Q4 2022 Telesat Corp Earnings Call

March 29, 2023

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[music].

Please standby your meeting is about to begin.

Good morning, ladies and gentlemen, welcome to the conference call to report the fourth quarter 2022 financial results tell us that our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Andrew Brown, Chief Financial Officer of Chocolate that I'd like to turn the meeting over to Mr. Michael but I, so director of Treasury and risk.

Management. Please go ahead Mr. Weiss.

Thank you and good morning. This morning, we filed our annual report for the year ended December 31 to our form 20-F, with the SEC and SEDAR.

Our remarks today may contain forward looking statements there are risks that.

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 she tell us as Ed or earlier.

Earlier today with the SEC Telesat assumes no responsibility to update or revise these forward looking statements.

Now I'll turn the call over to Dan Goldberg.

And Chief Executive Officer, Okay. Thanks, Michael This morning, I'll share some thoughts on our financial 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 we'll open the call up to questions looking at our financial performance for the quarter and the full year I'm pleased with where we landed.

We beat the guidance, we gave at the outset of the year as well as the updated guidance we shared when we released our Q2 numbers.

We also continue to run the business in a highly disciplined and focused manner closing the year with an adjusted EBITDA margin of roughly 75%.

$1 $7 billion of cash on the balance sheet.

As we mentioned on our last call. The overall operating environment was pretty stable from a demand and pricing perspective, and I was pleased to see our capacity utilization tick up throughout the year.

Our big headwind for 2022, and it will be a headwind for the first four months of this year too was the dish renewal on our Anika three satellite as we've discussed previously it was at a lower rate and for less capacity than the previous deal and even though we promptly resold the balance.

<unk> of the capacity that dish didn't renew it was still the biggest contributor to the decline in revenue and adjusted EBITDA, we experienced last year.

Also worth noting was the revenue we recognized in Q4 from the contract we have with DARPA. The U S. Dod's research arm as we said before the contract generated approximately $20 million in revenue and about an equal amount in expense, meaning it was essentially neutral.

At the EBITDA line overall dilutive to margins, but because of that work is all about demonstrating to the U S government and to the market more broadly the efficacy and capabilities of optical inter satellite links.

Which are a key feature of our lightspeed satellites. It made good strategic sense for us to do that contract, even though it was EBITDA neutral.

The last thing I'd note on our performance last year is something else, we've discussed before which was the anomaly we had on our anika to satellite that shortened that station kept life.

As we covered on our last call I think we did a really good job with our customers and upgrading ground infrastructure to extend anika to services and where that wasn't enough transitioning users who needed station kept capacity to other satellites, including an in orbit satellite we bought from another.

Operator, other telesat satellites and third party satellites as well.

As a result of all of that excellent work, we expect to retain over 90% of the revenue. We originally expected from Anika. Two this year recognizing there is some additional capex and opex, we've incurred with the Opex getting captured in our guidance for this year.

Press release, we issued this morning sets out our 2023 guidance and I know Andrew plans to speak to that in his remarks, we're forecasting decreases in revenue and adjusted EBITDA and I just wanted to flag here the two biggest contributors.

The first as I mentioned, a few moments ago is the residual headwinds from the Anika three dish renewal, which will show up in the first four months of this year. The second is an expected renewal with bell for NIM at four which comes up for renewal in early October this year.

At this time, we expect bell to renew all of the Dth capacity unlimited for but at a materially lower rate than the current one those two renewals dish and bell account for approximately half of our anticipated revenue and adjusted EBITDA decline for this year.

So now on the status of Telesat Lightspeed on our Q3 earnings call. We reiterated we were in discussions with certain additional financing sources to cover the increased cost of the program and that we expected to have a better sense of where we stood on the financing around the end of the year.

Unfortunately, we're not there yet.

That said, we continue to make progress with the various parties, we're engaged with and we remain optimistic that we're going to secure the financing we need to move forward with the program recognizing of course that there is no assurance that we'll ultimately get there.

No well that investors and others want clarity as to where we stand on lightspeed financing and we hope to be in a position to provide that clarity.

Finally, we wanted to share that tell us that's board has authorized up to $200 million in cash for repurchases of our debt if management determines that such repurchases are in the best interest of the company.

With that I'll hand over to Andrew and then look forward to addressing any questions you have thank you.

Dan Good morning, everyone I would now like to focus on highlights from this morning's press release and filings Telesat ended the year 2022, which reported revenues of $759 million adjusted EBITDA of $568 million.

And generated cash.

[music] give us a second.

Yes.

[music].

Go ahead, Andrew I think we're sorry about that obviously somebody who is very excited.

To join and Eddy Van I'll, just go back a little bit at the beginning at Telesat ended the year of 2022, which reported revenues of $759 million adjusted EBITDA of $568 million and generated cash from operations of $2 29 billion with $1 7 billion of cash on the balance sheet at year end as Dan has mentioned we outperformed.

2022 financial guidance, which we increased in actually updated when we issued our second quarter results in August of last year.

In the fourth quarter of 2022, Telesat reported revenues of $2 7 million adjusted EBITDA of $139 million and generated cash from operations of $69 million for the fourth quarter of 2022 compared to the same period in 2021 revenues increased by $19 billion to $2 7 million operating expenses increased by 8 million to 80 million.

And adjusted EBITDA decreased by 6 million to $139 million. The adjusted EBITDA margin was 67, 2% compared to 77, 1% in the same period last year between 2021 and 2022 changes in the U S. Dollar exchange rate had a positive impact of $8 million in revenues and negative impact of $1 million.

Operating expenses and a positive impact of $7 million on adjusted EBITDA when adjusted for changes in foreign exchange rates revenues increased by $11 million operating expenses increased by $7 million and the noncash expense related to share based compensation decreased by $16 million. Overall result was a decrease in adjusted EBITDA of <unk>.

12 million looking at revenues the revenue increase was primarily due to the completion of an equipment sale to DARPA as Don has mentioned as well as higher revenues from Arrow and maritime customers. This was partially offset by a reduction in revenues upon renewal of a long term agreement with a north American Dth customer Opex.

Kris and operating expenses, but primarily due to higher equipment sales related to the DARPA program. As previously mentioned, partially offset by lower noncash share based compensation, a lower bonus expenses relating to 2021.

Interest expenses increased by $80 million of the fourth quarter when compared to the same periods of 2021. The increase was due to an increase in interest rates in 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 for retirement of senior unsecured notes in 2022.

<unk>.

As a reminder, and as discussed previously we repurchased notes with a principal amount of U S $160 million in 2022. These repurchases resulted in a gain of Canadian $107 million. This also represents an annual interest savings of approximately $10 4 million.

Forex in the fourth quarter, we recorded a gain on foreign exchange of $72 million as compared to a gain of $20 million in the fourth quarter of 2021 the gain for the trade months ended 31 December 'twenty. Two was mainly the result of a stronger U S dollar or the Canadian dollar compared to the spot rate as of September 30th 22, with the resulting in favorable impact on there.

Translation of our U S dollar denominated debt.

Net income for the fourth quarter of 2022 was $92 million tied to net income of $113 million in the prior year. The variation of $21 million was principally due to the recognition of USD bond scaring payments in the fourth quarter of last year, partially offset by higher noncash foreign exchange gains compared to the same period last year, along with a lower tax.

Okay.

Cash flows for the year ended 2022, the cash inflows from operating activities were $2 $29 million included over $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 $85 million to date and expect Florida proceeds of approximately 260 million.

In terms of capital expenditure spending shares during 2022, virtually all are related to a lower orbit constellation Telus satellite speed guide.

Guidance is that as mentioned and you've noticed in our earnings release, we have provided preliminary 2023 guidance. The guidance assumes the Canadian dollar to U S. Dollar exchange rate of 135 revenues for 2023, Telesat expects its full year revenues to be between $690 million and $710 million adjusted EBITDA in terms of adjusted EBITDA.

How does that expects to be between $500 million to $515 million.

Opex, we expect our 2023 cash flows used in investing activities to be in the range of $40 million to $70 million. Once we have greater visibility around the construction and financing or tele satellites B program. We will provide a further update 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, we have approximately $1 7 billion of cash and short term investments at the end of December as well as approximately $200 million of borrowings available under our revolver approximately.

Approximately $1 billion of cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from ongoing operating activities.

As indicated also this morning, the board has authorized up to use $200 million in cash for repurchases of our debt if management determines repurchases to be in the best interest of the company.

At the end of the fourth quarter leverage as calculated under the terms of our amended senior secured credit facilities was $6. One seven times to one telesat has complied with all the covenants in our credit agreement and indenture, a reconciliation between our financial statements and financial Covenant calculations is provided in the report we filed this morning.

A 20-F provides the unaudited interim condensed consolidated financial information in the NDA. The non guarantor subsidiaries shown are essentially unrestricted subsidiaries of minor differences.

So I think that concludes our prepared remarks for the call and that will be more than happy to answer any questions. You may have and with that we'll turn it back to the operator.

Thank you we will now take questions from the telephone lines. If you have a question on using a speaker phone. Please Mr handset before making your selection. Thank you have a question. Please press star one on your devices keypad.

So the question. Please press star queue. Please press star one at this time, if you have a question there'll be a brief pause for all participants. Thank you Sir Thank you for your patience.

And the first question is from Walter <unk> from.

Ken.

Please go ahead.

Your line is open.

If you have muted your line please.

Your line.

Yeah.

What about now can you hear me now.

Perfect Alright.

One a day.

So SG&A is something that.

Obviously would start to escalate if you kind of proceed with Lightspeed same thing with Capex. So.

Given that these kind of ongoing delays in terms of getting the financing.

Should we just basically freeze expectations for valuation purposes on SG&A until we get the go ahead that you can actually get the financing or do.

You guys have some confidence level that you start to engage an increased opex and capex, because you're optimistic that you're going to get.

This financing.

Queued up for Lightspeed.

Hey, Walter.

Dan maybe I'll take a shot and then Andrew can chime in as well so.

In putting in our <unk>.

Together for the year.

And then given the guidance. So we're spending right now on the Opex side.

Moving forward with Lightspeed right. So we've been doing a lot of work on it we've got a lot of people in the company that are dedicated to it.

And our.

Guidance, so part Capex for a second but just our guidance.

Guidance on the EBITDA side takes into account that yeah, we're making investments we're spending.

The development of the Lightspeed program, we're confident that it's going to go forward.

And we're doing real work on it on the Capex side I think Andrew was careful to say that we've guided to $40 million to $70 million a year, but said that more or less we will update our guidance. Once we've got lightspeed fully underway because once it's fully underway certainly our capex spending will look a lot.

Different than.

The $40 million to $70 million of $40 million to $70 million is just kind of spending.

Outside of the full program moving forward. So Andrew I don't know if you wanted to add anything to that look I think as you said that in terms of Capex, we are very prudent and as Dan had said that as soon as we've got the go ahead for Lightspeed, we will come back a bit and talk about guidance for there and on the <unk>.

<unk> perspective, and were very prudent and indeed as Dan had said, we are adding resources, but if you look at our implied guidance and the fact that you see the increase in Opex is pretty small year on year. So we continue to be very very prudent until we are until we get the go ahead on lightspeed.

So from a sum of the parts valuation standpoint.

What would you say the percent mix of SG&A is to lightspeed and the reason I asked that.

My follow on question is going to be.

At what point do you give up meaning like either financing has changed your view of the revenue opportunity of the market has changed because of delays. So that you can say, okay. We can at least rely back on a base valuation.

Is based on a core EBITDA number which is currently getting dilutive by some of these investments on the Opex side of X. So I guess theres two two or.

Really three parts of that question percentage of Opex that is that if I know youre going to say this is not going to happen, but if for whatever reason you just said.

Through it on Leo your Opex can drop by X percent, secondly has the market revenue opportunity, which you outlined I think very well in a document that's I think now almost a year old or more.

And then third.

Why do you remain confident that this thing can happen.

Lightspeed, Ken can get to a point, where we can move forward here.

Okay.

Yeah in terms of the Opex as we go through a program that what we are spending we will capitalize.

And continue to do that until it determination was ever made about lightspeed that it wouldn't go ahead. What were tells me confident as Diana said that we will go ahead and therefore, we see within the confines of a.

Operating box and even last year, we're off about $22 million in Opex and just give you a sense of that the big driver of that wasn't the the cost of the DARPA program itself. So year on year, the incremental costs related in relation to Leo is not that is not that significant and we've got full plants.

Business plans that indeed in terms of attacking the market customers rolling out the ground infrastructure that once we have that.

The Green light to go ahead, and indeed, we will come back and we'll communicate that guidance do you need to make it very very clear and maybe.

I'll offer some thoughts on kind of where we are with Leo and the.

The optionality that we have around it.

But we're not required to move forward with Lightspeed right Theres no.

There is no legal compulsion, where at telesat as to move forward with Lightspeed. We're we're.

Focused on Lightspeed, because we think it's a great cause.

Commercial opportunity, we think it's a great way to grow the business and to create a lot of equity value for our shareholders and yes, it's taken us longer for sure than we had originally anticipated, but I continue to believe that the original investment thesis is totally in.

<unk>, which is to say there is a huge market for a well engineered well executed enterprise grade enterprise focus Leo constellation if anything.

I'm, just more and more convinced of that with the passage of time, the importance of having low latency a highly distributed network achieving lower cost per bit driving down the small user terminals just everything that we've seen over the last while as I don't know.

Firm for us that that we're on the right path there and certainly all the conversations we're having with <unk>.

Commercial customers with government users all of that.

Certainly I'd say.

Experience.

That we see in the Ukraine in terms of how the starlink constellation of crucial thats been to that conflict. All go to reinforce the logic around having a leo constellation and the strategic importance and.

And so so that to that which is to say, we're not seeing anything different in terms of commercial developments technology developments anything that persuades us that this isn't a good path.

Why we have confidence that we'll ultimately get there I think that was another question.

<unk>.

We've got a ton of momentum on this we've loaned up already over $4 billion of financing commitments, we've already got something like $750 million worth of backlog. So we got strong support from our government. We got strong support from our customers. We got strong support from our board.

So yeah.

It's taking longer than we wanted but but all of those things I think make us feel.

Confident that we're going to get there and then the last thing I'd say is if we don't for some reason and I think that we will but if we don't.

We're still generating a significant amount of cash we've got over 1 billion and a half.

Cash on our balance sheet right now, it's not like we will have left ourselves and <unk>.

A horrible place Lightspeed is what we're focused on Lightspeed I think is still the right move for Telesat and I think that we're still.

From a timing perspective, and a good place, but if for some reason that we can't anticipate right now.

<unk>.

It's something different.

Different happens then we'll revisit it anyway was a long winded answer but they were good questions.

Okay. Thank you.

Thank you. The next question is from Marcelo from Arris. Please state your full name and proceed with your question.

Hey, guys. This is marcello touretzky from Aries.

Had a couple questions. One was there is new.

A new comment in the form 20-F that you are now actively seeking to raise equity funding for lightspeed what.

What kind of equity partner or are you looking for or is it just an investment fund to provide capital are you looking to partner with the satellite manufacturer or even in other <unk> Leo network operator.

Marcel It's Dan I don't think Theres any new news there and we said I think on our Q2 call that because of the cost increases on lightspeed that we were in discussions with some potential equity investors.

And we've reiterated that on our last call.

And so so yeah, no. So I don't think Theres anything new there what we said was that.

Those <unk>.

Investments should they materialize would be a subordinate they'd be at kind of the low level.

And they'd be subordinate to the.

The other financing sources that we've been engaged with including.

BPI the French export credit agency, the government of Canada, and the government of Quebec, all of which we've been in discussions for financing. So I don't think there's anything new there.

And as it relates to the Leo development milestones in order to maintain the use spectrum authorizations. What are the key dates that we should keep in mind I was under the impression. The first data next week in April . So if you don't hit that date and cannot negotiate an extension what potentially happens.

So there.

I know the F.

But is it in F 'twenty.

Yeah.

A little bit about <unk>.

<unk> considerations and whatnot.

Regulatory stuff I mean, there we've got.

A number of applications in in the first processing ran in the second processing round.

And then there are regulatory.

Activities at the FCC level, there are regulatory levels at the ITU level as well and we've got lots of different filings there as well.

I won't get into the weeds on.

Round, one versus round two but all of this say that.

I'm pretty confident that.

When we're ready to move forward with Lightspeed, we're going to have the.

The regulatory rights we need.

Around the world to provide the services that we need to provide.

I direct you to the 20-F I know that we do have some disclosure around there.

But that's that's how I'm thinking about it.

And as it relates to the Geo satellite.

What point do you have to make a decision whether you wanted to invest in new ones to replace aging satellites. I know you have the capex guidance of $40 million to $70 million, but also in the 20th you increase the cost to launch in Geo satellite to $200 million to $500 million.

Which implies that you'd have to step up capex. If that's the path you want to take.

Or is there another path you would potentially think about.

Yes.

We'll take a kind of satellite by satellite we're only going to replace.

Geo satellite or launch an expansion geo satellite or frankly spend any capex.

If we are convinced we have got a strong business case for it and so whenever a satellite kind of comes up towards the end of its life. We have a hard look at what's what's the best way forward here.

And there are some other things we can do I mean, there are some newer technologies out there that can extend the life of the satellite we've been evaluating some of those as well. So right now as you can tell we don't have any plans right now to spend money.

<unk> this year at least on.

Replacement.

Satellites, we're open to.

To doing just that though when those satellites come up for renewal and I got to say, we are open to building new Geo satellites and we've looked at opportunities from time to time to do that.

But yes, we will just evaluate every business case kind of on a standalone basis and make sure that there is a strong kind of risk adjusted.

Rate of return on that but right now as you can see we don't have any.

Capex spending for replacement or expansion Geo satellites right now in our plan for this year.

So kind of kind of segue back to Walter's question was earlier.

You did not end up pursuing.

<unk> you have the one 5 billion of cash is that potentially cash you would I guess.

Bring back from that subsidiary to invest in GL or how would you think about that.

Yes.

Probably rather not speculate too much right now on what alternative paths.

We could take us as I've said.

Our our focus is on moving forward with with Lightspeed and we're very bullish on that.

So, but yes to your point could we bring cash back.

We could there's nothing I'm staring at our general counsel there is certainly nothing that prevents us from doing that.

We will cross that bridge, if if and when we get there I think we've been running this business for pretty long time, we've been pretty hardheaded and pragmatic about.

How are we.

Use our cash and pretty disciplined around that.

So anyway again, the focus right now is moving forward with lightspeed.

If for some reason that didn't happen we will.

With you guys then about what we might do with the cash that we've been building up.

Great. Thanks, so much thank you.

Thank you. The next question is from branded cards from Kennedy Wilson. Please.

Please go ahead.

Yes.

Hi, Thanks for taking the questions just wanted to turn back to 'twenty three guidance here, you mentioned that half of that was from dish and that Bell, Canada renewal could you bucket the other half a little bit how much of that is antique ft changes any kind of degradation in the core business FX or any other variances, yes. It's a good question. So.

The other pieces.

Our that DARPA.

Contract that we recognized in Q4 that was kind of a one time arrangement with DARPA. We said that was about $20 million. So that's another big piece of the revenue decline and then beyond that.

I mean that right there accounts for gosh, I don't know three quarters of of the downturn roughly beyond that.

<unk>.

Odds and ends here and there some renewals may be at a lower rate.

Some lost renewals.

It's just a whole bunch of other stuff.

That builds up to the balance of the decline.

Okay I thought the DARPA contract was about EBITDA neutral. So I was wondering the DARPA contract.

You're 100% right. The DARPA contract was EBITDA neutral I was talking more on the revenue line.

So we do have.

Some increased expense.

Coming from some of the third party capacity, we need to support customers on Anika to that's probably the biggest driver of some of the <unk>.

Opex.

So some of the ups on the Opex side, there are some downs on the Opex side, but countervailing that there are some increases in one of the large increases as third party capacity, we need to accommodate customers on anika to that we're continuing to support.

So but look most of its revenue driven as you can see and the big drivers there are.

Dish.

The anticipated Bell renewal and then more of these other.

Kind of.

More other stuff that relates to.

The regular customer business.

Okay would it be possible to quantify what the <unk> expense was and also maybe discuss some of your assumptions around bell renewal and what makes you. So confident that youre going to renew that in Q, you're going to get the prices that you are building into the budget here.

Yes, I'll talk to Bill I mean, candidly I don't think we're going to give any more granularity on F. Two I think we've given a lot of granularity on that already.

On Bell.

Yes, I mean, our confidence stems from the fact that.

Well, they're a big customer we've been having a lot of conversations with them and this feels like the deal.

The.

What we baked into our guidance very much reflects the nature of the pretty detailed conversations that we've had with them about what this renewal would look like.

So thats what gives us the confidence there.

Okay, and then on the bond buybacks, it's good to see that you reauthorized more buybacks, but it's been a few quarters since you've done any any reason that you have been holding Austin has your appetite for that changed at all.

Yes.

Like figuring out when you.

And.

<unk>.

Public companies are so heavily regulated in terms of issuing securities buying securities back. So so there were.

Were I don't know a lot of considerations out there at the time that we bought.

<unk> tried to be pretty clear with the market about what authority, we've been getting from our board and kind of what are.

Intentions are just so.

Everyone has a pretty good sense for how we're thinking about it. So I don't know I mean, all I would say is there kind of a kaleidoscope of factors out there that we need to take into account.

We've taken those into account the board has increased our authorization in terms of what we can do in terms of.

Debt repurchases I think we've always said that.

We believe our debt trading at these levels.

No.

We think that current debt prices.

<unk> represent really fair value of the debt.

I think that.

It could be a good use of cash that we have that builds up.

In the restricted group in particular and so in any event. We just wanted to make everyone aware that we've got this increased authorization from the board and if we think that.

The right thing to do that that will go.

Go back out in the market and and repurchase of that not saying that we're going to but just letting everyone know that we've got the authority to do it.

And.

Yes, just wanted the market to be aware of that.

Okay, and if I could just sneak one more in here just on the light Sweet side I. Appreciate that you say that you've had some momentum building, but it sounds like the commentary has been pretty similar to what we've heard the last couple of quarters. So maybe if theres anything else you could share maybe at least do you think at this point this incremental subordinated capital do you think that's going to come from private investor.

Looking to the government entities for that.

I don't want to get into.

Who the potential financing sources could be but I will say that.

We are in discussions with.

Financing sources for the funding that we need.

I feel pretty good about.

Where those conversations are although it ain't over till it's over so no guarantees.

Yes, I don't think I can offer that much more incremental insight, but only to say that.

Yeah personally I remain optimistic that we're going to.

Get the funding that we need to move lightspeed forward.

Yes, we're excited to do that.

Alright, Thats all for me. Thank you.

Thank you.

Thank you. The next question is from Arun Seshadri from BNP.

Please go ahead.

Yes, hi, thanks for taking my questions. Most have been asked just on the light speed topic.

Could I ask the question a little bit different way.

Some new parties, either investors or partners that have emerged in the last three or six months that would make you more confident today than you would have been a few months ago.

Hi, Aaron.

Well, what I would say is I think there are a lot of.

There's a lot of interest in Leo right now and there are a lot of.

The parties that.

So kind of share our vision that theres, a big opportunity there there aren't that many leo operators out there.

That.

Sure.

If you are bullish on the opportunity that you can put money to work with and so so I would say that.

Yeah, and I would say again, maybe just reiterate we've already got a lot of our financing lined up.

Which gives us confidence that.

Already a significant.

A significant amount of the financing that we need we already have a line on so yes, that's what I would say that we.

We're in discussions with folks I do think there are investors out there that are interested in supporting a project like ours.

And we'll see if we get there with them.

Got it thank you for that and then as far as timing goes.

How would you handicap the timing of an announcement on Lightspeed I mean would you say this is like a month or a couple of months away or do you think theoretically it could be significantly longer.

I can look.

You know.

Sure.

<unk> gotten this sort of wrong before so low too.

No I am in.

It's not because I like conviction that it's going to happen, but but but bringing this all to close has definitely taken longer than than I had anticipated.

Yeah.

I don't want to say anything more I just don't want to.

Tempting, but.

Yes, let us just keep working on it.

I think we're making progress I think we'll be able to offer some clarity I hate using terms like this but in the near term.

And all I would say as you know.

We're I think we're doing all the right things, we still have a great opportunity here and and we want to get it right.

That's the other thing I would say it'd be easy in some ways just to sales group. We've got all this cash on our balance sheet, we've already lined up all of this money well, let's just start blowing our brains out and spending money, we haven't wanted to do it like that.

<unk>.

Anyway, so stay tuned I think we're making progress and hopefully we'll be able to.

So it's something more definitive again in the near term.

One last thing on the Lightspeed topic.

Is there I mean are there any additional changes in the scope of the overall project.

Possible or probable as a result of.

Potentially some new investors et cetera, and finalizing the <unk>.

The terms.

That's a good question.

Yes.

No.

Okay.

Potentially there are opportunities to.

And tweak some things maybe just to step back fundamentally I think we have a really good design for lightspeed. It's.

It is a massively capable constellation that we've designed it's capital efficient right. Its much fewer satellites in the thousands of satellites that that some of the other folks who are deploying and we just don't think that we need to do that to effectively serve the enterprise and government market that we're focused on so I would say.

Fundamentally the.

Core building blocks.

The project couple hundred satellites process payloads digital antennas optical inter satellite links all of those things I think.

Remain.

Intact.

A little tweaking that can be done here and there to.

Maybe improve things a little bit further, yes, I think so and we've been exploring some of that.

Some of the investors have particular focus is in terms of markets that theyre focused on yes. They do and there is potential tweaking that we can do that.

Address.

There.

Focus areas, but.

But beyond that I would say again fundamentally the design that we've been talking to the market about our customers about remains.

Intact.

Got it thank you very much.

Thank you.

Thank you. The next question is from David <unk> from Jefferies. Please go ahead.

Hey, guys. Thank you very much for the time I appreciate it most of mine have been answered, but just one or two others for me.

Could you maybe talk a little bit about the utilization increase was that more a function of the anomaly or is there other stuff going on there.

No. That's a great question and I think we've promised in the past.

If if utilization is.

Meaningfully affected by satellite coming out of service or something no.

Im looking at one of my colleagues is totally.

Most of this no it is.

Just Ben.

Hitting a lot of singles and doubles frankly quarter after quarter, just steadily filling up maybe some beams that in.

In the past.

How about a little bit less utilization I think we've got a very good team that is constantly looking for ways to regroup. The capacity. It's always the case in a business like ours that you sell out of capacity in some areas that are very hot.

Have available capacity in other areas, where there's just less demand, but the satellites have certain flexibility to swap capacity around and Youre always looking for opportunities to continue to do that so so that's what the utilization increases have come from just in the trenches, making.

Good care for capacity planning decisions demand as we've said has been pretty good.

And just yeah chipping.

Chipping away at it.

And look our utilization is pretty high right now, 89% I think if you look across the industry such that's got to be up there in terms of utilization I do think we do a good job of making full use of the capacity that we are.

We're investing in.

And as you can see from all the cash we've been building up it would be easy for us to go out and buy two new geo satellites and throw them up there.

But yes, it's just kind of not the way we approach the business.

Perfect. That's great and then I appreciate all the color around around the Bell renewal later this year.

Are there any other contracts that you can maybe point us to for maybe the early part of 'twenty four or any other bigger ones that you can maybe give us some color on.

Yes, I think the other kind of more meaningful stuff that comes up so we renewed dish.

For two years and they've got an option to renew for an additional year. So that would come up if memory serves kind of.

<unk>.

Early Q2 next year.

I think thats right and then beyond that.

<unk>.

Probably later.

More like Q4.

Just looking at something like Q4 next year.

Mimic five.

With dish would be coming up for renewal. So those are.

I'd say the.

The more <unk>.

Meaningful ones that come up.

Next.

Perfect. Thank you and then just one last one for me.

How should we be thinking about potential spectrum constraints on the K band.

Other guys launching satellites pretty quickly like is that something that could.

Could be an issue in five years' time or something like that how should we be thinking about that.

Good good question.

We.

We've got a whole team that's dedicated to.

The regulatory rights and coordinating with other operators out there and whatnot from everything that we see right now and all the analysis that we've been doing.

We feel comfortable that we're going to have access to the spectrum that we need to operate lightspeed in a way that allows us to achieve our business plan objectives.

So.

So yeah.

Look again, we've got a few hundreds of satellites that we're going to be using their very advanced they have been.

Beams that are hopping in a lot of flexibility in terms of.

How we use the satellites, but but it's something that we pay a lot of attention to.

And we believe that that we are good in terms of our ability to operate the constellation and the access to spectrum that we need.

So is that something you think maybe becomes an industry wide problem, maybe 10 years out or something but just not not with any current projections.

Yes.

Hard to say.

Spectrum is certainly a finite resource.

<unk>.

At some point that could become an issue for the foreseeable future I think.

Yes, I think that that we're in a good spot.

Really appreciate the time. Thank you guys. Okay. Thank you.

Thank you. The next question is from Rob.

<unk>.

Ragav dark fiber lines. Please go ahead.

Alright.

Hi, Thank you for taking the question.

Ses's confirm docs within does that just wanted to get your thoughts on M&A in general.

Viasat, two mean merging with inmarsat and dose at one way or do you feel like.

Do you need to do something.

Just.

Be patient.

Yes, it's a great question and we saw the reports this morning about.

Rumours around Ses and Intelsat can't.

Can't say that those rumors are new in cancer that we were surprised by it.

Nor would.

What I would say that we're surprised by the MH.

M&A activity, that's taking place in the sector, our industry has gone through sort of cycles.

And it feels to me and I think I've said on a prior call. It feels to me that we're entering into another one of those cycles. We clearly are with the inmarsat bias.

Merger pending.

One web we'll see if these rumors around Ses and Intelsat are correct.

On balance I think it's a good thing for the industry, it's something that we.

We've been anticipating for a while.

And I think it'll help rationalize certainly the supply side of the equation.

For us.

Jay.

We'll be open minded about it I think that the most important thing that any operator needs to do to compete is to <unk>.

Have the most.

Has the best value proposition for your customers.

But it sounds like a truism, but I don't know if it's true.

And it's why we've been so focused on.

Bringing lightspeed forward, because we've been monitoring very closely the.

Changes that we've been seeing in the customer community and the user applications, whether that's cloud or the e-commerce.

Whether how the government wants to make use of space based infrastructure in the future for us that all points to a network that looks like Lightspeed I think that's still the most important thing to get right as a satellite operator, having the offerings that that is the customer.

Want today and that you think theyre going to want in the future.

So I.

I'd say thats, our biggest focus right now and look I mean.

We've been pretty.

Transparent with folks.

There are headwinds in the satellite world right now and we've been seeing that on the Dth business, there's a massive opportunity on.

On global broadband connectivity and if you look at where our industry is growing.

And where I look where we're growing with Intelsat, it's those markets.

So.

So, yes I think.

I think if we get that right bringing.

And advanced state of the art infrastructure to meet the customers' requirements I think we should be good does that mean that we would be closed minded about.

Inorganic opportunities no.

So anyway, that's how we think about it.

Thank you and last question on your capital structure.

Commented, obviously anyway that you can do these buybacks, but just a big picture question on how you plan to address.

<unk> capital structure you have.

A few years, but obviously the market is telling you you cannot refinance your debt.

So just how do you plan to deal with the maturities given its unlikely that Neil and be a meaningful contributor.

Any sign that Dino capital structure comes due.

Well, maybe I'll say, a few words about it and then Andrew can say a few words about it.

As well.

First off as you know, it's some years out it's about four years out right now so we certainly have.

A fair amount of runway there to regenerating still a meaningful amount of cash in and we've been disciplined about about what we've been doing with that cash and we've got a lot of cash on our balance sheet right now.

Three.

Youre right.

Assuming we move forward with Lightspeed, it's probably not the case that there is an enormous amount of EBITDA thats coming off of light speed at the time that.

We're going to be needing to refinance but I do expect that lightspeed will be.

<unk> far along and that we will have.

Secured a meaningful amount of cash.

Customers and look as I mentioned, we already have.

About three quarters of 1 billion Canadian dollars in backlog on Lightspeed now and we haven't even fully pulled the trigger on it and my expectation is that.

When it's time to.

Raise money.

For telesat in the future either by issuing equity or debt.

A lot of that's going to be tied to how investors think about the yeah.

The future prospects of the company and I think the future prospects of the company out in that timeframe.

That comes up for.

When it matures I think our prospects are going to be growing because I think we will have executed well on lightspeed and that our prospects will be quite bright and that as a result, our access to capital be that on the equity side or the debt side.

I think we're going to be in a great place.

And to the point of the conversation we were just having a lot of.

Changes taking place in the industry more broadly she who the hell knows kind of.

Where we're going to be.

Four years or so from now so anyway, that's I'd say, that's how we're thinking about it and then of course.

<unk>.

Can we opportunistically be out there in the market or do something more fundamental in terms of our.

Our debt, yes, potentially so so I think we've got a lot of.

Of tools to address that in the future. That's how we think about it from my perspective, there is not much more I can add to that thats pretty comprehensive indeed desktops. The way, we see it $1 7 billion in cash generated over $200 million. This year alone. Our maturities are out 2026, 2027, and I think that cohort.

The way, we see it somewhere I get that.

Great. Thanks.

And we have time for one more question here. Please.

And the last question will be from Mr. Weiss from Investcorp. Please state your full name and proceed with your question.

Thanks for the time.

Just in terms of the the delays.

Raising money for Leo.

Is it impacting your supply agreements with the satellite manufacturers.

Do those agreements have a drop dead date or would they need an exploration date.

At which point do we need to be renegotiated or are they being renegotiated on an ongoing basis at this point.

Yes, that's a great that's a great question.

Yes.

So.

The prime contractor that we've been engaged with is towers.

And we received and this is one of the things that.

For those of you fold.

The lightspeed.

Story.

When COVID-19 hit and inflation hit we needed to spend quite some time with Tau is kind of re scoping the program and they have to go back out to their supply chain and get updated bids in and all of that and it took took a whole lot longer than we wanted but we found.

Finally got all that and it was on that basis that we went back out to financing sources with an updated business plan and I would say that from that time and based on our recent conversations with towers all the pricing.

That that was put together as a result of that effort remains.

Intact now.

<unk>.

Well need to reconfirm their price to us, but in a recent discussion with them, we're getting comfort that the pricing.

For the constellation that we've been talking about is it going to be consistent with the last pricing that we've heard from them.

But it's a great question and then I'd say the pricing for the other elements of the program. The big one would be launch vehicles and then some other elements around landing stations and user terminals.

We feel confident also.

Those prices are are consistent with the business case that we've been working with.

Great. Thank you.

Thank you.

Okay.

Operator, well. Thank you very much. Thank you all for participating.

Our full year results conference call and.

And we look forward to speaking with you again in the not too distant future. When we release, our Q1 numbers. So thank you very much. Thank you very much.

Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

Mr. <unk> line, though.

This conference is no longer being recorded.

<unk> please.

Hi.

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Good morning, ladies and gentlemen, welcome to the conference call to report fourth quarter 2022 financial results.

Today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Andrew Brown, Chief Financial Officer.

Joining me over to Mr. Michael <unk> director of Treasury and risk management. Please go ahead Mr. Clark.

Thank you and good morning. This morning, we filed our annual report for the year ended December 31, 2022 on form 20-F, with the SEC and on SEDAR.

Our remarks today may contain forward looking statements. There are risks that 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 see <unk> annual report filed earlier today with the SEC Telesat assumes.

No responsibility to update or revise these forward looking statements I will now turn the call over to Dan Goldberg, <unk>, President and Chief Executive Officer. Okay. Thanks, Michael This morning, I'll share some thoughts on our financial 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 we.

Open the call up to questions looking at our financial performance for the quarter and the full year I'm pleased with where we landed we beat the guidance. We gave at the outset of the year as well as the updated guidance we shared when we released our Q2 numbers.

We also continue to run the business in a highly disciplined and focused manner closing the year with an adjusted EBITDA margin of roughly 75% and with $1 $7 billion of cash on the balance sheet.

Of the capacity that dish didn't renew it was still the biggest contributor to the decline in revenue and adjusted EBITDA, we experienced last year.

Also worth noting was the revenue we recognized in Q4 from the contract we have with DARPA. The U S. Dod's research arm as we've said before the contract generated approximately $20 million in revenue and about an equal amount in expense, meaning it was essentially neutral.

At the EBITDA line overall dilutive to margins, but because that work is all about demonstrating to the U S government and to the market more broadly the efficacy and capabilities of optical inter satellite links.

A key feature of our Lightspeed satellites. It made good strategic sense for us to do that contract, even though it was EBITDA neutral.

The last thing I'd note on our performance last year is something else, we've discussed before which was the anomaly we had on our anika to satellite that shortened it station kept life.

Operator, other telesat satellites and third party satellites as well.

The first as I mentioned, a few moments ago is the residual headwinds from the Anika III dish renewal, which will show up in the first four months of this year. The second is an expected renewal with bell for NIM at four which comes up for renewal in early October this year.

At this time, we expect bell to renew all of the Dth capacity on <unk>, four but at a materially lower rate than the current one those two renewals dish and bell.

For approximately half of our anticipated revenue and adjusted EBITDA decline for this year.

Unfortunately, we're not there yet.

That said, we continue to make progress with the various parties, we're engaged with and we remain optimistic that we're going to secure the financing we need to move forward with the program recognizing of course, if there is no assurance that we'll ultimately get there.

No well that investors and others want clarity as to where we stand on lightspeed financing and we hope to be in a position to provide that clarity.

Finally, we wanted to share that <unk> board has authorized up to $200 million in cash for repurchases of our debt if management determines such repurchases are in the best interest of the company with that I'll hand over to Andrew and then look forward to.

Addressing any questions you have thank you Dan good morning, everyone I would now like to focus on highlights from this morning's press release and filings Telesat ended the year 2022, which reported revenues of $759 million adjusted EBITDA of $568 million.

And generated cash.

[music] give us a second.

Go ahead, Andrew I think we're sorry about that obviously somebody who is very excited.

To join.

Edival I'll just go back a little bit at the beginning at Telesat ended the year of 2022, which reported revenues of $759 million adjusted EBITDA of $568 million and generated cash from operations of 229 million $1 7 billion of cash on the balance sheet at year end as Dan has mentioned, we outperformed our 2022 financial guide.

<unk>, which we increase then actually updated when we issued our second quarter results in August of last year.

The fourth quarter of 2022, Telesat reported revenues of $207 million adjusted EBITDA of $139 million and generated cash from operations of $69 million for the fourth quarter of 2022 compared to the same period in 2021 revenues increased by $19 billion to $2 7 million operating expenses increased by 8 million to 80 million.

Looking at revenues the revenue increase was primarily due to the completion of an equipment sales. The DARPA as Don has mentioned as well as higher revenues from Arrow and maritime customers. This was partially offset by a reduction in revenues upon renewal of a long term agreement with a north American Dth customer Opex the increase in operating.

<unk>, but primarily due to higher equipment sales related to the DARPA program as previously mentioned, partly offset by lower noncash share based compensation, a lower bonus expenses related to 2021 interest expenses increased by $80 million of the full quarter when compared to the same period in 2021. The increase was due to an increase in <unk>.

First rates in 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 for retirement of senior unsecured notes in 2022.

Alright, and the fourth quarter, we recorded a gain on foreign exchange of $72 million as compared to a gain of 20 million in the fourth quarter of 2021. The game for the trade months ended 31 December 'twenty. Two was mainly the result of a stronger U S. Dollar the Canadian dollar compared to the spot rate as of September 30th 22, with a resulting in favorable impact on the <unk>.

Translation of our U S dollar denominated debt.

Our net income for the fourth quarter of 2022 was $92 million compared to net income of $113 million in the prior year. The variation of $21 million was principally due to the recognition of USD bond guarantee payments in the fourth quarter of last year, partially offset by higher noncash foreign exchange gains compared to the same period last year, along with lower <unk>.

Tax expense.

Cash flows for the year ended 2022, the cash inflows from operating activities were $2 29 billion included over $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 $85 million to date and expect Florida proceeds of approximately $260 million.

In terms of capital expenditure spending hours during 2022, virtually all are related to a lower orbit constellation Elo satellites feed.

<unk> is that as mentioned and you've noticed in our earnings release, we have provided preliminary 2023 guidance. The guidance assumes the Canadian dollar to U S. Dollar exchange rate of 135 revenues for 2023, Telesat expects its full year revenues to be between $690 million in 2000 10 billion adjusted EBITDA in terms of adjusted EBITDA.

And is that expected to be between 500 million to $550 million Capex. We expect our 2023 cash flows used in investing activities to be in the range of 40 million to 70 million once we have greater visibility around the construction and financing our tele satellites B program, we will provide a further update on our anticipated catheter.

<unk> for the year.

Approximately 1 billion in cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash on the ongoing operating activities.

Dan has indicated also this morning. The board has authorized up to use 200 million a cash for repurchases of our debt if management determines repurchases to be in the best interest of the company.

At the end of the fourth quarter leverage as calculated under the terms of our amended its senior secured credit facilities was six seven times to one telesat has complied with all the covenants in our credit agreement and indenture, a reconciliation between our financial statements and financial Covenant calculations is provided in the report we filed this morning.

A 20-F provides the unaudited interim condensed consolidated financial information in the NDA. The non guarantor subsidiaries shown are essentially the unrestricted subsidiaries with minor differences.

So I think that concludes our prepared remarks for the call and now we will be more than happy to answer any questions. You may have and with that we'll turn it back to the operator.

Thank you we will now take questions from the telephone lines. If you have a question on using a speaker phone. Please go ahead said before making your selection. If you have a question. Please press star one on your devices keypad.

So the question. Please press star queue. Please press star one at this time, if you have a question there will be a brief pause all participants may disconnect. Thank you for your patience.

The first question is from Walter <unk> from.

Ken.

Please go ahead.

Your line is open.

If you have muted your line. Please on mute your line.

<unk>.

Okay.

What about now can you hear me now yeah.

Perfect Alright.

Got it.

One a day.

SG&A is something that.

Obviously would start to escalate.

<unk> kind of proceeded with Lightspeed same thing with Capex. So.

Even though these kind of ongoing delays in terms of getting the financing.

Should we just basically freeze expectations for valuation purposes on SG&A until we get the go ahead that you can actually get the financing or.

Do you guys have some confidence level that you start to engage an increased opex and capex, because you're optimistic that you're going to get the financing.

Queued up for Lightspeed.

Andrew Hey, Walter It's Dan maybe I'll take a shot and then Andrew can chime in as well so.

And in putting in our.

Together for the year.

And then given the guidance. So we're spending right now on the Opex side moving forward with Lightspeed right. So we've been doing a lot of work on it we've got a lot of people in the company that are dedicated to it.

And our.

Guidance, so part Capex for a second but just our guidance.

Guidance on the EBITDA side takes into account that we're making investments we're spending.

The development of the Lightspeed program, we're confident that it's going to go forward.

Different than.

$40 million to $70 million of 40% to $70 million is just kind of spending.

Outside of the full program moving forward. So Andrew I don't know if you wanted to add anything to that yes look I think as you said that in terms of Capex, a very prudent and as Dan had said that as soon as we've got the go ahead for Lightspeed, we will come back indeed, and talked about guidance for there and on the SG&A.

So from a sum of the parts valuation standpoint.

What would you say the percent mix of SG&A is to lightspeed and the reason I asked that.

My follow on question is going to be.

At what point do you give up meaning like either financing.

Change your view of the revenue opportunity of the market has changed because of delays. So that you can say, okay. We can at least rely back on a base valuation, which is based on a core EBITDA number which is currently getting diluted by some of these investments on the Opex side of X. So I guess theres two two or.

Really three parts of that question percentage of Opex that is that if I know youre going to say this is not going to happen, but if for whatever reason you just had.

Through it on Leo your Opex can drop by X percent, secondly has the market revenue opportunity, which you outlined I think very well in a document that's I think now almost a year old or more.

And then third.

Why do you remain confident that this can happen.

That light speaking, Ken can get to a point, where we can move forward here.

Okay.

Yes in terms of the Opex as we go through a program that what we are spending we will capitalize.

And continue to do that up until it determination was ever made about lightspeed that it wouldn't go ahead, what with healthy confident as Diana said that we will go ahead and therefore, we see within the confines of a.

Operating box and even last year, we're off about $22 million in Opex and just give you a sense of that a big driver of that was the date of the cost of the DARPA program itself a year on year, the incremental costs and related in relation to Leo is not that is not that significant and they've got full plans.

The business plan that indeed in terms of attacking the market customers rolling out the ground infrastructure that once we have that.

The Green light to go ahead, Dennis did we will come back and we'll communicate that guidance do you need to make it very very clear and maybe.

I'll offer some thoughts on kind of where we are with Leo.

The optionality that we have around it.

But we're not required to move forward with Lightspeed right Theres no.

There is no legal compulsion, where at telesat as to move forward with Lightspeed. We're we're.

Focused on Lightspeed, because we think it's a great cause.

<unk>, which is to say there is a huge market for a well engineered well executed enterprise grade enterprise focus Leo constellation if anything.

Firm for us that that we're on the right path there and certainly all the conversations we're having with <unk>.

Commercial customers with government users all of that.

Certainly I'd say.

Experience.

That that we see in the Ukraine in terms of how the starlink constellation of crucial thats been to that conflict. All go to reinforce the logic around having a leo constellation and the strategic importance and.

And so so that to that which is to say, we're not seeing anything different in terms of commercial developments technology developments anything that persuades us that this isn't a good path.

Why we have confidence that we'll ultimately get there I think that was another question.

<unk>.

We've got a ton of momentum on this we've lined up already over $4 billion of financing commitments, we've already got something like $750 million worth of backlog. So we.

We've got strong support from our government, we got strong support from our customers. We got strong support from our board.

So yeah.

It's taking longer than we wanted but but all of those things I think make us feel.

Confident that we're going to get there and then the last thing I'd say is if we don't for some reason and I think that we will.

But if we don't.

We're still generating a significant amount of cash we've got over 1 billion and a half.

Cash on our balance sheet right now it's not like we will have left ourselves.

And a horrible place Lightspeed is what we're focused on Lightspeed I think is still the right move for Telesat and I think that we're still.

From a timing perspective, and a good place, but if for some reason that we can't anticipate right now.

Something.

Different happens then we'll revisit it anyway is a long winded answer but they were good questions.

Okay. Thank you.

Thank you. The next question is from Marcelo from Erez. Please state your full name and proceed with your question.

Hey, guys Marcello tyminski from Aries.

Had a couple questions one was there.

A new comment in the form 20-F that you are now actively seeking to raise equity funding for lightspeed what.

Marcel It's Dan I don't think Theres any new news there and we said I think on our Q2 call that because of cost increases on lightspeed that we were in discussions with some potential equity investors.

And we've reiterated that on our last call.

And so so yeah, no. So I don't think Theres anything new there what we said was that.

Those <unk>.

Investments should they materialize would be a subordinate they'd be at kind of the Leo level.

And they'd be subordinate to the.

Other financing sources that we've been engaged with including.

BPI the French export credit agency, the government of Canada, and the government of Quebec, all of which we've been in discussions for financing. So I don't think there's anything new there.

So there.

I know the F.

But is it in F 'twenty.

Yeah.

A little bit about.

Our regulatory considerations and whatnot.

The regulatory stuff I mean, there we've got.

A number of applications in the first processing ran in the second processing round.

And then so there are regulatory.

<unk>.

Activities at the FCC level, there are regulatory levels at the ITU level as well and we've got lots of different filings there as well.

I won't get into the weeds on.

Round, one versus round two but all of this say that.

I am pretty confident that.

When we're ready to move forward with Lightspeed, we're going to have the regulatory rights we need.

Around the world to provide the services that we need to provide I D.

Directly to the 20-F I know that we do have some disclosure around there.

But that's that's how I'm thinking about it.

And as it relates to the Geo satellite.

At what point do you have to make a decision whether you wanted to invest in new ones to replace aging satellites. I know you have the capex guidance of $40 million to $70 million, but also in the 20th you increase the cost to launch and Geo satellite to $200 million to $500 million.

I think you'd have to step up capex, if that's a path you want to take.

Or is there another path you would potentially think about.

Yes.

We'll take a kind of satellite by satellite we're only going to replace.

Geo satellite or launch an expansion geo satellite or frankly spend any capex.

If we are convinced we got a strong business case for it and so whenever a satellite kind of comes up towards the end of its life. We have a hard look at what's what's the best way forward here.

And there are some other things we can do I mean, there are some newer technologies out there that can extend the life of the satellite and we've been evaluating some of those as well. So right now as you can tell we don't have any plans right now to spend money.

<unk> this year at least on.

Replacement Geo satellites, we're open to.

To doing just that though when those satellites come up for renewal and I got to say, we are open to building new Geo satellites and we've looked at opportunities from time to time to do that.

But yes, we'll just evaluate every business case kind of on a standalone basis and make sure that there is a strong kind of risk adjusted.

Rate of return on that but right now as you can see we don't have any.

Capex spending for replacement or expansion Geo satellites right now in our plan for this year.

So kind of kind of segway like back to where it wildcard question was earlier.

Did not end up pursuing.

<unk> you have the one 5 billion of cash is that potentially cash you would I guess bring.

Bring back from that subsidiary to invest in <unk> or how would you think about that yes.

Probably rather not speculate too much right now on what.

Alternative paths.

We could take us as I've said.

Our our focus is on moving forward with with Lightspeed and we're very bullish on that.

So, but yes to your point could we bring cash back.

We could there's nothing I'm staring at our general counsel there is certainly nothing that prevents us from doing that.

We will cross that bridge, if if and when we get there I think we've been running this business for pretty long time, we've been pretty hardheaded and pragmatic about.

How are we.

Use our cash and pretty disciplined around that.

So anyway again, the focus right now is moving forward with lightspeed.

If for some reason that didn't happen we will.

With you guys then about what we might do with the cash that we've been building up.

Great. Thanks, so much thank you.

Thank you. The next question is from branded cards from Kennedy Louis Please.

Please go ahead.

Yes.

Hi, Thanks for taking the questions just wanted to turn back to 'twenty three guidance here, you mentioned that half of that was from dish and that Bell, Canada renewal could you bucket the other half a little bit how much of that is any changes any kind of degradation in the core business FX or any other variances, yes. It's a good question. So.

The other pieces.

Our that DARPA.

Contract that we recognized in Q4 that was kind of a one time arrangement with DARPA. We said that was about $20 million. So that's another big piece of the revenue decline and then beyond that.

I mean that right there accounts for gosh, I don't know three quarters of of the downturn roughly beyond that.

No.

Odds and ends here and there some renewals may be at a lower rate.

Some lost renewals.

It's just a whole bunch of other stuff that that builds up to the balance of the decline.

Okay.

Okay I thought the DARPA contract was about EBITDA neutral. So I was wondering the DARPA contract.

You're 100% right. The DARPA contract was EBITDA neutral I was talking more on the revenue line.

So we do have.

Some increased expense.

Coming from some of the third party capacity, we need to support customers on Anika to that's probably the biggest driver of some of the opex.

So some of the ups on the Opex side. There is some downs on the Opex side, but countervailing that there are some increases in one of the large increases as third party capacity, we need to accommodate customers on <unk> that we're continuing to support.

So but look most of its revenue driven as you can see and the big drivers there are.

Dish.

The anticipated Bell renewal and then more of these other.

More other stuff that relates to the.

The regular customer business.

Yes, I'll talk to Bill I mean, candidly I don't think we're going to give any more granularity on F. Two I think we've given a lot of granularity on that already.

On Bell.

Yes, I mean, our confidence stems from the fact that.

Well, they're a big customer we've been having a lot of conversations with them and this feels like the deal.

The.

Yeah.

What we baked into our guidance very much reflects the nature of the pretty detailed conversations that we've had with them about what this renewal would look like so so thats what gives us the confidence there.

Okay, and then on the bond buybacks, it's good to see that you reauthorized, our buybacks and it's been a few quarters since you've done any any reason that you'd been holding Austin has your appetite for that changed at all.

Yes.

Figuring out when you.

And in the.

Public companies are so heavily regulated in terms of issuing securities buying securities back. So so there were I don't know a lot of considerations out there at the time that we bought.

<unk> tried to be pretty clear with the market about what authority, we've been getting from our board and kind of what are.

Intentions are just so.

Everyone has a pretty good sense for how we're thinking about it. So I don't know I mean, all I would say is there kind of a kaleidoscope of factors out there that we need to take into account.

We've taken those into account the board has increased our authorization in terms of what we can do in terms of.

Debt repurchases I think we've always said that.

We believe our debt trading at these levels.

No.

We think that current debt prices.

<unk> represent really fair value of the debt.

Thank you.

It could be a good use of cash that we have that builds up.

In the restricted group in particular and so in any event. We just wanted to make everyone aware that we've got this increased authorization from the board and if we think that.

The right thing to do that that will.

Go back out in the market and and repurchase of that not saying that we're going to but just letting everyone know that we've got the authority to do it.

And.

Yes, just wanted the market to be aware of that.

Talking to government entities for that.

I don't want to get into.

Who the potential financing sources could be.

We'll say that.

We are in discussions with.

Financing sources for the funding that we need.

Still pretty good about where those conversations are although it ain't over till it's over so no guarantees.

Yes, I don't think I can offer that much more incremental insight, but only to say that.

Yeah personally I remain optimistic that we're going to.

Get the funding that we need to move light speed forward.

And yes, we're excited to do that.

Alright Thats all for me. Thank you. Thank you.

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

Yes, hi, thanks for taking my questions most have been asked.

On the light speed topic.

Yeah.

Could I ask the question a little bit different way I mean have there been some new parties either investors or partners that have emerged in the last three or six months that would make you more confident today than you would have been a few months ago.

Hi, Erin.

What I would say is I think there are a lot of.

There's a lot of interest in Leo right now and there are a lot of.

All parties that.

So kind of share our vision that theres, a big opportunity there there aren't that many leo operators out there.

That.

Sure.

If you are bullish on the opportunity that you can put money to work with and so so I would say that.

Yeah, and I would say again, maybe just reiterate we've already got a lot of our financing lined up.

Which gives us confidence that.

Already a significant.

A significant amount of the financing that we need we already have a line on so yes, that's what I would say that we.

We're in discussions with folks I do think there are investors out there that are interested in supporting a project like ours.

And we'll see if we get the rhythm.

Got it thank you for that and then as far as timing goes.

How would you handicap the timing of an announcement on Lightspeed I mean would you say this is like a month or a couple of months away or do you think theoretically it could be significantly longer.

I can look.

Having.

<unk>.

<unk> gotten this sort of wrong before so low too.

And it's not because I like conviction that it's going to happen, but but but bringing this all to close has definitely taken longer than than I'd anticipated.

Yeah.

I don't want to say anything more I just don't want to.

Tempting, but yes.

Yes, let us just keep working on it.

I think we're making progress I think we'll be able to offer some clarity I hate using terms like this but in the near term.

And all I would say is.

No.

We're I think we're doing all the right things, we still have a great opportunity here and we want to get it right.

And anyway, so stay tuned I think we're making progress and hopefully we'll be able to.

Say something more definitive again in the near term.

And last thing on the Lightspeed topic.

Is there I mean are there any additional changes in the scope of the overall project.

Possible or probable as a result of.

And potentially some new investors et cetera, and finalizing the <unk>.

The terms yes.

Yes, it's a good question.

Yes.

No.

Okay.

Potentially there are opportunities to.

<unk>.

Tweak some things.

Maybe just to step back fundamentally I think we have a really good design for lightspeed. It's.

It is a massively capable constellation that we've designed it's capital efficient right. Its much fewer satellites in the thousands of satellites that that some of the other folks who are deploying we just don't think that we need to do that to effectively serve the enterprise and government market bet that we're focused on so I would say.

Fundamentally the core building blocks of the project couple hundred satellites process payloads.

Digital antennas optical inter satellite links all of those things I think.

We remain.

Intact.

Europe , a little tweaking that can be done here and there.

Maybe improve things a little bit further, yes, I think so and we've been exploring some of that.

Some of the investors have particular focus is in terms of markets that theyre focused on yes, they do and and there is potential tweaking that we can do to address.

Address.

There.

Focus areas, but.

But beyond that I would say again fundamentally the design that we've been talking to the market about our customers about remains.

Sure.

And intact.

Got it thank you very much.

Thank you.

Thank you. The next question is from David <unk> from Jefferies. Please go ahead.

Hey, guys. Thank you very much for the time I appreciate it most of mine have been answered, but just one or two others for me.

Could you maybe talk a little bit about the utilization increase was that more a function of the anomaly or is there other stuff going on there.

No. That's a great question and I think we've promised in the past.

If utilization is.

Meaningfully affected by satellite coming out of service or something no.

Im looking at one of my colleagues is totally.

Close to this no.

It's just been.

Hitting a lot of singles and doubles frankly quarter after quarter, just steadily filling up maybe some beams that in the past.

We have available capacity in other areas, where there's just less demand, but the satellites have certain flexibility to swap capacity around and Youre always looking for opportunities to continue to do that so so that's what the utilization is.

Increases have come from just in the trenches, making good careful capacity planning decisions demand as we've said has been pretty good.

And just yeah.

Chipping away at it.

Look our utilization is pretty high right now and 89% I think if you look across the industry that that's got to be up there in terms of utilization I do think we do a good job of making full use of the capacity that we are.

Investing in.

And as you can see from all the cash we've been building up it would be easy for us to go out and buy two new geo satellites and throw them up there.

But yes, it's just kind of not the way we approach the business.

Perfect. That's great and then I appreciate all the color around around the Bell renewal later this year.

Are there any other contracts that you can maybe point us to for maybe the early part of 'twenty four or any other bigger lines that you can maybe give us some color on.

Yes, I think the other kind of more meaningful stuff that comes up so we renewed dish.

For two years and they've got an option to renew for an additional year. So that would come up if memory serves kind of.

Early Q2 next year.

I think thats right and then beyond that.

<unk>.

Probably later.

More like Q4.

<unk>.

Looking at something like Q4 next year.

Mimic five.

With dish would be coming up for renewal. So those are.

I'd say the.

The more <unk>.

Meaningful ones that come up.

Next.

Perfect. Thank you and then just one last one from me but.

How should we be thinking about potential spectrum constraints on the K band with other guys launching satellites pretty quickly like is that something that could be an issue in five years' time or something like that how should we be thinking about that.

Yes, good question.

We.

We've got a whole team that's dedicated to.

The regulatory rights and coordinating with other operators out there and whatnot from everything that we see right now and all the analysis that we've been doing.

We feel comfortable that we're going to have access to the spectrum that we need to operate lightspeed in a way that allows us to achieve our business plan objectives.

So.

So yeah and look again, we've got a few hundreds of satellites that we're going to be using their very advanced they have beams.

Beams that are hopping in a lot of flexibility in terms of.

How we use the satellites, but but it's something that we pay a lot of attention to.

And we believe that that work good in terms of our ability to operate the constellation and the access to spectrum that we need.

So is that something you think maybe becomes an industry wide problem, maybe 10 years out or something but does not not with any current projections.

Yes.

Hard to say.

Spectrum is certainly a finite resource.

Hi.

At some point that could become an issue for the foreseeable future I think.

Yes, I think that that we're in a good spot.

Really appreciate the time. Thank you guys. Okay. Thank you.

Thank you. The next question is from Rob.

<unk>.

<unk> garg with Gaba lines. Please go ahead.

Alright.

Alright, Thank you for taking the question.

Ses's confirm docs within dose at just wanted to get your thoughts on M&A in general.

<unk> can be merging with inmarsat and doubts that one way or do you feel like.

Do you need to do something.

Just.

Be patient.

Yes, it's a great question and we saw the reports this morning about.

Rumours around Ses and Intelsat can't.

Can't say that those rumors are new in cancer that we were surprised by it.

Nor would.

What I would say that we're surprised by the.

M&A activity, that's taking place in the sector, our industry has gone through sort of cycles.

And it feels to me and I think I've said on a prior call. It feels to me that we're entering into another one of those cycles. We clearly are with the inmarsat bias.

Merger pending.

One web we'll see if these rumors around Ses and Intelsat are correct.

On balance I think it's a good thing for the industry, it's something that we've been anticipating for a while.

And I think it'll help rationalize certainly the supply side of the equation.

For us I would say.

We'll be open minded about it I think that the most important thing that any operator needs to do to compete.

To have the most.

The best value proposition for your customers.

But it sounds like a truism, but I don't know if it's true.

And it's why we've been so focused on <unk>.

Bringing lightspeed forward, because we've been monitoring very closely the.

Changes that we've been seeing in the customer community and the user applications, whether that's cloud whether that's e-commerce.

How the government wants to make use of space based infrastructure in the future for us that all points to a network that looks like Lightspeed I think that's still the most important thing to get right as a satellite operator, having the offerings that that the customers.

Today, and that you think theyre going to want in the future.

So I.

I'd say thats, our biggest focus right now and look I mean.

We've been pretty.

Transparent with folks.

There are headwinds in the satellite world right now and we've been seeing that on the Dth business, there's a massive opportunity on.

On global broadband connectivity and if you look at where our industry is growing.

And where I look where we're growing with Intelsat, it's those markets.

So sure.

So, yes I think.

I think if we get that right bringing.

And advanced state of the art infrastructure to meet the customers' requirements I think we should be good does that mean that we would be closed minded about.

Inorganic opportunities no.

So anyway, that's how we think about it.

Thank you and last question on your capital structure.

Comment that obviously weigh on that could you can do these buybacks, but just a big picture question on how you plan to address yes.

Yes, Catherine subsidy.

A few years, but obviously the market is telling you you cannot refinance your debt.

So just how do you plan to deal with the maturities given its unlikely that Neil and be a meaningful contributor.

Any sign that Dino capital structure comes due.

So maybe I'll say a few words about it and then Andrew can say a few words about it.

As well.

First off as you know, it's some years out it's about four years out right now so we certainly have.

Three.

Youre right.

Yeah.

Assuming we move forward with Lightspeed, it's probably not the case that there is an enormous amount of EBITDA thats coming off of light speed at the time that.

We're going to be needing to refinance but I do expect that lightspeed will be.

<unk> far along and that we will have.

Secured a meaningful amount of cut.

Customers look as I mentioned, we already have.

About three quarters of 1 billion Canadian dollars in backlog on Lightspeed now and we haven't even fully pulled the trigger on it and my expectation is that.

When it's time to.

Raise money.

For telesat in the future either by issuing equity or debt.

A lot of that is going to be tied to how investors think about the yeah.

The future prospects of the company and I think the future prospects of the company out in that timeframe outlined that that comes up for.

I think we're going to be in a great place.

And to the point of the conversation we were just having a lot of.

Changes taking place in the industry more broadly she who the hell knows kind of.

Where we're going to be.

Four years or so from now so anyway, that's I'd say, that's how we're thinking about it and then of course you know.

Can we opportunistically be out there in the market or do something more fundamental in terms of our.

Our debt, yes, potentially so so I think we've got a lot of.

Of tools to address that in the future. That's how we think about it from my perspective, there is not much more I can add to that thats pretty comprehensive data desktops. The way, we see it $1 7 billion in cash generated over 200 million. This year alone and maturities are out 2026, 2027, and I think that cohort.

The way, we see it so some more to that.

Great. Thanks.

And we have time for one more question here. Please.

And the last question will be from Mr. Weiss from Investcorp. Please state your full name and proceed with your question.

Thanks for the time.

Just in terms of the delays in <unk>.

Money poorly.

How is that impacting your supply agreements with the satellite manufacturers do.

Do those agreements have a drop dead date or did they need an exploration date.

At which point do we need to be renegotiated or are they being renegotiated on an ongoing basis at this point.

It's a great that's a great question.

So.

The prime contractor that we've been engaged with is towers.

And we received and this is one of the things that.

For those of you followed.

The lightspeed.

Story.

When COVID-19 hit and inflation hit we needed to spend quite some time with talus kind of re scoping the program and they have to go back out to their supply chain and get updated bids in and all of that and it took took a whole lot longer than we wanted but we find.

<unk> got all of that and it was on that basis that we went back out to financing sources with an updated business plan and I would say that from that time and based on our recent conversations with talus.

All the pricing.

That was put together as a result of that effort remains intact now.

Well need to reconfirm their price to us, but in a recent discussion with them, we're getting comfort that the pricing.

For the constellation that we've been talking about is it going to be consistent with the last pricing that we've heard from them.

We feel confident also.

Those prices are are consistent with the business case that we've been working with.

Great. Thank you.

Thank you.

Okay.

Operator, well. Thank you very much. Thank you all for participating.

Our full year results conference call.

And we look forward to speaking with you again in the not too distant future. When we release, our Q1 numbers. So thank you very much. Thank you very much.

Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

Q4 2022 Telesat Corp Earnings Call

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