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Globalstar Announces First Quarter 2018 Results

Globalstar, Inc. announced its financial results for the quarter ended March 31, 2018.

Jay Monroe, Chairman and Chief Executive Officer of Globalstar, commented, “In late April, after our quarter ended, we announced a transformative transaction to merge Globalstar with FiberLight and almost $400 million of other assets to create a diversified telecom company with assets spanning satellite, spectrum and fiber. We expect that the combined company will have a fortified balance sheet, generate significant cash flow and will be well positioned for the evolution of next-generation networks. We look forward to closing the transaction in the third quarter."

Mr. Monroe continued, "We are pleased with continued growth in the core satellite business and to see this reflected in the first quarter financial results. Increased ARPU across all revenue streams drove a 17% increase in total revenue. We recorded net income during the quarter due to a non-cash derivative gain resulting primarily from changes in our stock price while producing strong Adjusted EBITDA growth of 39% over the prior year's first quarter.

In April, we released our highly anticipated Sat-Fi2TM, the first Duplex product utilizing our next-generation ground infrastructure, providing reliable satellite communications via any Wi-Fi enabled smart device. In late March, we also released our latest Simplex device, SmartOne SolarTM, a solar-powered asset tracking device that expands the Simplex market by addressing operations in remote areas that would otherwise go unserved or underserved without solar capabilities. Our new two-way SPOT product is launching imminently and will allow users to communicate in remote areas like never before, further bolstering our product line up. We also continue to expand into other service offerings including the launch of Globalstar Automotive, which will serve the connected autonomous vehicle market. On the spectrum front, we achieved "working item" status at the 3GPP meeting in Chennai, India, keeping us on schedule for standardization."

FIRST QUARTER FINANCIAL REVIEW

Revenue

Total revenue for the first quarter of 2018 increased by $4.0 million, or 17%, from the first quarter of 2017. This increase resulted primarily from higher service revenue across all core revenue streams, driven by growth in ARPU. Partially offsetting this increase was a decrease in subscriber equipment sales.

Service revenue increased $4.5 million, or 21%, in the first quarter of 2018 compared to the first quarter of 2017. The majority of this increase resulted from higher SPOT and Duplex service revenue, which increased $2.6 million and $1.2 million, respectively. Higher SPOT and Duplex ARPU were the main drivers for this growth, increasing 18% and 23%, respectively, from the first quarter of 2017. Rate plan increases continue to be the primary driver for higher ARPU. Fluctuations in our average subscriber base also impacted service revenue this quarter, with SPOT subscribers increasing 5% and Duplex subscribers decreasing 6%. Also contributing to the increase in service revenue was a $0.7 million increase in Simplex service revenue, driven by increases in both ARPU and average subscribers.

Subscriber equipment sales revenue declined $0.5 million, or 16%, due primarily to a decrease in Duplex equipment revenue. Volume for our Duplex equipment was lower due to our continued management of remaining phone inventory anticipating the launch of Sat-Fi2TM in April. Offsetting this decline was an increase in SPOT equipment revenue which is expected to accelerate after the release of the next generation product.

Loss from Operations

Loss from operations decreased $2.1 million, or 14%, from $15.1 million in the first quarter of 2017 to $13.0 million in the first quarter of 2018 due primarily to a $4.0 million increase in total revenue, for the reasons discussed above. Higher operating expenses partially offset this increase due primarily to a 20% increase in marketing, general and administrative (MG&A) costs; cost of services were flat and cost of subscriber equipment sales increased 5%. The increase in MG&A was driven by the addition of personnel, both internal and external, to support our strategic initiatives, including spectrum related activities and other technology opportunities, such as our IoT and connected car product development.

Net Income (Loss)

Net income (loss) fluctuated from a loss of $20.2 million in the first quarter of 2017 to income of $87.9 million in the first quarter of 2018. The primary reason for this change was a higher non-cash derivative gain, up from $3.2 million in the first quarter of 2017 to $108.9 million in the first quarter of 2018. The gain recorded during the first quarter of 2018 resulted from variations in several valuation inputs, including the decline in the Company's stock price from December 31, 2017 to March 31, 2018 as well as shorter remaining estimated term of the instruments.

Adjusted EBITDA

Adjusted EBITDA increased 39% to $7.5 million during the first quarter of 2018 driven primarily by a $4.0 million, or 17%, increase in total revenue, offset partially by a $1.9 million increase in total operating expenses (excluding EBITDA adjustments). The increase in operating expenses during the first quarter of 2018 resulted from higher MG&A expenses, as discussed above.

MERGER AGREEMENT

On April 25, 2018, Globalstar announced it signed a merger agreement with Thermo Acquisitions, Inc. (Thermo Acquisitions) pursuant to which the following assets will be combined with Globalstar: metro fiber provider FiberLight, LLC (FiberLight), 15.5 million shares of common stock of CenturyLink, Inc. (NYSE: CTL) (CenturyLink), $100 million of cash and minority investments in complementary businesses and assets of $25 million in exchange for Globalstar common stock valued at approximately $1.65 billion, subject to adjustments. Thermo Acquisition is controlled by Jay Monroe, Executive Chairman of the Board of Directors and Chief Executive Officer of Globalstar. At closing, we expect that the parent company will be renamed Thermo Companies, Inc., and its stock will continue to trade publicly. The transaction has been unanimously recommended by the Special Committee of the Board of Directors of Globalstar, consisting entirely of independent directors, and unanimously approved by the full Board of Directors. The merger is expected to close in the third quarter of 2018.

The merger is expected to create a fundamentally stronger company with significantly reduced leverage and diversified holdings serving the global telecommunications industry. The anticipated combined Adjusted EBITDA of the pro forma Company is projected to be at least 4x standalone Globalstar. The pro forma cash flow of the combined Company is expected to be derived from five principal sources including (i) satellite operations, (ii) leasing or other monetization revenue from spectrum, (iii) FiberLight operations, (iv) dividend income and (v) other Thermo Investments’ returns. The pro forma Company is expected to benefit from Globalstar’s $1.7 billion U.S. net operating losses allowing growth in a tax efficient manner. By materially improving the combined Company’s liquidity position, Globalstar believes the merger will best position the Company for monetizing its 2.4 GHz terrestrial spectrum in addition to maximizing the global use of its licensed spectrum.

Globalstar has reached an agreement in principle with its lenders on an amendment of its BPIFAE (formerly known as COFACE) senior debt facility, which is subject in all respects to lender and BPIFAE committee approvals as well as satisfactory final due diligence. Additionally, final amended terms will be subject to documentation in a binding agreement to be agreed among the parties that will be effective concurrent with the closing of the merger. The agreement in principle provides for annual deferrals of principal amortization up to $30 million and a fixed margin of 3.25% over 6 month LIBOR, both subject to liquidity tests performed over time.

Upon completion of the merger, the Company expects to initiate a rights offering of up to $100 million for minority shareholders on terms to be agreed. It is anticipated that the rights offering would be consummated approximately 45 days following closing, is expected to be available to holders of record on the date of closing and will include an over-subscription privilege allowing for the subscription of additional shares with allotments otherwise on a pro rata basis.