amount of the Company’s non-convertible i 13% Senior Notes due 2029 (the “Notes”). The Notes were sold pursuant to a Purchase Agreement (the “Purchase Agreement”) dated March 28, 2023 among the Company, as issuer, the subsidiary guarantors party thereto (each, a “Subsidiary Guarantor” and collectively, the “Subsidiary Guarantors”), an affiliate of Värde Partners and the other purchasers party thereto (collectively, the “Purchasers”).

The Notes were issued pursuant to an indenture, dated as of March 31, 2023 (the “Indenture”), among the Company, the Subsidiary Guarantors, as guarantors, and Wilmington Trust, National Association, as trustee. The Notes are senior, unsecured obligations of the Company and have a stated maturity of September 15, 2029. The Notes were sold at an issue price of i 95% of the principal amount of the Notes. The Company used a portion of the net proceeds to pay financing costs of $ i 7.8 million, which were recorded on the Company's condensed consolidated balance sheet as a reduction in the carrying amount of the debt. The Notes bear interest initially at a rate of i 13.00% per annum payable semi-annually in arrears. The Company is required to pay interest (i) at a rate per annum of i 4.00% which must be paid in cash and (ii) at a rate per annum of i 9.00% which may be paid either (a) in-kind (“PIK”) by increasing the principal amount of the Notes outstanding or (b) in cash, in such proportion as the Company may choose, with a step up in the PIK component of the interest if any Notes remain outstanding after March 15, 2028. The Company has agreed with its Partner under the Service Agreements to pay cash interest on the Notes at a rate of i 6.5% per annum and PIK interest at a rate of i 6.5% per annum.

The Notes may be redeemed at the option of the Company at any time, subject to the conditions of the Indenture. Among other things, prior to March 15, 2025 (the “First Call Date”), the Company will be permitted to redeem the Notes in whole or in part at the redemption price equal to i 100% of the principal amount of the Notes redeemed plus a premium based on the net present value of the remaining interest payments through the First Call Date. Beginning on the First Call Date, the Notes may be redeemed at a redemption price equal to i 103% of the principal amount, declining to i 100% of the principal amount after March 15, 2027, in each case, together with accrued and unpaid interest.

Additionally, in the event of a Change of Control (as such term is defined in the Indenture) or certain other events, holders of the Notes have the right to require the Company to repurchase all or a portion of their Notes at a price (as calculated by the Company) in cash equal to i 101% of the aggregate principal amount thereof plus accrued and unpaid interest and certain tax payments. The Indenture includes customary terms and covenants, including restrictions on the Company’s and the Subsidiary Guarantors’ ability to incur indebtedness, make guarantees, sell equity interests, and customary events of default after which the holders may accelerate the maturity of the Notes and become due and payable immediately.

2019 Facility Agreement

In November 2019, the Company entered into a $ i 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 was scheduled to mature in November 2025. The loans under the 2019 Facility Agreement bore interest at a rate of i 14.0% per annum to be paid in kind (or in cash at the option of the Company).

The Service Agreements required the Company to refinance all loans outstanding under the 2019 Facility Agreement. A portion was refinanced in November 2022 and the remaining portion was refinanced in March 2023. Using a portion of the proceeds from the sale of the i 13% Senior Notes, the Company repaid all of its outstanding obligations under the 2019 Facility Agreement of approximately $ i 148 million.

The Company recorded a loss on extinguishment of debt of $ i 10.4 million in the first quarter of 2023 representing the difference between the net carrying amount prior to extinguishment (including unamortized deferred financing costs, debt discounts and derivatives) and the reacquisition price of the debt. Refer to Note 6: Derivatives and Note 7: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the 2019 Facility Agreement.

Vendor Financing

In February 2022, the Company entered into a satellite procurement agreement with MDA (see Note 8: Commitments and Contingencies for further discussion). This agreement (as amended in October 2022 and January 2023) provided for deferrals of milestone payments through March 15, 2023. Interest accrued on the amount outstanding at an annual rate of i 7%, which increased to i 10.5% on balances between December 2022 and March 2023. The Company has made payments totaling $ i 76.1 million to MDA under this vendor financing arrangement, of which $ i 62.1 million (including $ i 2.5 million of interest) was paid during the first quarter of 2023. As of March 31, 2023, the Company has fully repaid the outstanding vendor financing balance.

Reflected in the table below is a rollforward of the Company's obligations under its vendor financing arrangement with MDA (amounts in thousands):

As of

Confirmed obligations outstanding, January 1, 2023 and 2022, respectively

i 59,575

i —

Invoices confirmed during the periods

i —

i 73,575

Confirmed invoices paid during the periods

( i 59,575)

( i 14,000)

Confirmed obligations outstanding, March 31, 2023 and December 31, 2022, respectively

i —

i 59,575

Prepayment Agreement

On February 27, 2023, the Company and its Partner agreed to amend its previously disclosed Service Agreements to provide for, among other things, the Partner’s prepayment of $ i 252 million to the Company (the “Prepayment Agreement”). The Company will use the proceeds from the Prepayment Agreement to pay amounts due under its 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 Prepayment Agreement replaces the Company’s 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 in the agreement. The remaining amount of the satellite costs is expected to be funded from Globalstar’s operating cash flows. Partner made the first payment under the Prepayment Agreement to the Company in April 2023 in the amount of $ i 87.7 million. These proceeds were used to pay amounts owed to MDA for milestones completed as of the payment date, with $ i 39.6 million reimbursing the Company for a payment made to MDA on March 31, 2023 and the remaining $ i 48.1 million paid to MDA in April 2023.

The total amount paid to the Company under the Prepayment Agreement, including fees, will be recouped from amounts payable by the Partner for services provided by the Company under the Service Agreements. The total balance is expected to be recouped in installments for a period of 16 quarters beginning no later than the third quarter of 2025. The prepayment balance may also be repaid over time through excess cash flow sweeps or voluntary prepayments, as provided under the terms of the Prepayment Agreement. For as long as any amount funded under the Prepayment Agreement is outstanding, the Company will be subject to certain covenants, including (i) maintenance of a minimum cash balance of $ i 30 million, (ii) interest coverage and

leverage ratios, and (iii) other customary negative covenants, including limitations on certain asset transfers, expenditures and investments.

Subject to applicable shareholder approval, amounts payable by the Company in connection with the Prepayment Agreement would be guaranteed by Thermo under a guaranty agreement among Thermo, the Company and the Partner. In addition, Thermo has agreed directly with Partner to provide support of certain of the Company’s obligations under the Service Agreements, the Satellite Procurement Agreement, and certain related contracts.

Series A Preferred Stock

On November 15, 2022, the Company issued i 149,425 shares of its i 7.0% Perpetual Preferred Stock, Series A, liquidation preference $ i 1,000 per share (the “Series A Preferred Stock”) in exchange for $ i 149.4 million outstanding principal amount of its 2019 Facility Agreement held by affiliates of Thermo and certain other lenders. The Company recorded the Series A Preferred Stock at fair value of the shares totaling $ i 105.3 million on its consolidated balance sheet.

Holders of Series A Preferred Stock are entitled to receive, when, as and if declared by the Company's Board of Directors or a committee thereof, cumulative cash dividends based on the liquidation preference of the Series A Preferred Stock, at a fixed rate equal to i 7.00% per annum, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. In January and April 2023, the Company's Board of Directors approved the payment of dividends totaling $ i 1.3 million for the period November 15, 2022 through December 31, 2022 and $ i 2.6 million for the first quarter of 2023; these dividends have been paid.

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. Series A Preferred Stock may be redeemed by the Company, in whole or in part, at any time. The holders of the Series A Preferred Stock do not have any rights to convert or require the Company to redeem such stock.

6. DERIVATIVES

The Company has identified various embedded derivatives resulting from certain features in the Company’s borrowing arrangements, requiring recognition on its consolidated balance sheets. None of these derivative instruments are designated as a hedge. i The following table discloses the fair values of the derivative instruments on the Company’s consolidated balance sheet (in thousands):


	March 31, 2023		December 31, 2022
Derivative liabilities:
Compound embedded derivative with the 2019 Facility Agreement	$	i —	( i 122)

As of December 31, 2022, the derivative liability recorded for the compound embedded derivative with the 2019 Facility Agreement was reflected in "Other non-current liabilities" on the Company's consolidated balance sheet.

i The following table discloses the changes in value recorded as derivative loss in the Company’s condensed consolidated statement of operations (in thousands):

Three Months Ended

Compound embedded derivative with the 2013 i 8.00% Notes

i —

i 216

Compound embedded derivative with the 2019 Facility Agreement

i —

( i 702)

Total derivative loss

i —

( i 486)

i The fair value of each embedded derivative is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in the Company's condensed consolidated statements of operations and its condensed consolidated statements of cash flows as a non-cash operating activity. See Note 7: Fair Value Measurements for further discussion.

The instruments and related features embedded in the debt instruments that are required to be accounted for as derivatives are described below.

Compound Embedded Derivative with 2013 i 8.00% Notes

The 2013 i 8.00% Notes contained a conversion option and contingent put feature that were required to be bifurcated and recorded as a compound embedded derivative. The Company determined the fair value of the compound embedded derivative liability using a Monte Carlo simulation model. During the first quarter of 2022, the remaining principal amount of the 2013 i 8.00% Notes was converted into shares of Globalstar common stock; accordingly, the associated derivative was extinguished and is no longer outstanding.

Compound embedded derivative with the 2019 Facility Agreement

The 2019 Facility Agreement contained certain contingently exercisable put features that were required to be bifurcated and recorded as a compound embedded derivative. The Company determined the fair value of this derivative using a probability weighted discounted cash flow model. In November 2022, the Company exchanged a portion of the 2019 Facility Agreement into Series A Preferred Stock. In March 2023, the Company refinanced the remaining principal outstanding under the 2019 Facility Agreement with proceeds from the issuance of its Notes. As a result of this activity, the Company wrote off the embedded derivative associated with the 2019 Facility Agreement, which is included in "Loss on extinguishment of debt" on the condensed consolidated statement of operations; therefore, i no balance remains as of March 31, 2023. See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion.

7. FAIR VALUE MEASUREMENTS

The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Recurring Fair Value Measurements

The following tables provide a summary of the liabilities measured at fair value on a recurring basis (in thousands):

(Level 1)

(Level 2)

(Level 3)

Total
Balance

Compound embedded derivative with the 2019 Facility Agreement

i —

( i 122)

Total liabilities measured at fair value

i —

( i 122)

The Company marks-to-market its derivatives at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s consolidated statements of operations. In March 2023, the Company refinanced the remaining principal balance outstanding under the 2019 Facility Agreement and wrote off the associated embedded derivative balance; therefore, i no balance remains as of March 31, 2023. See Note 6: Derivatives for further discussion.

The compound embedded derivative within the 2019 Facility Agreement was valued using a probability weighted discounted cash flow model. The most significant observable input used in the fair value measurement was the discount yield. The unobservable inputs used in the fair value measurement included the probability of change of control and the estimated timing and amounts of cash flows associated with certain mandatory prepayments within the debt agreement. See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion.

Rollforward of Recurring Level 3 Assets and Liabilities

The following table presents a rollforward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):


	Three Months Ended March 31, 2023		Twelve Months Ended December 31, 2022
Balance at beginning of period, January 1, 2023 and 2022, respectively	$	( i 122)	$	( i 880)
Derivative adjustment related to conversions	i —		i 1,563
Derivative adjustment related to extinguishment of debt	i 122		i —
Unrealized loss, included in derivative loss	i —		( i 805)
Balance at end of period, March 31, 2023 and December 31, 2022, respectively	$	i —	$	( i 122)

Fair Value of Debt and Other Financing Arrangements

The Company believes it is not practicable to determine the fair value of its Notes or the 2019 Facility Agreement without incurring significant additional costs. Unlike typical long-term debt, certain terms for these instruments are not readily available and generally involve a variety of factors, including due diligence by the debt holders. The Company's vendor financing arrangement was recorded at net carrying value, which approximated fair value.

See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt instruments.

8. COMMITMENTS AND CONTINGENCIES

Service Agreements

The Service Agreements set forth the primary terms for the Company to provide services to Partner and incur costs related primarily to new gateways and upgrades at existing gateways as well as satellite construction and launch costs. The Service Agreements have an indefinite term but provide that either party may terminate subject to certain notice requirements and, in some cases, other conditions. The Service Agreements also provide for various commitments with which the Company must comply, including to:

•Allocate i 85% of its current and future network capacity to support the Services;

•Provide and maintain all resources, including personnel, software, satellite, gateways, satellite spectrum and regulatory rights necessary to provide the Services (the “Required Resources”);

•Prioritize the Services and provide Partner with priority access to the Required Resources, including the Company’s licensed satellite spectrum;

•Maintain minimum quality and coverage standards and provide continuity of service;

•Maintain minimum liquidity of $ i 10.0 million, increasing to $30 million once funding under the Prepayment Agreement commences in the second quarter of 2023;

•Allow Partner to recoup advance payments made to Globalstar from future service fees or, to the extent recoupment is not possible, to repay such amounts in cash; and,

•Provide the Resource Protections as defined in the Service Agreements.

The Service Agreements also required the Company (i) upon commencement of the Services, to refinance all loans outstanding under the 2019 Facility Agreement that are held by affiliates of the Thermo and (ii) to refinance all loans outstanding under the 2019 Facility Agreement that are held by persons other than Thermo by March 13, 2023. The required refinancings have been completed as of March 31, 2023.

Partner has the right, but not the obligation, to participate in certain issuances of the Company’s equity securities, in order to maintain its percentage interest in the Company (determined on a fully diluted basis, assuming exercise of all the Warrants).

Refer to Note 1: Basis of Presentation, Note 2: Revenue, Note 3: Leases, Note 4: Property and Equipment and Note 5: Long-Term Debt and Other Financing Arrangements for further discussion.

Satellite Procurement Agreement

In February 2022, the Company entered into a satellite procurement agreement with MDA pursuant to which Globalstar will acquire i 17 satellites that will replenish Globalstar's existing constellation of satellites and ensure long-term continuity of its mobile satellite services. Globalstar is acquiring the satellites to provide continuous satellite services to Partner under the Service Agreements, as well as services to Globalstar’s current and future customers. Globalstar maintains the option to acquire additional satellites under the contract. Globalstar plans to contract separately for launch services and launch insurance for the new satellites. The initial contract price for i 17 satellites is $ i 327 million; Globalstar has the option to purchase additional satellites at a lower per unit cost, subject to certain conditions. The satellites are expected to be launched in 2025. In addition, MDA will procure a satellite operations control center for $ i 4.9 million. Under the Service Agreements, subject to certain terms and conditions, Partner has agreed to make service payments equal to i 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.

Refer to Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the vendor financing arrangement with MDA.

9. RELATED PARTY TRANSACTIONS

Thermo is the principal owner and largest stockholder of Globalstar. The Company's Executive Chairman of the Board controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.

Payables to Thermo related to normal purchase transactions were $ i 0.1 million and $ i 0.3 million as of March 31, 2023 and December 31, 2022, respectively.

Transactions with Thermo

Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses include: i) non-cash expenses, such as stock compensation costs as well as costs recorded as a contribution to capital as they relate to services provided by certain executive officers of Thermo, and ii) expenses incurred by Thermo on behalf of the Company that are charged to the Company; these charges are based on actual amounts (with no mark-up) incurred by Thermo or upon allocated employee time.

The Company has a lease agreement with Thermo Covington, LLC for the Company's headquarters office. Annual lease payments started at $ i 1.4 million per year increasing at a rate of i 2.5% per year, for a lease term of i ten years. During each of the three months ended March 31, 2023 and 2022, the Company incurred lease expense of $ i i 0.4 / million under this lease agreement.

To fulfill its obligations under the Service Agreements, in November 2022, the Company entered into an Exchange Agreement with Thermo and certain other Exchanging Lenders providing for the exchange of all the outstanding principal amount of, and accrued and unpaid interest on, the Exchanging Lenders’ loans under the 2019 Facility Agreement for shares of the Company's Series A Preferred Stock. The terms of the Exchange Agreement were reviewed and approved by the Company's Board of Directors and Audit Committee. Thermo's ownership portion in the Series A Preferred Stock is $ i 136.7 million. Holders of Series A Preferred Stock are entitled to receive, when, as and if declared by our Board of Directors, cumulative cash dividends based on the liquidation preference of the Series A Preferred Stock, at a fixed rate equal to i 7.00% per annum, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. The Company paid Thermo dividends of $ i 1.2 million for the period November 15, 2022 through December 31, 2022 and $ i 2.4 million for the first quarter of 2023.

Also in connection with the Service Agreements, Partner and Thermo entered into a lock-up and right of first offer agreement that generally (i) requires Thermo to offer any shares of Globalstar common stock to Partner before transferring them to any other Person other than affiliates of Thermo and (ii) prohibits Thermo from transferring shares of Globalstar common stock if such transfer would cause Thermo to hold less than i 51.00% of the outstanding common stock of the Company for a period of i five years from the launch of Services in November 2022.

Subject to applicable shareholder approval, amounts payable by the Company in connection with the 2023 Prepayment with Partner would be guaranteed by Thermo. In addition, Thermo has agreed to provide support of certain of the Company’s obligations under the Service Agreements, the Satellite Procurement Agreement, and certain related contracts directly to the Partner.

See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.

10. LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per common share during each of the three months ended March 31, 2023 and 2022 (amounts in thousands, except per share data):

Three Months Ended