Telesat Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

There are 14 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the conference call to report the Q1 2024 Financial Results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat and Andrew Brown, Chief Financial Officer of Telesat. I would now like to turn the meeting over to Mr. Michael Bolitho, Director of Treasury and Risk Management. Please go ahead, Mr.

Operator

Bolaito.

Speaker 1

Thank you, and good morning.

Speaker 2

This morning, we filed our quarterly report for the period ending March 31, 2024 on Form 6 ks with the SEC and on SEDAR Plus. Our remarks today may contain forward looking statements. There are risks to Telesat's actual results may differ materially from the results contemplated by the forward looking statements as a result of known and unknown risks and uncertainties. For a discussion of known risks, please see Telesat's annual report and updates filed with the SEC. Telesat assumes no responsibility to update or revise these forward looking statements.

Speaker 2

I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.

Speaker 3

Okay. Thanks, Michael. My opening remarks are quite short this morning, given we hosted an earnings call just 6 weeks ago when we released our Q4 and full year numbers. I really just want to note that we're tracking to the 2024 guidance we gave earlier, and we're moving out as quickly as we can on Telesat Lightspeed now that we have understandings in place for all the financing we need for our first 156 satellites. Our CapEx guidance this year is for between CAD 1,000,000,000 and CAD 1,400,000,000 or around CAD750 1,000,000,000 to CAD1 1,000,000,000 which is pretty much entirely for Lightspeed and you'll see that unfold as we report our results throughout the year.

Speaker 3

So with that, I'll hand over to Andrew and then I'll speak to the Q who will speak to the Q1 numbers in more detail and then we'll open the call up to questions.

Speaker 1

Thank you, Dan, and good morning, everyone. I would now like to focus on highlights on this morning's press release and filings. In the Q4 of 2024, Telesat reported consolidated revenues of $152,000,000 adjusted EBITDA of $111,000,000 and generated cash from operations of $76,000,000 and ended the quarter with $1,800,000,000 of cash. For Q1 of 2024 compared to the same period in 2023, revenues decreased by $31,000,000 to 152,000,000 Operating expenses decreased by $6,000,000 to $47,000,000 and adjusted EBITDA decreased by $28,000,000 to $111,000,000 The adjusted EBITDA margin was 72.8 percent as compared to 75.7% in 2023. The revenue decrease for the quarter was primarily due to reduction in services and a lower rate on the renewal of a long term agreement with a North American direct to home customer as well as lower revenues from certain mobility and Latin American customers and lower equipment sales to Canadian government customers.

Speaker 1

Looking at OpEx. The decrease in OpEx is primarily due to lower noncash share based compensation and higher capitalized engineering expenses relative to the prior period. Interest expense decreased by $4,000,000 during the Q4 when compared to the same period in 2023. The decrease in interest expense was primarily due to the repurchase of notes in Term Loan B. This was particularly offset by an increase in interest rates in the U.

Speaker 1

S. Dollar Terminal B facility in the south. In the Q4, we recorded a loss in foreign exchange of $68,000,000 as compared to a gain of $10,000,000 in the Q4 of 2023. The loss for the 3 months ended March 31, 'twenty four was mainly the result of a stronger U. S.

Speaker 1

Dollar to Canadian dollar spot rate at 31, 2024 as compared to the spot rate as at December 31, 2023 and the resulting unfavorable impact on this translation of our U. S. Denominated debt. Our net loss for the Q4 was 50 $2,000,000 compared to net income of $28,000,000 for the same period in the prior year. The change was primarily due to the loss on foreign exchange lending.

Speaker 1

For the quarter ended March 31, 2024, the cash inflows from operating activities were $76,000,000 and the cash flows used by investing activities were 20,000,000 dollars In terms of capital expenditures incurred, they were primarily related to a lower orbit constellation, Telesat Lightspeed. Guidance. As you will also have noted in our earnings release this morning, we have reaffirmed our 2024 guidance. This guidance assumes the Canadian dollar to U. S.

Speaker 1

Dollar exchange rate of 1.35. For 2024, Telesat still expects the total full year revenues to be between $545,000,000 5 $65,000,000 In terms of operating expenses, excluding share based compensation, we are still looking to spend between €80,000,000 to €90,000,000 attributed to the Telesat Lightspeed. In terms of total adjusted EBITDA, Telesat still expects to be between $340,000,000 to $360,000,000 As highlighted on our last call, we will begin the process of showing GEO and LEO separately, and we have accordingly set out this in our Note 4 of our financial statements. In respect to expected capital expenditures, as we disclosed last quarter, we continue to expect our 2024 cash flows used in investing activities to be in the range of $1,000,000,000 to $1,400,000,000 as Dan has highlighted, which is nearly all related to expected Telesat Lightspeed capital expenditures. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1,800,000,000 of cash and short term investments at the end of March as well as approximately $200,000,000 of borrowings available on the revolving credit facility.

Speaker 1

Approximately $1,250,000,000 of cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from our ongoing operating activities. Leverage at the end of the Q4, total leverage ratio was calculated on the terms of the amended senior secured credit facilities was 5.7x:one. Tenetet has complied with all the covenants in our credit agreement and in ventures. In terms of our debt repurchases, we were active subsequent to quarter end and up to May 8, 24, where we purchased debt with a cumulative principal amount of US219.5 million dollars in exchange for an aggregate cost of US98.9 million dollars Combined with the debt repurchases completed in 2022 and 2023, Telesat has now repurchased the cumulative principal amount of $806,500,000 at an aggregate cost of $438,300,000 Just to add including the repayments in 2020 of approximately 3 41,000,000 dollars of the outstanding current loan B combined with our repurchases, our overall cash has now been reduced by approximately 24% or US1.1 billion dollars In addition, this also results in interest savings of approximately US55 million dollars annually.

Speaker 1

A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning. Our 6 ks provides the unaudited interim condensed consolidated financial information in the NDA. The non guarantor subsidiaries shown are essentially the unrestricted subsidiaries of minor differences. So with that, I think we will conclude our prepared remarks for the call. I'm very happy to answer any questions you may have.

Speaker 1

We will now turn back to the operator. Thank you.

Operator

Thank you. We will now take questions from the telephone The first question is from Edison Yu from Scotiabank. Please go ahead. Your line is open.

Speaker 4

Hey, good morning. Thank you for taking our questions. Mainly just some housekeeping ones. On the cash flow, it's quite strong in the quarter despite the EBITDA declining. Were there any one time benefits here?

Speaker 4

And how do you think this kind of trends for the rest of the year?

Speaker 1

No, I think our cash flows, I think, underscore the high margins that we've got. If you look at our geo business, our margins are approximately 80%. And I think it's one of the great things of our existing business, notwithstanding the fact that indeed, we've identified that we will see drops this year, but that's the underlying cash flow.

Speaker 4

Understood. And then I appreciate the obviously the breakdown of GEO and LEO and you've got some consulting revenue on the LEO side. Is the 1Q a good run rate to take for the rest of the year, the contribution from LEO Consulting?

Speaker 3

I don't think so. It's not a big part of our business at this stage, obviously, not until LEO sort of up and in service late 2027 are we going to see meaningful revenue. Up until then, there might be some more kind of incidental stuff. We're doing some work with the U. S.

Speaker 3

Government that's sort of lumpy in nature. And I think this came from a contract that we have with NASA that we've talked about before where we're demonstrating some features on LEO's ability to communicate with other in orbit spacecraft. So but it's kind of low to no margin stuff too. It's a good thing for us to be doing to be demonstrating capabilities and tightening the relationship with the important U. S.

Speaker 3

Government user. But, yes, it's not kind of going to be a big driver of our top line results or certainly our adjusted EBITDA for the year.

Speaker 4

Understood. Thank you.

Operator

Thank you. The next question is from Arun Seshadri from BNP Paribas. Please go ahead. Your line is open.

Speaker 5

Yes. Hi. Just a couple from me. First, just wanted to understand, so the government of Canada is planning to take senior equity, I guess, above

Speaker 6

the above lenders and shareholders. Is that right? Like so their equity in Rio is going to be structurally senior equity ahead of existing lenders and shareholders?

Speaker 3

So maybe a couple of things. I mean, there what we announced 6 weeks ago is that the Government of Canada we reached terms with the Government of Canada on a roughly CAD2.1 billion loan and we disclosed but the terms of that are, it's 15 years, it picks during construction, it's got a carries a rate of CORA plus 4 75 basis points. So it's fundamentally alone and the government of Canada will be the kind of alongside of the government of Quebec and our and the vendor financing that we're getting, it'll be the sort of senior secured lender in connection with the Lightspeed Constellation and in the unrestricted group where we're building Lightspeed. So that's kind of number 1. But yes, as part of the deal, there is kind of an equity feature.

Speaker 3

The Government of Canada is getting US3 billion dollars for the Lightspeed project. So anyway, I'm just trying to be responsive to your question about senior equity. It is kind of a form of equity participation in the Lightspeed project itself as opposed to the common shares of Telesat Corporation.

Speaker 6

So effectively, thank you, Dan. That was clear. So I think what you're saying is that it is effectively equity, that's like I said, first preference on Lightspeed and then the residual equity would be what flows through to the equity of

Speaker 3

Telesat? Yes. I wouldn't think about it as first preference. I think about it that right now, Telesat owns 100 percent of Lightspeed. And in the future, if the Government of Canada exercise these warrants, they would be an equity participant alongside of Telesat.

Speaker 6

Okay. So you're saying it's not structurally senior equity then that it's actually alongside whatever equity there is. No.

Speaker 3

That's right. Yes, that's exactly right.

Speaker 6

And then is there any I mean, I guess like is there anything specific either direction, I. E. Is it as you finish off the financing, would you from the government of Canada's perspective, would it make sense for them to have the entire the Telesat cash flow also be as credit support or debt financing? Or is it I guess, on the flip side, would they insist that Lightspeed be separated from Telesat in order to sort of finish off the financing? And I guess if the latter is the case, then would you how would you manage solvency requirements to make sure that that happens?

Speaker 3

So maybe I'll start answering this. So first off, and just so everyone understands how this work, the government of Canada is lending us money. It's going to be in the unrestricted group. And the cash that Telesat Lightspeed generates is going to be used to support the borrowings in that unrestricted group. And so again, we've mentioned that our funding sources beyond our own $1,600,000,000 equity contribution is going to be borrowings from the Government of Canada, the Government of Quebec and some vendor financing.

Speaker 3

And so those borrowings are going to be supported and secured in or secured by our Lightspeed activities. And so yes, so could we in the future could in the future others potentially be behind the government of Canada in terms of being supported by Lightspeed cash flows or could with the government's consent something different be done? Yes. But right now that's kind of how it's set up. I think we've always been pretty clear about how Lightspeed is getting financed and the fact that we've got a restricted group and an unrestricted group.

Speaker 3

And I mean, it's fundamentally, it's being project financed and our financing sources are Government of Canada, Government of Quebec, some vendor financing and then again our own meaningful equity contribution. So I hope that's helpful.

Speaker 7

And then

Speaker 3

we should probably move on.

Speaker 6

Yes. I think that's very helpful. And then can I ask one last thing and that is I noticed that the restricted payment hasn't fully been made yet? Just would you I guess the expectation is that restricted payment will be made. And then once that's done, are there any other things that need to be done to put a bow on I guess what else needs to be done from a timing standpoint to put a bow on the all of the financing requirements?

Speaker 6

Thanks.

Speaker 2

So the restricted payment, I think it's $125,000,000 120, yes. There's a remaining restricted payment of $120,000,000 to be made under the $150,000,000 general benefit.

Speaker 3

Yes. And we expect that will get done in the coming days. Yes, that will be correct. And then beyond that, again, we'll at this point in time, we've got all of the financing lined up for the 156 satellites. We do need to conclude definitive funding agreements with those sources that But we've already kind of started down that road and are highly confident that we're going to get there.

Speaker 3

So that's, I'd say, the final bow that needs to be tied. But we're moving forward, as we said in our remarks. I mean, we've got meaningful cash on our balance sheet at this point in time. And we're going to start spending that money so that we can move this program forward as quickly as we can, because we are hugely bullish on the opportunities that are out there in the market. And we want to come to market and get in service as quickly as we can.

Speaker 5

Thanks very much.

Speaker 3

Thank you.

Operator

Thank you. The next question is from Chris Quilty from Quilty Space. Please go ahead. Your line is open.

Speaker 8

Thank you. So Dan, just to follow-up and I'm not going to hold you to it, but on the government of Canada, Quebec and the vendor, is that something that in the next 3 to 6 months sort of

Speaker 3

time Yes, yes, yes. Yes, yes, yes, yes, no, we believe that should get done before the end of the summer. And hopefully, yes, we're we've got a lot of momentum with the government of Canada, as you can imagine, and the government of Quebec, which are the big contributors here. So yes, we're talking about in the coming months.

Speaker 8

Got you. So I was going to say the summer ends in October, Florida, and I'm assuming you're talking about it.

Speaker 3

Well, I'm working on an Ottawa summer, which ends a little bit earlier. Anyway, spring hasn't really even shown up yet. So anyway, yes.

Speaker 8

Yes. So and also the CapEx in Q1, I mean, obviously, you just closed the financing deal, but CapEx in Q1 was a little bit lower than I was expecting. And Is it fair to assume you're probably more towards the $1,000,000,000 and the $1,400,000,000 And Andrew, typically in these large scale long term programs, is it fair to assume year 1, 30%, year 2, 40%, year 3 30% type of how it falls out in timing or should we look at this as sort of a longer slower climb? Just general framework of how you expect to pay them out.

Speaker 1

Yes. I think, Chris, that given the nature of the program on supply chain and getting everything sort of moving forward. So I think in this year that we our guidance was to 1.4. We think that's a solid number. And so by implication, it means we'll see kind of more payments upfront as we get all of the suppliers in place.

Speaker 1

So that's probably the best way I would characterize it. And then thereafter, as we go through the different milestones over the next 2 to 3 years, it will be more of a kind

Speaker 3

of a

Speaker 1

flow and the operational milestones, Chris.

Speaker 8

Great. And one other question for you, Andrew. You had given the expected OpEx for the Lightspeed program. I'm assuming that is OpEx that's running through the P and L and strips out whatever is getting capitalized. And can

Speaker 1

you give a

Speaker 8

sense of what is getting capitalized in as part of the program? And is that again, if the construction goes and more gets capitalized, do we see that Telesat OpEx staying flat because everything gets rolled into capitalization? Or do you expect it to grow in the out years?

Speaker 9

I mean, it's going to

Speaker 8

grow in the out years, but Yes.

Speaker 10

So in terms of the sources and uses, we tried to make it a little bit clear in terms of the CapEx spend is 3rd party CapEx spend, so with vendors. So labor is in the operational uses, whether it's capitalized or not, just so you can see the outflow of funds and what the purpose of the outflow of funds is. So in that regard, the capitalized costs are there. In terms of the overall level of effort, the amount of capitalized staff, we build up, we ramp up our staffing infrastructure quite rapidly. And therefore, you get to sort of a constant state relatively quick in the program in terms of the level.

Speaker 8

Understand. Another question, I mean, you've predicted the data side of the business being down about $75,000,000 As some of those contracts roll off, have you programmed in being able to resell some of that capacity? And what sort of luck have you seen on the data side in resell?

Speaker 3

Yes. For sure, we assume that there's some capacity that has come back into inventory that will resell and I suspect we've already resold some of it. And the guidance that we gave for this year will have kind of captured our assumptions at least about all of that. Was there another part to your question, Chris?

Speaker 8

No, that was it. It was that simple.

Speaker 3

Okay. Yes.

Speaker 8

But I will ask you a difficult question, which is the elephant in the room question, Intelsat SES. And you'll probably have Lightspeed on order before the regulators get done with that. But what are your general thoughts on that transaction and how it impacts you?

Speaker 3

Yes. Well, first off, I mean, we all know that those were conversations that have been taking place between SES and Intelsat sometime ago. And they both confirmed that there had been discussions and then they both they each announced that those discussions had come to an end. But yes, I was never, I'd say, persuaded that, that was the end of it. So it wasn't a big surprise to us, I'd say that they made the announcement that they did recently.

Speaker 3

And I think it's that announcement, I think, fits within kind of the same framework that we've been talking about for a little while, which is to say the industry is changing quickly. There are these new entrants in StarLink and in the future, Kuiper that are impacting the industry and we all believe that industry consolidation would be a response to that. And we've seen some already with ViaSat, Inmarsat and Eutelsat and OneWeb and now this big transaction as companies kind of organize themselves to remain competitive in this changing landscape. For us, I don't think it's going to have any real impact in terms of how we compete in the market, what the prospects of Lightspeed and the like are. We've been competing against each of them for decades now.

Speaker 3

And they've each they're already each meaningfully larger than Telesat coming together. Obviously, there'll be larger still, but I don't think there's anything that should be too dramatically different in the combined competitive profile versus us competing against each of them individually. So yes, all to say, we weren't surprised. It fits with our expectation that consolidation would happen in the industry. It's probably not the last deal of certainly there will be there are fewer players as more consolidation takes place, but I suspect that there could be more consolidation still in the future.

Speaker 3

So anyway, that's how we think about it. And again, I mean, we're actions speak louder than words. Our vision is that, and I don't think it's even a vision anymore, I think we're all watching it real time. There is a transition that's taking place in the industry right now as particularly we think of as enterprise users, which is to say non video, it's in the process of transitioning off of Jio and down to LEO and for good reason, something that we saw coming, something that we think that we're well organized for with our friends for Lightspeed. So anyway, that's where our focus is right now, just making sure that we execute well on Lightspeed and bring to the market what we're convinced our addressable market is focused on.

Speaker 3

So our enterprise customers, government customers and the aero and maritime customers, they're wanting affordable, high throughput, low latency, distributed, resilient, kind of seamlessly connected connectivity and we'll be able to deliver that in light speed.

Speaker 8

Great. I appreciate it. And I hope spring comes in for you.

Speaker 3

Thanks, Chris. Thanks, Chris.

Operator

Thank you. The next question is from Marcelo Cherminski from Ares Management. Please go ahead. Your line is open.

Speaker 11

Hey, guys. Thanks for taking the question. You said earlier in response to a question that you will be making CAD120 1,000,000 restricted payment in the coming days. Given that you already have such a significant amount of cash at the LEO entity and are waiting to spend the money until once you finalize terms later this summer, what is the rush to make the cash transfer so soon?

Speaker 3

Hey, Marshall, thanks for the question. First off, I think the I'm looking at our first

Speaker 2

It's US150 dollars

Speaker 6

It's US120 dollars

Speaker 3

Yes. So the payment is US120 dollars And then as far as urgency, look, we're moving forward with Lightspeed in advance and by moving forward Lightspeed, I mean, we are going to be spending meaningful amounts of money this year. You've heard the CapEx guidance that we've given In advance of completing these definitive agreements, we have a sufficiently high level of confidence on the one hand that will conclude those definitive agreements. And on the other hand, kind of a strategic urgency to get going with the Lightspeed program. So we're moving out.

Speaker 3

And when we talk about the CapEx spending that we've guided to this year, that like we're opening the spigots now and MDA is going to be and our other vendors contracting with the supply chain, ordering parts, hiring people, we're moving out here. So that's the plan. That's what we'll be doing.

Speaker 11

That makes sense. And in terms of discussions regarding an extension on your revolving line of credit, I know it's due later this year. Know today you're in compliance with the revolver covenant. But if I roll forward your leverage ratio at year end based on the guidance, and I understand the guidance and I understand you're not tested today since there's no revolver usage. But I think the company may not be in compliance by year end.

Speaker 11

Like do you think that could impact like a revolver? And do you think it's fine without having a revolver? How are you thinking about discussions?

Speaker 2

Okay. Yes, Marcello. It's certainly something that we look at, that we review. We have a business that generates our GEO business, as we talked about earlier a few minutes ago, is still generating cash.

Speaker 8

And in terms of

Speaker 2

a revolver in 17 years, I believe we have drawn our revolver once.

Speaker 11

Yes, totally makes sense. And just one last question on utilization that has declined so much sequentially, I know there's an interplay between utilization and then just like what your pricing per transponder is.

Speaker 7

Can you

Speaker 11

talk about just like when you think about utilization, like are you targeting a certain utilization or how do you think about where utilization is versus where you want to be?

Speaker 3

Yes. No, I'll take it. Yes, we target 110% utilization, to be honest with you. I mean, that's where we'd like to be. Probably everyone does, but barely anyone really gets there.

Speaker 3

I still think even with the decline in utilization that we've had, we still probably have one of the highest asset utilization numbers in the sector right now that we concluded this quarter at 77%, but it is down meaningfully from where we ended Q4, which was up and around 85%. And it's and what's driven that, the biggest culprit has been the business we've lost in the maritime space fundamentally. We talked about that on our last call that there was some renewals that we did not secure, particularly in the maritime space that have moved mostly, as far as we can tell over to StarLink. And so we're and I'm not going to guide right now on what we think utilization will be in the future, but we're focused on remarketing that capacity. From a pricing perspective, there has been downward rate pressure in the industry for years now.

Speaker 3

And the kind of the slope of that decline has varied throughout those years. So we were seeing significant downward pricing pressure. I'm looking at one of my colleagues probably 5 or 6 years ago. It moderated. There's still downward price pressure, but the extent of it had moderated.

Speaker 3

And again, I'm speaking as if we're living in a homogeneous world. It really varies by region. And we had noted before that probably where we were seeing the steepest declines were in Africa, in Latin America. But again, things started to moderate a little bit. Right now, I'd say the slope of the downward pressure is probably picking up a little bit again, but not dramatically.

Speaker 3

So anyway, so but look, I mean, the laws of supply and demand are alive and well in our industry like in others. And so yes, but that's what has accounted for the decline in utilization. It's mostly been in the maritime space. There is some downward pricing pressure, but not what I would describe as sort of extreme at this point.

Speaker 11

Great. Thanks so much.

Speaker 3

Okay. Thank you.

Operator

Thank you. The next question is from Matt Lapides from AB Partners. Please go ahead. Your line is open.

Speaker 7

Hey, guys. Thanks for all the color here. Wanted to follow-up on the maritime comments. Can you talk about what type of maritime customers you've been losing? Are they cruise lines?

Speaker 7

Are they large global shipping companies? Are they both? Are they personal, the yacht segment? Any color you can provide on the type of maritime customers where you're seeing the most defection, I suppose.

Speaker 3

Yes, yes, yes. The biggest has been in the cruise space and in particular probably for us in the Caribbean. We just had a meaningful amount of capacity there. So I'd say that accounts for the lion's share of the losses cruise in Caribbean. And then there's probably on the margins, there's been some erosion, don't know, maybe maritime transport and stuff like that, but the driver has been cruise.

Speaker 7

Got it. Is it and can you talk about how much of that business added if you look back 3 years ago, how much of it is now gone? I mean, is there more of it to come this really well? I'm trying to get at.

Speaker 3

Yes. We've been staring at that. I'll ask my colleague, John, we've short a lot of the hit. John, do you want to offer any thoughts around that?

Speaker 12

Yes. If you go back 3 years, that's probably not the right time to go back to because in the past 2 years, we had some pretty significant increases in maritime, but from the past 2 years to this year we're expecting roughly half the revenue, revenue declined by roughly half

Speaker 3

from where we were

Speaker 12

over the past couple of years.

Speaker 7

Got it. That's helpful. And then just one follow-up to the earlier question about the government of Canada's equity position in Rio. I just want to make sure I understand the flow of funds. If 5, 6 years from now, loan speed is up, everything you hope it would be in terms of generating lots of cash.

Speaker 7

And in the Neo subsidiary business, if there is excess cash flow after servicing the debt with a dollar of excess cash flow, where does that first dollar go to? Does it go to the equity holder do we go to the equity holders of the LEO subsidiary or is it shared ratably amongst up at the ultimate holding company such that all stakeholders would get their pro rata share of that dollar?

Speaker 1

There's nothing in the contemplated definitive documents that we're talking about that would ratably share that between the equity holders at Telesat Corporation and Telesat Leo, no.

Speaker 7

Okay. Thank you for clarifying. That's it from me. Appreciate it.

Speaker 3

Thank you.

Operator

Thank you. The next question is from Evan McFadgen from Cormark Securities. Please go ahead. Your line is open.

Speaker 13

Okay. Thank you. Yes, a couple of questions. So if I understand you right, I think you said that you expect to conclude the definitive agreements with the government and it could take as long as turning into the summer. Is that correct?

Speaker 3

Yes. Again, I mean, we're dealing with the government of Canada here. So can't be too precise about the timing on when exactly it would come to a close. But that's our expectation given the momentum that we have and what an extensive blueprint we have in terms of what the terms are. Yes, we think that having this done by the end of the summer is a realistic

Speaker 6

timeline.

Speaker 13

Okay. And so even though you may not have those agreements completed until the end of the summer, you're still going to spend $1,000,000,000 to $1,400,000,000 And I guess you can do that because you have all that cash and non restricted stuff. Is that what gives you the confidence to just spend the

Speaker 7

way you are? Well, it

Speaker 3

gives us I mean, what gives us the confidence to spend that money before having the definitive agreements concluded is just a lot of conviction that we'll get those definitive agreements done given all the good work that we've done with these funding sources and how much these funding sources want to see this project move forward. And then as I said, on the other hand, we got to get going. We've got pricing locked in with our suppliers and we've got a great opportunity out there in the market. Our customers are wanting us to have this service available to them as quickly as we can. If they had their way, we'd have it available like now.

Speaker 3

So we got to move and waiting around for another 3 or 4 months knowing as we do and we believe that again, a high degree of confidence that we're going to get all this funding that we need just doesn't seem to be on balance the right thing to sit on our hands and go through a process that we're pretty have a lot of conviction about where we're going to land with these funding sources. We so yes, so we've decided to move forward and move forward with speed.

Speaker 13

Okay. And so I would imagine that the vast majority of that spend might be able to be on satellite build and design and everything, correct?

Speaker 3

The most significant portion of the CapEx that we'll be investing this year is, yes, it's going to go towards satellites. There'll be some launch payments. There'll be some other stuff for user terminals and landing stations. But the biggie will be our friends at MDA giving them the cash that they need to turn on their supply chain and move forward.

Speaker 13

Right. And so because MDA is prime contractor, all that money is going to go through MDA, right?

Speaker 3

I wouldn't say all of it, but I'd say a very meaningful portion of it.

Speaker 13

All right. Okay. Okay. And then just a question on your the fact that you've lost some business to maritime, I think it's gone to Starling. It's my understanding that Starling doesn't offer any SLAs.

Speaker 13

And you would when you have lights speed up, you would offer SLAs. So wouldn't that give you a competitive advantage?

Speaker 3

Yes, we think it will. But we need our legacy constellation to deliver the service. So that's why we're bullish about our prospects to take the market share that we need in order for that project to be successful. I think there are a number of features of the Lightspeed Constellation that will give us a good competitive advantage and allow us to present a tremendous value proposition to the customer community, the ability to provide SLAs and CIR and give our customers an enormous amount of autonomy to manage the bandwidth that they'll be contracting from us. So I think all of those things will allow us to be successful.

Speaker 3

But yes, Evan, that's one of the features for sure. We'll be offering our customers SLAs and we think that's important to some subset of them.

Speaker 13

Okay. All right. Thank you so much.

Speaker 3

Okay. Thank you. Thank

Operator

you. The next question is from Alex Nolan from Investo. Please go ahead. Your line is open.

Speaker 8

Thanks. My question was answered.

Speaker 4

I wasn't able to take myself out of the queue. Thanks.

Speaker 3

Thank you. Thank you.

Operator

Thank you. The next question is from Walter Piechuck from Leitchhead. Please go ahead. Your line is open.

Speaker 5

Thanks. Dan, I apologize if this is kind of a redundant question, but I've kind of heard this. I want to make sure that this is put to bed. This NDA will start constructing these satellites prior to you finalizing the agreements with the government of Canada, correct?

Speaker 3

Correct. Okay.

Speaker 5

And then in terms of the overall market, now that you've seen a little bit more of what StarLink has been doing, different verticals they've gone into, I'm not sure many people in the least initially expected them to go after maritime. I know that there were some of your peers that were claiming they couldn't do airplanes and other on airplanes. Just curious when you look at the market opportunity for your LEO constellation, has it changed at all or as you kind of approach construction now?

Speaker 3

I don't believe so at all. And listen, StarLink is having a big impact on the market and they're having an impact on our business,

Speaker 2

which

Speaker 3

I don't love. But what I do love is, it is, I think 100% validated the strategic direction that we took Telesat in going some years back. And you're right, there were folks that doubted whether they penetrate the maritime market and the backhaul market and doubts about the aero market. We were convinced that Alio architecture was not only a good infrastructure to support those services, but one that would have a significant competitive advantage and STARLINK is demonstrating that in real time. And so but no, our market thesis, our business plan, it's intact.

Speaker 3

Yes, we're seeing yes, here again for me, it's just reinforced everything. Our customers know now that, Leo is the best way to address so many of these requirements. They are taking services from StarLink and it provides a pretty good service, but it doesn't give everything it doesn't give everyone everything that they want. We've talked about the SLAs, we've talked about their ability to manage their own bandwidth pools and whatnot. So it doesn't give enterprise users everything they need, number 1.

Speaker 3

Number 2, the customers don't want to put all of their requirements with one supplier. They don't do that with all sorts of their enterprise infrastructure, whether it's cloud or Internet connectivity kind of writ large, whether it's satellite or not. So they want multiple providers. Yes, there's huge opportunity here. So there's nothing that we've seen in StarLink that causes us to question the various assumptions that we made when we got ourselves on this light speed path.

Speaker 3

If anything, all of our thinking around the immensity of the opportunity and why LEO will have a competitive advantage capturing those requirements has been validated by everything we've witnessed over the last 12 plus months.

Speaker 5

On past calls, I've talked about or we talked about the ability to sign up people to pre reserve the capacity, right, in existing enterprise customers or maybe new ones saying, hey, we're going to take part in this. And I think the issue was getting to that point of finalization and that once that occurred, we might be able to see some of those press releases start to hit. Understanding that things aren't financed or excuse me, finalized, if you started the construction, isn't that send enough of a message to these customers that we can start seeing some releases from you guys or some indications of enterprises signing up for capacity on the new constellation?

Speaker 3

Yes. Listen, you're right. I think calls like this one and we're in a small industry. Will ripple through the industry. If anyone had any doubts about whether or not Telesat was going to proceed with this program, those should be put to rest.

Speaker 3

They haven't already been put to rest. I think they should be put to rest in the coming days weeks. But so I think that it will be a great sign to the customer community that Lightspeed is coming. And look, we're only about 2 years away from launching our first satellite. So, right, it ain't that far away.

Speaker 3

And we are going to be very focused on trying to secure customers and making those announcements and reporting backlogs so that all sorts of different audiences can track the progress we're making. My own expectation is it will still be closer to in service when we're able to make more of those announcements. But I still have an expectation that we'll be able to announce commitments in advance of being in service. And you can imagine that with all of my colleagues here on the commercial side, we're very focused and we're very engaged with the customer community right now. They're excited about Lightspeed.

Speaker 3

So yes, all I'd say there is stay tuned. We're very focused on that and we'll be very transparent about the commitments that we get.

Speaker 5

If I can just one last one on EchoStar. I mean, they're facing some financial distress, particularly, as they approach the end of the year, which is, I think, the time for a renewal. Have you had any preliminary discussions, any thought on that maybe how that might play out?

Speaker 3

Well, we talked about one of the headwinds that we're facing this year is an expectation that and they use the renewal that we have coming up, it comes up in October, is on our Mimic 5 satellite, which they use they're the exclusive user of that satellite. And so the guidance that we gave for this year captures all sorts of different outcomes that we might get there. And on the last call, we had said that we've started the conversation with EchoStar about their thoughts about whether they're going to want to renew or not. But we haven't advanced it that much since we had our last call just 6 weeks ago. And so it's not clear to me where we'll end up.

Speaker 3

I think regardless of the scenario, we're going to see a meaningful reduction in the amount of revenue that we recognize from, Mimic 5 post renewal date in October. But whether they renew all of it, some of it or none of it, It's still not clear to us at this point in time. And we've got a great relationship with EchoStar. We've worked with them for years. We know that Mimic 5 is being used to distribute content today to their subscriber base.

Speaker 3

We know that they do have a lot of other things that they're focused on and saving cash is pretty high on that list. So anyway, all to say that, yes, we'll give an update once we have one. But right now, we don't have an update from the call that we had just 6 weeks ago.

Speaker 4

Got it. Thank you.

Speaker 8

Thank you, Walter. Thanks, Walter.

Operator

Thank you. At this time, we will turn the call back over to Mr. Goldberg. Please go ahead.

Speaker 3

Okay. Well, operator, thank you very much. And everyone, thank you for joining us this morning. And we look forward to chatting with you when we release our Q2 results. So thank you all and have a nice weekend.

Speaker 3

Thank you. Carryout.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time. And we thank you for your participation.

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Earnings Conference Call
Telesat Q1 2024
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