Q2 2022 Telesat Corp Earnings Call
It's going to stay home if they don't have as you see.
Okay.
All participants thank you for standing by the conference is ready to begin.
Good morning, ladies and gentlemen, welcome to the conference call to report second quarter 2022 financial results for kind of stopped.
Speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Angela Brown, our Chief financial Officer of Telesat.
I would now like to turn the meeting over to Mr. Michael but idle.
Director of Treasury and risk management. Please go ahead, Mr. Bill Lytle.
Thank you and good morning. This morning, we filed our quarterly report on form 6K, with the SEC and on SEDAR. Our remarks today may contain forward looking statements. There are risks that tell us that actual results may differ materially from the results contemplated by the forward looking statements as a result of known and unknown risks and.
For a discussion of known risks <unk> annual and quarterly reports filed with the SEC and SEDAR Telesat assumes no responsibility to update or revise these forward looking statements.
Now I'll turn the call over to Dan Goldberg.
President and Chief Executive Officer, Okay. Thanks, Michael This morning, I'll share some thoughts on our results and give an update on the business I'll, then hand over to Andrew who will speak to the numbers in detail and then well open the call up to questions.
Noted in the earnings release, we're off to a good start for the year and as a result, we're able to raise our full year guidance for both revenue and adjusted EBITDA.
Our confidence around this comes from securing the partial dish renewal reselling the portion of capacity that dish didn't redo the rebound we've seen in traffic for mobility services over the course of the year and a number of other contributors on both the revenue and expense side of the business.
Pricing environment remains largely stable and we continue to maintain relatively high utilization across the fleet.
On our last earnings call. We noted that we purchased in the open market Telesat unsecured notes with an aggregate face value of U S $60 million and that our board has authorized us to purchase up to an incremental 100 million U S stars fish value of Telesat debt, which we did in Q2.
Two last quarter and at our Board meeting yesterday, we received authority to purchase up to an additional U S 100 million face value in Tulsa debt.
Suffice to say, we think our debt's trading below fair value and that this is an accretive way for us to use our cash.
I wanted to flag. This morning, an issue with our Anika to satellite that we called out in the 6K, we filed and previous filings. We've noted that Anika two suffered anomalies on two of its thrusters and that as a result, we had to implement a work around mode to maintain its orbital position and provide service to customers.
We expect this approach will allow us to provide station kept service until 2025, but it now appears that we can only maintain station kept service until the end of this year at which point the satellite will be put an inclined orbit.
When that happens the services currently supported on the satellite will be adversely impacted some as early as next February well other services will degrade over time, depending on the size of the antenna is receiving signals from the satellite as a result, beginning next year, we expect anika to revenues will decline.
If we can't find alternative ways to support those services.
But in an effort to provide continuity of service and preserve revenue, we're developing a range of potential mitigation strategies for Caf II.
<unk>, adding tracking antennas at certain of our sites, which should extend the service life for many of our customers and exploring repoint team customer antennas to alternate telesat satellites or the third party capacity, we're working closely with our anecdote to customers and with government officials here in Canada.
On this effort as most of the services on the satellite are provided in Canada.
To give you a sense of the potential financial impact Anika, two unrelated ground services represent around 8% of our revenue so a little bit more than 50 million Canadians we.
We don't anticipate any adverse revenue impact for this year 2022 for next year and assuming that given the service and when it can no longer be supported on the satellite we estimate we'd lose around a third one third of Anika two's revenue next year in 2023.
<unk>, which likely would be somewhat offset by resale of the freed up capacity for mobility services, which anika two can support when it's an inclined operations, but to be clear, we'll be seeking to use our own and third party capacity to find solutions for our anecdote to customers in.
Order to provide continuity of service and preserve the revenue on Anika two to the maximum extent possible. We will however, incur incremental expense for any third party capacity or other investments we make to extend the impacted service.
So turning to tunnel Lightspeed, we received a few weeks ago, a final proposal from towers, which we shared with the ECA lenders earlier this week.
It took us longer than anticipated to get the towels proposal on our last earnings call I indicated we hope to have a good sense of where we stood with the ECA is by the end of June but given the delay in getting towels as final proposal. That's now slipped out a few months.
We also believe that we're going to need to secure some additional financing above and beyond the ECA borrowings as inflation and the delay in the schedule for Telesat Lightspeed has led to an increase in the cost of the program.
To that end, we're in discussions with potential financing sources at this time the contemplated financing this incremental financing would be at the lightspeed unrestricted subsidiary level and would be subordinate to the ECA lenders and the governments of Canada and government of Quebec investments.
Lightspeed represents a compelling investment opportunity, but there is no assurance that these discussions will come to a successful conclusion.
Although we've been disappointed with the supply chain challenges and inflationary pressures that we've encountered we remain extremely bullish about the opportunity Telesat Lightspeed gives us to grow our business, we have a highly disruptive and robust constellation design over $750 million in contractual backlog and over.
$4 billion in financing arrangements and the strong support of government partners at the federal and provincial levels here in Canada. Our overwhelming focus is on completing the financing and commencing the full scale construction of the program so with that I'll hand over to Andrew and then look forward to addressing any questions. Thank you Don and good morning.
Everyone I would now like to focus on the highlights from this morning's press release and filings in the second quarter of 2022, Telesat reported revenues of $187 million adjusted EBITDA of $1 $46 million and generated cash from operations of 26 million with $1 5 billion up cash on the balance sheet at quarter end.
Yeah.
For the second quarter of 2022 are compared to the same periods of 2021 revenues decreased by $1 billion to $187 million operating expenses decreased by 6 million to $59 million and adjusted EBITDA decreased by 2 million to $146 million. The adjusted EBITDA margin was 78, 4% compared to $78 seven.
In 2021.
Between 2021, and 2022 changes in the U S. Dollar exchange rate had a negative impact of 4 million on revenues and minimal impact on operating expenses and a negative impact of $4 million on adjusted EBITDA when adjusted for changes in foreign exchange rates revenues decreased by $6 million for 2022 compared to 2021.
Operating expenses decreased by 7 million and adjusted EBITDA decreased by $5 million.
The revenue decrease was primarily due to reduction on renewal of a long term agreement with a north American direct to home customer, partially offset by an increase in services provided to customers in the mobility market as it continues to recover from the impacts of COVID-19 the.
The decrease in operating expenses was primarily due to lower noncash share based compensation and lower professional fees.
Interest expense increased by <unk> billion in the second quarter when compared to the same periods of 2021. The increase in interest expense was primarily due to interest on the 2026 senior secured notes, which were issued in April 2021, combined with higher interest on our U S term loan B facility. This was partially offset by the impact.
Of the repurchase of our senior unsecured notes combined with the impact of maturity of one of our interest rate swaps in September 2021.
During the six months ended June 32022, we repurchased senior unsecured notes with a principal amount of two a $2 1 billion Canadian of wave open market purchases and exchanged for $97 2 million. These repurchases resulted in a gain in the second quarter of 86 million and for the six month period of thousands gained about one.
Third and $7 million. These notes have been retired and also to point out the represent an annual interest savings of approximately $10 4 million per year as Don has mentioned, we have also authorization to purchase up to a Florida $100 million U S face value of death.
In 2022, we recorded the loss from foreign exchange of 99 million during the second quarter compared to a gain of $41 million in the second quarter of 2021, the loss of the trade months ended June to Turkey. It was mainly the result of the stronger U S. Dollar the Canadian dollar with the resulting in favorable impact on the translation of our.
U S denominated debt.
Our net loss for the second quarter of 2022 was $4 4 million compared to net income of $53 million in the prior year the variation of $57.
4 million was principally due to noncash foreign exchange losses, but the trade months ended June to Turkey in 2022 compared to the same period in the prior year. This loss was partially offset by the gain on extinguishment of debt.
For the first half of 2022, the cash inflows from operating activities were 69 billion and the cash flows generated from investing activities were $31 million included about 65 million by way of receipt of the remaining phase one U S. C band clearing process and virtually all of the capital expenditures related to a lower orbit constellation.
Satellite space.
Looking to guidance as you would have noted in our earnings release. This morning and is down as elaborated. His remarks, we are updating our previously stated 2022 guidance for 2022, <unk> now expects its full year revenues to be to be between 700, and $740 million and $750 million and an increase from $7 $90 million to $740 million.
Also as stated when we provided the preliminary 2022 guidance on March the <unk> included in our revenue expectation is the recognition of a significant hardware sale, but the provisions are related services. The DARPA later this year as part of an $18 3 million contract.
In terms of adjusted EBITDA Telesat now expects it to be between $5 45 million to $560 million and an increase from 525 million to $5 $45 million.
Our guidance does reflect a Canadian dollar to U S dollar exchange rate of 1.3.
With respect to expected capital expenditures, we still expect our 2022 cash flows used in investing activities to be in the range of $100 million to $120 million, including capital expenditures to further advance our lightspeed program. Once we have greater visibility around the construction and financing over at Telesat Lightspeed program will provide affordable.
Update on our anticipated capital expenditures for the year, which could increase substantially.
To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1 5 billion of cash and short term investments at the end of June as well as approximately 200 million U S dollars of borrowings available under our revolving credit facility approximately $1 billion in cash was held in there.
Unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from her ongoing operating activities at the end of the second quarter leverage as calculated under the terms of the amended its senior secured credit facilities was 556 times to one.
Telesat has complied with all the covenants in our credit agreement and adventures.
Reconciliation between our financial statements and financial Covenant calculations is provided in the report filed this morning.
Our 6K provides the unaudited interim condensed financial information in the NDA, the nongovernment or subsidiary of shell are essentially.
Unrestricted subsidiaries that minor differences.
So that concludes our prepared remarks for this call and that we'd be happy to answer any questions. You may have with that return back to the operator.
Thank you, we'll now take questions from the telephone lines. If you have a question and using a speaker phone. Please keep giantess before making a selection.
<unk>. Please press star one on your devices.
Let me count same question at any time by pressing star two.
Please press star one at this time I had a question.
First question is from Walter Piecyk from light shed. Please go ahead.
Hi.
Can you give us a little bit more specific timeline on when you expect to finalize.
Yeah.
You stated in your prepared remarks finished up with.
Now very recently contact the ECA when's that going to be finalized and then what is the.
Approximate amount of the incremental financing.
And need to secure.
Thanks Walter.
So let's see.
As far as timing and when things will be finalized you know so what we've said before as I mentioned this morning about the ECA timeline is yeah. We had expected sort of you know by now to have a good sense of where we stood with.
The ECA so in the the process with the ECA is as you know.
You engage with them you signed a term sheet and then it takes some months to kind of close your financing and signed definitive documents I understand from our advisors that once you have a term sheet, you've got a pretty high degree of certainty around your your financing so.
So you know if I sort of do apples to apples.
What I thought we would know by now I now think we'll know in a couple of months so call. It sometime in Q4 and by that you know have a good sense for where we are with the ECA existing coming together or not so that that's our sense around timing with ECA.
And then to follow on what I saw.
That though that you're saying is in Q4 is the term sheet.
The finalization of the term sheet that was previously thought.
I mean body by the end of Q4, I think yeah. We've got a good sense of where we are and maybe the full term sheet assigned by by that point to though.
Harder for me to say.
Would take it that it would take another so basically in Q1 to finalize the term sheet that would've.
Hopefully it would be fine.
No I mean look you know I've never done one of these ECA things and they've got all sorts of procedures above and beyond what.
Commercial lenders have but no it would be our expectation that yeah, we'd have we'd have a good sense of where we stood with them in the next few months.
The term sheet will I dunno ticked up a little bit longer thereafter, but I don't think it's unreasonable to believe that by the end of this year that term sheet should be in place and from our perspective, you know based on all the advice that we've gotten once we have that term sheet in hand, we're going to feel comfortable about making meaningful.
Expenditures in moving forward with the program. So so the the the launch of the program doesn't have to await having.
Going through the entire definitive document process based on on the advice that we've been getting.
Maybe I'll pause there did you have any other questions about that and then I'll talk about fee.
The incremental yeah, yeah. So then on the incremental financing.
You know a couple of things as we said you know because of this.
This inflationary environment that we're in because of the schedule got elongated, which we've talked about before the program costs have gone up.
Talked about lightspeed of as like a 5 billion capex.
Kind of project and when we kind of look at the current cost from the inflationary pressures and whatnot. It's.
You know probably the Capex sub 10%, but it's up it's up some you know hundreds of millions of dollars the biggest unknown for us right now to.
And I think we've now got it.
Good sense for where the capital costs are coming I mentioned took us longer than we would have liked but we now have a final proposal.
From tell us.
And so you know, but another unknown is with.
With the ECA lenders they for those of you there.
They often require contingent capital to deal with different cost contingencies that can arise over the course of a multi year.
Program and you know that stuff like scheduled delays cost overruns, you know all of that sort of stuff and so and so.
We don't know at this point in time, the magnitude of the what's referred to as contingent equity this contingent capital and so so when we think about what that incremental and I should also say you know what we've said in the past is the E C.
<unk> financing.
Should cover you know most of the remaining of financing that we needed but it was never you know all of it we always knew that we're going to need to raise a little bit of extra money. So when we think about this incremental financing I'd say, it's going to be you know at least kind of 10%.
Of our overall capital cost and it could be more depending on you know, where we end up with the ECA lenders on this contingent capital so that.
I mean, that's a battle.
Commentary from the ECA is in terms of then saying look we need you to do this.
Incremental 500 to a $1 billion.
In order for us to get to our term sheet and do they require that to specifically be equity or is it something that that can.
Can be layered on our subordinate debt.
That's a good question I mean, what they're most focused on obviously is that it is subordinate to them and it's kind of funds certain and so yeah, but beyond that I think I'm looking at our general counsel is closer to this stuff than I am, but yeah, I think thats what would satisfy them.
And for sure I mean, we've been engaging with these ECA lenders for some amount of time. So we've got you know kind of a decent sense for the.
Not done yet as I mentioned, but we got a sense already for what the overall kind of.
Financing package that we're going to need to have wind up is going to be and as I mentioned now that we've got a better sense for now that we've got this final Telus proposal, a better sense for what.
What the total Capex is yeah, it's apparent to us we always needed we always knew we needed to raise some incremental financing now we know thats going to need to be a little bit bigger because of the cost increases and in the sense that we're getting around the contingent capital and so.
Yeah, we've been out you know.
Engaging.
Looking to secure this financing.
And so yeah, just wanted to sort of set.
And does that.
So is it okay.
Tied to the ECA meeting that.
Are you going to have to do this before they reach their finalized term sheet in the fourth quarter.
Or.
I don't think so I don't think so.
But you know they're going to need to have visibility that sure. We're gonna have you know all of our you know again all of our financing in place.
So that that they can go forward.
Given the pallets it seems like.
You're kind of locked in all one at this point and prices go up that doesn't seem like a favorable situation.
What's their appetite for offering up some vendor financing given that they are partly responsible for not managing their own supply chain better.
[laughter] look first off you know, we think that Dallas.
As a top vendor for advanced satellite constellations.
One.
Look the reality is we are operating in an inflationary environment. We are operating in an environment, where supply chains are stretched and I mean, just look across the industry kind of everybody is getting delayed in their program right now.
But we're not locked into Dallas I mean, I think you know they're a good prime contractor I think they've got a great track record.
But we're not locked into Dallas.
So at the time.
Pushing out a bit and then now the price creeps up.
Centralize on palace I mean at some point.
Interesting.
They can go fly high.
I'm, sorry, Walter one more time.
Shouldn't it be sent a message at some point that may be.
And so look suffice to say you know.
They have been sent a message.
I'm comfortable where we are now are our huge focus right. Now is is getting this thing finance right now where our objective is to get that done and to get going on the construction of the program by the end of the year.
That's that's what we're trying to execute on right now is it's been frustrating that we've encountered these delays and whatnot yeah.
Hasn't been what we wanted but but things are teed up right now and they're going to be to end up with the ECA and whatnot.
And we're going to know a whole lot more.
You know in a few months' time, that's my expectation and I'm, sorry, I'm sorry from the other payroll after I got to say I love talking to you, but you can't fill about strong the call here. So maybe one more for me Register Okay and one more then just on the equity versus debt, meaning that you said you've already been having conversations can you give us a.
Samsung is where that is on the cap structure on the initial conversation.
No question that that's a great question I'm glad we let you yes, one more.
So so look you know.
Just like we think our debt's been trading below fair value. We don't think our current share price is.
As a fair representation of the value of telesat in the value of our future prospects with lightspeed and whatnot.
That's what management feels are board strongly feels that way, our two largest shareholders feel that way. So so suffice to say when we think about about raising this incremental financing. We're all really focused on raising it in a way that's that's not dilutive to the equity at a minimum but.
Whether that's that's accretive to the equity so so so that's what our focus has been.
Thank you very much.
Thank you.
Thank you.
Next question is from Mike pace from Jpmorgan. Please go ahead.
Hi, Thanks, and good morning, just to follow up on the incremental financing.
I guess does that what's called the 10% of the budget or so.
Does that include or contemplate any more money coming from the restricted group I believe they are still maybe a couple of hundred million dollars.
Basket, they'll build ability or is that excluding any additional money.
Andrew do you want to take that yeah, no. It does not what Dan is talking about is indeed like looking at other sources of financing and that is not part of what we're speaking about like.
And then the follow up to that I guess, you've been buying back a lot of debt in the open market I guess, how do you think about balancing.
Bond buybacks with the potential need for G O to help continue to support Leo.
In the context of the G L free cash flow.
Okay.
Because I think the first yet proposition.
Look we're totally committed to our Gi business and are totally prepared to make incremental investments in geo. So long as we've got a good business case, and so you know I think that what we've been doing.
With some of our cash to repurchase this debt has been the smart thing for us to do and we shared this morning that the board just authorized us to buy up to an incremental.
$100 million of debt, but like we've said before you know we don't we're not committing to do that we don't have to do that.
So yeah.
Yeah.
Business is generating a lot of cash.
A lot of that cash gets built up in the restricted group.
And we're we're.
Focused on putting it to use in good ways to support the overall business, where our debt is trading where it is I don't know that I mean, it just strikes us that you know.
We can spend the money that we've been spending too.
Be accretive.
The overall business, but still leave us with sufficient cash to make the investments that we need to make to continue to support the geo business and I don't know it sounds like a long answer, but but that's exactly how we think about it when we look at a new G O programs on Iraq.
<unk> basis, I'm looking around the room, because you know there are some things that were.
Thinking about now.
So long as it is a good business case.
For us to put money to work to invest in the Geo business and and there might be some opportunities out there we're going to do that that's right.
Okay, and then I know Dan or in general who wants to take this one but I guess, what the with the guidance raise.
Is that a function of Q2 outperforming for you guys.
Maybe that are I guess termination fee from Latam customer and if you can quantify that that latter point that would be really helpful and if it wasn't a Q2 beat what changed in the second half of the year for you guys.
To get to plus $15 million or so midpoint to midpoint.
I'll I'll start I mean, I think it's all the things that I hitting our script. If you remember when we originally gave guidance we were clear that the big uncertainty for the year was.
Where we were going to land with dish.
On the on the renewals so when we gave guidance at the outset of the year, we were real clear that the guidance embraced.
You know all possible outcomes, we get no renewal, we get a partial renewal.
And then obviously you know we got the partial renewal and I think we already said on our last call that gave us the confidence to start making noises that we're going to be kind of higher up in the guidance range.
And then beyond that.
The environment has just been pretty good you know we've been signing a good amount of business on the mobility side, you see the utilization of the fleet.
Growing.
On the expense side, frankly, with some of the delays and Leo we put off some of the Opex that we thought that we might incur earlier in the year. So I don't know, it's kind of been all all of those things that that led us to do it and then and no it really wasn't that termination charge.
<unk> really at all.
And so everyone knows I mean, the <unk> tried to be transparent about this stuff, which is why we called it out.
In the release that was order of magnitude about 5 million Canadians.
And so but it really on the year. It it really didn't have any impact on the year it probably put more money.
Revenue in Q2 than it otherwise would have but but that's revenue that we would've captured over the course of the year anyways. So in terms of how we thought about our guidance at the outset of the year, it's not that wouldn't have been impactful I'd just add on the up on the operating side of the house, we're pretty laser on controlling our expenses. So we're all over.
So that's contributed as well yeah and then.
I'm, sorry, Mike just while we're on the topic of guidance and whatnot.
We've shared.
With everyone that we got this I think very positive contract with DARPA.
To build two satellites in Leo that will they'll be using to demonstrate its mostly about demonstrating inter satellite optical links and then we said, there's really not a whole lot of margin for us.
In that opportunity.
And that I think we gave the dollar value contribution Andrew Yeah. In fact as part of the opening remarks, we have.
He said that in fact, we called it out and said that I. Just read also has stayed isn't provided preliminary 'twenty two guidance on March the <unk> included in our revenue expectations. The recognition of a significant hardware sale with the provision of related services to DARPA. Later this year and that was part of an $88 3 million U S dollar yes.
So for US you know, we're assuming that that that.
That we recognize that revenue this year right.
Theres a chance that it gets pushed to next year.
If it does that'll be revenue impacting but because as we said there's really not a lot of margin there won't be no. Adjusted EBITDA impacting we think so anyway just to call that out again for everyones got it that was actually my next question. So if you don't mind.
Just you know how much DARPA money was in the second quarter, if anything and just can you just give us a rough kind of cadence of how that might flow through the rest of the year and maybe leak into early next.
I'm looking around the table, there really wasn't anything material.
In the first half of this year really is the big Swinger is kind of probably Q4 of this year I think is what we're expecting in Q4 is what were expecting the DARPA.
Out of monies to come in and as we said is that it said that so that that's the equation for the revenues, but on the adjusted EBITDA side, what were pretty good. So we don't see any changes to that because the as we outlined when we talked about the DARPA contract. It's very important for our business with the U S. Government. So therefore it is very this is margins coming from it because.
It's about the future growth and development, so hence it won't impact our adjusted EBITDA.
Great. Thanks, guys.
Thank you.
Thank you. The next question is from Arun Seshadri from Credit Suisse. Please go ahead.
Yes, hi, guys. Thanks for taking my questions.
First for me is just if you could provide.
Dan It is a more realistic view I guess on lightspeed in the context of <unk>.
Smaller constellation.
You know Amazon Skype or timing, I guess, coinciding with with with the new launch dates.
Possibly not 'twenty five 'twenty six timeline and then.
Obviously, you told us that one where are you in your revised or if you've revised your plans.
On Lightspeed any context, you can give in terms of I guess, where fixed income investors a little bit more of a normal cadence of what those kind of your 12125 look like.
Under the new kind of lightspeed configuration.
No.
Thanks for the question.
Okay.
<unk>, so I'm not sure I.
Totally follow that I mean.
Here's how we think about the time and one thing I want to note as you know when we get our financing committed and we start the program more we're going to update everyone on what our schedule expectations are and whatnot. So just to note that.
And look we're out in the market everyday talking to customers all everyone would like lightspeed to be coming sooner than later, there's no doubt about that and it's been frustrating for them and frustrating for us that that.
Schedule has moved to the right.
But but we continue to have just total conviction that what we're gonna be bring them in the market and you're right. We're starting with its 188 satellites and tenant.
<unk> spares that that it will be a very capable very disruptive constellation, it's probably also going to be the case.
I expect that we're going to be very successful with it I expect we're going to grow it over time.
Just like you know I think other Leo folks think about about their constellations.
But but it's look it's focused on the enterprise segment, including government. It has features.
Enterprise grade features that we don't believe.
Some of these other constellations are going to have and we think it's going to really resonate in the market, whether it's arrow connectivity maritime connectivity, providing enterprise grade services for corporate telcos Isps there those are the folks that were engaged with.
The market now those are the folks that are excited about lightspeed coming we've mentioned, we've already got you know $750 million Canadian of backlog right down.
As you know we haven't even finished securing our backlog. So so my expectation is you know we.
Kept this thing financing going our focus is on late this year and that once that's done and we're rolling them. The customers see that you know telesat Intel's building and can see hardware and we're doing more in orbit demonstrations that will be signing up more customers and create.
More backlog, which will be reporting on every quarter.
That's that's our expectation.
Pink and you know I don't think we're going to own this market.
It's a huge market we've estimated the Tam at.
420 billion ish and looking around the room and and the like 2030 kind of timeframe or something like that.
We envision getting a very small percentage of that I've no doubt Amazon will you now.
Take a share of that market. So the Spacex. So one web show will you know the <unk>.
Fireside Inmarsat Ses all of them.
It's a big market now we strongly believe you need to bring the right value proposition to that market to be successful, we think that that tell us out lightspeed is that you know it's going to be a great value proposition, but that that's how we think about it and that's reinforced.
By all the conversations we're having with the customer community.
So I hope that's responsive.
No. It's helpful from a from a from a high level context, so I appreciate that.
Then just wanted to understand the mechanics around the ECA discussion our prior sort of expectation was that the inflation.
In the in the overall program was effectively.
<unk> addressed by shrinking the satellite constellation.
You really shrinking the constellation you know by the significant number of satellites roughly a third.
Are we talking about inflation being an additional sort of 10% on top of that sort of the you know that.
That shrinkage.
Counting for the inflation I guess that's question one.
Question two is in terms of are we talking structurally.
With with additional funding required junior to the ECA.
Was that.
Was that just purely a function of the additional additional inflation or are we talking about a portion of the original funding now required.
Do you see as saying listen it's a smaller constant.
Constellation therefore, here's what we're going to give you.
On an ECA level and the rest has to be raised.
The junior fashion or is it is it more in terms of structure change I guess it doesn't yeah. Okay. No. Those are good questions. So on the increase in the cost of the capital program.
I tried to hit it in my script, it's two things it is inflation.
Dallas went back out.
Before making their final proposal and rounded up again with their suppliers. So so part of its Dallas and you know we've got other suppliers too. So part of it is inflation and part of it is as we said before our schedules longer and with a longer schedule. It just means you got to carry everything longer those.
The two main contributing factors that's number one and then your second question was about you know what kind of drove this incremental debt and whatnot well.
It's it's.
Its two things I would say.
And I tried to hit this a little bit but one the cost of the program went up so we need to raise more money number one number two we had always said we need to raise some incremental financing.
At one point, we thought you know some of that might make sense to do.
Through equity, but with our shares trading where they are and our strong belief that that you know.
That again doesn't represent fair value less interested in raising that incremental financing.
By issuing equity so.
And then and then what I said about about just this unknown right now.
About the magnitude of the contingent capital requirements at the ECA is youre going to require we've always known.
They they require that I think for almost every program. They lend under we knew haven't engaged with them for a while.
They're going to be looking for that.
From us as well I don't think Theres anything about us going from 298 to 188 of the.
<unk> that really changes that so much.
But it's really those other things that I mentioned, it's the inflation, it's the impact of just having a longer schedule.
It's the fact that we always needed to raise some incremental financing.
And at this point in time.
Issuing equity is just a whole lot less attractive to us than it might have been with the shares trading at a much higher level.
And then yeah just just.
Being prepared.
Prepare for at the end of the day, where we land with the lenders on the magnitude of the contingent capital.
Has there been any change to the French ECA is posture on.
On on participating post one lever eutelsat.
No not that we can see and certainly not you know.
Anything that we've heard from cows, but but in truth.
You know BPI, which is the export credit agency in France that.
We've been engaged with BP.
BPI has always been a large if not the largest such shareholder.
So you know them.
For us.
Nothing's really changed if you know what I mean.
They're they're a big shareholder now they have been for.
I'm sure as long as we've been engaged with them on this project and you know assuming that the one web transaction goes through it looks like it will continue to be a big shareholder. So I don't think it's really changed the complexion.
Okay and then the only reason I asked the question is this whole context of creating a leo sort of European Leo Champion N.
If the if the utilize that Leo kind of Eutelsat, one lab combination kind of beat the fact, it becomes that and it does that change the dynamic was the sort of the thought but it sounds like it's not really impacting you as well.
Well I mean, I think that I know.
No.
Savant on BP is mandate, but but I believe fundamentally these export credit agencies are there to support their domestic exporters to help create jobs and and develop technologies and whatnot and tell us obviously.
Be a big beneficiary of the lightspeed contract and intends to hire a lot of people are and will be developing.
State of the art technologies, and so I think that fits quite nicely with them.
Bpi's mandate.
Got it one last thing if I could sneak in on 2023.
You've mentioned the Anika too.
Issue and sort of quantify that thank you for that.
Kind of given us some sense of how dish looks in 'twenty three at a high level, but directionally ex dish and ex the anika to impact how do you see the you know at a high level, how do you see the backlog et cetera, and how do you see the trend line for 'twenty three versus 22 on the restricted groups at thanks.
So on dish you know, we said we got a two year renewal from dish that came.
Think kind of at the end of April .
This year.
And we had said that dish has an additional option year to extend for another year beyond those two year renewal. So so dish would be our expectation should be stable.
Throughout.
Our 2023 2020.
For yes, it comes up so.
So no impact there and then as far as what 'twenty 'twenty three looks like it's too early.
No.
Yeah.
Well, we'll give guidance.
Well, when we give guidance for 'twenty to 'twenty, three but but.
Anyway, but we wanted to.
Let everyone know about this anomaly on F. Two in and to be as clear as we could be about how we're seeing it what what two contributes today, what the potential financial impact for 2023 could be a more update on that because as we said there are a lot of things that we can do.
Do that we think we can do to mitigate.
The impact of that F. Two anomaly, we're working on that now with our customers and whatnot. So I think we'll be able to say more about that.
Later, we were looked at as we go along for sure.
Got it thank you.
Thank you. The next question is from Jason Kim from Goldman Sachs. Please go ahead.
Thank you and thanks for all the details so far I'm going to ask the lightspeed quite cadence question a different way.
You're obviously focused on finalizing the financing for the project, but given the delays are.
Revenue ramp will also going to happen later than you probably initially planned for so at this point in the context of debt coming due in 2026, how do you envision that refinancing to take place for your existing debt that you're assuming.
Assuming that there will be enough of that revenue backlog and visibility into the business such that you can be financed the cap structure.
For that that becomes clearer on the balance sheet.
Yes.
I'll take a crack at this yeah look by the time, we get out to.
When our debt is in the main kind of.
Maturing.
Everyone's going to know a whole lot about.
Tell us that lightspeed and the traction that we're getting in the market will have been reporting our our backlog all along the way. So I think the market will have massive visibility into how we're doing how our competitors are doing what portion of this tam.
Tam or are we getting.
Where exactly we are in terms of you know.
Cadence of just everything so so I think you know.
Yeah, I think the market will have great visibility and we'll be able to.
Assess.
Uh huh.
Tells us future prospects based on.
We're lightspeed is at that time.
Jason that that that's that's how I would think about it and.
We're going to be very transparent with everyone around.
Oh around how we're doing on lightspeed.
And of course my colleagues.
Yeah. Thank you.
And then.
Have you ever launch schedules being pushed out as well.
Husband Watsco, so what we look the last you know.
The last update we gave on schedule, we said we'd be launching in 2025.
And when we finalize our financing and get the program going well we'll update.
All of this schedule when launches occur when you know the poor constellations in service when global coverage. So so we'll we'll provide an update then.
Thank you and then I'll end with a big picture question for Dan.
And that is 40 years, we've been talking about M&A in the space, but not much has happened, but just over the past year, we've seen two deals announced one with Viasat and inmarsat.
And then another one obviously wed love it.
Tween Eutelsat in one way and we saw some press supports involving.
Your other satellite peers just in the past week. So how are you thinking about all of these how many activities and what they mean for telesat.
Yeah, No we've definitely all been talking about the potential for industry consolidation for quite some time and you know.
I think I'm on the record Shane.
We expect it to happen.
We expect that I don't given technology changes given new entrants given the you know.
Synergies that can be achieved when you bring these companies together the things that we're seeing in the market and the things that we're hearing in the market.
Yeah fully consistent with our expectations and the two deals that you referenced in many ways.
There are two different deals two different types of things you know there is.
Inmarsat Viasat.
And then there's udall one web and for me they say I don't know a couple of things.
The market is changing we are seeing in some ways.
A transition in our industry, where you know we're probably the the biggest most promising growth opportunities in the future. It's all around.
Broadband connectivity high.
High throughput low cost highly reliable secure global broadband connectivity I think that's a.
Big driver of the combination.
Between.
Inmarsat and Viasat.
And what Youre seeing with Eutelsat I actually think you know it's the same thing how does an existing satellite operator best position themselves to capture what all of US believe is going to be a huge market explosive demand.
And I don't know I wasn't surprised at all.
With with what Udall set.
What was it a couple of weeks ago I mean, the reality is and you've seen how we're orienting our business. We think Leo is the right answer we think Leo is the future. We think it's the best architecture to.
Bring the best value proposition to that global broadband connectivity market, particularly for enterprise applications and so I don't know, Jason what what so what we're seeing today.
Kind of fully reinforces our own thesis and whatnot about where the market's going what's the best technology is to capture this demand and I got to say I think it's a good thing for the industry. I think you know for years, we had too many operators launching too much duplicative capacity.
In some ways <unk> seen some of this consolidation will invariably result in some rationalization of the supply side of the industry, which I think will be good for the sector and I think you know with udall shot, making this one web move in.
With what we're doing with Lightspeed. These are the technologies that need to get developed if satellite is going to be relevant.
In a world where the users the enterprise users are demanding.
Throughput low latency affordable broadband connectivity, so anyway long winded answer, but that's how we think about it and that's why we're excited about the path that we're on.
Thank you Dan.
Okay.
They are out of time for questions Dan Yeah, Okay, Michael Thank you.
You everyone for participating thank you operator, and we look forward to chatting with everyone. When we issue our Q3 results. So thank you very much. Thank you.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.