Good afternoon, ladies and gentlemen, and welcome to the Globalstar 1Q 2024 Earnings Conference Call. [Operator Instructions] 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, to 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…

[Operator Instructions] 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, 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 say much -- yes, we can't say much about what the actual service is. But what we can say is that the -- we are optimistic that the revenue share component of it is substantial. It was structured this way for a number of reasons. But we are optimistic that because of the service that's being provided and to whom it's being provided that they'll use it a lot more in a lot of varied ways. So we're pretty optimistic that, that will produce additional 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.

That I was on my home plan and then it switched. So, yes, sorry about that. So on the pipeline, there's several different components of the pipeline. I don't know if you're referring to XCOM RAN or to Band 53 or to satellite, but I'll just talk about all of them, I guess. So on the XCOM RAN, the first customer that we're working with this global retailer that we've talked about, they could keep us pretty busy for quite some time. So I think that alone is a very substantial pipeline. The other opportunities in MFC, which is this Micro Fulfillment Center where we're spending a decent amount of time, it's actually quite large, it's much larger than I would have even thought on the potential market. So we've been pretty active in going out to various trade shows and talking to the companies that are doing that and trying to explore where the XCOM RAN could be beneficial to their deployments. We're also continuing to work with other situations where, I mean, I think one of the areas to focus on is where you have opportunities that are difficult RF environments with large automated machinery moving around. So I think ports where we're already active with Band 53, I think kind of shipyards and various logistics areas are very good opportunities for us to focus on and we're spending time there. On broader Band n53 opportunities, we continue to work with the ecosystems like Qualcomm and Nokia and others looking for opportunities. It's similar types of areas where we're focusing, places where there's critical infrastructure, high-value deployments like mines, infrastructure ports again. And that, I think, will be growing and building one of the things that we've been working on is getting more 5G radios, which we're making good progress on that. So I think that will open up the market for that. And then on the satellite side, the pipeline is -- I mean, it's more kind of business as usual. I don't really have anything to highlight there. But we're -- the team is working on driving new products into the market as they always do.

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 attack first? Is your free cash flows come in, especially does it accelerate with success on XCOM RAN and Band 53 licensing?

So from a leverage perspective, I'm assuming that's what you're referring to on balance sheet improvement, so that's, as you know, mostly under our service agreements. So we have the 2021 funding agreement, which is recouped or brought down against service fees that we earn about $8.6 million a quarter. And so that's steadily reducing. I think the principal outstanding is about $66 million in that range. And then there's the 2023 funding agreement, which is about 50% of the total CapEx of our next-gen satellites that's funded over time. And so -- and that will be recouped in a similar way to the 2021 funding agreement. And so those are classified as debt under GAAP because of the terms of the agreements, but kind of substantively treated as deferred revenue in terms of prepayment for service, just in terms of how they get brought down, the principal balance gets brought down. And then the third tranche is true third-party debt in our 13% notes. And I don't think we have any immediate plans to address those or paid half and pick half in cash and second lien. So market rate, at least at the time that we entered into them. So that's -- leverage is pretty good right now at under 4x at the balance sheet date, and I think it's expected to go down over the next couple of years. So it's a pretty healthy level. I don't know if that's helpful, Mike, or if you have a follow-up.

Sure. I mean, those 13% notes are callable at par, I believe, next March, but we'll see. And then getting back to incorporating Band 53 into XCOM RAN. Is there -- what development work remains to be done there? And when will that be a unified solution you can offer 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. And then just going back a couple of years now, there's been instances in the past where you've talked about prospective Band 53 customers or deployments, which -- have those other opportunities gone away, or are they still in negotiation or...

Yes. So that's a good question. So we're -- when we brought Paul and team on, one of the reasons that -- I mean, the -- I can say that I think they're the greatest wireless engineering team than anybody could have. And so obviously, when we bring them on, we want to use their strengths and have them look at all the opportunities that we have. And not only are they great wireless engineering mind, they're also great business minds. I mean, Paul and team built Qualcomm into a very, very substantial company. And so we wanted them to look at all the opportunities. And it's Paul's company to drive going forward and decide how he wanted to move forward. And so he looked at all of the opportunities. There was, I think, 2 that we've talked about in the past. One of them, we have moved forward on -- they are paying us and we'll be deploying Band 53. The other one, we have not moved forward with yet. We could potentially in the future, but we are not moving forward with them at this moment. We have instead focused on the projects like Jay was talking about with the government service project that's very substantial. And then things like the global retailer that we've talked about. So there's lots of opportunities ahead of us. We're very -- as Rebecca commented in her prepared remarks, we're very excited about where we're going. But there's -- again, we had to defer to looking at all these opportunities and then high-grading the ones that we think have the greatest long-term potential for the company overall.

Okay. And then final question just relates to the guidance. So would -- what would be the major causes of variance between the low end and the high end of range of revenue that you've indicated? And any spectrum license revenues contemplated in that guidance you gave?

The answer is yes to the terrestrial piece, though other things obviously could solidify right, in the coming months, we're still somewhat early. That could make a difference. But as we sit here today, the transactions that we expect to impact revenues are included. And so the variability is just that, right? I mean, we're talking about a lot of new deals and transactions, some of which we have a lot of certainty around the timing and the amounts. Others, we don't have as much, right? So as we move into the quarters like we did last year, we'll tighten that range as appropriate and guide towards -- or guide towards a particular part of the range.

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. So George, there's a couple of things. There's several internal things that they need to get through on some of their development issues. And then as far as our process is concerned, I think they're really kind of focused on some reliability work. But there's nothing that in our minds -- I mean, we're very confident about the service and product. I think they just need to see it work for longer and get more comfortable with it. But again, all the signs are encouraging 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's definitely progress there. It's as a lot of you guys are -- I mean, we're not -- we're impatient and obviously trying to push things as fast as we can. But in the end, we're still a relatively small company working with a lot of really large companies. So it's progress, and we keep pushing them constantly. And they've been very, very supportive. So definitely progress, and we'll keep driving.

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?

So the way that the system works, and as Jay and I tell people all the time, we're often confused for engineers, but we actually aren't. But the way that the system works is it effectively is allowing you to get the full capacity of all the radios that you can see in an area. And so a lot of times, as you add density, not a lot of times, in other situations, when you add density of radios, you're increasing the overlapping cells and then your -- so you're therefore increasing the noise, and capacity is a function of signal-to-noise ratio. And so effectively, what they're saying is that with the 10 megahertz channel and the multiple RRUs that you can see, you're getting all of the capacity of all the RRUs, certainly not all, but you're getting that kind of linear gain in capacity as you're adding RRUs. And that's basically what it is.

That was a very geeky answer.

Your next question comes from the line of Jeffrey Goodfellow.

Jay, Jeff Goodfellow here. I'm wondering if I could get some colorful thoughts on 2 areas. One is the request for comments for the petition of rulemaking by your next constellation launch provider, SpaceX, who wants to share Globalstar's spectrum apparently along with some other people, companies. And second -- no, we'll just go with 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 is the -- 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.

And that was on wholesale capacity services, that $6 million?

Yes.

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

My question was related to the decline by the FCC of SpaceX's license application for authority in your L&S band that was turned down at the end of March. So -- and you -- someone just addressed that a couple of minutes ago. But I was wondering if you could elaborate as to whether it is likely that SpaceX will continue to lobby and line up support for going back again to the FCC. Jay, you said you were confident about your relationship. But I just would love it if you could reiterate that. And then one small question afterwards related to either a rumor or a report that the Mexican government some months back was putting up for auction your L&S band in Mexico. And I haven't heard any more about that, and I wonder if you could elaborate.

Lyman, let's take the second one first. It would probably make some sense to check in with Barbee at one point or another on that process. But the process is effectively one that we are in the middle of and we'll participate in, and we're likely the only party that will do that for a number of reasons. But Barbee can give you, of course, a lot more detail on that when the time is right for you. On the question about people continuing to auger at the FCC for things. That's, as I said, gone on forever. And there are things that hang around the FCC for long, long periods of time and nothing ever moves on them. So I wouldn't be troubled about that. I wouldn't go up to 30,000 feet and look down. And given the services that we provide and now to the millions of users that we provided to and then recognize that it's a life-saving service, we are very comfortable that the FCC will continue to do what it has done for Globalstar for decades, which is permit us to continue to operate our services, expand it as we have in the last years when we did our wholesale arrangement as we're doing now with the government services thing that we've talked about. And again, they'll just let us -- give us the room that we need in order to fly satellites and save lives. I just think that's the thrust of it. And there can always be stuff in the background, but I don't think it's going to dissuade the FCC from the path that they've been on with us for decades.

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