Q3 2022 Telesat Corp Earnings Call
All participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.
[music]. This conference is being recorded so it goes to the homes that don't have as you see.
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 the third quarter 2020 to financial results for Telesat.
Speakers today will be Dan Goldberg, President and Chief Executive officer of stellar shot.
And Andrew Brown, our Chief financial Officer of Chaucer.
I'm not I'm, just trying to meeting over to Mr. Michael but ISO direct shows 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.
Actual results may differ materially from the results contemplated.
By the forward looking statements as a result.
Risks and uncertainties for a discussion of known risks <unk> annual and quarterly reports filed with the SEC Telesat.
Responsibility to update or revise these forward looking statements I will now turn the call over to Dan Goldberger, Telesat, as President and Chief Executive Officer.
Okay. Thanks, Michael and good morning, everyone. This morning, I'll share some thoughts on our results and give an update on the business I'll, then hand over to Andrew will speak to the numbers in detail and then we'll open the call up to questions.
Three came in very much in line with our expectations and we continue to expect to exceed the revenue and adjusted EBITDA guidance. We gave at the outset of the year. The overall operating environment feels pretty stable from a demand and pricing perspective, and I was pleased to see our capacity utilization tick up.
Slightly in the quarter.
We disclosed last quarter that we have an anomaly on our anika to satellite.
Reduces it station kept lifetime from 'twenty to 'twenty five to more like the end of this year. We noted that Anika two represents approximately 8% of our total revenue.
Absent finding ways to provide continuity of service for customers using the satellite we anticipated revenue could be reduced by roughly one third versus what we previously expected it to be for next year 2023.
Noted also that we were working closely with our customers to evaluate and implement measures to offer them continuity of service and mitigate the adverse revenue impact on the company.
I'm pleased to say that our team working hand in glove with our customers has developed a range of plans to continue to support the services now provided an anecdote to.
These plans include making changes to antennas communicating with the satellite in order to extend service relying on other telesat and third party satellites and even purchasing an existing in orbit C band satellite from another satellite operator, that's expected to be repositioned.
And co located with Anika to in the coming months, assuming all of these things occur as planned we now anticipate that we'll retain over 90% of the revenue. We originally expected to recognize from Annick asked two next year. Although there are some additional operating expense.
Detours associated with leasing third party capacity for some of the customer requirements as well as the capital expenditures associated with purchasing the third party satellite and making other investments in ground infrastructure will provide a further update when we release, our Q4 numbers and I do.
Want to applaud the combined efforts, thus far of the telesat team our customers and other partners as everyone works hard to provide continuity of the important services supported on Caf two.
Turning to Telesat Lightspeed on our last call I mentioned that we were in discussions with certain additional financing sources to cover the increased costs of the program and that we expected to have a better sense of where we stood on the financing around the end of this year, we noted that the contemplated financing.
We'd be at the Lightspeed unrestricted subsidiary level and would be subordinate to the ECA lenders and the government of Canada, and Quebec investments.
Since our last call I'm pleased to say that we've made tangible progress in connection with securing this financing and in addition.
Had regular and sustained engagement with the ECA lenders as we seek to finalize the financing.
We remain extremely bullish about the opportunity to tell us that lightspeed gives us to grow our business, we have a highly disruptive and robust constellation design over $750 million of contractual backlog in over $4 billion in financing arrangements and the strong support of government partners at the federal and provincial levels here.
Canada Lightspeed represents a compelling investment opportunity.
There is no assurance of the advanced discussions, we're having with our various financing sources will come to a successful conclusion. Our overwhelming focus is on completing the financing and commencing the full scale construction of the program.
Lastly, I noted on our last earnings call that we repurchased in the first half of this year U S 600, U S $160 million face value of our six 5% unsecured notes and further that our board had authorized us to repurchase up to an additional U S. One.
100 million face value in telesat debt.
As we've said previously we think our debt's trading below fair value, which is why we've repurchased it in the past and why we continue to believe that doing so it makes sense for the company.
And although we have the authority to repurchase up to an additional U S $100 million of debt given everything else that's going on at the company right now, including the discussions we're having on securing additional lightspeed financing, we decided to hold off on further repurchases last quarter. We will continue to closely monitor how the deaths.
Trading and as required provide updates on any repurchases, we might make with that I'll hand over to Andrew and then look forward to addressing any questions. You have thank you Dan and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings.
Third quarter of 2022, Telesat reported revenues of $180 million adjusted EBITDA of 137 billion and generated cash from operations of 92 million with $1 7 billion of cash on the balance sheet at quarter end.
For the third quarter of 2022 compared to the same periods of 2021 revenues decreased by $12 million to $180 million operating expenses decreased by 4 million to $56 million and adjusted EBITDA decreased by $19 million to $137 million. The adjusted EBITDA margin was 76% compared to 81.1% to 2002.
Between 2021, and 2022 changes in the U S. Dollar exchange rate had a positive impact of 4 million on revenues the negative impact of 1 million in operating expenses and a positive impact of $3 million on adjusted EBITDA, but adjusted for the changes in foreign exchange rates revenues decreased by $16 million for 2022.
Compared to 2021 operating expenses decreased by $5 million and adjusted EBITDA decreased by $22 million.
The revenue decrease was primarily due to reductions on renewals of a long term agreement with a north American Dth customers and revenues from short term services provided to another satellite operator at 2021, which did not recur in 2022. This was partially offset by higher revenues from mobility customers and the NASA Communications services project.
Program.
The decrease in operating expenses was primarily due to lower noncash share based compensation, partially offset by higher wages.
Interest expense increased by $6 million in the third quarter when compared to the same periods of 2021. The increase was due to an increase in interest rates on the U S term loan B facility combined with the foreign exchange impact on the conversion of U S. Dollar denominated debt. This was partially offset by the impact of the repurchase of senior unsecured notes in 2012.
Two.
Just to note and as discussed in Florida, two we'd repurchase notes with a principal amount of USD $160 million. It's easy purchases resulted in the gain in the first six months of Canadian 107 million. These notes had been retired and also represents an annual interest savings of approximately $10 4 million.
In 2022, we acquired the loss from foreign exchange of $2 49 billion during the third quarter compared to a loss of 68 million in the two a quarter of 2021.
For the three months ended September with a target, but mainly the result of the stronger U S. Dollar the Canadian dollar compared to the spot rate as of June the turkeys 'twenty two with the resulting unfavorable impact on the translation of our U S dollar denominated debt.
Net loss for the third quarter of 2022 was $2 29 billion compared to a net loss of $52 million in the prior year. The variation of 176 million was principally due to higher noncash foreign exchange loss compared to the same period last year.
For the first nine months of 2022, the cash inflows from operating activities of $161 million and the cash flows generated from investing activities were $18 million included was 65 million by way of receipt of the remaining phase one U S. C band clearing proceeds in terms of overall C. Band proceeds we have received approximately U S $85 million.
Expect Florida proceeds of approximately 260 billion in terms of the capital expenditures made to date virtually all are related to a lower orbit constellation.
Lightspeed as.
You will also have noted in our earnings release this morning, and as Don has mentioned, we have reiterated our increased guidance, which we provided with the release of our second quarter results on August five 2022, Telesat expects its full year revenues to be between seven and $14 billion and 750 million also as we stated before included in our revenues is our expectation that we have.
We're recognizing significant hardware sale and the provision of related services to DARPA later this year.
A U S $18 3 million contracts.
In terms of adjusted EBITDA expected to be between $545 million of 560 million also as a reminder, we don't expect any adjusted EBITDA from this hardware sales as you expected expenses associated with this contract is more or less equivalent and all of our guidance doesn't reflect the Canadian dollar to U S. Dollar exchange rate of 1.3.
In respect to expected capital expenditures, we now expect our 2019 cash flows used in investing activities to be in the range of 50 million U S dollars to $75 million, including capital expenditures to further advance our lightspeed program. Once we have greater visibility around the construction and financing of our program will provide affordable.
Date on our anticipated capital expenditures for the year.
To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures with approximately $1 7 billion of cash and short term investments at the end of September as well as approximately $200 million of borrowings available under our revolving credit facility approximately $1 1 billion. The cash was held in our unrestricted sub.
Salaries. In addition, we continued to generate a significant amount of cash from the ongoing operating activities.
At the end of the third quarter leverage as calculated under the terms of the amended senior secured credit facilities with six seven times to one Kt sat house complies with all the covenants in our credit agreement and indenture.
A reconciliation between our financial statements and financial Covenant calculations is divided in the report filed this morning.
6K provides the unaudited interim condensed consolidated financial information in the NDA.
The non guarantor subsidiaries shown are essentially unrestricted subsidiaries of minor differences.
So that concludes our prepared remarks for this call and that would be very happy to answer questions that you may have.
I'll turn it back to the operator, thank you.
Thank you, we'll now take questions from the telephone lines is to have a question and you're saying a speaker phone. Please state your handset before making your selection.
I have a question. Please press star one on your devices keep that you're.
You may cancel your question at any time by pressing star two.
Please press star one at this time you have a question it will be a brief pause while the participants register for questions. Thank you for your patience.
First question is from Walter Piecyk from <unk>. Please go ahead.
Yes, Hi, this is Joe on for Walter.
Couple of questions. Please.
Is there any more color you can provide about the process with the ECA is and the suppliers kind of like any details.
Maybe are there specific parts or components that are available now that weren't before but maybe you can tell us a little better visibility.
And then second the Opex for Leo.
Appears that it was effectively flat quarter over quarter and when should we expect that to ramp.
And are any of the expenses for Leo being capitalized currently and then and then finally.
Amazon showing some progress one one lab has been launching and then there's some smaller startup that seem to be having some progress do you feel like telesat is getting behind a little bit.
Given the delays thank.
Thank you.
Alright.
It's Dan Joe I'll try to.
So there is sort of a three part question.
Let's see so the first part was about.
Do we have any more insight on kind of warehouses from a <unk>.
Supply perspective and whatnot.
There nothing's changed.
He said I think on our last couple of calls that.
We did a whole lot of work with Telus and they did a whole lot of work with their supply chain over the past year or two.
Sort of update the program update schedule update.
And all of the work that we did in connection with that would tell us that they did with their supply chain. It all still holds we're not hearing anything different from Dallas about.
Yeah their expectations around supply chain schedule.
Anything else.
So that that.
And on the lenders, we said I think on our last call that we were engaged with them that we're hoping to have a much better sense of.
Where things stood up by around the end of this year.
And that remains to be the case.
As well I'd say since the last.
Earnings call will be hosted we've had a lot of engagement.
With the.
The financing sources that that we've been talking to with the lenders.
Including with the lenders lots of.
Intense.
Session is trying to move the ball forward so.
That's all are taking place right now and that continues.
And then on the last questions around Lightspeed I think it was opex.
Whether things are being capitalized Oh actually you also had a question about.
Kind of the competitive environment. So all I'll answer the competitive environment, one and then maybe Andrew you can talk to the Leo expense one.
No we're not seeing anything out there in terms of the competitive environment that makes us think differently about our ability to be successful with lightspeed.
Certainly.
You know.
One web is.
Getting their program back on track in that they had to pause their.
Launch campaign, because of the sort of Ukraine Russian activity, So we're seeing that but there's.
Nothing that they're doing or you you had mentioned Amazon, but we're seeing Amazon doing that changes the way we think about.
Our ability to be successful with lightspeed I mean, it is we continue to engage with the customer community very closely on Lightspeed, we continue to see a huge amount of enthusiasm.
From the customers about the value proposition that will be bringing them with lightspeed and yes, there's nothing that we're seeing that changes our thinking about that so Andrew do you want to talk about the question on the Opex and that obviously as you see what a high margins of that almost 78% that we control the opex.
It's very very tightly and so as we're advancing our discussions with the ECA and others.
Investor support we're very focused on hiring in opex and expanding so we manage that very very closely obviously when the program gets going down of course, we would expect to see an increase coming from that and just in terms of the capitalization that is typically what you would do with it.
Our capital program.
Ah capitalize those costs, so that's where we are.
Okay. So we shouldn't that like what.
Well some of the Opex lead ahead of.
The actual.
Finalized program before you actually.
Implementing it.
Will it ramp up a little more that's what I'm, that's what I'm trying to.
Yes, we would expect it to ramp up more I mean, we have going back but until we got the delays that tell US you know, obviously with our engineering and support teams.
In terms of design and dealing with tablets et cetera that we indeed are put in the appropriate people, we need to get going but once we have the supply chain delays. Then obviously was that that ramp that we actually saw that held back on as you would expect us to do but once the D. We get going then we will look to see where are there areas that we need to.
I'll provide support to the program.
Okay got it thanks guys.
Yeah.
Thank you.
The next question is from Dan to Bono from Investcorp Credit management. Please go ahead.
Hey, gentlemen, good morning, and thanks for taking the question.
I'm looking at the segment information to item five which is on page 10 of the supplement and I would love to get some color on the enterprise side for the quarter and I'm looking at growth rates I'm thinking of where we're running.
It's a pretty diverse segment, if you could talk a little bit about some of the wins and losses and how you feel about that.
Next couple of quarters that'd be helpful. Thank you.
I'm looking at my colleague John Flaherty I'll make a start at this.
I mentioned in my opening remarks that the operating environment has been I'd say kind of on the one hand consistent with our expectations.
For this year or.
Two favorable.
I've been pleased that.
We've been able to grow the utilization of the fleet over the year I think in particular, so far this year we've seen.
Strong interest, particularly from the mobility segment that that would be.
Aeronautical.
In maritime.
A lot of that.
Was predictable I mean, those are the sectors that were kind of held back.
During the during Covid.
As the restrictions have eased in more and more people are traveling again, it was predictable that those sectors, where it would come back, but but they came back probably even stronger than than we expected I think if we have a problem kind of.
<unk>.
Taking advantage of the opportunities there it's mostly.
Because of capacity limitations in the areas.
We're the most demand exists that would be sort of key maritime routes places like the med the Caribbean for the cruise market some of the key.
Flight paths for the Aero segment.
So.
Yeah.
And then just thinking regionally.
Where we've seen.
Harder conditions like Africa, like Latin America, I'd say those markets continue to be.
Challenging, but but no more challenging than they were frankly over the past couple of years.
And I think particularly in Latin America, we're doing a nice job.
Getting renewals winning business maintaining utilization.
Alike.
So in any event.
So.
At the top.
Durations and John I don't know if you'd add anything.
Thank you pretty much at all of the major points Dan.
Yeah.
Okay. Thanks, gentlemen.
Thank you. The next question is from Brendan cars from Kennedy. Louis. Please go ahead.
Hi, Thanks for taking the questions.
Wondering just following up on the last question, but the mobility. James are you seeing any significant new business wins or is it more just recovery.
Any kind of are expansions of existing customers not related to COVID-19.
Certainly in the first half of the year, we had capacity come back into inventory.
When dish.
Dish.
Just did the partial renewal with us and we're really pleased that that you know almost overnight we took back capacity.
And put it to work in the mobility market there was that.
And we had another big win.
Earlier in the year.
With the with another customer that was more on the Aero side.
So and then as I mentioned beyond that it's more like I Dunno singles and doubles, just given the capacity constraints that we have yeah.
Yeah, that's what it feels like.
Okay. That's helpful.
And with all the headlines around the potential shot in Rogers merger do you anticipate any impact on your business from that on the broadcast side or elsewhere.
We don't think so.
No we don't think so.
Okay, and then in the Leo side is it possible to provide maybe any more detail in terms of what types of financing you're looking for is this are you fully focused on private financing or are you talking to government agencies about further financing.
If you are unable to secure a given market conditions over the next couple of months is there a point, where you think that maybe you're too far behind and that is spelled maybe becomes untenable after already scaling back.
So on the financing side there.
There's sort of two paths that we're active on right now one is trying to complete the discussions and the financing with the export credit agencies and I mentioned that there's been a lot of activity with them.
Over the past quarter and we are.
Focused on driving all those negotiations to a successful conclusion and then we mentioned on our last call that we're looking at securing some additional financing just given.
Some of the increases in the program costs coming from the combination of inflation and just kind of a longer schedule and the incremental costs that come with that and coupled with the fact that we had always said that we're going to need some incremental financing as part of the program at one point you know there was I don't know.
You know some consideration potentially to.
You know doing something now that we're public about that.
It was always certainly a path that we could consider in the past issuing some equity if we needed to but given where the markets are trading right now and we're telesat is trading right now, which we believe is below fair market value, we're sort of less interested in that so we mentioned on our last call that we're looking.
Looking at some other financing sources, we talked about that as being kind of that the Leo.
Subsidiary level, and making sure that that was all.
Subordinated to the ECA lenders, who were very focused on being senior in the capital structure over on the Leo side and making it subordinate to.
Investments that were getting from the government of Canada, and the government of Quebec, and making sure that you know as we seek to secure at that that it's accretive to the overall kind of company profile.
And so.
It continues to be our focus.
You mentioned that.
We're making progress on that front mentioned that we're in advanced discussions right now.
I don't think we'll add anything beyond that at this stage.
Okay, then I guess the last part of my question that I had asked was.
If youre unable to slow right yeah, yeah yeah.
You know right now.
That's not asking ourselves those questions right now where we're very focused on.
Closing up the financing that that we need in.
In the timeframe that we've telegraphed everyone's so yeah.
Yeah. That's that's the focus right now and fundamentally you know we've said this consistently we got a great program. We've got a great constellation, we've got an enormous amount of support.
From our shareholders our board an enormous amount of support from our government partners here in Canada got a significant amount of backlog already on the constellation and are having really good discussions with the customer community. So that that's our focus.
Is finishing the financing getting the program going and getting out there in the market with a with lightspeed.
Sure.
That's all for me. Thank you. Thank you.
Thank you there are no further questions at this time I would like to turn the meeting back over to Mr. Goldberg. Okay. Operator, Thank you very much and thank you all for joining us this morning.
Look forward to chatting when we issue our Q4 and full year numbers. So thank you very much. Thank you very much.
Okay.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.