Q1 2023 Telesat Corp Earnings Call
All participants thank you for standing by the conference is ready to begin the.
Good morning, ladies and gentlemen, and welcome to the conference call to report first quarter 2023 financial results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Andrew Brown, our Chief financial Officer of Telesat.
I would like to turn the meeting over to Mr. Michael but idle director of Treasury and risk management. Please go ahead Mr. <unk>.
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.
<unk> 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 it she tell us at annual and quarterly reports filed with the SEC.
That assumes no responsibility to update or revise these forward looking statements I will now turn the call over to Dan Goldberg Telesales presence.
President and Chief Executive Officer. Thank you Michael This morning, I'll share some thoughts on our financial results and give an update on the business well then hand over to Andrew who will speak to the numbers in detail and then we'll open the call up to questions.
It's been just six weeks since we hold our COO for a full year 2022 results. So we don't have that many big updates to share with you today. Our Q1 numbers came in consistent with our expectations and at this time, we can reaffirm the full year guidance. We gave in late March when we released our full year results I know.
The two biggest contributors to the decreases in revenue and adjusted EBITDA that we're forecasting this year. The first was the residual headwinds from the Anna three dish renewal, we secured early last year, which will show up in the first four months of this year. The second one we noted wasn't expected renewal.
So with Bell for NIM at four which comes up for renewal in early October this year.
We noted that we expected bell to renew all the dth capacity on mimic for but at a materially lower rate than the current one which is exactly where we've landed with bell.
Was renewed all the limit for Dth capacity for two years with an option to extend for another year effective in October when the current term expires as we noted on our last call. These two renewal renewals dish and bell account for approximately half of our anticipated revenue.
And adjusted EBITDA declined for the year.
I also want to flag that utilization at the end of Q1 were quite high at 88% is down slightly from the 89%. We had at the end of Q4, there were some changes in the fleet in Q1 with Anika to going into incline service. So we pull it out of the utilization calculation.
And Anna for coming into the fleet. So it goes into the utilization calculation, but those movements net net had no real impact on utilization as a whole.
We don't have any new update on lightspeed at this time relative to what we said on the call six weeks ago.
I will say that we continue to make progress with the various parties were engaged with there is great enthusiasm within the company and our board about the prospects of the constellation and we remain optimistic that we're going to be able to move forward with the program recognizing we're still not quite there yet and it's not over till it's over we hope to be in a position.
To provide greater clarity soon.
Finally, as we noted in our press release. This morning, we repurchased approximately U S $103 million in face value of Telesat debt since our last earnings call, which we believe strengthens our financial position and creates value for shareholders. So with that I'll hand over to Andrew and then look for.
Forward to taking any questions. Thank you Don and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings during the fourth quarter of 2023, Telesat reported revenues of 183 million adjusted EBITDA of $439 million and generated cash from operations of 63 million.
With $1 7 billion of cash on the balance sheet in the fourth quarter of 2020 trillion compared to the same periods of 2022 revenues decreased by 2 million to $183 million operating expenses decreased by 11 million to 50 treatment again, and adjusted EBITDA decreased by 7 million to 139 million the adjusted EBITA.
Margin was 75, 7% compared to 78, 4% in 2022 between 2022 and 2023 changes in the U S. Dollar exchange rate had a positive impact of 7 million on revenues and negative impact of 1 million operating expenses and a positive impact of 5 million on adjusted EBITDA.
When adjusted for changes in foreign exchange rates revenues decreased by $9 million operating expenses decreased by 12 million and the noncash expense relating to share based compensation decreased by $15 million.
The result was a decrease in adjusted EBITDA of $12 million.
The revenue decrease was mainly due to a reduction in revenues from one of <unk> North American D. T. H cluster risk. This was partially offset by higher equipment sales to Canadian government customers combined with increased services provided to the <unk> maritime customers. The decrease in operating expenses is primarily due to higher noncash share based comp.
<unk> incurred into trade months ended March 31, 2022 <unk>.
Interest expense increased by 20 million during the fourth quarter when compared to the same period of 2022. 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 U S. Dollar denominated interest expense. This was partially offset by the impact of the repurchase of senior unsecured notes in 2022.
Combined with the impact of the maturity of one of the interest rate swaps at September 2022, and.
In the fourth quarter, we recorded a gain on foreign exchange of $10 million as compared to a gain of $36 million in the fourth quarter of 'twenty.
Part of the game for three months ended March 31st 2020 of trade was mainly the result of a weaker U S. Dollar the Canadian dollar compared to the spot rate as at December 31, 2022, with the resulting favorable impact on the translation of our U S dollar denominated debt.
Our net income for the fourth quarter of 2020, the trade was 29 billion compared to net income of $61 million in the prior year. The variation of 32 million was primarily due to the gain on extinguishment of debt in the fourth quarter of 2022, combined with higher interest expense lower foreign exchange gains, partially offset by higher interest and other income.
For the period ending March 31, 2023, the cash inflows from operating activities were 63 million. The cash flows used in investing activities was $25 million in terms of capital expenditures incurred related to a low earth orbit constellation.
Lightspeed combined with our newly acquired satellite F for.
So looking at guidance as Dan has mentioned and as we set out in our earnings release. This morning, we maintained our previously provided <unk> guidance. This guidance assumes that Canadians dollar to U S dollar exchange rate of 1.35.
So <unk> continues to expect its full year 2022 revenues to be between $690 million and 710 minutes. It turns of adjusted EBITDA <unk> continues to expect between 500 million to 550 million.
With respect to expected capital expenditures, we continue to expect our 'twenty 'twenty free cash flows used in investing activities to be in the range of 40 billion to $17 billion of once we have greater visibility around the construction and financing of a telesat Lightspeed 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 interest payments and capital expenditures of approximately $1 7 billion of cash and short term investments at the end of March as well as approximately $200 million of borrowings available under our revolving credit facility.
Approximately 1 billion in cash was held in our unrestricted subsidiaries. In addition, we continue continued to generate significant amounts of cash from our ongoing operating activities and at the end of the fourth quarter leverage as calculated under the terms of our amended its senior secured credit facilities with $6. Two four times to one telesat has complied.
With all the covenants in our credit agreement and indenture as Dan has also highlighted this morning that subsequent to the quarter end and up to May the 10th we have repurchased debt with a principal aggregate amount of U S dollars, a 103 million by way of open market purchases at an aggregate cost of U S. Dollar was $56 million a reconciliation.
Between our financial statements and financial Covenant calculations is provided in the report filed this morning. Our 6K provides the unaudited interim condensed consolidated financial information.
Okay.
The non guarantor subsidiaries shown are essentially the unrestricted subsidiaries with some minor differences.
So with that we conclude our prepared remarks for the call and we'll be very happy to answer any questions. You may have and with that we will turn back to the operator. Thank you.
Thank you, we'll now take questions from the telephone lines. If you have a question and using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keep that you make Epsilon question at any time by pressing star two.
Please press star one at this time he said the question.
It won't be a brief pause while the participants register for questions. Thank you for your patience.
Okay.
My first question is from Ireland Seshadri from BNP Paribas. Please go ahead.
Yes, hi, thanks for taking my questions.
First on Leo I know, there's there's not much of a broad update that you guys have right now, but can you just can you say whether the.
Can you can you provide any details in terms of either either there isn't any new parties involved are no discussions going on but the existing parties. Just just continue to advance any additional color you can add.
Hi, Arun it's Dan.
And it's true I mean, we only hello.
So.
We put out our full year numbers, let's just six weeks ago. So you don't have a big updates so no the Leo discussions with the various parties or are continuing.
We're engaging with the parties that we've been engaging with I think we're making a headway.
Yeah, I'd say, that's kind of where things sit.
Okay. Thanks, Dan and then in terms of the Iris two European project.
Is there any any way.
Are you guys. Just can you just can you talk whether you're you're bidding are you one of the bidders there at all or just any other sort of any any details on that front.
We're not a bidder I mean, the EU has been high.
Pretty clear that they're really focused on working with EU companies.
That process, we've been tracking it.
And my own guess is it will.
Continue to evolve we solve a consortium that's come together, we pay attention to what you're saying in terms of what their objectives are and their timeframes and whatnot, we certainly think that our with our activities with with Lightspeed are that there are.
Things that we could offer in connection with the project that would be very beneficial.
But at this point in time were more just sort of tracking it and we'll kind of evaluate whether there's a good opportunity for us to participate at some point, but at this point, we're really just kind of on the sidelines.
Got it. Thank you and is there any are there any can you talk about sort of what sort of things you could provide theoretically that could be beneficial to that project.
Well I mean, certainly one of the things they're focused on is deploying a leo constellation and you know, we're deploying a leo constellation to and so there you know it would be potentials in terms of working with a similar supply chain.
And leveraging kind of volume synergies.
Depending on you know an openness our.
Fleet could be used to complement backstop expand.
Whatever constellation they ultimately deploy it just kind of you know the those sorts of things but.
Really a lot of parties participating.
And the effort and so yeah I think right now we're just trying to monitor how its developing and if there's a good opportunity for us to be a constructive participant yeah, we definitely be open to that.
Okay. Thanks, Dan and then one last question for me is just more in terms of the buybacks between the various securities I assume primarily liquidity has has driven the the the choice in terms of which securities to buyback.
Yeah, that's right I mean.
We.
No.
Some of these securities are more liquid than others and yeah. So we just kind of have to be opportunistic in terms of what we can do out there.
I think what we've been doing is.
As I said in my remarks, it is accretive.
Accrete value to the equity and strengthens our financial position kind of more broadly, but that's exactly right.
Are you able to buy back bonds bank debt.
According to your read of the Indentures, I mean, sorry of the credit agreement.
I know.
I I'm, though a securities lawyer, but my General Counsel is nodding, yes, so yes, I think that that we're able to do that.
Okay.
Thank you very much.
Yeah.
Thank you.
The next question is from Marcelo would your majeski from Aries. Please go ahead.
Hey, guys. Thanks for taking my questions.
Can you provide us what the latest update is on the cost to build lightspeed I know a year ago, you were saying around U S. $5 5 billion, but since then there has been some more inflationary pressures and I guess one.
And what's the earliest you can get all 188 satellites launched activated if you theoretically secured the remaining financing tomorrow.
Yeah. Thanks Marcelo.
There were not seeing you know at this time incremental inflationary pressures that.
Have us alters the way, we're thinking about the total cost.
And as we've sort of been providing indications around that for gosh I don't know roughly the last nine months or so.
And then.
In terms of when we could get going my recollection is I think you know maybe we start launching in 2026 sort of that kind of timeframe.
So, but we'll certainly provide detailed updates when were financed and get going on the program.
Could you provide any update on supplier conversation like do you think theres an opportunity to potentially switch to alternative vendors to reduce costs are at this point are you switching costs too high with new suppliers.
You know we've always said that we are working closely with tower says our prime contractor and they've got a really good track record I think in terms of building constellations and the like.
Equally we've said that we're not bound.
To tell us and.
We have as you would expect continue to think about alternative ways that we could deploy our constellation in a way that allows us to meet all of our objectives.
So that's certainly something that you know, we continue to evaluate and and and and whether you know switching costs are prohibitive or whatnot, that's something that we would take into account, but it is certainly an opportunity that exist for telesat and certainly something that.
Sure.
Uh huh.
We've evaluated over time to make sure that we have some optionality there.
And I saw in the in the 10-Q release that Irwin Hudson is retiring next month, so who's going to be running Lightspeed and do you think there is any impact to the project.
Hum.
We have an embarrassment of riches in terms of Super smart capable experienced a technical people that tell us that I think it's one of the great strengths of Telesat Irwin is a total rockstar and it's been a great colleague and has provided great leadership. He actually has stayed.
On a quiet for some time longer than we had anticipated I should say that he had anticipated and I think that our and well continue to.
Retiring he's not going anywhere else.
And I suspect that <unk> will continue to consult with telesat on lightspeed going forward. So yeah, we've got a great technical team here and it's been a great part of it but but we it's not something that.
As a concern in terms of our ability to move forward with the program.
And lastly for me.
In terms of the royalty payments that the Geo business paced the Leo business per year for use of the IP and other assets is that is that the $2 5 million of revenue you reported in the in the Leo business in the first quarter or how does that royalty payment work.
I'm looking at my colleagues around the table here does anyone want to take that Paul.
So the payments between Leo and Geo FERC shared resources basis, Theres not a royalty payment revenues usually come from the U S. Government services is what youre seeing on the Leo side.
It was Paul Firkins, our controller.
Great is there any I would say yes.
Yes.
Yeah.
Yes.
Thank you and as a reminder, you May press Star one if you have a question.
The next question is from Brendan Karsh from Kennedy. Louis. Please go ahead.
Hi, Thanks for taking the call Covid to.
To hear that you got that bell renewal done and I heard the commentary that that plus dish or about half the revenue decline this year, but there's a lot of moving pieces here can you just maybe help us get a better sense of what the full year annual run rate is of this bell renewal.
Gosh I think we've provided more.
More insight than your average company about what it would be there actually aren't that many moving pieces.
We said on our last call that you know for the revenue decline.
I'd say the forecast revenue decline 2023 versus 2022 that bell and dish are account for about half of that the DARPA contract.
That we.
We recognized I think it was Q4 last failure accounts for roughly another I don't know a quarter of the anticipated revenue decline and then the rest would just be a bunch of you know.
More cats and dogs stuff lower renewals are in and by lower renewals. I mean, you know maybe renewing a contract at a lower rate that that sort of thing.
So I think that gives you a lot.
To work with and providing more than that.
Just starts to.
No.
We're starting to share just too much proprietary information on a on a public call like this.
So I think you can kind of work it out.
Close enough.
Yeah.
Okay. Thanks, maybe we'll take this offline.
And then.
With the Shaw Rogers transaction closing any updated thoughts on how that might impact your relationship with Shaw if at all.
We've known.
Canada is a big country, but in some ways, it's kind of a small when we've worked with both Shaw and Rogers a lot over the years.
So we've done a whole lot more business with Shaw, just because they had the dth platform.
I think we've said on prior calls I'm sure I'm, sorry, Rogers doesn't have a competitive dth platform and I think they've highlighted the fact that.
The shop platform gives them this kind of Nash.
National reach as something that they regard it as a positive so we don't believe that.
Our kind of outlook with.
Sure and those business activities are are adversely impacted by the fact that.
That Rogers is now kind of taken overshot.
Yeah.
Okay.
Okay. That's helpful and are you able to share when that renewal would come up.
I think hum.
You can probably tell I mean, it's mostly tied to the.
And shows on a couple of our satellite so anika to Annick G. One so you can sort of and they're mostly.
And the life on both of those satellites. So you know for Anika two that'll put you out in the 2020 for 2025 kind of ZIP code and for G. One much much longer still.
Okay.
Alright, that's very helpful. Thanks for taking my questions. Okay. Thanks Brendan.
Thank you. This concludes today's question and answer session I would like to turn the meeting back over to Mr. Goldberg.
Okay, well operator, thank you and thank you all for participating this morning again it wasn't a whole lot of time that has elapsed since we held our last call. So we look forward to speaking with you again, when we release our Q2 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.