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Stratos Announces SecondQuarter 2007 Financial Results

BETHESDA, MD (July 31, 2007) - Stratos Global Corp. (TSX: SGB), the world's trusted leader in delivering vital voice, data, and IP communication services today announced financial results for the second quarter ended June 30, 2007.

Second-Quarter Highlights

  • Revenue up 8 percent to US$149.9 million from the same quarter a year ago and 4 percent on a sequential quarterly basis.
  • Segment earnings* reach US$23.9 million, up 64 percent from the second quarter of 2006 and 29 percent compared with the first quarter of this year.
  • Net earnings total US$6.6 million in the quarter driven by strong operating results in the Mobile Satellite Services (MSS) business and an after-tax gain related to the Gulf of Mexico final hurricane insurance settlement. Adjusted net earnings (as described below) total US$7.6 million, or US$0.18 per share, compared with a net loss of US$1.8 million, or US$0.04 per share, in the same quarter of 2006.
  • Cash-on-hand increases to US$41.6 million on June 30 driven by operating cash flow (including working capital changes) of US$17.0 million in the second quarter.

Second-Quarter Results
For the quarter, the Corporation reported revenue of US$149.9 million and segment earnings of US$23.9 million, representing increases of 8 percent and 64 percent, respectively, compared with US$139.3 million of revenue and US$14.6 million of segment earnings in the same quarter a year ago. The strong growth in revenue and significant improvement in segment earnings, compared with the second quarter of 2006, primarily reflect growth in newer generation Inmarsat services, higher volume discounts earned from Inmarsat, and cost reductions related to the integration of Xantic and other initiatives.

Net earnings for the second quarter totaled US$6.6 million, or US$0.16 basic earnings per share, compared with a net loss of US$4.1 million, or US$0.10 per share, in the second quarter of 2006. Results in the second quarter of 2007 were positively influenced by an after-tax gain of US$3.8 million, or US$0.09 per share, from the final settlement of insurance claims related to hurricanes Katrina and Rita. This gain was largely offset by US$2.8 million of after-tax costs, or US$0.06 per share, primarily related to the pending transaction with CIP Canada Investment Inc. (CIP Canada), including a non-cash charge related to stock options which vested immediately prior to shareholder approval of the transaction.

Excluding these items and the non-cash amortization of customer relationship intangibles related to the Xantic and Plenexis acquisitions, adjusted net earnings (a non-GAAP measure) for the quarter were US$7.6 million, or US$0.18 per share, compared with an adjusted net loss of US$1.8 million, or US$0.04 per share, in the second quarter a year ago.

In the MSS business, revenue increased by 11 percent to US$119.8 million in the second quarter of 2007, compared with the same quarter in 2006, and by 6 percent on a sequential quarterly basis. The growth in revenue compared with the second quarter of 2006 was driven primarily by increased demand for newer generation products and value-added services. MSS segment earnings were up 79 percent compared with the same quarter a year ago, reaching US$22.7 million in the second quarter of 2007, and up 39 percent compared with the first quarter of 2007. Segment earnings as a percent of revenue reached 19 percent in the second quarter compared with 12 percent in the prior year second quarter and 16 percent for the full year 2006. The substantial improvement in segment earnings compared with the second quarter of 2006 reflects the increased revenue, higher volume discounts earned from Inmarsat, as well as cost reductions related to the Xantic integration and other initiatives to improve operating efficiencies.

Revenue and segment earnings in the Broadband division were US$30.1 million and US$1.2 million, respectively, in the second quarter of 2007, compared with US$31.0 million and US$2.0 million in the same quarter a year ago. Results in the second quarter of 2007 were negatively impacted by cost overruns on an engineering project.

"We are pleased to report the fourth consecutive quarter of improving financial performance," said Jim Parm, Stratos president and chief executive officer. "The MSS business continued its strong operational performance in the second quarter," said Parm. "The solid growth in revenue from new services, including BGAN, together with the synergies from the Xantic integration and other initiatives, are driving strong improvements in profitability. In Broadband, we continued to be disappointed with the operational execution from this business, particularly in the engineering services segment, and have initiated steps to improve performance and profitability."

"Finally, we were pleased that our shareholders approved the pending transaction with CIP Canada and we look forward to its completion, following regulatory approval, in the fourth quarter of this year," concluded Parm.

First-Half Results
For the first six months of 2007, the Corporation achieved revenue of US$294.5 million, a 14-percent increase compared with US$258.6 million in the first half of 2006. This improvement reflects the acquisition of Xantic, which was completed on February 14, 2006, and growth in newer generation products and value-added services. Segment earnings for the first half of 2007 increased by 44 percent to US$42.4 million compared with the same period of 2006. The significant improvement in segment earnings was driven by the increased revenue, higher volume discounts earned from Inmarsat and cost reductions resulting from the integration of Xantic and other initiatives to improve operating efficiencies.

Net earnings for the first half of 2007 were US$2.4 million, or US$0.06 per share, compared with a net loss of US$28.9 million, or US$0.69 per share, in the comparable period of 2006. First-half 2007 results were negatively impacted by US$7.1 million, or US$0.17 per share, of after-tax financial advisory, legal, and other costs primarily related to the pending transaction with CIP Canada, which were partially offset by an after-tax gain of US$3.8 million, or US$0.09 per share, related to the previously described insurance settlement. First-half 2006 results were adversely influenced by after-tax write-offs of US$23.9 million, US$0.57 per share, related primarily to the acquisition of Xantic. Excluding these items and the non-cash amortization of customer relationship intangibles related to the Xantic and Plenexis acquisitions, adjusted net earnings (a non-GAAP measure) for the first half of 2007 were US$9.7 million, or US$0.23 per share, compared with an adjusted net loss of US$1.7 million, or US$0.04 per share, in the first half of 2006.

Cash flow from operations (including working capital changes) in the first half of 2007 totaled US$22.5 million, compared with US$14.3 million generated in the same period of 2006. The improvement primarily reflects higher segment earnings, partially offset by increased interest costs related to the Xantic acquisition financing and costs related to the pending transaction with CIP Canada.

Capital expenditures totaled US$10.5 million, or less than 4 percent of revenue, in the first six months of 2007 compared with US$12.1 million, or 5 percent of revenue, in the prior year's first half. In February 2007, a final purchase-price adjustment of US$20.0 million was paid to the sellers of Xantic. Cash-onhand at the end of June totaled US$41.6 million, compared with US$48.1 million at the end of 2006.

On June 12, 2007, the Corporation announced that its shareholders had approved the plan of arrangement between Stratos and CIP Canada by which CIP Canada will acquire all of Stratos' outstanding shares for a cash purchase price of C$7.00 per share. The transaction remains subject to regulatory approvals and is expected to close in the fourth quarter of this year.

Full Year Guidance Revisions
Based upon currently available information and market conditions, for the full-year 2007, the Corporation now expects reported revenue growth to be in the mid-to-high single-digit range, up from the low single-digit range previously expected. Segment earnings for the year are expected to grow by between 15 and 20 percent, increasing from the 10 to 15 percent range previously disclosed. Capital expenditure guidance remains unchanged at 4.5 to 5.5 percent of revenue.

The Corporation's financial statements for the three- and six- month periods ended June 30, 2007, 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. EDT, Wednesday, August 1, 2007. To access the conference call, please dial 1-800-731-5319. A live audio webcast of the call will be available at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1928080. A replay of the conference call also will be available through Wednesday, August 8. To access the replay, please call 1-877-289-8525 and use access code 21240323 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