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spk05: Good morning, ladies and gentlemen. Welcome to the conference call to report the fourth 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 Bolaito, Director of Treasury and Risk Management. Please go ahead, Mr. Bolaito.
spk09: Thank you, and good morning. This morning we filed an annual report on Form 20F with the SEC. Our remarks today may contain forward-looking statements. There are risks that Telesat's actual results may differ materially from the results contemplated by the forward-looking statements as a result of known and unknown risks, risk factors, and uncertainties, which are discussed in Telesat's annual report filed with the SEC on Form 20F. Telesat assumes no responsibility to update or revise these forward-looking statements. I will now turn the call over to Dan Goldberg, Telesat's president and chief executive officer.
spk01: Good. Thanks, Michael. Good morning, everyone. This morning I'll discuss our fourth quarter and full-year financial results and give an update on the business. I'll then hand over to Andrew. We'll speak to the numbers in more detail, and then we'll open the call up to questions. Looking first at the full-year numbers and adjusting for foreign exchange rate changes, Revenue and adjusted EBITDA were both down 4% relative to the prior year, and our adjusted EBITDA margin remained stable at 79.6%. The revenue and adjusted EBITDA decrease was primarily due to a reduction of service for one of our North American direct-to-home customers, the reduction or non-renewal of some services in the enterprise segment, including as a result of the full-year impact of contractor restructurings in 2020 for a mobility customer as a result of COVID-19 and lower consulting revenue as well. The revenue decline was partially offset by an increase in revenue from short-term services provided to another satellite operator in 2021, which didn't occur in 2020, as well as increased services provided to customers in the mobility market as it began to recover from the impact of COVID-19. Looking at our fourth quarter numbers and adjusting for FX, revenue was down 5% relative to Q4 2020, adjusted EBITDA was down 7%, and our adjusted EBITDA margin was 77.5% versus the 79.5% in Q4 2020. The revenue and adjusted revenue, I'm sorry, the revenue and adjusted EBITDA reductions were primarily due to lower equipment sales to certain government customers, the reduction or non-renewal of certain services in the enterprise segment, and a reduction of services for one of Telesat's North American direct-to-home customers. Turning to some key metrics, backlog at the end of 2021, excluding backlog associated with Telesat Lightspeed, was $2.1 billion and fleet utilization was 80%. And looking at how our revenues broke down on an application basis in 2021, broadcast was 51% of total revenue, enterprise services 47%, and consulting another 2%. And on a geographic basis for the year, North America accounted for 83% of revenue, Latin America 7%, EMEA 5%, and Asia 5% as well. Beyond the numbers, 2021 was an eventful year for Telesat, including becoming publicly traded, clearing the C-band spectrum we've used in the U.S., and receiving payment for the first portion of the $344 million allocated to Telesat in the FCC's CBAM clearing proceeding and making substantial progress on Telesat Lightspeed. With respect to Telesat Lightspeed, last year we announced a $1.44 billion and a separate $400 million investment in the program by the government of Canada and the government of Quebec, respectively. which brings to over $4 billion the amount of financing we've lined up for Lightspeed to date. We also concluded an agreement with the government of Ontario to use Telesat Lightspeed to help bridge the digital divide, which along with our government of Canada agreement previously announced, contributes to the over $750 million in contractual backlog we had in place for Telesat Lightspeed at the end of last year. And again, that backlog is incremental to the backlog that I mentioned earlier, where we ended last year. Lastly, we did a huge amount of work with the supply chain for Lightspeed, advancing the key technologies underpinning the high-performing satellites and systems that are key to its operation. As we noted last quarter, Thales Alenia Space, who we've been working with on Telesat Lightspeed, informed us late last year that the global supply chain issues out there will delay the construction and in-service date of the Lightspeed Constellation. These issues are also putting upward cost pressures on the program. We're working through these issues with TALIS now, and we expect to share an updated business plan in the near term with the export credit agencies with whom we've been in discussions to provide financing for the program that will allow us to get those discussions moving again. Although these supply chain issues have been unwelcome, we remain enthusiastic about the prospects for Telesat Lightspeed and are focused on completing the financing and commencing the full-scale construction of the program in the near term. Before summing up and handing over to Andrew, I wanted to note that I've spoken to a number of our debt investors over the past few months, including addressing a range of questions about Telesat Lightspeed. Reflecting on those discussions, we thought it was important to reiterate a few points on our call here this morning, sort of in the affirmative, just so we're all aligned on how we're thinking about the world. First, it's our plan in the main to operate our geo business and our leo business, tell us at light speed, as an integrated business, which is to say the same management team, same sales team, technical and operations teams, and the same corporate support functions like finance, legal, human resources, IT, and the like. The fact that LEO is being financed in a separate credit silo has been solely a function of the borrowing covenants that exist in our current credit facilities, not the fact that we think about it as a separate business. Second, Telesat Canada, our restricted entity, owns 100% of the equity of our LEO subsidiary and we have no plans at this time to move that subsidiary out from under Telesat Canada. And third, we expect our geo-activities will continue to generate significant cash, and we intend to use that cash in a way that strengthens the business, which could include paying down current debt and otherwise managing our leverage profile. These are all points that we've made in the past, but we thought it would be useful to reiterate those points given some of the questions we've been hearing from folks. We're going to be presenting at quite a few investor conferences over the course of this year and engaging with the market more broadly on what's happening at Telesat, including our expectations on Telesat Lightspeed. So those will all be good opportunities to continue to drive these points home and share our enthusiasm more broadly about our future prospects. So with that, I'll hand over to Andrew, and then I look forward to addressing questions.
spk04: Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filing. In 2021, Telesat reported revenues of $758 million, adjusted EBITDA of $603 million, and generated cash from operations of $296 million, and with over $1.4 billion of cash on the balance sheet at year end. For the full year 2021, and compared to the same period in 2020, revenues decreased by $62 million to $758 million, operating expenses increased by 53 million to 234 million, and adjusted EBITDA decreased by 50 million to 603 million. The adjusted EBITDA margin was 79.6% unchanged compared to 2020. Between 2020 and 2021, changes in the U.S. dollar exchange rate had a negative impact of 30 million on revenues, a positive impact of 6 million on operating expenses, and a negative impact of 25 million on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenues decreased by $32 million for 2021 compared to 2020. Operating expenses increased by $59 million and adjusted EBITDA decreased by $30 million. Excluding the impact of foreign exchange, the revenue decrease was primarily due to a reduction of service for one of Telesat's North American direct home customers and reduction or the non-renewal of certain services in the enterprise segments. The revenue decline was partially offset by an increase in revenues associated with short-term services provided to another satellite operator in 2021, which had not occurred in 2020, as well as increased services provided to customers in the mobility market as it began to recover from the impact of COVID-19. The increase in operating expenses was principally due to higher non-cash share-based compensation, combined with higher wages due to the hiring of additional employees, all primarily to support the Telesat Lightspeed program. This was partially offset by higher capitalized engineering costs. Comparing the fourth quarter of 2021 with the same period of 2020, revenues decreased by $14 million to $187 million. Operating expenses increased by $40 million, and adjusted EBITDA decreased by $15 million to $145 million. In other operating gains, we reported $108 million, primarily as a result of the recognition of Phase 1, accelerated clearing payments for the repurposing of U.S. C-band spectrum. 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. For the full year of 2021, we recognized a loss of 19 million related to financial instruments. We also recorded a gain in foreign exchange of 20 million for the fourth quarter and a gain of 28 million for the full year. Looking at tax expense for the year was 83 million higher than 2020. In 2020, Telesat was able to recognize a deferred tax asset and significantly reduced its tax expenses, whereas no similar recognition occurred in 2021. The balance of the increase in 2021 was primarily due to an increase in operating income and decrease in interest expense. For 2021, the cash inflows from operating activities were 296 million and the cash outflows used in investing activities was $273 million. Virtually all of the capital expenditures related to a lower orbit constellation, Telesat Lightspeed, offset by the partial receipt of CBAN. Turning to guidance, as you will also have noted in our earnings release this morning, we are providing preliminary 2022 guidance. Our guidance reflects a Canadian dollar to US dollar exchange rate of 1.3. For 2022, Telesat expects its full year revenues to be between $720 million and $740 million. As you're aware, the term over ANIC F3 contract with DISH ends at the end of next month, and our guidance reflects a range of potential outcomes surrounding that contract. Also in 2022, we expect to recognize a significant hardware sale and the provision of related services to DARPA, the US government agency, under a contract we announced in 2020. While we expect this activity to make a meaningful revenue contribution, and the opportunity is considered very valuable in positioning Telesat Lightspeed with government customers, and, however, the expense associated with this contract is expected to be more or less equivalent to the revenue contribution. Telesat expects its adjusted EBITDA to be between $525 million to $545 million in 2022. In 2022, operating expenses are forecast to increase as a result of the additional cost of sales, related to the government opportunity, as mentioned, and the ongoing impact of hiring for a Calisthenics Lightspeed program. With respect to capital expenditures, and as Dan noted, we are continuing to work at this time to finalize our financing and contracts with our key suppliers. For now, we expect our 2022 cash flows used in investing activities to be in the range of $100 million to $120 million, including capital expenditures to further advance our Lightspeed programs And once we have greater visibility around the construction and financing of our program, we will provide a further update on our anticipated capital expenditures for the year, which, of course, could increase substantially. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1.5 billion of cash and short-term investments at the end of December, as well as approximately $200 million of borrowings available under our revolving credit facility. Approximately $979 million in cash was held in our unrestricted subsidiaries. In addition, we continue 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 5.7 times. Telesat has complied with all the covenants in our credit agreement and indentures. A reconciliation between our financial statements and financial covenant calculations is also provided in the report that we had filed this morning. As we have said, Telesaf Canada has structured its investment in Lightspeed through unrestricted subsidiaries. To date, Telesaf Canada has invested $1.1 billion in cash into these unrestricted subsidiaries to fund the development of our Lightspeed project. You will also note that our Form 20S now provides condensed consolidated financial information, and in particular the Note 37 of the financial statements. The non-guaranteed subsidiaries shown in the note are essentially the unrestricted subsidiaries with minor differences. So I can say that concludes our prepared remarks for this call. I'm now very happy for us to answer any questions, and I would like to turn back to the operators.
spk05: 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 before 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 for questions. Thank you for your patience. The first question is from Walter Pichik from LightShed. Please go ahead.
spk08: Thanks, Dan. I think we can all appreciate that it's going to be an integrated offering between the GEO and the LEO to come, but obviously, It's going to be a few years before we see LEO revenue. So I would just suggest that to the extent that you can break out expenses that are incremental that otherwise wouldn't be there for LEO. Same thing on CapEx. I realize that CapEx is going to have to ramp up to the billions, but even on the $100 million to $200 million of CapEx, kind of what's incremental in anticipation of the LEO is I think would be helpful to kind of understand what's going in the business. So just maybe kind of thoughts on that going forward. And then in terms of the different outcomes for DISH, you said it's embedded within the guidance, but how should we think about this conceptually? What's the worst case scenario? Is the worst case scenario even possible? I mean, the worst case scenario would require DISH to basically go send people to someone's home, I would think, and change the direction of their DISH, which seems unlikely. So can you kind of walk us through conceptually what are some of the possible outcomes there?
spk01: Yeah. And, Walter, thanks. And I just want to comment on your thoughts. So we will. give a whole lot more insight on CapEx, what's for Leo, what's for GEO. Same on the expense side, and I know my finance colleagues can speak to this better than I can, but I know in the filing we made with the SEC today, we've now broken out essentially the financials for the restricted group from the financials from the unrestricted group, which is a pretty good proxy for GEO and LEO. So folks have been asking for that for a while, which we always thought was reasonable. So we've done that. But, no, we take your point, and that's how we plan to talk about the business basis.
spk08: So was the reason that started – before you get to my second question, was the reason then for those comments, the repair comments, to send a message to the debt holders that – you know, effectively as Leo grows, that the, that debt will not be stranded with the geo business at a high leverage ratio. Is that, is that what we're trying?
spk01: I mean, what we're trying to say is like, chill. I get the same questions from investors like every other day. Why'd you finance, you know, light speed in this separate group? You know, what are you going to, and we keep, we keep, we keep telling everyone, we've got no plans to dividend out, you know, uh, We've got no plans to run it as a separate business. We've got no plans to violate our covenants and be funneling cash out that we're not allowed to. We keep saying those things, but I don't know. I fault myself. I haven't been sufficiently clear. So we thought we'd be, I don't know, kind of affirmatively emphatic. Like, that's what it is. Yeah. And, look, we announced, I thought, a good contract with a longstanding customer, Inuvu, earlier in the quarter. Or maybe Inuvu announced it. I'm looking at John. Yeah, they announced it. We didn't announce it. But they were emphatic. Hey, we did this meaningful deal on Telstar 19V. It's for a bunch of capacity that serves the Caribbean. But we think about it as a bridge to light speed. And for me, I don't know, it just perfectly reinforces what we've been trying to to say to everyone, which is, this just works. Doing Lightspeed, it's good for folks in geo. The fact that we're a current geo operator is good for our prospects on Lightspeed. So anyway, I'm going to keep making the points. But honestly, I wish I'd get the questions a little bit less. But anyway, you asked the question, Walter, why we go out of our way to hammer those points home. It's because we keep getting these questions, and some folks have asked us, be explicit. So we're being explicit. I don't know how to be more explicit. In Canada, there are two official languages. We can do it in French as well, if that would help us.
spk08: I think the more you talk to equity holders, the focus may turn towards the LEO and the NPV opportunity of the LEO.
spk01: Yeah, yeah, yeah. And that's the other thing I tried to say, which is... And I want to be clear on that, too. You know, we've been told, rightly so, you guys got to get out there more and tell us what's going on with your Lightspeed plans. And we agree. So we're signed up for more investor conferences than I care to do, but we're doing them anyway. So we're going to be out there a lot. Now, we need to finish with our lenders, and I'll talk about that. We need to finish with our, you know, contractors on Lightspeed. And then... We're going to be able to say more, but look, we posted an investor deck on our website from a non-deal roadshow we did toward the end of last year. We're giving people, I think, some pretty good building blocks so that they can think about light speed. We've said what the TAM is. We've said the amount of that TAM that we think that we can capture. We've told people directionally what the total CapEx is on the – We said what we think our EBITDA contribution margin is going to be. So I'm no financial analyst, but that's a lot, you would think, to help people.
spk08: Basic algebra, yeah, to come up with a revenue.
spk01: Anyway, I mean, it's not to say we're not going to give a whole lot more when, you know, this thing's nailed down a little bit more. But we've tried to... give people some information so that they can start to appreciate, candidly, why we are so enthusiastic about Lightspeed. Anyway, but back to your question. Dish, range of outcomes. I mean, the range of outcomes is they don't renew, they fully renew. Here's what we think right now. And this contract's up in about six weeks' time. So my own feeling is it's looking like a partial renewal. And this satellite's got about three years of life left on it. So, you know, it's feeling like a partial renewal. And then we're not done, but that's what it feels like. And but even with the partial renewal, I mean, you saw even, you know, at the upper ends of our guidance, you know, revenue is still down. The biggest driver of revenue and EBITDA being down this year, if you look at our guidance, it's still, you know, the impact of the fact that that discontract is, you know, coming to an end. So, it feels right now like we'll get a partial renewal. And we've been busy in the market. looking to sell the rest of the capacity. And we're feeling pretty good about that right now. And we've always said it's attractive capacity. So that's, yeah. And as Andrew said in his remarks, our guidance kind of embraces those outcomes that, you know, kind of, you know, the low end of the range, we, you know, there's no dish renewal. But, I don't know, our own guess is it's a partial renewal, and then we'll, I hope, if things go well, have the rest of that capacity under contract, you know, certainly by the end of this year. Anyway, and look, I mean, I'm sorry, Walter, I just want to, you know, just, like, that's what it feels like to us right now. So, you know, but that, you know. That's our best feel right now for where it's going to land.
spk08: And without anything announced with DirecTV as of yet, it doesn't sound like anything should change those negotiations substantially.
spk01: Look, I mean, we've said this before. We never saw a potential dis-DirectTV combination as any kind of factor influencing whether they would renew Anik F3 or not. That for us was always about You know, just how important those kind of foreign language broadcast channels, which is a lot of what they do with that satellite, how valuable it is for them to continue with those activities. So, no, we don't, you know, DirecTV dish combination for us was never going to be a factor for that renewal.
spk08: Just one other, if I may. OneWeb is in a bit of a rough spot right now, but if there's a scramble for launch locations elsewhere, do you think that potentially has any impact on the timing of Lightspeed, or is it really just supply chain would tell us at this moment?
spk01: The latter. We feel like we're good on the launch side. The things that have delayed our program, yeah, I mean, it It's pretty simple. It's the delays that TALOS shared with us kind of late last year. That's what's caused us to have these few months of delay here.
spk08: Okay, thank you.
spk01: Okay, thanks.
spk05: Thank you. The next question is from Mike Pace from J.P. Morgan. Please go ahead.
spk02: Hi, good morning. Thanks for taking the questions. Dan, I appreciate the commentary on the structure and ownership, unrestricted subs, restricted group, things like that, I guess. But to ask something a little bit more specific, would you expect there to be any requirements in any pending debt documents for LEO funding that would require the ownership structure to remain in place? Or is this just how you envision running the two businesses or businesses together, or is it both?
spk01: Chris, our general counsel is here. Chris, you're closer to that than I am. Do you want to talk to that?
spk11: I think that we certainly expect covenants with respect to the way that Telesat Canada and the LEO subsidiary are going to deal with each other, for sure. In terms of covenants with respect to ownership, we don't know right now. It's a little bit early. We haven't gotten to that level of detail in negotiating with with the ECAs and the other lenders, so it's unclear.
spk02: Okay, appreciate that. And then back to DISH, and I realize, look, revenue and EBITDA guidance ranges of $20 million or so, and it sounds like the majority or all of that is related to DISH. I guess just to be clear, that's versus the DISH renewals versus there's a $20 million range versus your expectations or a $20 million range or potential 20 million lower from what you were getting in prior periods, just to put a little bit more specificity on that.
spk01: I didn't totally follow that, Mike. I can tell you, you know, if there was no dish renewal, we're still in the range. You know, we built the range to... deal with that outcome. We haven't given the biggest range in the world either. It's $20 million. But that reinforces, I think, what we've always said about our business, which is so predictable. We've got so much backlog. We know our customers. I mean, for the most part, we can call this stuff, even with a big swinger out there like this dish renewal, we still feel confident about giving a guidance range that's as narrow as it is. So to be clear, I'll try to be clear, if there was no dish renewal, then we're still within the range. Yeah, more at the bottom end, obviously. So yeah, I hope that answers your question.
spk02: Yeah, no, it kind of does. But just to add a little bit to it, if there was no dish renewal, is that because you can repurpose the satellite for other uses? And can you repurpose that satellite for enterprise, I guess, as well? I forget which of the dish satellites are.
spk01: Yeah, no, the entire satellite can be repurposed for, yeah, other applications. It's a good KU band satellite with great coverage over kind of North America, good coverage over the Caribbean. So, yeah, no, and we've talked about this before. It's what has always made us feel, you know, we'd like a dish renewal, but we've always felt confident that if we didn't get one, that there'd be, yeah, you know, meaningful demand for the capacity. Now, you know, it might take us a little bit more time to fill it up, and, you know, there's rates and all of that, but, yeah, But, yeah, yeah, we always felt comfortable. And if we end up with a partial renewal, then we'll be getting, you know, obviously some capacity back because it's only a partial renewal. And we're bullish about our ability to resell that capacity and reasonably timely, too.
spk02: But ANIC F3 could be used for enterprise services, not just DTH services?
spk01: Yeah, 100%. Got it.
spk02: Okay, and then just to ask a little bit more from a prior question, and this is something we get quite often, and I haven't had time to read through the entire 20F yet this morning, but just getting back to what the LEO EBITDA drag was in 2021, and rounding is encouraged here. Can you just help us out? I mean, I see an OPEX number for non-guarantor subs. Is that basically the number? And then embedded within the guidance also, for 2022, can you help us understand what type of LEO EBITDA drag is incorporated into that?
spk01: Yeah, I'll let Andrew talk about it. I mean, just to be clear, we don't think about it as a drag. We think about it as smart investments in our future growth, which we think is going to benefit all of our stakeholders. But But anyway, Michael, do you want to?
spk09: Okay. So yeah, Mike. So in the non-guarantor note, substantially the operating expenses are the LEO subsidiaries. The incremental drag on that is we sort of think it's about, you know, adjusted EBITDA is down at the midpoint in our guidance about $75 million. And of that $75 million, the additional Leo drag would be on the order of 15% of that.
spk01: Yeah, let's not do this drag thing. Don't buy into Mike. It's a positive.
spk09: It's all good. It's all good. Yes, we are spending for our future.
spk01: Yeah, we are. We're investing. I mean, we understand why you're asking the question, but just for everyone's benefit, like, yeah, we're – We husband our money pretty carefully. We don't invest it, we hope, in a dumb way. Anyway, but we take your point, Mike.
spk02: Dan, fair enough. From now on, I'll say Leo investment. How about that? That's good.
spk01: Thanks, Mike.
spk02: Got it. Sorry, just one more quick one. It might not be easy for you, but I guess as it relates to the TALIS agreement, there's supply chain timing issues, and then you talked about potential incremental costs. Is there a way to quantify – I guess you have two choices, right? Pay more for the same constellation or make the existing project or constellation a little bit smaller and then maybe spend similar amounts. So can you quantify the potential increase in cost on the same constellation? And then if you have to do something a little bit on the smaller scale side of things, what are the implications there for the business plan and revenue and things like that?
spk01: Yeah, no, that's a great question. And if you you know, when you work through the 20F, which is voluminous, yeah, that's kind of how we lay it out, which is, you know, yeah, it's a tube of toothpaste. You either, if costs are going up, and we are hearing from Talos that there are cost pressures, right, these supply chain, God, I mean, you see it everywhere, but there's supply chain issues which are causing delays, and there are inflationary pressures just across the entire economy right now, and we're getting bitten by kind of both of those things right now. And that's exactly how we kind of frame it in the 20F, which is, you know, it means if we still, you know, are focused on launching, you know, we've talked about light speed is 298 satellites and the costs are going up, then we either need to raise more money or we need to de-scope the constellation and bring CapEx down so it fits within, the same spending envelope that, you know, we had before those cost pressures emerged. But so you framed it exactly right. That's how we talk about it in the 20F. And yet it's still a wee bit too early for us to say, like, which direction we're going to go here. But I will note, we've got a lot of scope if we want to, to kind of downsized the number of satellites. The light speed with 298 satellites provides 15 terabits of capacity and is kind of all singing and all dancing and is an immensely advanced and powerful constellation. But I know it was also the case that we were launching first, you know, our launch cadence was kind of, we're first putting up 78 satellites in polar, and then we're putting up another 110 satellites in inclined orbits, they're more equatorial orbits, and then we're going to supplement, you know, that, that'd be 188 satellites combined, then we're going to supplement it with another 110, I guess, to make the math right, to get to 298, but it was our plan, once the polar and those first inclined satellites were up. So, you know, that's the 188. We were going to, you know, have global coverage with those 188 satellites. We were going to already start turning on the customers and including all these Government of Canada customers and start generating revenue and EBITDA and the like. And then the next 110 were going to come. So, All to say that even with, you know, 100 less satellites, for instance, we still have terabits and terabits of capacity and a very capable global constellation that, you know, that we feel good about. So anyway, but we're thinking about which way we go right now. And just sitting here, you know, on Friday, March 18th, We'd just rather not put a pin in it right now. I do think that by the end of next quarter, so end of June, we'll have a real good sense for what's the constellation going to look like, where we are, I think, with the ECAs. And we're going to be able to be much more definitive about that. Anyway, but that's the right question to ask. And, yeah, and that's how we're thinking about it right now.
spk05: Great. Thank you.
spk01: Thank you.
spk05: Thank you. The next question is from Aaron Sheshadri from Credit Suisse. Please go ahead.
spk07: Yes. Hi, guys. Thanks for taking my question. Just, you know, just going back to us for a second on the TALIS question, You know, I think you said before that by early February, you were supposed to hear a more sort of exact timeline from them updating you from sort of the general guidance they gave you late last year. Did that specifically happen or are you still waiting? I guess that's the first question. And secondly, you know, what has changed, you know, in your communication with them, I guess, you know, from late last year to today, maybe even qualitatively to provide us, and obviously we understand that there's supply chain issues and specifically, but qualitatively, what materially has changed relative to your funding the plan and sort of the details related to that?
spk01: Yeah. No, so things I would say are unfolding kind of like we expected, which is to say we have heard from TALIS. And I think we've got, so on schedule, it's more or less coming in like we had sort of indicated before. It feels like in terms of when we'll enter kind of global commercial service, it feels like we're, you know, going to be about a year late. We thought we were going to be, you know, before we hit these supply chain issues, 2025. for global service. Now it feels like we're a year behind that. So it feels like 2026, I think, will be, you know, if things unfold the way we think they will right now, we'll be launching in 2025 and entering service in 2026. It's not what we wanted, but that's what that feels like right now. I will say we're not the only guys, you know, getting delayed right now. When I look at And we're getting delayed, you know, in part for a lot of the same issues, supply chain issues. I've heard, you know, at least one other LEO constellation is backed up because of supply chain issues. Other LEO constellations, they've moved to the right just because they've moved to the right. And in OneWeb's case, they've now got this launch issue, which I'm sure is going to be kind of schedule impacting for them in terms of when they can enter service. So anyway, so we have heard from Dallas. I mean, God, we speak to Dallas like 20 times a week, it feels like. And so that's what it feels like from a schedule perspective. And from a cost perspective, we've got, I would say, something that's preliminary right now, but we're expecting to get something more definitive from them. We're hoping by the end of next month And so, yeah, you know, the pace of communications and the pace at which we're receiving information, yeah, it's kind of consistent with the timeline that we had talked about before.
spk07: Great. That's helpful, Dan. Thank you. And then as far as the second question I had was more in terms of, you know, you've got obviously some cash in the restricted sub, in the geo sub right now. debt that trades at extremely discounted levels. And you have basically cash that sounds like you're still relatively confident in getting the Leo project in totality fully funded. So I guess two questions come up. One, what is preventing you from reducing debt by buying debt back at a discount? and actually making the debt structure thereby more sustainable on the geo side? And second, related to that, do you think the shortfall in your funding capability is so large that it freezes you from doing anything opportunistic to reduce your debt balances?
spk01: Well, I'll start with the second question, which is no. And look, I mean, we know that we're subject to a whole range of covenants. It precludes our ability to appoint, to move money from the restricted group to the unrestricted group. So we know that we're going to have cash building up there. All to say, even if we needed to find other money, more financing for Lightspeed, you know, we can only do so much. You guys probably know it better than I do in terms of what, you know, can come out of the restricted subs. So no, I think, you know, we're going to be generating a lot of cash in geo. It's going to be building up in the restricted group. And so I don't think that we're going to be constrained in terms of our ability, if we think it's the right thing to do, to reduce debt over time. So that's the second question. The first question, what stopped us from doing it to date? You know, I mean, you can't be in the market buying your debt or securities if you've got, looking at our general counsel, material non-public information. And so, you know, until we put out our numbers and gave our guidance and whatnot, we were precluded from being in the market buying that debt, which we also see as, you know, trading at levels that you know, look kind of crazy low to us. And so, yeah, that's what had precluded us and for sure could be a very attractive, accretive opportunity for Telesat to use some of that cash that, you know, is in the restricted group to take advantage of what might be an attractive opportunity in the market.
spk07: Got it. Thank you for those comments, Dan. And to your point, I think in prior years, you haven't given point guidance necessarily. So the fact that you're sort of hinting that giving point guidance and sort of encapsulating this there could be related to that, to what you just said, right?
spk01: I'm not familiar with the term point guidance. I mean, because our equity wasn't public, The only guidance we ever gave was CapEx guidance, but I think we were always clear once the equity became public, like other publicly traded companies, it's not our favorite thing to do, but we felt like we had to. We had to give some guidance on revenue, adjusted EBITDA, and CapEx. So that's why we did that.
spk07: Understood. Understood. Thank you very much.
spk01: Okay. Thank you.
spk05: Thank you. The next question is from Harry Wu from Aries. Please go ahead.
spk03: Hi, guys. Thanks for taking the questions. I guess a couple questions on the forecast. Can you just quantify how much of that revenue in 2022 is coming from the government contract you talked about?
spk01: Yeah, easily. You know, we actually disclosed it. We issued a press release announcing, so the government contract that we refer to, and we think it's a great contract for Telesat. I mean, it's not very accretive from a cash flow perspective, but we won an opportunity back in kind of late 2020 where we're building two satellites for DARPA, you know, the, what does DARPA stand for? Defense Advanced Research Projects Agency. It's basically the Pentagon's internal research group. So we announced that we're building two satellites for them, LEO, that have inter-satellite links, optical links, so that we can demonstrate and they can start getting comfortable with optical inter-satellite links, which is a key feature of the Telesat Lightspeed Constellation. So anyway, we announced that back on October 14th, 2020, and said that, you know, and I'm looking at this press release now, the phase two base contract represents an $18.3 million program. That's a U.S. dollar number. So yeah, I mean, We've been vastly more specific. We were required to disclose this. I think that's part of U.S. government requirements. When you win a contract like this, you have to tell everyone kind of what you're getting paid. So it's a good contract for us. As far as I know, it's coming along well. I think we're doing what we need to do. We're excited to get those satellites up there and start demonstrating the power of, you know, optical intersatellite links. But to win that contract, yeah, we did it aggressively. And so we don't think we're going to lose money. We hope we'll make a little bit of money. But it's, you know, there's a revenue contribution, but there's almost equal expense associated with it. So it's kind of margin dilutive. And when you go back and you look at, gee, you know, I forget what the numbers are, you know, at the midpoint of our guidance, revenues down by, X percent. But at the midpoint of our adjusted EBITDA guidance, you know, adjusted EBITDA is down even more. I mean, part of that's because, you know, we're a fixed cost based business. And for like when we lose, you know, money on the dish renewal. Yeah. I mean, that's almost dollar to dollar at the EBITDA line. So so you expect to have a bigger impact in terms of, you know, percentage of decline in EBITDA. But another big, big contributor to you know, the margin erosion and whatnot that we're expecting for this year. It's that U.S. government contract. Great to have $18 million U.S. top-line contribution, but we're getting that in expense as well. So there you go.
spk03: Okay, perfect. Okay, then my second question is just, can you just quantify the DISH revenue from ANIC F2 in 2021, just so we have a sense of, like, you know, what the range of outcomes is?
spk01: Yeah, we've given, you know, at the high level, we've said, you know, like for these DTH contracts that we have, I'm not necessarily talking about this F3 in particular, although, you know, kind of fits the mold. I think, Michael, we've said order of magnitude, guys, 70 million Canadian kind of top line with almost all of that going to EBITDA. So, yeah. that'll get you pretty close to what we would have recognized in 2021 and what the run rate will be for the first part of this year, right? Because that contract doesn't come up until the end of next month.
spk03: Right. And then I guess my next question is just on the CapEx side of the equation. You guys bumped up the satellite program purchases on the LEO side, pretty materially this quarter, I think it was $182 million in the quarter. What was that related to? And is that kind of included in the overall CapEx plans or is that, because obviously you guys haven't started with Talos or any of these other contractors. I'm just curious if that's part of like the overall $5 billion spend that is gonna increase, but just, could you just talk about that spend this quarter?
spk01: I just want to be clear, when you're talking about this quarter, you mean Q4?
spk03: Yeah, in Q4, it looked like the, like, purchases for satellite.
spk01: Yeah, yeah, yeah. No, I mean, I'll give my shot on what that was, and Andrew, but it was a big prepayment for launch services. Okay. And so, yeah, it's absolutely a part of... of that overall, you know, $5 billion U.S. capex number that we've talked about before. Yeah, that's right.
spk03: Perfect. Okay. And then last question, I'll just follow up on Arun's question. So you guys mentioned, obviously, the restrictions around, you know, MNPI and not being able to market to buy bonds at such discounts. Now that numbers are out, you know, are there restrictions in terms of the credit docs or anything else that would restrict you from going out and buying those bonds at you know, 50 cents of a dollar?
spk01: No. My understanding is if we buy debt, we need to cancel it. But no, we're at liberty to do that if we think that's a good idea.
spk05: Okay, great. Thank you. The next question is from Michael McAfee from Shankman Capital. Please go ahead.
spk06: Thanks for taking the question. Maybe I could just follow up on Harry's question. I guess given your prior comment, Dan, that you think the debt levels are at, I forget your exact adjective, but you said that they were at crazy levels, and the comments you've led the conference call with as far as bondholders not understanding the story or not believing the story or not listening to comments you've made before, I guess why would you not You know, you said if it makes sense, you'd be looking to buy bonds back at these current discounts. I guess, why would you not? Is there some reason to keep as much cash in the restricted group as you do right now and not take advantage of these current levels?
spk01: How would I answer that? I don't know. Mike, I guess we just say that, right, it's probably not obvious that we'd be explicitly telegraphing everyone in the market, exactly what we're going to do. Um, you know, we're, we're not in the business of, you know, um, I mean, you know, our day job is running a satellite company, not being out in the market, you know, uh, buying securities. But when we talk to people whose day job is being out in the market, buying securities, um, usually they're not, like, advertising what their next move is going to be. So I don't know. It just doesn't seem obvious to us right now that we need to be super explicit about whether, you know, we go left or we go right. But, no, I mean, we have cash that's building up. It's not lost on us that there could be an attractive opportunity there. But, you know, yeah, that's just kind of how we think about it.
spk06: And just one follow-up to that, is there any, as you're finalizing discussions with the export credit agencies, does that put any restrictions on using cash on hand or doing anything as it relates to the bond levels? And I guess related to that, has the deterioration in your bond levels at the restricted group, has that caused any additional damage hurdles as it relates to finalizing the export credit financing?
spk01: So I would say no. There's certainly nothing about our discussions with the ECAs that would constrain our ability to make use of cash in the restricted group to do any range of things, including repurchasing our debt. And then No, I don't think that where our debt is trading, the ECA lenders will be solely collateralized into Telesat Lightspeed. But as we've said before, we don't like where the debt is trading. I mean, we think that sends messages about Telesat that Yeah, that don't align with reality, right? You see debt trading at those kinds of levels and you think, you know, the company is under some, you know, extraordinary financial duress and it's certainly not how we're thinking about it. You look at how the business is sold up, you look at the cash flows, you look at the predictability of our revenues. Yeah, you know... We don't get it. So it might not, you know, chill or undermine, and I don't think it will, the outcome of our discussions with the ECAs, but we still don't, it doesn't mean, oh, so who cares? You know, we don't like it. And so, but I don't, but to answer your question, no, we don't think that where the restricted debt trades is going to have a bad collateral impact on getting there with the export credit agencies.
spk06: Okay, great. Thank you.
spk09: Thank you. Operator, we have time for one quick question, and then we need to wrap up.
spk05: Certainly. The last question will be from Tim Daggett from RBC. Please go ahead. Hey, thanks for taking the question.
spk10: I believe in the covenants, on the revolver, If it's 35% drawn and the covenants come into play, is there any plan or reason to have to draw on that revolver? I guess it would be about $70 million. So is there any plan to draw on that and then the covenants would potentially kick in?
spk09: Based on what we know at the moment, no. No.
spk10: Great. Thank you.
spk01: Okay.
spk00: Okay. Okay.
spk01: All right, well, listen, we appreciate everyone's time this morning, and we look forward to chatting again when we issue our first quarter numbers. So thank you very much. Thank you. Bye-bye.
spk05: Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.
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