Telesat Corporation

Q3 2021 Earnings Conference Call

11/5/2021

spk08: Good morning, ladies and gentlemen. Welcome to the conference call to report the third quarter 2021 financial results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Andrew Brown, Chief Financial Officer of Telesat. I would now like to turn the meeting over to Mr. Michael Belaito, Director of Treasury and Risk Management. Please go ahead, Mr. Belaito.
spk03: Thank you, and good morning. Earlier today, we issued a news release containing Telesat's consolidated financial results for the three- and nine-month periods ended September 30, 2021. This news release is available on Telesat's website at www.telesat.com under the tab Investors. We also filed our quarterly report on Form 6-K with the SEC this morning. Our remarks today may contain forward-looking statements. There are risks that tell us that actual results may differ materially from the results contemplated by the forward-looking statements as a result of known and unknown risks and uncertainties. For additional information about known risks, we refer you to the risk factors section of our annual report on Form 20-S for the 2020 fiscal year and in our quarterly reports on Form 6-K, all of which can be obtained on the SEC website. The information that we are discussing today reflects our expectations as of today and is subject to change. Except as required by securities laws, Telesat disclaims any obligation or undertaking to update or revise this information, whether as a result of new information, future events, or otherwise. I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.
spk01: Thank you, Michael. This morning, I'll discuss our third quarter and first nine months results and give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in more detail, and then we'll open the call up to questions. Comparing our Q3 results for the same period last year and adjusting for foreign exchange rate changes, revenue was down 2%, adjusted EBITDA was down 1%, and our adjusted EBITDA margin was 81.5%, up slightly from 80.4% in the prior period. Comparing the nine-month results and adjusting for FX, Revenue was down 4%, adjusted EBITDA was down 3%, and our adjusted EBITDA margin was 80.2%, slightly higher than the 79.7% in the prior period. The FX adjusted reduction in revenue and adjusted EBITDA for both the quarter and the first nine months of the year was primarily driven by a slight reduction of service for one of Telesat's North American DTH customers. the reduction or non-renewal of certain services in the enterprise segment, including as a result of the COVID-19 pandemic, and lower consulting revenue, partially offset by an increase in revenue associated with short-term services provided to another satellite operator. Turning to some key metrics, backlog at the end of the quarter, which I should note excludes backlog associated with our telesat lightspeed constellation, was $2.3 billion, and our fleet utilization was 80%. Looking at how our revenues broke down on an application basis for the quarter, broadcast was 51% of total revenue, enterprise services 47%, and consulting another 2%. And on a geographic basis for the quarter, North America accounted for 81% of revenue, EMEA was 8%, Latin America was 7%, and Asia was 4%. As discussed on our last call, in the third quarter, we announced that the government of Canada is making a $1.44 billion investment in the Tarasat Lightspeed LEO constellation and announced also that the government of Ontario is committing $109 million to use Lightspeed to provide high-capacity broadband connectivity to remote communities throughout the province. As we noted in our 6K for the quarter, Thales Alenia Space, who we've been working with on Lightspeed, recently informed us that the global supply chain issues out there will delay the construction of the Lightspeed satellites, which in turn will delay our getting into commercial service. We're working with Thales now to get a better sense of the magnitude of the delay, whether there are steps we can take to mitigate the delays and whether there are any further optimization we should consider for the Lightspeed design if we have a little more time. This delay with TALOS is also delaying our ability to complete our financing arrangements with the export credit agencies. I expect we'll have more clarity on the Lightspeed schedule and export credit agency discussions in the near term. Lastly, on the roll-up transaction with Loral, I'm pleased to say that we're on track for that transaction to close and for Telesat to become a public company before the end of the year. And with that, I'll hand over to Andrew.
spk00: Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filing. In the third quarter of 2021, Telesat recorded revenues of $192 million, adjusted EBITDA of $157 million, and generated $63 million of free cash flow, with almost $1.6 billion of cash on the balance sheet at quarter end. For the third quarter of 2021 and compared to the same period in 2020, revenues decreased by $10 million to $192 million, operating expenses increased by $8 million to $50 million, and adjusted EBITDA decreased by $6 million to $157 million. The adjusted EBITDA margin was 81.5% compared to 80.4% in 2020. Between 2020 and 2021, changes in the U.S. dollar exchange rate had a negative impact of $6 million on revenues. positive impact of 1 million on operating expenses and a negative impact of 5 million on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenues decreased by 4 million for 2021 when compared to 2020. Operating expenses increased by 9 million and adjusted EBITDA decreased by 1 million. Excluding the impact of foreign exchange, the decrease in revenues was primarily driven by a slight reduction of service for one of Telesat's North American DTH customers. the reduction or non-renewal of certain services in the enterprise segment, and lower consulting revenue partially offset by an increase in revenue associated with short-term services provided to another satellite operator. The increase in operating expenses was principally the result of a $12 million increase in non-cash share-based compensation partially offset by higher capitalized engineering costs. Depreciation and amortization decreased by $5 million compared to the same period in 2020. The decrease was primarily due to the end of useful life for accounting purposes of our ANIC F1R satellite in 2020. The gains and losses on financial instruments reflect changes in the fair values of our interest rate swaps and the prepayment option on our senior and senior secured notes. In the third quarter of 2021, we recognised a gain of 1 million related to financial instruments. In 2021, we recorded a loss in foreign exchange of 68 million during the third quarter, compared to a gain of 66 million in the third quarter of 2020. Tax expense decreased by 3 million during the quarter when compared to the same period in 2020 and was largely due to lower operating income before taxes in 2021. Net loss was 42 million in the quarter compared to net income of 107 million in the third quarter of 2020. For the first nine months of 2021, the cash inflows from operating activities were 250 million and the cash outflows used in investing activities was 124 million. virtually all of the capital expenditures related to our lower orbit constellation, Telestat and Lightspeed. As we have previously advised for 2021, we expect our cash flows used in investing activities to be in the range of $140 million to $160 million, including capital expenditures to further advance our Lightspeed program while we progress our financing arrangements. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, We had almost $1.6 billion of cash in short-term investments at the end of September, as well as approximately $200 million U.S. of borrowings available under a revolving credit facility. Approximately $500 million in cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from our ongoing operating activities. At the end of the quarter, leverage as calculated under the terms of the amended senior secured credit facilities was 5.6 times to 1%. TELUSAT has complied with all the covenants in our credit agreement and indentures. A reconciliation between our financial statements and financial covenant calculations is provided in the report that we have filed this morning. As we have stated previously, TELUSAT Canada has structured its investment in Lightspeed through unrestricted subsidiaries. To date, TELUSAT Canada has invested $630 million in cash in these unrestricted subsidiaries to fund the development of Lightspeed. So with this concludes our prepared remarks. for the call, and now we're very happy to answer any questions you may have, and so we will turn back to the operator. Thank you.
spk08: Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Jason Kim with Goldman Sachs. Please go ahead.
spk04: Thank you. I start with the questions about the quarter. First of all, what was the size of the short-term service revenue in the quarter?
spk01: You know, Jason, as you know, we have those revenue opportunities from time to time. And I'd say, you know, we've talked in the past sort of given order of magnitude for what those things are. This one was more or less consistent with the kind of revenue recognition for those services that we've had in the past. Order of magnitude, you know, it's kind of low to mid single digit contribution for revenue for Q3.
spk04: Understood. And then the supply chain issues regarding LEO, there's still a lot of moving parts. But at this point, is this a timing issue or potentially costs as well? And can you remind us if you still believe you need if you're fully funded for LEO based on the financing sources you've outlined in the past.
spk01: Can you repeat the last part again, Jason? Can you turn the volume up a little bit, Michael?
spk04: Oh, sure. So in terms of the financing sources, if you believe that you're fully funded for Lightspeed based on all the items that you've identified as sources of capital in the past, whether it's CBANs. Right.
spk01: Okay, thanks. So to the first part, I think this is more of a timing issue and maybe an issue that isn't even all that terribly surprising. I mean, these global supply chain issues are, you know, having impacts across almost, you know, every segment of the economy right now. And so it's certainly the case that You know, the Telesat Lightspeed program is requiring, you know, all sorts of components that are, you know, getting caught up in those global issues. So I think this is fundamentally an issue of timing. And as I said, we're, you know, engaged with TALIS right now just to fully understand what the impact of that's going to be. In terms of funding, I think what we said last quarter, when we put out our Q2 numbers, we had also just announced that significant investment from the government of Canada. And we took the opportunity, I don't know, sort of just remind everyone of the financing that we had lined up to date. And, you know, in Canadian dollars, you know, that was at the time, you know, order of magnitude $4 billion. You know, in U.S. dollars, you know, somewhat more than $3 billion, and said that we expected that with those amounts lined up, plus the amounts that we've been under discussions with the export credit agencies, that yes, those things would allow us to be fully funded for the program. And that's still our expectation, which is to say that the cash, or I should say the funding that we've lined up to date, plus the amounts that we're in discussions with the export credit agencies about, those things fundamentally should see the program fully financed.
spk04: Understate. And any updates on the DTH contract that's coming up for renewal next year?
spk01: No updates. We've said before that we've got a renewal with DISH on our ANAC F3 satellite coming up in Q2, but no, we don't have any updates in terms of what that looks like at this time.
spk04: Sounds good. And then my last question is regarding industry consolidation or partnerships, from your perspective, What does the industry need? Now, how does consolidation or partnership help achieve that? And what does Teleset bring to the table?
spk01: Well, I mean, it's a question that, you know, folks talk about from time to time in the industry. Certainly, you know, our industry has gone through periods where there's been consolidation. in periods of time where, you know, you get new entrants into the sector. I feel like, I don't know, kind of on balance, we're probably, you know, over the next few years heading into another period where, yeah, it's likely that there could be some consolidation and potentially, you know, some ownership change. Ownership change doesn't always lead to consolidation, but it sometimes does. And then I think that were the industry to consolidate, for sure, like a lot of industries, if you do that, it can help rationalize the supply side of the equation. And, you know, where Telesat fits into that, I don't know. I mean, you know, I would say that our, you know, heavy focus has been on developing our light speed constellation. We are big believers that the most promising segment of the market to address is the very strong and growing demand that we're seeing around the world for kind of enterprise-grade broadband connectivity. And we think that the best way to address that market is by having a very advanced low-Earth orbit satellite constellation that, again, has been designed to address that particular enterprise demand. So I'd say that is our overwhelming focus. If there's consolidation in the industry that's taking place, yeah, we may or may not be a participant in that. I think that – You know, obviously we think that the Lightspeed constellation is going to give us significant competitive advantages in the market. Maybe that initiative would be attractive to others in the industry. But that's not really our focus right now. I mean, our focus, I'd say, has always been, you know, looking after our customers, being disciplined about what sorts of investments that we make, always, you know, with an eye towards making sure that we feel good about the returns on invested capital that come from the investments we make. And I think we've got a very good track record in that regard. And so anyway, you know, those are some high level thoughts on, you know, how we think about consolidation.
spk07: Thank you very much.
spk08: Thank you. The next question is from Walter Pysik with LightShed. Please go ahead.
spk11: Thanks. I just want to continue on with that. I mean, I guess when I listened to all your comments, first I think in the prepared comments you said you were on track for an IPO or being public, I guess is the way you phrased it. By the end of the year, it's November 5th, so I'm just curious on kind of how and when that process is going to take place and when we're going to see some sort of a ticker actually. But more importantly, in your answer to the last question, when you were talking about the financing and the discussions you were having with the export credit agencies, it didn't sound like having some type of like IPO proceeds was an important part of that process. So when you think about those discussions with the export credit agencies, like what is the process to get that to the finalization so that we see it kind of official and everyone kind of knows this thing's fully funded and ready to go.
spk01: Yeah, thanks, Walter. Well, first off, on the timing of the GoPublic transaction, it's coming. I mean, you're right. I said, you know, before the end of the year and we're, what are we, November 5th today. So, yeah, I mean, there's one other approval that we're waiting for right now, and I certainly As I look at my general counsel across the table, I don't see anything out there that causes us any concern about obtaining that in the near term. So stay tuned there. I think we're in good shape, and I think there will be a telosat ticker symbol out there, yeah, quite in the near term.
spk11: And then with the export – Dan, what if the last approval –
spk01: We're waiting for an approval from the Ontario Securities Commission. Okay. And then with the export credit agencies, look, we've had really good discussions with them. And as I said in my prepared remarks, the scheduled delay that kind of emerged from TALIS recently is, yes, going to delay our ability to finalize those discussions with the export credit agencies. I mean, as you can imagine, fundamentally, we just need the updated schedule so that we can update our plan and the business model and refresh that with the export credit agencies. But we've been in discussions with them for quite some time now. And, yeah, I characterize those discussions as productive. So I think, yeah, we'll need to update the plan, but I'm optimistic.
spk11: Your point is that those discussions don't require some type of IPO-type funding or anything like that. It's just these are discussions that are just going to kind of move on their way and happen at some point, hopefully in the near future.
spk01: Well, look, I think our going public is an important part of the overall process in that you know, one of the virtues of being public and one of the things that we've talked about before is having access to the public equity markets as a source of, excuse me, a source of financing is important to us. And so, yeah, I'd say that, yeah, it's a consideration and it plays into the overall financing of our growth plans. Is it a material part of financing, you know, what we have described as a $5 billion U.S. program? No, not really. But it's still, you know, we think about it as a part potentially. So, yeah, so that's kind of how that all fits together.
spk11: Okay. And then just secondly on the supply chain issues, I mean, you're Constellation is, you know, whatever, a couple years off. So wouldn't these supply chain issues be having some impact on the, you know, other LEOs? Like, you know, Starlink is sending up satellites now. I know Kuiper is hopeful, I guess, to get something up in the air at the end of next year, some prototypes. So, like, are these common components that you think will impact some of the LEO plans that are ongoing right now?
spk01: I believe that we are seeing these supply chain issues affecting not just our Lightspeed program, but some of the other players as well. You know, we have less visibility into exactly what's happening at SpaceX. They're a private company. And Kuiper is, you know, part of Amazon. So, you know, they don't have to report in any kind of granular way on Kuiper. But SpaceX did reveal, I think it was earlier this week, that they are delayed because of supply chain issues in getting user terminals out into the market. And so, yeah, that, you know, I think these supply chain issues, they're going to kind of slow everyone down a little bit.
spk11: I mean, both of these companies have also materially increased the number of satellites that they're using in constellations. Just this morning, there was a filing from Kuiper where they're doubling their request to the FCC. for satellites to I think it's like 70 something hundred, 7,700 from whatever it was before 35, 3,600. As your progress moves along, is it likely that you'll face the same issue where you're likely to increase the number of satellite? I know it's a different application, but an increase potentially in the number of satellites you plan to launch?
spk01: Yes, so the filing that you're referring to, so the FCC has just sort of completed, there was a deadline for filing applications in the second processing round for VBAN, non-geostationary NGSO satellites in the VBAN. And yes, we also made an application to the FCC that would allow us to expand light speed. So, you know, so there are two frequency bands that we've been filing for, both at the ITU and with the FCC and here with the Government of Canada. One has been KA band and light speed. You know, we've got priority rights in KA band and have received an authorization from the FCC in their first processing round. And we have filed an application in the second KA-band processing round at the FCC to expand beyond the 298 light-speed satellites that we've been talking about. Off the top of my head, I think, you know, we've sought authority to launch up to 1,671 KA-band LEO satellites. and our own V-band application that was submitted in this recent FCC V-band process, kind of a mirror application. I think we had already filed a first round. We had V-band consolation, and we've now updated that along with others in the industry. And I think, again, off the top of my head, it sort of mirrors what we're doing in KABAN. It's 1,671.
spk11: Would that be for future capacity for basically success-based capital, or does that potentially impact the price of the initial project?
spk01: It doesn't impact the price of the initial project. It's what, you know, satellite operators need to do, which is to say reserve spectrum that allows you, gives you the kind of orbital and spectrum real estate so that as you expand your constellation, yes, in response to demand in the market, that you've got the spectrum that you need to do just that. So that's what we've done, and that's what these other operators have done in filing these applications.
spk11: Thank you very much.
spk08: Thank you. The next question is from Mike Pace with J.P. Morgan. Please go ahead.
spk09: Yeah, hi. Good morning. I just want to follow up on, I guess, the 298 to 1671 satellites, and I guess – and I'm sorry if I just didn't catch a couple of nuances here, but is that – this is all – would be demand-driven growth if it's there – then you just have the ability to add more satellites, or is this you think you need to get there to really have global full coverage for everything that you want to do? Because it's 5X. It's a lot larger.
spk01: Yeah, no. We feel that the 298 that we're starting with is the right constellation size, will give us multiple terabits of capacity and a very – powerful value proposition in the market. But, Mike, I mean, it'd be foolhardy of us to not make sure that we've got the ability to scale our constellation in response to a market that's growing, in response to demand. So, yeah, that's what we've done here. That's what we did in the earlier, you know, K-band processing round. That's what we're doing in this V-band round. That's what our competitors are doing as well. It's what we need to do to make sure that we've got the authority to scale our constellation as required.
spk09: Understood. Okay. And then a question on, I guess, C-band. When are you expecting or where – where are the satellite companies in terms of phase one payments coming in? I'd love what you think there, but also I guess with some news yesterday or the day before that some of the wireless guys are delaying 5G rollouts because of potential interference issues right from the FAA. So I'm curious, which I thought that issue was resolved back in the day, so I'm curious what you think or what you're hearing about that as well.
spk01: So, as you noted, kind of the clearing process in the US is taking place in two phases. We believe that we've now done everything we need to do to clear the spectrum that we've been using. We expect to receive the first payment from the FCC, which I believe is 25% of the total $344 million that we expect to receive. We expect to receive the first payment early next year. And then the second payment, my recollection is the industry is required to clear that spectrum by December 2023. I think it is. Again, I think we've already done everything we need to do to meet that deadline. But the other operators haven't yet and still need some time to do that. So my expectation is the second payment is something that we would receive. I'm staring at a colleague. It's further out, Mike. But certainly, none of the proceeds that the satellite operators are entitled to are going to be adversely impacted by these discussions that the wireless operators are having with the FAA. It's very clear what we all need to do in order to be entitled to those payments. and that is clear that spectrum and clear it on time. So, yeah, it's not my expectation that, and to be clear, the carriers have paid for their spectrum, so that money is available for the satellite operators once that clearing is done.
spk09: Understood. And just one more, because a lot of other questions have already been asked and answered, but Just conversations with the export credit facility folks. Are you still talking about similar size type facility to what you've mentioned before on calls? Just any color there would be helpful.
spk01: Yeah, that's right. Nothing there has really changed in any material way.
spk09: Understood. Thank you.
spk01: Good. Thanks, Mike.
spk08: Thank you. The next question is from Brandon Karsh with Kennedy Lewis. Please go ahead.
spk06: Hi, thanks for the call today and for taking the questions.
spk05: Just wanted to drill down on the enterprise segment a little bit first. Good to see some of the short-term services return. Just want to know if you have any more visibility into more of that over the next few quarters. And elsewhere in that segment was wondering if you could speak a little bit more about some of the declines you're seeing. You mentioned reductions or non-renewals of services. Is that losses of customers completely or cancellation of volumes or – Is that pricing-driven? A little more color there would be helpful.
spk01: Okay, so on the short-term services, those are always a bit lumpy and always a bit unpredictable. We don't expect to have any more of those, I would say, for the next couple of quarters, based on what I know about kind of what's in the pipeline, not in the pipeline. And then on kind of the enterprise services environment, yeah, I mean, it remains competitive. I mean, we said over, you know, the past bunch of quarters that, yeah, the environment remains competitive. On balance, there are some downward pricing pressure still, not as meaningful as we had seen a couple of years ago. It's more moderated. Some markets are more competitive than others. I would say that demand seems actually reasonably pretty good. And you've seen, if you look at our fleet utilization, I mean, we're at 80%. and have kind of maintained that for quite some time now. You know, if anything, on balance, I think it's ticked up a little bit. We are seeing some kind of green shoot recovery, not surprisingly, in the maritime space, particularly around cruise, in the aerospace as, you know, people are wanting to fly again. So that's been encouraging. You know, it's nothing that's you know, had that big of a favorable impact so far this year, a little bit on the margins, but it looks like folks are ramping up again and that, you know, when the cruises start to ramp up there, each ship has more bandwidth than they did pre-COVID, which isn't a surprise given what's happened to bandwidth usage, you know, during COVID. Everyone just, you know, expects a whole lot more throughput. And then, you know, drilling down on, you know, where we saw the revenue erosion in the enterprise segment, you know, kind of over the course of the year and over the course of the quarter, it's just, it's a whole bunch of puts and takes. And, you know, some of it is just renewing stuff, but at rates that are a little bit lower than where they were before. Some of it is, you know, COVID, you know, order of magnitude, I don't know, it's probably about 20% of the decline, something like that, is due to COVID, you know, for the first nine months of the year. Some of it is some business that's gone away. It's a whole bunch of stuff. And I should say, you know, But there's been new business too, right? This is all just kind of net, net numbers. So anyway, you know, that's kind of what the environment looks like. And maybe the last thing I'd say is this year's unfolded pretty much consistent with our expectations. I mean, again, there are always puts and takes. But, you know, the environment has unfolded kind of consistent with our expectations. Maybe we would have thought that Aero and Maritime would have come back a little bit earlier like we didn't predict that the Delta variant would push a lot of that further back but notwithstanding that yeah you know when I sit with the sales team on a regular basis I'd say on balance I'm more encouraged than not by the level of activity and things that are in the pipeline kind of around the world So in any event.
spk05: Great. That's helpful, Culler. And then pivoting to the broadcast side of the business, you said no update on DISH. But on the prior call, you had mentioned that you were working on some plans to potentially backfill some of that capacity if the renewal didn't come in fully. So I just wanted to hear if there was any update on maybe looking at plans to backfill that capacity if necessary.
spk01: Yeah, no, listen, we're super engaged in the market. And that's a good satellite and that's a good payload. It covers kind of all of North America. Our utilization rates, you know, for that coverage area and KU band are very high right now. And we do believe there are, you know, because of that and because of what we're seeing in the market, going to be opportunities to resell that capacity should it come back to us. And last quarter, you're right, we talked about some of that, but no real further material update relative to what we spoke about just a couple of months ago.
spk06: Great. And then just the last one from me.
spk05: You'd spoken on the previous call, and I think a couple people asked about maybe providing more detailed financials for the restricted group versus the LEO sub. It looks like basically the same detail here. So I wanted to ask if there were still going to be plans to provide more of a breakout than what's already in there. And in addition to that, just want to try to get a sense for this quarter. I'm penciling out that on a constant currency basis, maybe restricted group EBITDA was up a little bit year over year.
spk06: Is that fair?
spk00: Yeah, I think in response to the second part of your question, I think that's correct. And to your first question, indeed, our plan will be with our full year numbers that we will indeed break out the accounting to show restricted and unrestricted. That indeed will be our plan. So you will see that fully disclosed with our year end numbers.
spk05: Okay, that's great to hear. Thank you.
spk08: Thank you. The next question is from Arun Seshadri with Credit Suisse. Please go ahead.
spk10: Yes, hi. Thanks for taking my questions. Just a couple left for me. First, I just wanted to confirm on the DISH side, is there – when you think about the overall contract negotiation, do you think about it in two steps, i.e., for two separate satellites, or do you think about it as sort of one commingled negotiation that you're going through?
spk01: Separately. You're right, Arun. We've got a contract with DISH for ANACA 3 and another one for NIMIC 5. But, yeah, we think about them kind of each separately.
spk10: Each separately. Got it. Thank you. And then as far as sort of the overall LEO business plan, You know, at what point do you expect to publish something more sort of, I guess, forward-looking, et cetera, on the overall LEO plan?
spk01: Yeah, that's a great question. I would say a couple things about that. You know, our expectation is we're going to be public in the near term. Our expectation is that we'll have a fully funded light speed constellation also in the near term. And I would say at that point in time, given how meaningful the investment is, and given how kind of fundamental light speed is to Telesat's kind of growth trajectory, and given how bullish we are about the program, I'd say once we're public and Lightspeed is fully funded, we will share views about what the potential of Lightspeed is from a financial standpoint. We'll try to provide more granularity about exactly what the cost is associated with the program and we'll try to provide some, yeah, kind of directional information about our views on the size of the market, our views on kind of, you know, what part of that market, you know, we think that over time, you know, we're going to capture. Probably some views about what the, what our views are on kind of margin development for that activity. So yeah, I think it's going to be important for us to share, to give more information about that so that everyone, investors, lenders, have an appreciation for how we're thinking about what Lightspeed can contribute in terms of our financial profile going forward.
spk10: Got it. Thanks for that, Dan. So would it be fair to say that if you were looking for, you know, looking to raise more dollars in the equity market post the IPO of Telesat, that that would, you know, ahead of that, you would probably share more details. Is that a fair expectation?
spk01: So I don't want to so much tie it to a public equity offering in the future. We have to be very careful in terms of how we talk about that. But I think it's fair to say that equity investors, current equity investors and future ones, yeah, are going to need to have a good understanding of the kind of dimensions of this Lightspeed investment. How much is it going to cost? How much is it going to take to operate this business going forward? What's the revenue opportunity and the EBITDA cash flow opportunity associated with that big project? So, yeah, that's how we think about it. I think it's going to be important that we share that information. And in truth, yeah, we're looking forward to pulling back the covers on it a little bit. We've been working on it for a long time. We're extraordinarily bullish about the prospects of Lightspeed. And, you know, yeah, I look forward to sharing more with the market when the time is right about what that project looks like.
spk10: Okay, great. Thank you. Last thing for me is, in terms of 2022 projects, Any sort of thoughts you can provide in the various industry categories, what your expectations are at a high level without, I know you probably don't want to give explicit guidance or anything like that, even in advance of the IPO, but still be helpful to hear some high-level commentary on each business segment.
spk01: Yeah, no, thanks for the question. Yeah, we won't take this opportunity to provide detailed guidance for next year. But I will say, and just hearkening back on what I was saying in response to the last caller, I think the environment, I don't have a crystal ball, but I think the operating environment won't be terribly dissimilar to what we've seen this year. Maybe with the exception of, as I said, more activity in the cruise sector, maybe more activity in the aero sector. But beyond that, I don't think, we're not really seeing anything out there that would make us feel like there's some kind of wholesale change, kind of in the macro environment. And then, of course, for Telesat, there are more micro issues like the dish renewal that we've talked about in Q2 and whether or not we secure any of those short-term satellite services that, again, are always a bit lumpy and unpredictable. But anyway, that's kind of high-level thoughts.
spk10: Rick, thanks for the time.
spk07: Thank you.
spk08: Thank you. The next question is from Jonathan Crotman with Rubric Capital. Please go ahead.
spk12: Hey, Dan. Just to make sure I understand the IPO, I think what we've heard is, to summarize things, is that having a publicly listed entity is viewed favorably by the ECAs as a potential source of support called an additional currency. that could be drawn upon if it's needed for DCA senior financing. So if I understood things correctly, TELUSAT doesn't need to tap the equity capital markets in significant size, but going public is just really part of the overall financing structure that's important to DCAs. Is that fair?
spk01: Well, you know, I don't want to – first off, we've always tried to be quite clear that This roll-up transaction with Loral is a transaction that will result in Telesat being a public company. We've always tried to be very disciplined to stay away from talk about a public offering, which obviously, you know, there's all sorts of securities regulation both in the U.S. and Canada around that, so we've always tried to be very clear and disciplined around that, number one. And then I would say in terms of, you know, how the export credit agencies might think about Telosat being a public company, what would I say there? I guess all I would say is the more access Telosat has to sources of financing for Lightspeed, but also just for, you know, growth projects more generally. You know, that's just a good thing from, I think, everyone's perspective. So I'd probably leave it at that.
spk12: Fair enough. Second question, we've watched spectrum values with interest. I think the latest data point is the success of the 3.45 gigahertz auction here in the U.S. and where values are that are currently in auction. We talked last quarter on this call about the potential that we could migrate our legacy geo operations into 100 megahertz in the Canadian C-band. Are there any updated thoughts on how we could free up and potentially, I guess, get financially incentivized to open up another 100 megahertz of Canadian C-band for the carriers or for other people in Canada?
spk01: So just sort of for the record, we are going to continue to have access to 200 megahertz of C-band spectrum, not just 100. And in Canada, You know, that first 300 megahertz of spectrum needs to be cleared in certain parts of the country, but not even all parts of the country by, you know, I forget exactly when, sometime late 2025, I think it is. So beyond that, no. First off, we agree with your observation that the spectrum is highly desirable. We get that. We've always understood that. And I believe that that 200 megahertz of spectrum, of good mid-band spectrum, is going to continue to be valuable. I know the carriers are very keen to get access to that 300 megahertz of spectrum, but I have no doubt that given how everyone's using bandwidth, that that 200 megahertz is going to also be desirable and valuable in the future. And that's a good thing for Telesat, obviously. But in specific answer to your question, no. We've almost kind of just come off of the last process, and the government here, unlike in the U.S., hasn't even auctioned that 300 megahertz of spectrum that they will be clawing back. So Yeah, I guess all I would say is kind of in the fullness of time, it's not lost on us that that could potentially be a very valuable asset. We're using it right now. Frankly, we're using off 500 megahertz right now. But, no, I mean, we're very cognizant of the fact that that's a spectrum that could be of great value.
spk07: Great. Thank you.
spk08: Thank you. The next question is from Derek Winger with Concise Capital. Please go ahead.
spk13: Yes, just one clarification. I'm just curious, when you anticipate LEO may be profitable, I know that's years out maybe, and can those profits be used to pay off debt in the entire complex?
spk01: Thanks for the question. We said earlier that We do expect that we'll be providing more information about kind of the LEO financial profile. So we should probably wait, you know, to have that conversation kind of in a more fulsome way about when it becomes profitable. You know, for sure, of course, we do expect LEO to generate, you know, a significant amount of of revenue and a significant amount of EBITDA and to be a very accretive investment for the company. But I don't want to talk about, in the absence of having a broader conversation about the financial profile of Lightspeed, I don't want to just speak separately about when it becomes profitable. And then on the debt side, I mean, as you know, uh, Leo is being financed in a, in a separate, uh, credit silo. And, you know, it's certainly, you know, uh, going to be the case that, uh, yeah, you know, the, the, the, the cash that it generates and whatnot, uh, will, uh, be used, um, uh, in part, uh, to repay the, the lenders in that credit silo. I'm looking at my finance colleagues, um, but, but, but that's, you know, uh,
spk07: That's the plan. Okay, we'll do that. Okay, thank you.
spk08: Thank you. The next question is from Ned Hole with DDG Capital Management. Please go ahead.
spk14: Hi, Dan. Hi, everybody. Thank you for the time. Are you concerned at all with where the bonds are trading?
spk07: Maybe I'll take the first crack at that.
spk01: I mean, I don't like where the bonds are trading. I think that when we talk to folks out there, I think it's a lot of it, this is just kind of what we're hearing, that a good chunk of that relates to just sort of uncertainty about the financing of Telesat Lightspeed. So that's, I'd say, one of the key explanations that we're at least hearing from folks about why the debt is traded like it's traded. And so we are very focused on clarifying all that as soon as we can. which is, I mean, there are all sorts of reasons why we've been, you know, very focused on completing the financing of Telesat Lightspeed. You know, one is just so we can, you know, move forward with the program as expeditiously as we can. But two, because I think that providing the clarity on the financing of Telesat Lightspeed should address what we're hearing at least are concerns within the restricted group around what it could mean for the restricted group. So, yeah, in answer to your question, you know, just picking up on your word concerned, we don't like it. We appreciate the support that we've gotten from our lenders. We want all of our stakeholders, equity holders, lenders, to have a good day at the end of the day, Telesat's been in the market as a borrower for a long time. And the goodwill that I think that we've built up with our lenders over time, that's important to us. And so seeing our debt trade down and knowing that that causes our lenders pain, Yeah, that is concerning to us. We don't like it. And our hope is that all of our stakeholders do well from participating in Telesat and supporting the company. And our hope is that when we have clarity on the Lightspeed financing, that that will be – that that will be accretive to our lenders and that the debt will respond. Here again, can't make any promises around that, but you asked the question and, you know, those are some thoughts around it.
spk14: Yeah, no, that's helpful. It seems like I know they're not perfect overlaps in terms of asset base between the Loral Equity and the Telesat Canada box with unrestricted and restricted and, you know, economic ownership outside of or away from Loral. But it seems like there's a pretty big disconnect between Loral Equity and the Telesat bonds. Do you have any reaction to that? Any thoughts around it?
spk01: Well, I want to reemphasize. Yeah, no, thanks for that. I guess I'd like to reemphasize something that we've said before, which is, The reason TELUS at Lightspeed is being financed as it's being financed in this separate credit silo, that was all about, that is all about the fact that it's a big project. We need to make, we need to raise a lot of funds in connection with that project. The Export Credit Agency financing source we think is an attractive one. to support the financing of Telesat Lightspeed. And given all of the restrictions that we have to borrow within the restricted group, and I'm not complaining about it, I'm just describing that it's a fact, it compelled us to finance Telesat Lightspeed in this separate group. It doesn't reflect any intention on the company to do Lightspeed away from you know, and to keep it, you know, away from the restricted group. It's just a recognition of the fact that it requires significant borrowings to finance it, that the restrictions that we have in the restricted group required us to do it elsewhere. But I believe when you see how, and we've tried to be very transparent about this too, we're we're operating, you know, the company. Certainly, it all rolls up to the same equity. And so, you know, from our equity owners, a dollar of EBITDA coming from the restricted group or a dollar of EBITDA coming, you know, from Lightspeed. And by that, I mean, you know, this other credit silo. We're indifferent. Shareholders are indifferent. And And I think that the fact that we're doing Lightspeed strengthens Telesat. It makes us more effective in the market when we're out there selling our geo services, which is to say the assets that are in the restricted group. Customers, I believe, and I talk to these customers, are more inclined to work with us and to acquire our services, our current services, because they're excited about working with DellaSat and having the opportunity to work with us in the future, also because of our Lightspeed constellation. And so, anyway, I mean, that's kind of how we think about it, and that's just kind of reality.
spk14: Yeah, that's very helpful on how to think about it. And just lastly, a quick clarification from the previous question. So if and when LEO becomes profitable, you said you could use those proceeds to pay down debt at, did you say at the LEO or Lightspeed credit silo or at both credit silos?
spk01: Well, look, I mean, as you can imagine, the lenders who were lending in the LEO credit silo have been, you know, just like our – lenders in the geo credit silo. Our lenders in the light speed silo, of course, as you would do, are very focused on making sure that they have the rights and are collateralized in the light speed assets. So, yeah, that's, you know, until and unless, you know, we do something different, then, you know, the cash flow that we generate in the restricted group, you know, subject to the covenants, you know, you guys are, the covenants are very clear what we need to do with that cash, and that's what we do with that cash. The same will be true on the other side, in the other credit silo. We will be making, you know, borrowings with the export credit agencies, for instance, in that credit silo. And there will be detailed covenants and the like around what happens to the cash that's generated with the assets that, you know, we're investing in in that credit silo. But that's, I'm sure, exactly as everyone would imagine it to be, kind of how it works.
spk14: Great. Thank you very much. Appreciate the time.
spk01: Okay. Thank you.
spk02: Okay, I think we're out of time today. Dan, any closing remarks?
spk01: No, the only closing remarks is we appreciate everyone joining us this morning and look forward to speaking again when we issue our Q4 and full year numbers. So thank you very much.
spk08: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.
Disclaimer

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