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Stratos Announces 2006 Fourth Quarter and Annual Financial Results

- Results reflect continued improvement in margins and profitability -

BETHESDA, MD (February 15, 2007) - Stratos Global Corp. (TSX: SGB) , the leading provider of advanced mobile and fixed-site remote communications solutions, today announced financial results for the fourth quarter and year ended December 31, 2006.

Fourth-Quarter Highlights

  • Revenue up 40 percent to US$140.7 million from the same quarter a year ago and 2 percent on a sequential quarterly basis.
  • Gross margin improves to 28 percent of revenue compared with 26 percent in the third quarter of 2006.
  • Segment earnings* reach US$22.7 million, up 45 percent from the fourth quarter of 2005 and a 21 percent sequential quarterly increase (excluding favorable commercial settlements and mark to market adjustments relating to certain stock-based compensation plans reported in the third quarter of 2006).
  • Adjusted net earnings (as described below) total US$4.9 million, or US$0.12 per share, more than double the fourth quarter of 2005.
  • Cash flow from operations, including working capital requirements, improves to US$9.6 million, a threefold increase on a sequential quarterly basis.
  • Liquidity remains strong with US$48.1 million of cash on hand at December 31, 2006.

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bulletFourth Quarter and Annual 2006 Financial Results

bulletFourth Quarter 2006 Analyst Presentation

bullet Fourth Quarter 2006 Conference Call Live Webcast
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Fourth-Quarter Results
For the quarter, the Corporation reported revenue of US$140.7 million and segment earnings of US$22.7 million representing increases of 40 percent and 45 percent, respectively, compared with the US$100.6 million of revenue and US$15.6 million of segment earnings in the same quarter a year ago. The growth in revenue and improvement in segment earnings compared with the fourth quarter of 2005 primarily reflect the acquisition of Xantic (which was consolidated with Stratos beginning February 14, 2006), growth in newer technology Inmarsat services, as well as higher volume discounts earned from Inmarsat and other cost reductions related to the integration of Xantic.

The Corporation also reported net earnings of US$1.7 million, or US$0.04 basic earnings per share, for the fourth quarter of 2006, compared with net earnings of US$2.0 million, or US$0.05 per share in the fourth quarter of 2005. Results for the fourth quarter of 2006 were negatively impacted by after-tax costs of US$1.5 million, or US$0.04 per share, related primarily to the Xantic integration and other cost-reduction initiatives, and non-cash, after-tax amortization of customer relationship intangibles of US$1.7 million, or US$0.04 per share, related to the Xantic and Plenexis acquisitions. Excluding these items, the Corporation's adjusted net earnings (a non-GAAP measure) for the quarter were US$4.9 million, or US$0.12 per share, compared with adjusted net earnings of US$2.4 million, or US$0.06 per share in the fourth quarter of 2005.

"2006 was a pivotal year for Stratos and the entire MSS industry," said Jim Parm, Stratos president and chief executive officer. "We successfully completed the acquisition of Xantic, made significant progress on the integration of that asset, and are very pleased with the progress made in the second half of the year toward improving our financial results."

In the Mobile Satellite Services (MSS) business, revenue increased by 62 percent to US$108.1 million in the fourth quarter of 2006, compared with the same quarter in 2005, reflecting increased revenue associated with the Xantic acquisition and growth in newer technology Inmarsat services. Gross margin as a percent of revenue increased to 29.5 percent in the fourth quarter of 2006 compared with 28.0 percent in the fourth quarter of 2005 and 26.6 percent in the third quarter of 2006 (excluding the favorable commercial settlements reported in the third quarter). MSS segment earnings were US$21.1 million in the fourth quarter of 2006, up 90 percent compared with the same quarter a year ago and 28 percent on a sequential quarterly basis (excluding the favorable commercial settlements and mark to market adjustments reported in the third quarter). This improvement reflects the increased revenue from the Xantic acquisition, growth in newer technology services, as well as higher volume discounts earned from Inmarsat and other cost reductions related to the Xantic integration.

Revenue in the Broadband division was US$32.6 million in the fourth quarter of 2006, a 5 percent sequential quarterly improvement compared with the third quarter of 2006, but down 3 percent from the fourth quarter of 2005. Fourth-quarter 2006 revenue was favorably impacted by equipment sales related to certain recently awarded contracts, while revenue in the fourth quarter of 2005 benefited from a significant increase in VSAT and other revenue in the Gulf of Mexico following the 2005 hurricanes. Broadband fourth-quarter 2006 segment earnings totaled US$1.6 million, compared with US$4.5 million in the same quarter a year ago and US$2.3 million in the third quarter of this year. Segment earnings in the fourth quarter of 2006 were negatively impacted by a loss of US$1.3 million related to a fixed-price engineering project in Africa that is nearing completion.

"This is the second consecutive quarter of strong improvement in our operational performance," said Parm. "In MSS, the momentum we are experiencing with our new services, including BGAN, coupled with the strides being made to reduce costs as we near the successful completion of the Xantic integration, are expected to drive further improvements in profitability from this business segment in 2007. In the Broadband business, while disappointed with the quarterly results, we did begin to execute on several new contracts and continued to build backlog in our engineering services business," added Parm. "Our cost-reduction initiatives are also beginning to take hold and we look forward to improved profitability for this segment in 2007."

Full-Year Results
Revenue for 2006 reached US$537.8 million, a 41 percent increase compared with US$381.0 million reported in 2005. This significant growth was driven by the Xantic acquisition, which was completed on February 14, 2006; increased demand for newer technology mobile satellite services; and growth in Broadband VSAT services. Segment earnings increased 28 percent to US$74.7 million in 2006 from US$58.2 million in 2005.

Results for the year were adversely impacted by non-cash, after-tax write-offs of capital assets totaling approximately US$22.4 million and amortization of customer relationship intangibles of US$6.5 million after-tax, primarily related to the Xantic and Plenexis acquisitions. As a result, the Corporation reported a net loss for 2006 of US$26.8 million, or US$0.64 per share, compared with net earnings of US$5.4 million, or US$0.13 per share in 2005.

Cash flow from operations, before working capital requirements, in 2006 totaled US$38.0 million, compared with US$45.5 million generated in 2005, primarily reflecting increased interest costs related to the financing of the Xantic acquisition, which were largely offset by higher segment earnings. Working capital requirements totaled US$11.1 million in 2006 primarily reflecting the payment of severance and other costs related to the integration of Xantic and other cost-reduction initiatives. Working capital requirements were US$14.8 million in 2005.

Capital expenditures increased to US$30.0 million in 2006 compared with US$25.8 million in the prior year. The increase reflected US$12.7 million of capital spending for the Xantic integration and the microwave network rebuild in the Gulf of Mexico, which was heavily damaged by the 2005 hurricanes. Liquidity continues to remain strong with cash-on-hand as of December 31, 2006 totaling US$48.1 million.

In January 2007, a settlement on the final purchase-price adjustment was reached with the former owners of Xantic. This settlement will result in a final cash payment of US$20.0 million in the first quarter of 2007.

2007 Financial Guidance
Based on 2006 results, currently available information and market conditions, the Corporation expects reported revenue growth to be in the low single-digit range for 2007, including a full year of revenue related to the acquisition of Xantic (which was completed on February 14, 2006). Segment earnings for the year are expected to grow by between 10 and 15 percent, largely driven by the synergies related to the Xantic integration and other cost-reduction initiatives. Consistent with past results, first-quarter 2007 segment earnings are expected to be substantially lower than the remaining three quarters of the year, reflecting the re-start of the annual volume discounts earned from Inmarsat.

The Corporation also expects capital expenditures to be in the 4.5 to 5.5 percent of revenue range, including approximately 0.5 percent related to the completion of the Xantic integration.

The Corporation's financial statements for the year ended December 31, 2006, and related notes, together with management's discussion and analysis of such results, are attached.

A conference call with analysts to discuss these results will be held at 8:30 a.m. ET, Friday, February 16, 2007. To access the conference call, please dial 1-800-733-7571. A live audio webcast of the call will be available online at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1713580 . A replay of the conference call also will be available through Friday, February 23. To access the replay, please call 1-877-289-8525 and use access code 21217057 followed by the number sign.

About Stratos
Stratos is the world's trusted leader for vital communications. Stratos offers the most powerful and extensive portfolio of remote communications solutions including mobile and fixed satellite and microwave services. More than 20,000 customers use Stratos products and industry-leading value-added services to optimize communications performance. Stratos serves U.S. and international government, military, first responder, NGO, oil and gas, industrial, maritime, aeronautical, enterprise, and media users on seven continents and across the world's oceans. Stratos is a wholly-owned subsidiary of Inmarsat plc. For more information, visit www.stratosglobal.com.

Caution Concerning Forward-Looking Statements
This document contains statements and information about potential future circumstances and developments. Such statements and information are qualified by the inherent risks and uncertainties surrounding future expectations generally and may differ materially from Stratos Global Corporation's actual future results. The Arrangement with CIP Canada Investment Inc. was subject to a number of closing conditions, including court, shareholder, and regulatory approvals. The court and shareholder approvals have been obtained but certain regulatory approvals remain and accordingly there is a risk that this condition will not be satisfied and the Arrangement will not close. For additional information with respect to these risks and uncertainties, reference should be made to the Corporation's continuous disclosure materials filed with Canadian securities regulatory authorities, including the risk factors described in our annual information form, the management proxy circular dated May 4, 2007 in connection with the Arrangement, and the Corporation's annual report filed with the U.S. Securities and Exchange Commission on Form 40-F. Stratos Global Corporation disclaims any intention or obligation to update or revise any forward-looking statements or information, whether as a result of new information, future events, or otherwise.


* Segment earnings is defined by the Corporation as earnings before interest expense, depreciation and amortization, other costs (income), non-controlling interest, equity in earnings of investee, and income taxes.

For additional information :
Paula McDonald, FCA
Executive Vice President and Chief Financial Officer
709.724.5227
paula.mcdonald@stratosglobal.com