Welcome to the Third Quarter 2012 Globalstar Inc. Earnings Conference Call. My name is Florice, and I will be your operator for today's call. [Operator Instructions] Later, we'll conduct a question-and-answer session. Please note that this conference is being recorded. I'll now turn the call over to Dean Hirasawa, Director of Public and Investor Relations. Mr. Hirasawa, you may begin.

Good afternoon, everyone. Thank you for joining us for today's conference call to discuss Globalstar's 3 months results for the period ended September 30, 2012. Before we begin, please note the following. This call may contain forward-looking statements within the meaning of federal securities law. Factors that could cause results to differ materially are described in the Safe Harbor section of today's press release and in Globalstar's SEC filings, including the quarterly report on Form 10-Q for the period ended September 30, 2012, which will be filed later today. The press release, this conference call and the associated slide presentation, which is available on the Investor Relations page of our company website include discussions of certain non-GAAP financial measures as defined under SEC rules. The press release provides a reconciliation of each of those non-GAAP measures to the most comparable GAAP measure. Please note that the information in this call is accurate only as of today, which is Wednesday, November 14, 2012. Today's press release containing certain financial information is available on the company website at www.globalstar.com. Later today, an audio recording of this conference call will also be available via telephone dial-in and a webcast recording, along with a copy of the slide presentation, will also be made available on the company website. Today's call is being presented by Mr. Jay Monroe, Chairman and CEO of Globalstar Inc. His prepared remarks were prerecorded earlier this morning, and due to a serious family emergency, which arose earlier today, Jay is now planning to join the call remotely for the live Q&A session. Our thoughts and prayers go out to his family. Joining Jay on the call are Director of Finance, Tim Taylor, who's filling in for Corporate Controller, Rebecca Clary, who's on maternity leave; Barbee Ponder, General Counsel and Vice President of Regulatory Affairs; and President of Global Operations, Tony Navarra. Each will be available for questions following the prepared remarks. At this time, I would like to turn the call over to Mr. Monroe.

Thanks, Dean, and good afternoon, everyone. I'd like to note at the start that the prepared remarks today will be a bit longer than usual, as we have a number of new participants dialing in for the first time, and we have a lot of new material to cover. Let's begin with Slide 2 and highlight our quarterly progress and recent accomplishments. During the third quarter, we continued the momentum in revenue and adjusted EBITDA growth we began in late 2011, recording our fourth consecutive quarter of positive adjusted EBITDA. Further, we had continued improvement in revenue growth as a result of increased duplex usage and a higher ARPU, plus strong growth in the SPOT and M2M simplex data businesses. Our service levels also continue to rise, prompting duplex subscribers to increase usage on the network and our dealers and resellers to reengage as quality service is restored. As most of you know, we are on the verge of completing our second-generation constellation. And throughout the quarter, we continue to deploy new satellites. Just a few weeks ago, Globalstar, Arianespace and the Russian launch partners initiated the fourth launch campaign, and we are now scheduled to launch in February. This is the final launch to complete full service restoration. Additionally, in mid-October, teams from Globalstar and Thales successfully uploaded the momentum wheel software patch to the one satellite whose service was disrupted due to this issue and the satellite is now processing initial call traffic. We plan to place it into full service by the end of November. Now turning to our terrestrial spectrum initiative. Yesterday, Globalstar filed a petition for rulemaking with the FCC for authority to utilize its licensed spectrum terrestrially to provide a host of innovative mobile broadband services, including one service that we had not previously announced. Because of its significance, I'll discuss this opportunity in detail after our financial and operational review. Now please turn to Slide 3. I'd like to introduce Globalstar's Director of Finance, Tim Taylor, who is standing in for Rebecca Clary, who would normally handle this part of the call. I'd like to congratulate Rebecca on the birth of her healthy daughter 2 weeks ago. Tim will provide a summary of the financial results for the third quarter. Tim?

Thank you, Jay, and good afternoon, everyone. As outlined on Slide 3, we have reported third quarter results that represent a significant improvement over the prior year's quarter. Globalstar has witnessed continued growth throughout our principal operating segments, including SPOT, M2M simplex and after a 5-year period of attrition, our duplex business has begun to grow again. As expected, the cost improvement initiatives enacted in late 2011 have produced sustained financial benefits. The ability of the company to leverage these improvements on growing revenue base has driven a substantial increase in operating cash flow and adjusted EBITDA, and the company remains on track for its best year in the last 5. Revenue was $20.5 million for the third quarter of 2012 compared to $18.2 million for the same period last year, an increase of $2.3 million or 13%. We grew both service revenue and subscriber equipment sales of $1.1 million and $1.2 million, respectively. Service revenue was $15.3 million for the third quarter compared to $14.2 million for Q3 2011. This improvement was driven primarily by a 33% increase in SPOT service revenue. As expected, Duplex service revenue was slightly lower in the third quarter compared to the same period last year but increased 11% from the second quarter of this year, and 19% in comparison to the first quarter. The sequential increase in duplex service revenue throughout the 2012 is due to improvements in service levels and the impact of subscriber upgrades to higher revenue-generating plans. Total duplex usage on the network in Q3 2012 increased 37% versus the prior-year quarter. We view this as a leading indicator of future revenue growth, as subscribers are transitioned from lower-priced unlimited plans to higher-priced plans. The satellite market at a competitive level is driven by 3 core elements: Cost; voice quality;…

Thanks, Tim. For those of you who are new to Globalstar, Slide 5 illustrates the 3 fundamental drivers of our value proposition. They are our low-cost second-generation satellite ecosystem, our breakthrough mass-market consumer products and our valuable spectrum assets. Let's take these in order. First, with just one more launch to go, we are nearing the completion of the deployment of the second-generation constellation and doing so at a fraction of the cost, both of our first network and of the competitors. This new network provides us with significant cost benefits and a network performance enhancement suite years before the competition and the means to reemerge as the preeminent provider of affordable, high-quality mobile satellite voice and data services. We expect our new satellites to reliably deliver the highest voice quality in the industry for the next 15 years. Additionally, due to the low cost of the constellation and the ground segment, we're in a strong and defensible competitive position to offer the best value proposition to our customers. Our network has the capability to deliver voice and data mobile connectivity to 2 billion people who either live, work or play outside of cellular's reach. You might find it surprising that approximately 75% of the earth's landmass has no wireless or wireline coverage. We are increasing capacity utilization on a new network that has almost unlimited capacity. We can support 34 billion text M2M transmissions or other small bit messages per day or 19 million voice or data minutes everyday. With an understanding of the size of the network's capacity, value-added resellers and other partners are rushing to develop new and innovative satellite solutions to meet the growing demand for both commercial and consumer markets. The relative simplicity and low-cost nature of the global satellite and network compared with costly…

Thank you, Jay. That concludes the prepared portion of the presentation. Operator, can we now proceed with the Q&A session?

[Operator Instructions] Jim McIlree from Dominick and Dominick is online with a question.

Can you talk a little bit about how this migration from the short-term plan to the long-term plan might work? I'm struggling with -- if you have this -- if you have users on channel 14 using some kind of WiFi-like service, how do you ultimately migrate them to an LTE-based service assuming that everything goes your way with the FCC?

Jim, this is Jay. Can you hear me okay? I think there are a number of different options that will play out over time, and I think the biggest question is when does approval for LTE come relative to approval for the low-power service. If you exploit the low-power service, it may very well be that it happens in geographies that are extremely clogged already, picture a major metropolitan area like New York. And there, that service could exist forever because it's highly valuable to get the terrestrial cellular networks offloaded to WiFi for a number of different reasons. And we would expect to do something, which is coordinated so that anyone who elects to work with us on this service knows in advance that they have the opportunity to do both services. And therefore, you can imagine geographic uses of one service versus the other, and that will have to coexist both with those 2 services and with the satellite network in order to be able to fully utilize the value of both of these authorities that we seek. But I do believe that the short answer is we can't know every single option at this juncture, and we'll be working on exactly those types of issues over the next year.

Okay, that's helpful. And also, on channel 14, it seems to me that essentially other users who would like to use that channel are off-limits unless they come through you because legally, they can only use 1/2 of the channel. If they want to use the whole thing then they have to come to you and you can't really use 1/2 the channel. Am I understanding that correct that de facto, it becomes your channel?

Not really. There are plenty of uses that are permitted in the ISM band that are not WiFi. The simple examples of that are Bluetooth, microwave ovens, garage door openers and a whole host of other non-WiFi uses. Those uses will coexist with us in the upper part of that ISM band. Those uses are not permitted today in Globalstar's lower Big LEO. They're in that 11 megahertz that abuts it. And so those will continue to coexist as they have a right to do. It's just that if somebody wants to operate something, which is a WiFi protocol, which demands a 22 megahertz channel, they cannot do that in that channel 14 without it really being governed through Globalstar. So the simple way to think of it is non-WiFi uses will continue to coexist and those that are WiFi uses will have to be coordinated through Globalstar.

Okay. And 2 more questions, if I may. Can you lay out your capital spending plans or needs over the next couple of quarters and then for 2013 in its entirety? And then secondly, can you talk a little bit about the duplex migration to the higher plan, how that's going right now? That is of the duplex subscribers that you got in Q3, how many went to the higher-priced plans or it's a little bit too early to talk about that?

Sure, Jim. This is Tim. I'll break it up in a couple of different segments. To get us through the end of 2012, there's another $3 million to be paid to Thales, which 100% of that comes out of the COFACE facility, plus about another $4 million of other CapEx. So a total of about $7 million to take us through the end of December. On top of that, there are -- there's about $20 million associated with direct launch-related CapEx payments to Arianespace and for launch insurance, just about $20 million. So $20 million plus the $7 million in 2012 is about $27 million. If you look at the company's current liquidity position, we have $1.2 million of cash plus $3 million available in the COFACE facility, plus about $23 million in the contingent equity account, which also totals about $27 million. So you can expect that the company will be raising funds in early 2013. It's a bit premature to give much guidance on how that's actually going to be structured. There's, of course, a number of potential sources of capital, including additional senior secured capital, subordinated debt or traditional equity capital, how that comes together, we're certainly working on that now and as soon as we have something announceable, we'll share that with you. With regard to the next question on duplex ARPU, so over the last couple of years, we continue to reduce plans in order to keep subscribers on our network. And ARPU has essentially gone from $16 down to as low as about $15 at the end of 2011. Beginning in 2012, we initiated a process to start migrating subscribers to higher rate plans. Our core plan right now is an all-you-can-eat $40 a month plan. And really, it's starting in January, we started transitioning subscribers to that plan. You've seen the impact in the numbers. We've gone from about $15 in Q1, up to about $17, and then essentially $19 in Q3. Today, we're about $20 run rate. So we continue to migrate duplex subscribers to higher rate plans. You'll continue to see an increase in duplex ARPU as we improve coverage over the next 8 months. And the plan long term, again, it's premature to give much guidance on how that will be structured, but I expect to see a significant improvement in duplex ARPU through the middle of next year.

Brett Feldman from Deutsche Bank is online with a question.

I just want to understand a little more about some of the spectrum stuff you laid out today. Just so I'm not confused, the TLPS service, that's basically WiFi, am I correct?

Basically, Brett, yes.

Okay. And you're committing, if you get the rules that you need from the FCC to deploy, I guess, you say thousands of hotspots, so if you're putting out free hotspots, what is sort of the bigger strategy for monetizing the WiFi connectivity that you'll be making available to this decision of the FCC?

Brett, the long-term plans are things that we're working on right now. There are multiple opportunities to monetize WiFi, as you know, from the many business models that you cover. And there are some unique opportunities that would come from a private WiFi-ish service. And those are plans that we're working on with a number of parties, as you can well imagine. Our issues there are to make certain that the quality of service stays high, the service is differentiated and all of the things that we talked about previously, in terms of throughput, speed and so forth, come to and stay, come to fruition and stay. So that's what we're about in that regard. It'll take a while for the process to be approved at the FCC. And of course, we'd like that to happen at the earliest possible time. But while it is being worked, we're in discussions with a lot of different parties about how to best utilize the eventual service offering.

So I wanted to go back to the question before about the evolution of the spectrum use because you sort of outlined, I think, 3 different types of services that are going to be deployed over your spectrum. You have MSS, you'll have TLPS and then you'll eventually have LTE. Are these services something you can actually offer at the same time over the -- in the exact same geographies? Or is it ultimately going to be a decision where if you have all the approvals you need in your more remote areas, you'll be using that spectrum for satellite services. In the mid-congested areas, you'll be enabling LTE. And then in the most congested, it would be TLPS? Or am I completely misunderstanding the spectrum management plan?

You're not completely misunderstanding it at all, and what you described is one of multiple possibilities. Let's be clear on just a couple of things. In the most remote areas, you're exactly right, that will remain MSS, of course. In the intermediate areas, it could go either way for a number of different reasons. But when you think about the MSS service, too, remember that part of the value of MSS to public safety and other is when a network goes down, Globalstar still functions. And so what we just saw in the case of Sandy on the East Coast was a situation where the cellular networks were not robust. In a number of areas, they went down, terrestrial, wireline networks went down. And I was still receiving calls from many people who own Globalstar products, they were calling me to say that, that was the one that was still working. And so there is a first responder and public safety implication even in areas like Manhattan from the satellite service. Ultimately, how the combination of TLPS and LTE plays out depends a little bit on the partnerships that we strike to monetize it. And as we strike those, I think the opportunities will become clearer and of course, we will explain to the market what we see in those opportunities as soon as we reasonably can. But right now, we're staying flexible as the process begins to play itself out at the commission. And there, our first work is to make certain that, that goes through and is approved and that we do it in a way that it's open, it's transparent and everybody involved in the process has their say on what comes out the other end of it.

This is a one last one and then I'll get back in the queue if I need to. But if I think about the process that you would go through here with the FCC, and let's assume that they agree and they decide to pursue a rulemaking. It would seem that the rulemaking would address all of these proposals and that they would conclude it and have an order at the same time. So why is it that once that it's all done, you would have this TLPS offering but you had to delay until you would be able to offer LTE on the other spectrum?

I believe that the way that we constructed it was to be sensitive to the GPS interest. We believe that what we're offering will -- on LTE in uplink and our lower Big LEO band will be non-interfering, but we didn't see any reason to try and rush it and package it all together and be perceived of as trying to rush it. GPS has very legitimate interests. Globalstar has very legitimate interests. We are, in fact, at our core, a GPS company, and hundreds of thousands of our subscribers operate devices which coexist every minute of their operation with GPS. But still, that is an issue that we want to make sure it gets vetted out officially and completely and clearly so that after we get that approval, everybody knows that it was done correctly. Now as a practical matter, that could take longer and that's why we set up the regulatory paradigm as we did.

[Operator Instructions] Tony Wildbird from Scarsdale Equity is online with a question.

Jay, first of all, I wanted to thank you because I'm one of these people who own a Globalstar phone, which I bought to assist me in Costa Rica where I have a place and telecommunications are an adventure under the best of conditions. But I live in Stanford, Connecticut, on the water and on Tuesday morning, nothing worked, and landlines were down, and AT&T has been down for 2 weeks. And the cellular phones didn't work, or they barely worked. I think I had a Sprint phone and you could get a 10-second call after 8 tries, and my AT&T phone didn't work at all. But the one thing that did work was my Globalstar phone. I mean, it's true that I had to walk out the door to use it, but -- And I didn't have access to the times weren't operational, but basically, it worked, I would say, 70% to 80% of the time. I had a signal, I made my calls, and it was a tremendous relief. And I would advise anybody who deals with a hurricane to get one.

Thank you. Tony, I appreciate it. I'm glad that it worked for you. The constellation repopulation made that possible. So we got our first couple of dollars as we monetize the new constellation. Thank you.

So -- okay. So my -- I have 2 questions. One is I'd like to follow-up on a question I asked 3 months ago about your service versus Iridum in terms of quality, given that yours is getting better and theirs is getting worse. And I'd like to know whether or not we've reached the crossover yet? The second question I have is -- I mean, I think one of the biggest problems that we, shareholders of Globalstar have, is that your cost of capital is extremely high at this point. And I was wondering whether there were any opportunities to somehow monetize the spectrum before the satellites were launched and before these rulemakings were completed?

Tony, I think I can answer the first question for you, and maybe I'll let Tim talk a little bit about the cost of capital and the timing for anything along those lines. But we don't do detailed work on Iridium's constellation. We only know anecdotally from our dealers that they are experiencing some issues and those issues maybe are not unlike the challenges that Globalstar had beginning in 2007 or so. And so we do expect that at some point or another, there will be an actual crossover. I do think it depends upon where you're operating, the nature of our architecture being a little bit different than theirs. I can tell you that I recently traveled to the bottom of the Grand Canyon, and I had a very difficult time using their phone. I made many telephone calls on Globalstar, I'm proud to say, and so I think it depends a little bit on geography. If you're close to a Globalstar ground station, my guess is that you can -- you'll have a higher call success rate already with Globalstar than the experiences with Iridium. But that's just my guess. And again, anecdotally, what we're hearing is just coming back from dealers and users who are experiencing better and better service from Globalstar, that makes us happy, and now they're able to compare it directly with Iridium and are more comfortable, seemingly today, buying Globalstar, which of course, makes us very, very happy. Tim, would you like to take the second issue?

Sure, sure. So Tony, the large component of the company's current capital structure consists of a $586 million COFACE facility, which is priced incredibly attractively at essentially L plus 2% taper. We're going to continue to seek this type of low-cost capital. And I think, going forward, that type of senior secured low-cost capital is going to be the primary source. But of course, raising any kind of equity or equity-linked securities when your stock's at $0.30 or $0.35 is very costly. And I think, from a stock price perspective, we're really waiting on a couple of seminal events where if they happen, if they happen successfully, including the 4th launch, we're going to be substantially above $0.30 or $0.40. So we certainly would hope that we're not raising capital at $0.40 or $0.45 or even a slight premium to that. But that we're able to take care of some of these seminal events and raise capital from a position of strength as opposed to a position of weakness, which we're in right now.

Well, the big issue I see is the 5.75 come due I forget whether it's the beginning or the end of April. So essentially, if the launch is in the first week of February, that does not give you a lot of time to deal with this issue, and the issue is pretty significant. I mean, $72 million of the stuff outstanding. So if the stock is at $0.35, and you issue some kind of new convertible, let's say, convertible, I'm going to make this up at $0.50, you create, what -- no, 150 million shares. And if you do it at $1.50, then you will create 40 million shares, which is a huge difference. So that's where we're at. Now again, if somehow, you could get some money out of the spectrum to deal with this issue, that could be very advantageous for the stockholder, as well as being very advantageous to anybody who took the other side of the transaction on the spectrum, if in fact, such a deal were possible, structurally speaking?

Well, Tony, for sure, we will be in conversation with a number of parties, have been for some time, and we'll continue to be in those dialogues. If, for whatever reason, those conversations move more rapidly, we are very familiar with what your issue is and agree with, of course, wholeheartedly. So if we can drive those conversations on a faster track, trust me, we will do exactly that.

So the issue is not that they're impossible, but they're difficult, they're structurally difficult?

Right. I mean, imagine that you're in a situation where your spectrum is not fully certified for each of these uses, and it won't be in the next couple of months, it becomes more challenging to have that conversation. But we're in dialogue, of course, because spectrum is so important to so many people's business plans. But handicapping whether we'll be able to get something done at the end of the year or in the first couple of months of 2013 is just that, it's handicapping at this point. We'll do our best sir, I promise.

Our last question comes from Jim McIlree from Dominick & Dominick.

Tim, I wanted to make sure I understand the capital needs for the next few periods. Where is the Thales arbitration payment due? Is that this year or next year?

Yes. So I'll tell you, I'll walk you through the structure. So it's about EUR 17.3 million, and it's due at the later of 2 events, and those events are the comprehensive financing or the effective date of the contract. So the date is really indefinite on when we actually have to pay that amount. We certainly have to work towards getting a financing done in the first half of 2013. And when the contract actually becomes effective, the $23 million would become due. But there's not a set date when the payment is officially due.

Okay. And what about the launch delay fee? When is that due?

So that's actually paid over a period of time. It's $1.5 million or so for a period of 6 or 7 months that we paid to Arianespace.

And it's $1.7 million -- I'm sorry, $1.5 million total over 6 to 7 months?

$1.5 million per month over a total period of 6 months.

Okay, great, that makes more sense to me. Have you started making that payment yet?

Yes, we have. We're a couple of months into it.

Okay. Well, is that -- again, did you make any of those payments in Q3?

We have, yes. And that's included in the Liquidity section in the 10-Q, it's included in the $4.3 million of additional other obligations in 2012.

I haven't gone through the Q yet, but I'll take a look for it. But doesn't that show up in the income statement somewhere? Shouldn't they show up in the income statement somewhere?

No, it's a capitalized expense.

Okay. And I'm somewhat confident this will be my last question. In 2013, do you need to start making payments for the satellites that you intend to launch in 2015? Are calling those the Phase 3 satellites?

Yes, that's correct term for it. The answer is yes, we would have to pay a percentage of it. So a percentage of it would be funded with debt, but at much greater percentage would be funded with -- so 85% or so would likely be to funded with debt and 15% would be funded with pure equity. So the amount of equity that would come from operating cash flow or existing cash on the company's balance sheet would be not very significant in 2013. It actually gets paid over a long period of time, about 34 months. So we have to continue to make 15% equity payments where the debt, we'd likely fund about 85%.

Right, okay. But as soon as the contract is completed, then you would expect to begin work on the Phase 3 satellites and your 15% would need to be paid?

Yes, that's correct.

There are no further questions at this time.

Okay, thank you. And with that, we will conclude our call. Thanks again to everyone for joining us, and please be reminded that later today, an audio recording of the conference call will become available via telephone dial-in, and a webcast recording and a copy of the presentation will also be available on the Globalstar website. Thank you, and good afternoon.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.