Good afternoon, ladies and gentlemen, and welcome to the Globalstar 1Q 2024 Earnings Conference Call. This call is being recorded on Wednesday, May 8, 2024. I would now like to turn the conference over to Rebecca Clary, CFO. Please go ahead.

Thank you, operator, and good afternoon, everyone. After my prepared remarks, Jay Monroe, Executive Chairman; and Kyle Pickens, VP of Strategy, will join the question-and-answer session. Please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause the results to differ materially are described in the forward-looking statements and Risk Factors section of Globalstar's SEC filings, including its annual report on Form 10-K for the financial year ending 2023 and its other SEC filings as well as today's earnings release. To start, Paul is not able to join today's call. Unfortunately, his mother passed away yesterday, and he is focusing on his family. We send our condolences to both the Jacobs family and also to the family of Board member, Mike Lovett, who unexpectedly passed away 2 weeks ago. We are extremely grateful for Mike's valuable contribution to our company during his time served on the Board. While it is a sad time for the Globalstar team on a personal level, business has been encouraging. Today, we are announcing our first quarter results and providing operational highlights. We included a substantial update in our earnings release, so we will keep the prepared remarks section of this call brief. First, we achieved 2 significant milestones during the quarter, 1 satellite and 1 terrestrial. We initiated a contract with a government services company to utilize our satellite network for mission-critical applications. The proof-of-concept phase is now underway. Assuming final go-ahead after verification testing, the agreement has a 5-year term and contains annual minimum revenue commitments escalating to $20 million during the fifth year with the potential for significant upside through the agreements revenue share arrangement. This opportunity represents a creative use of our satellite and spectrum assets, which does not materially utilize capacity we will use for our other customers. On the terrestrial side, we shipped the first commercial units of our XCOM RAN last month, an enormous accomplishment for our team. As previously announced, the XCOM RAN was chosen by one of the world's largest retailers for a critical deployment. We are hopeful that this is not only the beginning of a larger relationship with this customer, but also the first of many more deployments for similar fulfillment management use cases. Also worth noting that the XCOM team has managed to meet the needs of this customer in over-the-air testing utilizing a 10-megahertz channel showing gains of 4 to 5x compared to our 2 other small cell deployments. We believe Band n53 and XCOM RAN are a powerful combination. Now turning to our financial results. We reported total revenue of $56.5 million, generated primarily from subscriber and wholesale capacity services, with service revenue up slightly from the prior year's first quarter. It's important to remember that the comparable quarter included certain nonrecurring service revenue. Excluding this nonrecurring item, service revenue would have increased by $3.7 million, or 7%. For subscriber-driven revenue sources, commercial IoT continues to grow. During the first quarter of 2024, IoT service revenue increased 24% due to higher ARPU and a larger subscriber base. Subscriber equipment revenue was down $2.7 million from the prior year's quarter due to the timing of commercial IoT and spot device sales. In 2023, we recovered from inventory shortages and experienced higher sales as a result of product availability. To illustrate this point, the first quarter of 2023 was a record high for any first quarter in the company's history for both spot and commercial IoT. Moving to other areas of our financial performance. The increase in net loss was driven primarily by non-cash items. After adjusting for these and certain nonrecurring items that aren't representative of our core operating business, adjusted EBITDA was $29.6 million, representing a margin of 52%. Importantly, both total revenue and adjusted EBITDA during the first quarter were higher on a sequential basis as well as compared to the quarterly average of 2023, reflecting variability in revenue throughout the year. Based on these results and future expectations, today, we are reiterating our full year revenue and adjusted EBITDA guidance issued in February. We are excited about how 2024 has started and even more so about what is yet to come in the balance of the year. Paul, Kyle, Jason Bernstein and I will be attending conferences on the East and West Coast in the coming weeks with one presentation being streamed via webcast. So we look forward to speaking with you again soon. I will now turn the call back to the operator for Q&A.

Your first question comes from the line of Simon Flannery from Morgan Stanley.

Our condolences to Paul's family and to Paul. I wonder, Jay, could you talk a little bit about the pipeline, just where we are today versus, say, 3 months ago? Certainly seems like there's some good progress here. And then on the proof of concept, what's the timeline to getting final results from that and having it move into the next phase? And then finally, any updates on the constellation would be great, the next constellation.

Great. Simon, I'm glad to do this. Take it in the reverse order, if you will. The constellation remains on schedule. We anticipate launching in 2025 as we've conveyed previously. So that is all where it ought to be. In terms of the work that we're doing for the proof of concept, that is a study and test that can go on for a few more months, and then it will convert into the full contract. It can convert almost any time that they believe that the service that they're getting has been debugged in a way that they like it, and then they can convert to that service that we talked about before. At the end of that 5-year period, either party can or collectively, both parties can renew the contracts, so it can last longer. But it is set up fundamentally and initially as a 5-year term. Anything else on those 2 subjects, Simon?

No, I think that's fine. And I think the $20 million you're sort of saying that can be even larger if there is a revenue share component to that. I don't know if there's any more you can say that can make of the service to help us.

We can't provide many details about the actual service. However, we are hopeful that the revenue sharing aspect will be significant. It was designed this way for several reasons. We believe that due to the nature of the service and its target audience, usage will be extensive and varied. Therefore, we are quite optimistic that this will lead to increased revenue for us.

Right. And then on the pipeline, just the general level of activity?

Yes. Kyle, do you want to take that pipeline? Kyle, are you on mute?

Can you hear me now?

Yes.

Yes, we can hear you.

I was on my home plan and then it switched. So, yes, sorry about that. Regarding the pipeline, there are several different components to consider. I’m not sure if you're asking about XCOM RAN, Band 53, or satellite, but I’ll address them all. For XCOM RAN, our first customer, a global retailer we’ve mentioned before, could keep us very busy for a significant period. This alone represents a substantial pipeline. Additionally, there's the Micro Fulfillment Center, which we've been dedicating a fair amount of time to, and it has proven to be quite large, larger than I initially anticipated in terms of market potential. We've been active at various trade shows, engaging with companies in that space to explore how XCOM RAN can be advantageous for their operations. We're also focusing on challenging RF environments where there is heavy automated machinery. Locations like ports, where we are already engaged with Band 53, as well as shipyards and logistics areas, present excellent opportunities for us. For Band 53, we are collaborating with ecosystems like Qualcomm and Nokia, looking for similar opportunities in areas with critical infrastructure, high-value deployments such as mines and ports. I believe this segment will continue to grow, and we are making good progress on increasing our 5G radio capabilities, which should expand the market further. On the satellite side, the pipeline is fairly stable, and I don't have any specific highlights. However, our team is consistently working on introducing new products to the market as part of our routine efforts.

Your next question comes from the line of Mike Crawford from B. Riley Securities.

Can you talk about what parts of your balance sheet you might be looking to address first? Is your free cash flow coming in, especially does it accelerate with success on XCOM RAN and Band 53 licensing?

From a leverage perspective, I'm assuming that's what you're referring to regarding balance sheet improvement. Most of this falls under our service agreements. We have the 2021 funding agreement, which is recouped or reduced against service fees we earn of about $8.6 million each quarter. That amount is steadily decreasing. The principal outstanding is around $66 million. Then there’s the 2023 funding agreement, which covers about 50% of the total capital expenditures for our next-generation satellites, funded over time and recouped similarly to the 2021 agreement. Under GAAP, these are classified as debt due to the agreement terms, but they are treated effectively as deferred revenue concerning prepayment for services based on how the principal balance is reduced. The third tranche consists of true third-party debt in our 13% notes, and we don't have immediate plans to address those or make partial payments in cash and the rest in second lien, as it was market rate when we entered into those agreements. Currently, leverage is favorable at under 4x on the balance sheet, and it's expected to decline over the next couple of years, indicating a healthy level. I’m not sure if this addresses your question, Mike, or if you have a follow-up.

Sure. I believe those 13% notes can be called at par next March, but we'll see. Regarding the incorporation of Band 53 into XCOM RAN, what development work is still needed? When will that become a unified solution available to the market?

Yes. As far as the exact technical work that needs to be done, I would defer to Paul, we can do a call with them later on. Originally, the XCOM RAN was based on a radio vendor called Baicells. We're taking more of that in-house. And so there's some technical work that the team needs to do. They are working on that right now. We think that we'll have some POC type equipment later this year and then kind of a more full commercial launch shortly after that.

Okay. Looking back a couple of years, there have been times when you've mentioned potential Band 53 customers or deployments. Have those other opportunities disappeared, or are they still under discussion?

Yes, that's a great question. When we brought Paul and his team on board, one of the reasons was because I believe they are the best wireless engineering team out there. We want to leverage their strengths and explore all the opportunities available to us. Not only are they exceptional in wireless engineering, but they also possess strong business acumen. Paul and his team played a significant role in building Qualcomm into a major company. We tasked them with evaluating various opportunities, and it's ultimately up to Paul to determine the direction moving forward. He has assessed all the possibilities. There are a couple of opportunities we've discussed previously. One of them has progressed, and we will be deploying Band 53 as they are compensating us for that. The other opportunity hasn't been pursued yet; we might consider it in the future, but we're not moving ahead with it at this time. Instead, we've concentrated on projects like the government service initiative and the global retailer collaboration we've mentioned. There are numerous opportunities ahead, and as Rebecca highlighted in her comments, we are very optimistic about our future. However, we needed to evaluate these opportunities thoroughly and prioritize those that offer the best long-term potential for the company as a whole.

Okay. My final question pertains to the guidance. What would be the main reasons for the differences between the low end and the high end of the revenue range you've provided? Additionally, does that guidance include any projected spectrum license revenues?

The answer is yes to the terrestrial piece, although other developments could solidify in the coming months, indicating that we are still somewhat early in the process. This could make a difference. As it stands today, the transactions we expect to influence revenues are included. Therefore, the variability exists. We are dealing with numerous new deals and transactions, some of which we have a clear understanding of regarding timing and amounts, while others are less certain. As we progress into the upcoming quarters, similar to last year, we will refine that range as necessary and provide guidance toward a specific part of it.

Your next question comes from the line of George Sutton from Craig-Hallum.

Your deal with the retailer that you've mentioned you're working on certain Micro Fulfillment Centers, that retailer obviously has substantially more facilities. I'm curious what kinds of things need to be done to move them to a much broader footprint?

Yes, George, there are a couple of factors to consider. There are several internal challenges they need to resolve regarding their development issues. Regarding our process, I think they are primarily concentrating on enhancing reliability. However, we are very confident in the service and product. They just need to observe it performing well over a longer period and become more at ease with it. Overall, the indications are positive so far.

So Qualcomm has come up a couple of times on the call, and we had talked several months ago about Qualcomm creating a solution that they would take to market inclusive of Band 53. Can you give us any updates on if there's progress there?

Yes, there is definitely progress. As many of you know, we are eager to move quickly, but we are still a relatively small company collaborating with much larger firms. We are making progress and continue to push them consistently. They have been very supportive, and we will keep driving forward.

Understand. And then lastly, a geeky question, which Kyle, you would be perfect for, I think. OTA testing using 10 megahertz gets you 4 to 5x gains. Can you just explain what that means?

The system works by enabling users to access the full capacity of all the radios visible in an area. Typically, when you increase the number of radios, you create overlapping cells, which can raise noise levels. Since capacity relies on the signal-to-noise ratio, what we're saying is that with a 10 megahertz channel and multiple remote radio units (RRUs), you're accessing significant capacity from those RRUs. While you may not get the full capacity from all of them, there is a noticeable linear increase in capacity as more RRUs are added. That's essentially how it operates.

That was a very geeky answer.

Your next question comes from the line of Jeffrey Goodfellow.

Jay, Jeff Goodfellow here. I'm curious to hear your thoughts on two areas. One is the request for comments regarding the petition for rulemaking by your next constellation launch provider, SpaceX, who wants to share Globalstar's spectrum along with some other companies. And second, we'll just leave it at that. Thank you.

Jeff, there's always a process going on at the FCC. And this service that we offer today is now in the hands of millions and millions of users globally. And it provides life-saving services daily. So we are extremely comfortable with where we are at the FCC. And there's always going to be a little noise in the background there. But the fact is that we've operated for decades with their help, and we'll continue doing what we do today with the help of the FCC. And that's flying satellites, providing MSS services and saving lives. They know that, our partner knows that, and we're very, very comfortable in that working relationship. So we don't expect any changes to the regime that we live with.

Your next question comes from the line of Charles Morris from Greenhouse.

Wholesale capacity services were relatively flat year-on-year. What should I infer about that as we look to growth going forward?

Yes. Thanks for the question, Charles. So we have disclosed before the first quarter '23 included $6.5 million of out-of-period revenue, about half of that was nonrecurring in nature. So if you adjust for that, we're up quite a bit. But that's where a lot of the variability that I referred to in my remarks comes into play as far as revenue.

Your next question comes from the line of Lyman Delano from Beck Mack & Oliver.

My question was about the FCC's rejection of SpaceX's license application for authority in the L&S band at the end of March. Someone addressed this issue a few minutes ago, but I would like to know if SpaceX plans to continue advocating and seeking support for a resubmission to the FCC. Jay, you expressed confidence in your relationship with the FCC, and I would appreciate it if you could reiterate that. I also have a follow-up question regarding a rumor or report from several months ago about the Mexican government auctioning your L&S band. I haven't received any updates on that and would like more information.

Lyman, let’s address the second question first. It might be helpful to check in with Barbee at some point regarding that process. We are currently engaged in it, and we’re likely the only party doing so for several reasons. Barbee can certainly provide more details at the appropriate time. Regarding the ongoing lobbying at the FCC, this has been a continual process and there are issues that linger at the FCC for extended periods without any movement. Therefore, I wouldn’t be concerned about that. From a broader perspective, considering the services we provide to millions of users and the fact that these services are life-saving, we feel confident that the FCC will continue its historical support for Globalstar, allowing us to operate and expand as we have been doing, particularly with our recent wholesale agreements and government services initiatives. Overall, I believe the FCC will give us the necessary space to operate our satellites and continue saving lives. While there might always be issues behind the scenes, I don’t believe they will deter the FCC from its long-standing support of our work.

No further questions at this time. Thank you, ladies and gentlemen, for participating. This concludes today's call. You may now disconnect.