GLOBALSTAR, INC. Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (the "Report"), other than purely historical information, including, but not limited to, estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions, although not all forward-looking statements contain these identifying words. 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), 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. Risk Factors in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as filed with theSecurities and Exchange Commission (the "SEC") onMarch 4, 2021 (the "2020 Annual Report"). We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances. New risk factors emerge from time to time, and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. This "Management's Discussion and Analysis of Financial Condition" should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition" and information included in our 2020 Annual Report.
Overview
Mobile Satellite Services Business
Globalstar, Inc. ("we", "us" or the "Company") provides Mobile Satellite Services ("MSS") including voice and data communications services globally via satellite. We offer these services over our network of in-orbit satellites and our active ground stations ("gateways"), which we refer to collectively as the Globalstar System. In addition to supporting Internet of Things ("IoT") data transmissions in a variety of applications, we provide reliable connectivity in areas not served or underserved by terrestrial wireless and wireline networks and in circumstances where terrestrial networks are not operational due to natural or man-made disasters. By providing wireless communications services across the globe, we meet our customers' increasing desire for connectivity. 16 --------------------------------------------------------------------------------
We currently provide the following communications services, which are available only with equipment designed to work on our network:
•two-way voice communication and data transmissions using mobile or fixed
devices, including our GSP-1600 and GSP-1700 phones and other fixed and
data-only devices ("Duplex");
•one-way or two-way communication and data transmissions using mobile devices,
including our SPOT family of products, such as SPOT X®, SPOT Gen4™ and SPOT
Trace®, that transmit messages and the location of the device ("SPOT");
•one-way data transmissions using a mobile or fixed device that transmits its
location and other information to a central monitoring station, including our
commercial IoT products, such as our battery- and solar-powered SmartOne, STX-3
and ST100 ("Commercial IoT"); and
•engineering services to assist certain customers in developing new applications
to operate on our network, enhancements to our ground network and other
communication services using our MSS and terrestrial spectrum licenses
("Engineering and Other").
Our constellation of Low Earth Orbit ("LEO") satellites includes
second-generation satellites and certain first-generation satellites, which are
currently being used as in-orbit spares. We also have one on-ground spare
second-generation satellite that we may include in a future launch. 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. We designed our second-generation satellites to last twice as
long in space, have 40% greater capacity and be built at a significantly lower
cost compared to our first-generation satellites. We achieved this longer life
by increasing the solar array and battery capacity, using a larger fuel tank,
adding redundancy for key satellite equipment, and improving radiation
specifications and additional lot level testing for all susceptible electronic
components, in order to account for the accumulated dosage of radiation
encountered during a 15-year mission at the operational altitude of the
satellites. The second-generation satellites use passive S-band antennas on the
body of the spacecraft providing additional shielding for the active amplifiers
which are located inside the spacecraft, unlike the first-generation amplifiers
that were located on the outside as part of the active antenna array. Each
satellite has a high degree of on-board subsystem redundancy, an on-board fault
detection system and isolation and recovery for safe and quick risk mitigation.
Our goal is to provide service levels and call or message success rates equal to
or better than our MSS competitors so our products and services are attractive
to potential customers. We believe that our system outperforms geostationary
("GEO") satellites used by some of our competitors. GEO satellite signals must
travel approximately 42,000 additional miles on average, which introduces
considerable delay and signal degradation to GEO calls.
Our ground network includes our ground equipment, which uses patented CDMA
technology to permit communication to multiple satellites. Patented receivers in
our handsets track the pilot channel and signaling channel as well as three
additional communications channels simultaneously. Compared to other satellite
and network architectures, we offer superior call clarity with virtually no
discernible delay. Our system architecture provides full frequency re-use. This
maximizes satellite diversity (which maximizes quality) and network capacity as
we can reuse the assigned spectrum in every satellite beam in every satellite.
In addition, our SPOT and Commercial IoT services employ a proprietary
technology developed by us.
We compete aggressively on price. We offer a range of price-competitive products
to the industrial, governmental and consumer markets. We expect to retain our
position as a cost-effective, high quality leader in the MSS industry.
As technological advancements are made, we continue to explore opportunities to
develop new products and provide new services over our network to meet the needs
of our existing and prospective customers. We are currently pursuing initiatives
that we expect to expand our satellite communications business and to more
effectively utilize the capacity of our network assets. These initiatives
include evaluating our product and service offerings in light of the shift in
demand across the MSS industry from full Duplex voice and data services to
IoT-enabled devices. To align our business model with this evolution, we have
temporarily ceased sales of and services to subscribers for certain Duplex
devices, such as Sat-Fi2®. We are currently evaluating the profitability of
these devices relative to other product and service offerings as well as the
capacity required to support these devices relative to other possible uses for
the capacity. Integrated with this assessment is the development of a two-way
reference design module to expand our Commercial IoT offerings, which is among
our other current initiatives.
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--------------------------------------------------------------------------------Customers
The specialized needs of our global customers span many industries. As ofMarch 31, 2021 , we had approximately 742,000 subscribers worldwide, principally within the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation. Our system is able to offer our customers cost-effective communications solutions completely independent of cellular coverage. Although traditional users of wireless telephony and broadband data services have access to these services in developed locations, our customers often operate, travel or live in remote regions or regions with under-developed telecommunications infrastructure where these services are not readily available or are not provided on a reliable basis. Spectrum and Regulatory Structure We benefit from a worldwide allocation of radio frequency spectrum in the international radio frequency tables administered by theInternational Telecommunications Union ("ITU"). Access to this globally harmonized spectrum enables us to design satellites, networks and terrestrial infrastructure enhancements more cost effectively because the products and services can be deployed and sold worldwide. In addition, this broad spectrum assignment enhances our ability to capitalize on existing and emerging wireless and broadband applications.
InDecember 2016 , theFCC unanimously adopted a Report and Order permitting us to seek modification of our existing MSS licenses to provide terrestrial broadband services over 11.5 MHz of our licensed Mobile Satellite Services spectrum at 2483.5 to 2495 MHz, throughoutthe United States of America and its Territories. InAugust 2017 , theFCC modifiedGlobalstar's MSS licenses, granting us authority to provide terrestrial broadband services over that 11.5 MHz portion of our satellite spectrum. Specifically, theFCC modified our space station authorization and our blanket mobile earth station license to permit a terrestrial network using 11.5 MHz of our licensed mobile-satellite service spectrum. We need to comply with certain conditions in order to provide terrestrial broadband service over this spectrum. InDecember 2018 , we successfully completed theThird Generation Partnership Project ("3GPP") standardization process for the 11.5 MHz of spectrum terrestrially authorized by theFCC . The 3GPP designated the band as Band 53. Additionally, inMarch 2020 , we announced that the 3GPP approved the 5G variant of our Band 53, which is known as n53. This new band class provides a pathway for our terrestrial spectrum to be integrated into handset and infrastructure ecosystems. Additional follow-on 3GPP specifications and approvals are expected in the future. During 2019, we executed a spectrum managers lease with Nokia in order to permit Nokia to utilize Band 53 within its equipment domestically and have such equipment type-certified for sale and deployment. InFebruary 2021 , Qualcomm Technologies announced its new Snapdragon X65 modem-RF System, which includes support for Band n53. By having global 5G band support for n53 in Qualcomm Technologies' 5G solutions, our potential device ecosystem expands significantly to include the most popular smartphones, laptops, tablets, automated equipment and other IoT modules. We believe our MSS spectrum position provides potential for harmonized terrestrial authority across many international regulatory domains and have been seeking approvals in various international jurisdictions. To date, we have received terrestrial authorizations in various countries, includingBrazil ,Canada , andSouth Africa , among others. We expect this global effort to continue for the foreseeable future while we seek additional terrestrial approvals to internationally harmonize our S-band spectrum across the entire 16.5 MHz authority for terrestrial mobile broadband services. We expect our terrestrial authority will allow future partners to develop high-density dedicated networks using the TD-LTE protocol for private LTE networks as well as the densification of cellular networks. We believe that our offering has competitive advantages over other conventional commercial spectrum allocations. Such other allocations must meet minimum population coverage requirements, which effectively prohibit the exclusive use of most carrier spectrum for dedicated small cell deployments. In addition, low frequency carrier spectrum is not physically well suited to high-density small cell topologies, and mmWave spectrum is subject to range and attenuation limitations. We believe that our licensed 2.4 GHz band holds physical, regulatory, and ecosystem qualities that distinguishes it from other current and anticipated allocations, and that it is well positioned to balance favorable range, capacity and attenuation characteristics.
COVID-19
As a result of COVID-19, we have experienced a reduction in the volume of sales of our subscriber equipment, received requests for service pricing concessions from certain customers, and expect an impact on the ability of certain of our customers to pay outstanding balances. Our results of operations for the three months endedMarch 31, 2021 partially reflect this impact; however, we expect that this trend may continue and the full extent of the impact is unknown. 18 --------------------------------------------------------------------------------
Performance Indicators
Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our earnings and cash flows. These key performance indicators include: •total revenue, which is an indicator of our overall business growth; •subscriber growth and churn rate, which are both indicators of the satisfaction of our customers; •average monthly revenue per user, or ARPU, which is an indicator of our pricing and ability to obtain effectively long-term, high-value customers. We calculate ARPU separately for each type of our subscriber-driven revenue, including Duplex, Commercial IoT and SPOT; •operating income and adjusted EBITDA, both of which are indicators of our financial performance; and •capital expenditures, which are an indicator of future revenue growth potential and cash requirements.
Comparison of the Results of Operations for the three months ended
Our results of operations for the three months endedMarch 31, 2021 were impacted by COVID-19. While we cannot predict the full extent or duration of the future impact of COVID-19, certain trends or uncertainties related to COVID-19 that impact revenue or expense items are discussed below.
Revenue
Our revenue is categorized as service revenue and equipment revenue. We provide services to customers using technology from our satellite and ground network. Equipment revenue is generated from the sale of devices that work over our network. Total revenue decreased 16%, to$26.9 million for the three months endedMarch 31, 2021 from$32.2 million for the same period in 2020. See below for a further discussion of the fluctuation in revenue.
The following table sets forth amounts and percentages of our revenue by type of service (dollars in thousands).
Three Months Ended Three Months Ended
March 31, 2021 March 31, 2020
% of Total % of Total
Revenue Revenue Revenue Revenue
Service revenue:
Duplex $ 6,655 25 % $ 7,663 24 %
SPOT 10,984 41 12,123 38
Commercial IoT 4,481 17 4,310 13
Engineering and other 966 3 4,839 15
Total $ 23,086 86 % $ 28,935 90 %
The following table sets forth amounts and percentages of our revenue generated from equipment sales (dollars in thousands).
Three Months Ended Three Months Ended
March 31, 2021 March 31, 2020
% of Total % of Total
Revenue Revenue Revenue Revenue
Subscriber equipment sales:
Duplex $ 293 1 % $ 404 1 %
SPOT 1,915 7 1,407 4
Commercial IoT 1,521 6 1,413 5
Other 114 - 35 -
Total $ 3,843 14 % $ 3,259 10 %
19
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The following table sets forth our average number of subscribers and ARPU by
type of revenue.
Three Months Ended March 31,
2021 2020
Average number of subscribers for the period:
Duplex 45,687 52,054
SPOT 261,171 271,276
Commercial IoT 409,089 418,424
IGO and Other 27,487 27,139
Total 743,434 768,893
ARPU (monthly):
Duplex $ 48.56 $ 49.07
SPOT 14.02 14.90
Commercial IoT 3.65 3.43
The numbers reported in the above table are subject to immaterial rounding inherent in calculating averages.
We count "subscribers" based on the number of devices that are subject to agreements that entitle them to use our voice or data communications services rather than the number of persons or entities who own or lease those devices.
Engineering and other service revenue includes revenue generated primarily from certain governmental and engineering service contracts which are not subscriber driven. Accordingly, we do not present ARPU for engineering and other service revenue in the table above. Service Revenue Duplex service revenue decreased 13% for the three months endedMarch 31, 2021 due primarily to a decrease in average subscribers of 12%. The decrease in average subscribers was driven by normal churn in the subscriber base exceeding gross activations over the last twelve months. SPOT service revenue decreased 9% for the three months endedMarch 31, 2021 due to lower ARPU and average subscribers. The 6% decrease in ARPU was due primarily to a mix of subscribers at various rate plans. Lower priced service plans were introduced to new subscribers in mid-2019. As we experience normal churn in our subscriber base, most of the subscribers that churn off of our network are on higher rate plans, while new subscribers activate on current, lower-priced plans. These lower-priced plans contributed meaningfully to a 14% increase in gross activations from the first quarter of 2020 to the first quarter of 2021. However, average subscribers were down 3% due to elevated churn experienced during 2020, particularly in the months following the start of the COVID-19 pandemic. Churn has stabilized in our SPOT subscriber base during recent months. Commercial IoT service revenue increased 4% for the three months endedMarch 31, 2021 due to a 6% increase in ARPU offset by a 2% decrease in average subscribers. The increase in ARPU was due to the mix of our subscribers on higher rate plans compared to the previous year's quarter. The decrease in average subscribers is due to higher churn and fewer activations during most of 2020 resulting from the impact of COVID-19. Gross activations increased slightly during the first quarter of 2021 compared to the fourth quarter of 2020, indicating a potential recovery in Commercial IoT demand.
Engineering and other service revenue decreased
Subscriber Equipment Sales
Revenue from Duplex equipment sales decreased
20
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Revenue from SPOT equipment sales increased $0.5 million for the three months
ended March 31, 2021 compared to the same period in 2020. A higher sales volume
of our SPOT X® and Trace devices contributed to the increase in revenue.
Revenue from Commercial IoT equipment sales increased $0.1 million for the three
months ended March 31, 2021 compared to the same period in 2020. This increase
resulted from a higher sales volume of certain devices, including our SmartOne
devices and our new ST100 satellite transmitter, which was launched in June
2020 . We believe that this recent increase in demand is an indication of a
recovery in Commercial IoT demand.
Operating Expenses
Total operating expenses were generally flat for the three months endedMarch 31, 2021 compared to the same period in 2020. Lower management, general and administrative ("MG&A") costs were offset by higher cost of services, cost of subscriber equipment and depreciation, amortization and accretion. The main contributors to the variance in operating expenses are explained in further detail below.
Cost of Services
Cost of services increased$0.3 million for the three months endedMarch 31, 2021 compared to the same period in 2020. There were no individually significant items that contributed to the fluctuation in expense during the respective periods.
Cost of Subscriber Equipment Sales
Cost of subscriber equipment sales increased$0.3 million for the three months endedMarch 31, 2021 from the same period in 2020. While this increase is generally consistent with the increase in total revenue from subscriber equipment sales, the improved margin during the first quarter of 2021 was impacted by the mix of equipment sold during the respective periods, particularly higher sales of Commercial IoT devices and improved margin on our SPOT devices.
Marketing, General and Administrative
MG&A expenses decreased$1.0 million for the three months endedMarch 31, 2021 , compared to the same period in 2020. The most significant driver for the decrease in MG&A during 2021 is a fluctuation in bad debt expense; during the first quarter of 2020, we recorded reserves related to certain customer receivable balances that were not expected to be collectible due to the impact of COVID-19. During the first quarter of 2021, we recovered$0.3 million related to a previously reserved customer after a final ruling from the bankruptcy courts. MG&A expense was also lower in 2021 due to lower travel costs. Offsetting these decreases were higher professional and legal fees related to strategic opportunities. Other (Expense) Income Interest Income and Expense Interest income and expense, net, decreased$2.4 million during the three months endedMarch 31, 2021 , compared to the same period in 2020 due to lower gross interest costs. Gross interest costs were impacted by lower interest associated with the First Lien Facility Agreement and the Loan Agreement with Thermo; these items were offset by higher interest on the Second Lien Facility Agreement. Lower interest costs for the First Lien Facility Agreement were driven by reductions in the principal balance over the last twelve months as well as a decrease in the interest rate driven by a reduction in LIBOR. As previously discussed, the First Lien Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the First Lien Facility Agreement) on a semi-annual basis. During the last twelve months, we made payments totaling$7.4 million , which reduced the principal amount outstanding and lowered interest costs. Lower interest costs for the Loan Agreement with Thermo was driven by Thermo's conversion of the entire principal balance outstanding under the Loan Agreement inFebruary 2020 . Interest costs associated with the First Lien Facility Agreement decreased$0.7 million (including$0.1 million of amortization of deferred financing costs) and interest costs associated with the Loan Agreement with Thermo decreased$2.9 million (including$0.7 million of accretion of debt discount). These decreases were offset by$1.1 million of interest (including$0.2 million of accretion of debt discount and amortization of deferred financing costs) associated with the Second Lien Facility Agreement. 21 --------------------------------------------------------------------------------
Derivative Loss
We recorded derivative losses of$1.1 million and$0.8 million for the three months endedMarch 31, 2021 and 2020, respectively. We recognize gains or losses due to the change in the value of certain embedded features within our debt instruments that require standalone derivative accounting. The losses recorded during the three months endedMarch 31, 2021 were primarily impacted by increases in our stock price and stock price volatility, which are significant inputs used in the valuation of the embedded derivative associated with our 2013 8.00% Notes. The loss recorded during the first quarter of 2020 was impacted by an increase in the discount yield used in the valuation of the embedded derivative associated with our Second Lien Term Loan Facility Agreement. See Note 6: 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 Foreign currency loss decreased by$4.7 million to$4.3 million for the three months endedMarch 31, 2021 from$9.0 million for the same period in 2020. Changes in foreign currency gains and losses are driven by the remeasurement of financial statement items, which are denominated in various currencies, at the end of each reporting period. For the three months endedMarch 31, 2021 , the foreign currency loss was due to the weakening of the Euro and Brazilian real relative to theU.S. dollar. For the three months endedMarch 31, 2020 , the foreign currency loss was due to the weakening of the Brazilian real and the Canadian dollar relative to theU.S. dollar. Other smaller items contributed to the remaining fluctuation during the three-month period.
Liquidity and Capital Resources
Overview
Our principal liquidity requirements include paying our debt service obligations and funding our operating costs. Our principal sources of liquidity include cash on hand and cash flows from operations. During the first quarter of 2021, we received proceeds totaling$43.7 million from the exercise of the remaining outstanding warrants issued to the lenders of our Second Lien Facility Agreement in 2019. As ofMarch 31, 2021 , all of the warrants issued to our lenders have been exercised resulting in total proceeds since issuance of$47.3 million . These proceeds were used to meet our obligation to raise no less than$45.0 million of equity prior toMarch 30, 2021 . InApril 2021 , these proceeds were used to pay principal due under the Facility Agreement. A longer-term source of liquidity also includes restricted cash held in our debt service reserve account. Although there are uncertainties related to the future impact from COVID-19, we currently expect that sources of liquidity over the next twelve months will be sufficient for us to cover our obligations. As ofMarch 31, 2021 , we held cash and cash equivalents of$8.4 million and restricted cash of$98.4 million , of which$47.3 million and$51.1 million was recorded as current and non-current restricted cash, respectively, on our condensed consolidated balance sheet as required under our First Lien Facility Agreement. The current portion of restricted cash was used inApril 2021 to pay the First Lien Facility Agreement principal payment that would have been due inJune 2021 , with the remainder used to pay down a portion of the payment due inDecember 2021 . The non-current portion of restricted cash on our consolidated balance sheet will generally be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement inDecember 2022 . As ofDecember 31, 2020 , we held cash and cash equivalents of$13.3 million and restricted cash of$54.7 million . The total carrying amount of our debt outstanding was$390.9 million atMarch 31, 2021 , compared to$385.4 million atDecember 31, 2020 . AtMarch 31, 2021 , the current portion of our debt outstanding was$55.3 million and represents the scheduled principal payments under the Facility Agreement and the PPP Loan due within one year of the balance sheet date. AtDecember 31, 2020 , the current portion of our debt outstanding was$58.8 million . The$5.5 million increase in our total debt balance was due primarily to a higher carrying value of the Second Lien Facility Agreement of$8.8 million due to the accrual of PIK interest and the accretion of debt discount as well as$1.0 million related to the amortization of deferred financing costs for the First Lien Facility Agreement. These items were offset by an unscheduled principal payment for our First Lien Facility Agreement of$4.4 million inMarch 2021 (discussed below). 22 --------------------------------------------------------------------------------
Cash Flows for the three months ended
The following table shows our cash flows from operating, investing and financing
activities (in thousands):
Three Months Ended
March 31, March 31,
2021 2020
Net cash provided by operating activities $ 4,512 $ 4,605
Net cash used in investing activities (4,974) (1,578)
Net cash provided by (used in) financing activities 39,245 (421)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(66) (155)
Net increase in cash, cash equivalents and restricted cash
Cash Flows Provided by Operating Activities
Net cash provided by operations includes primarily cash receipts from subscribers related to the purchase of equipment and satellite voice and data services as well as cash received from the performance of engineering and other service contracts. We use cash in operating activities primarily for personnel costs, inventory purchases and other general corporate expenditures. Net cash provided by operating activities during the three months endedMarch 31, 2021 was$4.5 million compared to$4.6 million during the same period in 2020. The slight decrease was due to lower net income after adjusting for non-cash items, offset partially by favorable working capital changes between the periods. The decrease in net income after adjusting for non-cash items was due primarily to lower revenue, particularly driven by the timing of engineering services revenue. The favorable working capital changes were due primarily to the timing of vendor payments and customer payments.
Cash Flows Used in Investing Activities
Net cash used in investing activities was$5.0 million for the three months endedMarch 31, 2021 compared to$1.6 million for the same period in 2020. During both 2021 and 2020, the nature of our capital expenditures was related to network upgrades, including the procurement and deployment of new antennas for our gateways.
Cash Flows Provided by (Used in) Financing Activities
Net cash provided by financing activities was$39.2 million and net cash used in financing activities was$0.4 million , respectively, during each of the three month periods endedMarch 31, 2021 and 2020. As previously disclosed, during the first quarter of 2021, we received$43.7 million in proceeds from the exercise of the warrants issued with our Second Lien Facility Agreement. Offsetting these proceeds was an unscheduled principal payment of$4.4 million towards the First Lien Facility Agreement.
Indebtedness and Available Credit
First Lien Facility Agreement
In 2009, we entered into the First Lien Facility Agreement, which was amended and restated inJuly 2013 ,August 2015 ,June 2017 andNovember 2019 . The First Lien Facility Agreement is scheduled to mature inDecember 2022 . As ofMarch 31, 2021 , the principal amount outstanding under the Facility Agreement was$182.6 million , of which$53.1 million was recorded as current debt based on the contractual terms of the loan. The First Lien Facility Agreement contains customary events of default and requires that we satisfy various financial and non-financial covenants. The compliance calculations of the financial covenants of the First Lien Facility Agreement permit us to include certain cash funds we receive from the issuance of our common stock and/or subordinated indebtedness. We refer to these funds as "Equity Cure Contributions". If we violate any covenants and are unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, we would be in default under the First Lien Facility Agreement, and the lenders could accelerate payment of the indebtedness. The warrant proceeds received during the first quarter of 2021 would qualify as an Equity Cure Contribution, if needed for compliance with first half 2021 covenants. We are also in discussions with our senior lenders to evaluate 2021 projected capital expenditures relative to covenant levels set forth in this agreement. As ofMarch 31, 2021 , we were in compliance with the covenants of the First Lien Facility Agreement. 23 -------------------------------------------------------------------------------- The First Lien Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the Facility Agreement) on a semi-annual basis. During 2021, we were required to pay$4.4 million to our first lien lenders resulting from our Excess Cash Flow calculation as ofDecember 31, 2020 . This payment reduces future principal payment obligations. The First Lien Facility Agreement requires that we maintain a debt service reserve account, which is pledged to secure our obligations under the First Lien Facility Agreement. The required balance in the debt service reserve account is fixed and must equal at least$50.9 million . As ofMarch 31, 2021 , the balance in the debt service reserve account was$51.1 million and is classified as non-current restricted cash on our condensed consolidated balance sheet as it will be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement inDecember 2022 . The amended and restated First Lien Facility Agreement includes a requirement that we raise no less than$45.0 million from the sale of equity prior toMarch 31, 2021 . We fulfilled this requirement with proceeds from the exercise of all the warrants issued to the Second Lien Facility Agreement lenders inNovember 2019 . We received proceeds totaling$47.3 million , of which$3.6 million was received inDecember 2019 and the remaining$43.7 million was received during the first quarter of 2021. The proceeds were retained in the equity proceeds account and recorded in current restricted cash on our condensed consolidated balance sheet as ofMarch 31, 2021 . InApril 2021 , the proceeds were used towards the principal payment due onJune 30, 2021 and then the remaining proceeds were applied to the next principal payment due onDecember 31, 2021 .
See Note 4: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the First Lien Facility Agreement.
Second Lien Facility Agreement
In 2019, we entered into a$199.0 million Second Lien Facility Agreement with Thermo, EchoStar Corporation and certain other unaffiliated lenders. The Second Lien Facility Agreement is scheduled to mature inNovember 2025 . The loans under the Second Lien Facility Agreement bear interest at a blended rate of 13.5% per annum to be paid-in-kind (or in cash at our option, subject to restrictions in the Facility Agreement). The cash proceeds from this loan were net of a 3% original issue discount. As ofMarch 31, 2021 , the principal amount outstanding under the Second Lien Facility Agreement was$238.4 million . As additional consideration for the loan, we issued the lenders warrants to purchase 124.5 million shares of common stock at an exercise price of$0.38 per share. All of these warrants were exercised prior to their expiration onMarch 31, 2021 , resulting in proceeds of$47.3 million .
The Second Lien Facility Agreement contains customary events of default and
requires us to satisfy various financial and non-financial covenants. As of
See Note 4: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Second Lien Facility Agreement.
8.00% Convertible Senior Notes Issued in 2013
Our 2013 8.00% Notes are convertible into shares of our common stock at a conversion price of$0.69 (as adjusted) per share of common stock. As ofMarch 31, 2021 , the principal amount outstanding of the 2013 8.00% Notes was$1.4 million . The 2013 8.00% Notes will mature onApril 1, 2028 , subject to various call and put features. Interest on the 2013 8.00% Notes is payable semi-annually in arrears onApril 1 andOctober 1 of each year. We pay interest in cash at a rate of 5.75% per annum and by issuing additional 2013 8.00% Notes at a rate of 2.25% per annum. The indenture governing the 2013 8.00% Notes provides for customary events of default. As ofMarch 31, 2021 , we were in compliance with the terms of the 2013 8.00% Notes and the Indenture.
See Note 4: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the 2013 8.00% Notes.
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--------------------------------------------------------------------------------Paycheck Protection Program Loan
As previously discussed, we sought relief under the CARES Act, including receiving a$5.0 million loan under the Paycheck Protection Program inApril 2020 (the "PPP Loan"). As ofMarch 31, 2021 , the principal amount outstanding under the PPP Loan was$5.0 million , of which$2.2 million is classified as current based on the contractual terms of the loan (as modified). We applied for loan forgiveness, in accordance with the terms of the CARES Act, based on payroll costs incurred since the date of the loan. Any amount not forgiven by theSmall Business Administration (the "SBA") is subject to an interest rate of 1.00% per annum commencing on the date of the loan with principal and interest payments beginning after the SBA has concluded on forgiveness, subject to the PPP rules. Our first and second lien lenders will require us to accelerate the repayment of any portion of the loan amount that is not forgiven.
See Note 4: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the PPP Loan.
Contractual Obligations and Commitments
There have been no significant changes to our contractual obligations and
commitments since
Off-Balance Sheet Transactions
We have no material off-balance sheet transactions.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting guidance and the expected impact that the guidance could have on our condensed consolidated financial statements, see Recently Issued Accounting Pronouncements in Note 1: Basis of Presentation to our condensed consolidated financial statements in Part 1, Item 1 of this Report.
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