Jay Monroe - Chairman & CEO Rebecca Clary - VP & CFO

Good afternoon and thank for joining us to discuss third quarter 2016 results. Following my operational update, Rebecca will provide an overview of the third quarter financial results, followed by a Q&A.

Tim will not be able to join us for this portion of the call given ongoing FCC activity in D.C. this week, which I will elaborate on momentarily.

But first, please note that today's earning call contains forward-looking statements and tended 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 statement section of Globalstar's SEC filings and in today's press release.

This release, which is available on our website, also includes a reconciliation of the non-GAAP financial measure, adjusted EBITDA, to net income, the most comparable financial measure calculated under GAAP. At the outset of today's call, I'd like to provide an update on the FCC proceeding.

As most of you fully understand and appreciate, a successful approval remains our number one priority and together with our team of advisors, we are unrelentingly focused on this process daily. Recently, we submitted a full-term Ex Parte, responding to the latest interference report filed by Microsoft in September.

I encourage everyone to read our technical report carefully. It fully details the flawed methodology used which renders Microsoft's conclusions completely unreliable.

As explained in our response, the opposition's methodology included an extreme test set up and technical parameters that would never occur in any real-world deployment. On the contrary, when interference testing is conducted using accurate real-world assumptions as we did and we submitted on our Ex Parte and has been confirmed in multiple tests and various environments in the past which are also on the record, it is conclusive that TLPS peacefully coexist with unlicensed operations.

We trust that the commission will look past these absurd tests from those with obvious competitive interest and will instead rely on the credible technical work conducted by respected engineers which over the years of analysis and tests has consistently proven that TLPS poses no risk whatsoever to such services as Bluetooth and 2.4 Wi-Fi systems. The commission should be commended for continuing to move the order forward without being paralyzed by engineering studies submitted by incumbent operators with purely competitive motivations.

There has been significant activity on our part recently and for those checking the FCC website, you can expect new Ex Partes to appear shortly. We are committed to working every day to develop a compromise that provides the company with a favorable majority FCC vote resulting in a business model that will produce deployments that intensively uses spectrum for the benefit of all consumers.

There is still work to be done for sure, but I can tell you that neither I, nor our management team are quitters and we will continue to work directly with all involved parties to complete this process. TLPS is rooted in good policy that can provide material benefits to American consumers by increasing broadband options.

We are not in contradiction with, but rather in sync with good public policy and are therefore confident that we will forge a solution leading to a successful outcome. I regret that we will not be able to take questions on the proceeding during the Q&A portion of the call given the sensitive time in the process, but I hope my statements on this subject this afternoon are helpful to understanding the current events.

When the proceeding finishes and in ordered issues, we look forward to holding a separate call dedicated to the approval's implications for our business. As we look at the operational highlights for the third quarter, I'm pleased that our core business has continued to demonstrate impressive performance.

Total quarterly revenue increased by 8% over Q3 in '15, driven by a 12% increase in service revenue with notable increases in both Duplex and SPOT at 26% and 10% respectively. The operating leverage of the business was once again evident as our revenue growth combined with near constant operating expenses produced a year-over-year EBITDA growth of 48% for the quarter.

On a year-to-date basis, adjusted EBITDA is up 62% compared to last year as we are able to continue leveraging our fixed cost operating base by adding high margin service revenue. I'd like to point out that although significant net subscriber growth in North America isn't inspected until Sat-Fi 2 and next generation SPOT have ruled out.

Our non-American SPOT in Simplex businesses continue to grow rapidly and representing increasing portion of our subscriber base. The overall number of non-North American SPOT subscribers grew 18% over the past 12 months and non-North American Simplex subscribers increased 14%.

Simplex growth overseas is notable because in North America, Simplex has been under pressure from the continued retrenchment in the oil and gas sectors. Also, our ARPU across our Duplex and SPOT subscriber bases increased by 22% and 3% respectively over the prior year's quarter.

As we rule out new products, increase service prices in-line with improved functionality, we expect the ARPU to continue to increase over the coming years as these new products become an ever-larger portion of the subscriber base. Further, during the third quarter of '16, Globalstar entered into a strategic agreement with Carmanah Technologies Corporation to collaborate on the design, manufacturer and production of new solar-powered M2M satellite solutions as well as Carmanah's use of Globalstar system from remote con activity of all of their products.

When available next year, the new solar-powered device will support larger and more frequent data transmission capabilities and importantly have a much longer field life than our current devices. The partnership further solidifies Globalstar's opportunity in the IOT space as Carmanah will be utilizing Globalstar's Simplex network to provide remote monitoring to each Carmanah LED infrastructure product moving forward.

We're in the final quarter of completing our second generation ground infrastructure upgrades, in addition to finishing the product development efforts to launch a whole host of new products. COO Dave Kagan is leading our sales and marketing and our network and product teams with the goal of executing on the opportunity before us to leverage the new network and product transition that's coming.

Dave is responsible for a whole host of efforts that when completed will provide our subscribers with faster data speeds, combined with expanded applications that significantly improved the subscriber experience across Duplex SPOT and Simplex. For example, in the coming months, SPOT X will be able to transform SPOT functionality by offering two-way global texting.

Think Whatsapp, but Whatsapp everywhere versus traditional one-way service. We are now on off-for-field testing for SPOT X and look forward to and expect a Q1 release of the product to our retail distribution channels.

The product teams are also working hard to roll out our next generation Sat-Fi product, which will be the first device to integrate the Hughes chipset with the new ground network. Our competitors have attempted to roll out similar devices, but they have been constrained by cost, size, data speed and functionality limitations.

However, all four of these factors are significantly improved with Sat-Fi 2. Anywhere on our service footprint, our new Sat-Fi subscribers will be able to connect any of their Wifi-enabled devices to Globalstar service with maximum data speeds improving from 9.6 to up to 256.

And we'll be able to deliver this device to the market at a bill of materials and unit cost that is a fraction of traditional MSS hardware. It will be very interesting to see how our MSS products are received, given that they will now be at a price point affordable by the mass consumer marketplace.

Hughes, Ericsson continues late-stage ground infrastructure work and these contracts are to come to an end this quarter. As we previously announced, Globalstar and Hughes have finished the radio access network installations to the United States, Caribbean, Canada and Europe.

Additionally, Hughes has completed the final configuration testing and is currently finishing the final production acceptance testing. The Ericsson core network has been installed, integrated and site-accepted.

The geo-redundancy work has been completed as has the acceptance testing. Geo-redundancy gives us the ability to switch between different core network equipment in the United States in Canada to offer our customers high service reliability.

We're excited about the technological leap forward that's provided when the second generation ground system is fully functional soon. I'll now turn the call over to Rebecca who will provide a more detailed view of the quarterly financial performance.

Thank you, Jay, and good afternoon, everyone. As Jay mentioned, we are pleased to report another consecutive quarter of strong revenue growth.

Total revenue which increased 8% over the third quarter of 2015 was driven by increases in both subscriber base and ARPU. Total service revenue also increased significantly, up 12% from the third quarter of 2015 resulting primarily from growth in SPOT and Duplex service revenue.

90% of the increase in Duplex service revenue is driven by ARPU which was up 22% from the third quarter of 2015, due to increased revenue from prepaid usage base contracts. Our higher price usage base plans are more valuable to the customer as they provide additional flexibility and also are generally required in order to purchase equipment under our current sales permission.

The popularity of these plans have increased suddenly since 2014, resulting in more seasonality in our recognized revenue as usage and activations generally peak during the second and third quarters. Price increases for many of our legacy rate plans also contributed to the $7 increase in ARPU.

We adjusted certain rate plans after evaluating our service offerings to make sure they were priced appropriately, relative to the market plans offer by our competitors our prospectively plans for future product. A modest increase in average Duplex subscribers also contributed to the increase in service revenue.

Although growth, Duplex subscriber addition were over 22,000 during the last 12 months, growth has been hampered by forced turn of non-paying subscribers and lower equipment sales due to the strategic deployment of our phones. During the past several months, we have focused equipment sales through dealers and into market that results in the higher value customers in order to increase profitability.

While this strategy optimizes service revenue, it may result in lower equipment sale and subscriber growth, so we introduce our second generation Sat-Fi product that Jay have discussed. SPOT service revenue improved 10% during the third quarter of 2016 due to our 7% increase in average subscribers and a 3% increase in ARPU.

Growth SPOT subscriber additions grew during the last 12 months compared to additions in the preceding 12 months, purchased really driven by customers activating our SPOT gen 3 device. These customers pay higher rates than our current blended ARPU level, resulting to modest increases when compared to the prior year.

The increase in service revenue is offset partially by a $400,000 decrease in revenue generated from subscriber equipment sales due primarily to a lower volume of Simplex units sold during the three months ended September 30, 2016. The downturn to oil and gas industry have negatively impacted our Simplex business due to the concentration of customers operating in this industry.

This impact has resulted in declines for both service and equipment revenue due to higher turn and lower product sales when compared to the third quarter of 2015. The decrease in Simplex equipment sales is offset by a slight increases in Duplexes and SPOT.

We expect more substantial increases concurrent with the introduction of new products in 2017. Net income decreased from the third quarter of 2015 due primarily to lower non-cash derivative gain.

Unlike the prior year, there was no change in stock price from the June 30, 2016 closing price to the September 30, 2016 closing price. Accordingly, the valuation adjustment growth in the third quarter 2016 was less than the third quarter 2015.

Changes in other non-cash items and higher revenue partially offset the decline and derivative adjustments. Adjusted EBITDA increased 48% during the third quarter of 2016, compared to the third quarter of 2015, due to a $1.9 million increase in revenue, coupled with relatively flat operating expenses excluding EBITDA adjustments.

The 12% increase in service revenue was the primary cause for the increase in adjusted EBITDA. From comparing the nine months period, adjusted EBITDA increased 62% on an 11% increase in service revenue.

This trend in high margin service revenue driving significant adjusted EBITDA growth has continued throughout 2016, reflecting the operational efficiency of the company. Although adjusted EBITDA has continued to increase significantly when compared to the prior year, we do not currently project that it will reach the levels required by our facility agreements or in the next 12 months without revenue contribution from sources incremental to our current business operations.

However, our facility agreement provide for mechanism referred to as equity share of contributions which permits us to use amounts raised from issuing equity and certain covenant calculation, allowing us to maintain compliance and periods when adjusted EBITDA falls below the required level. As of September 30, 2016, we were in compliance with all covenants and utilizing the equity share mechanism, we believe we will maintain compliance by using funds from our current Terrapin agreement and other sources not yet fully arranged.

Our current sources of liquidity include cash flows from operations, a cash balance of just under $13 million and availability under our common stock purchase agreement with Terrapin of $31.5 million. A longer term source of liquidity includes the $38 million we currently have held in a debt service reserve account which can only be used for principal and interest payments due under the facility.

Projected contractual obligations over the next 12 months consist primarily of debt service payments due in December 2016 and June 2017. These amounts include principal payments due under the facility agreement of $38 million and interest payments due under the facility in subordinated notes of $21 million.

We also have contractual obligations related to our second generation ground infrastructure and other ground-related cash obligation, which we expect will be approximately $7 million in aggregates during the next 12 months. We expect to pay half of this during the fourth quarter upon final acceptance of the work completed by Hughes and Ericsson.

In summary, we are pleased with another consecutive quarter of improved financial results. We're also excited about the subscriber and ARPU growth potential following the roll out of new products over the next few months.

However, we understand the need to augment our current business model in order to drive higher revenue and we are laser-focused on doing just that. We have evaluated our customer portfolio to seek to engage high value subscribers and set the rates they pay commensurate with the level of service we provide.

As a result, we have raised rate plan pricing for many legacy and new subscribers. We are also pursuing various strategic partnership opportunities such as the Carmanah relationship Jay just described.

In order to expand the scope of not only our current commercial customer portfolio, but also new product and service offering in partnership with specialized industry operators. We believe that by engaging with innovative partners, we can execute on opportunities to drive higher revenue.

I will now turn the call over to the operator for Q&A. Operator?

Operator, it looks like there are no questions today, so I'd like to close the conversation by thanking everybody for joining and hopefully we will be talking again soon as we finalize the FCC process and have more to talk about in that regard as well as the financial results. Thank you, all, and we look forward to talking to you next quarter.