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spk01: Good morning, ladies and gentlemen. Welcome to the conference call to report the second quarter 2022 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 Bolaido, Director of Treasury and Risk Management. Please go ahead, Mr. Bolaido.
spk03: Thank you, and good morning. This morning we filed our quarterly report on Form 6K with the SEC and on CDAR. 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 and uncertainties. For a discussion of known risks, see Telesat's annual and quarterly reports filed with the SEC and CDAR. 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.
spk04: Okay, thanks, Michael. This morning I'll share some thoughts on our results and give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in detail, and then we'll open the call up to questions. As noted in the earnings release, we're off to a good start for the year. And as a result, we're able to raise our full year guidance for both the revenue and adjusted EBITDA. Our confidence around this comes from securing the partial dish renewal, reselling the portion of capacity that dish didn't renew, the rebound we've seen in traffic for mobility services over the course of the year, and a number of other contributors on both the revenue and expense side of the business. Pricing environment remains largely stable. and we continue to maintain relatively high utilization across the fleet. On our last earnings call, we noted that we purchased in the open market Telesat unsecured notes with an aggregate base value of US $60 million, and that our board had authorized us to purchase up to an incremental $100 million US base value of Telesat debt, which we did in Q2 last quarter. And at our board meeting yesterday, we received authority to purchase up to an additional U.S. $100 million face value in TALSAT debt. Suffice to say, we think our debt's trading below fair value and that this is an accretive way for us to use our cash. I want to flag this morning an issue with our ANACF2 satellite that we called out in the 6K we filed. In previous filings, we've noted that ANACF2 suffered anomalies on two of its thrusters, and that as a result, we had to implement a workaround mode to maintain its orbital position and provide service to customers. We expected this approach would allow us to provide station kept service until 2025, but it now appears that we can only maintain station kept service until the end of this year, at which point the satellite will be put in inclined orbit. When that happens, services currently supported on the satellite will be adversely impacted. some as early as next February, while other services will degrade over time depending on the size of the antennas receiving signals from the satellite. As a result, beginning next year, we expect ANAC F2 revenues will decline if we can't find alternative ways to support those services. But in an effort to provide continuity of service and preserve revenue, we're developing a range of potential mitigation strategies for ANAC F2. including adding tracking antennas at certain of our sites, which would extend the service life for many of our customers, and exploring repointing customer antennas to alternate telesat satellites or to third-party capacity. We're working closely with our ANACF2 customers and with government officials here in Canada on this effort, as most of the services on the satellite are provided in Canada. To give you a sense of the potential financial impact, ANAC F2 and related ground services represent around 8% of our revenues, so a little bit more than 50 million Canadian. We don't anticipate any adverse revenue impact for this year, 2022. For next year, and assuming a given service ends when it can no longer be supported on the satellite, we estimate we'd lose around a third, one third of ANAC F2's revenue next year in 2023, which likely would be somewhat offset by resale of the freed up capacity for mobility services, which ANAC F2 can support when it's in inclined operations. But to be clear, we'll be seeking to use our own and third party capacity to find solutions for our ANAC F2 customers in order to provide continuity of service and preserve the revenue on ANAC F2 to the maximum extent possible. We will, however, incur incremental expense for any third-party capacity or other investments we make to extend the impacted service. So turning to TALIS at light speed, we received a few weeks ago a final proposal from TALIS, which we shared with the ECA lenders earlier this week. It took us longer than anticipated to get the TALIS proposal. On our last earnings call, I indicated we hope to have a good sense of where we stood with the ECAs by the end of June, but given the delay in getting TELUS's final proposal, that's now slipped out a few months. We also believe that we're going to need to secure some additional financing above and beyond the ECA borrowings as inflation and the delay in the schedule for TELUS at light speed has led to an increase in the cost of the program. To that end, we're in discussions with potential financing sources at this time. The contemplated financing, this incremental financing, would be at the Lightspeed unrestricted subsidiary level and would be subordinate to the ECA lenders and the governments of Canada and government of Quebec investments. Lightspeed represents a compelling investment opportunity that there's no assurance that these discussions will come to a successful conclusion. Although we've been disappointed with the supply chain challenges and inflationary pressures that we've encountered, we remain extremely bullish about the opportunity Telesat Lightspeed gives us to grow our business. We have a highly disruptive and robust constellation design, over $750 million in contractual backlog, and over $4 billion in financing arrangements and the strong support of government partners at the federal and provincial levels here in Canada. Our overwhelming focus is on completing the financing and commencing the full-scale construction of the program. So with that, I'll hand over to Andrew and then look forward to addressing any questions.
spk07: Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the second quarter of 2022, Telesat reported revenues of $187 million. adjusted EBITDA of $146 million, and generated cash from operations of $26 million, with $1.5 billion of cash on the balance sheet at quarter end. For the second quarter of 2022, compared to the same period of 2021, revenues decreased by $1 million to $187 million, operating expenses decreased by $6 million to $59 million, and adjusted EBITDA decreased by $2 million to $146 million. The adjusted EBITDA margin was 78.4% compared to 78.7% in 2021. Between 2021 and 2022, changes in the US dollar exchange rate had a negative impact of $4 million on revenues, a minimal impact on operating expenses, and a negative impact of $4 million on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenues decreased by $6 million for 2022 compared to 2021, operating expenses decreased by $7 million, and adjusted EBITDA decreased by $5 million. The revenue decrease was primarily due to reduction on renewal of a long-term agreement with a North American direct-to-home customer, partially offset by an increase in services provided to customers in the mobility market as it continues to recover from the impacts of COVID-19. The decrease in operating expenses was primarily due to lower non-cash share-based compensation and lower professional fees. Interest expense increased by $3 million in the second quarter when compared to the same period in 2021. The increase in interest expense was primarily due to interest on the 2026 senior secured notes, which were issued in April 2021, combined with higher interest on a U.S. Term Loan B facility. This was partially offset by the impact of the repurchase of our senior unsecured notes, combined with the impact of maturity of one of our interest rate swaps in September 2021. During the six months ended June the 30th, 2022, we repurchased senior unsecured notes with a principal amount of 202.1 million Canadian, away of open market purchases, in exchange for 97.2 million. These repurchases resulted in a gain in the second quarter of 86 million, and by the sixth month period, a total gain of 107 million. These notes have been retired. And also to point out, we represent an annual interest savings of approximately $10.4 million per year. As Dan has mentioned, we have also authorization to purchase up to a further $100 million U.S. face value of debt. In 2022, we recorded the loss in foreign exchange of $99 million during the second quarter, compared to a gain of $41 million in the second quarter of 2021. The loss for the three months ending June the 30th was mainly the result of the stronger U.S. dollar, the Canadian dollar, with the resulting unfavorable impact on the translation of our U.S. denominated debt. Our net loss for the second quarter of 2022 was $4.4 million compared to net income of $53 million in the prior year. The variation of $57.4 million was principally due to non-cash foreign exchange losses for the three months end of June 30, 2022, compared to the same period in the prior year This loss was partially offset by the gain on extinguishing our debt. For the first half of 2022, the cash inflows from operating activities were $69 million, and the cash flows generated from investing activities were $31 million. Included was $65 million by way of receipt of the remaining Phase 1 USC band clearing process, and virtually all of the capital expenditures related to a lower orbit constellation, tennis at light speed. Looking to guidance, as you would have noted in our earnings release this morning, and as Dan has elaborated his remarks, we are updating our previously stated 2022 guidance. For 2022, Tedesat now expects its full-year revenues to be between $740 million and $750 million, and an increase from $720 to $740 million. Also, as stated, when we provided the preliminary 2022 guidance on March the 18th, Included in our revenue expectation is the recognition of a significant hardware sale with the provision of related services to DARPA as part of an $18.3 million contract. In terms of adjusted EBITDA, TELESAT now expects it to be between $545 million to $560 million and an increase from $525 million to $545 million. Our guidance still reflects a Canadian dollar to U.S. dollar exchange rate of 1.3%. With respect to expected capital expenditures, we still expect our 2022 cash flows used in investing activities to be in the range of $100 to $120 million, including capital expenditures to further advance our Lightspeed program. Once we have greater visibility around the construction and financing of our Telesat Lightspeed program, we'll provide a further update on our anticipated capital expenditures for the year, which 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 June, as well as approximately $200 million of borrowings available under our revolving credit facility. Approximately $1 billion in cash was held in our unrestricted subsidiaries. In addition, we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the second quarter, leverage as calculated under the terms of the amended Senior Secured Credit Facilities was 5.56 times to 1. Telesat 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 we filed this morning. Our 6K provides the unaudited interim condensed financial information in the MVA. The non-guaranteed subsidiaries shown are essentially the unrestricted subsidiaries with minor differences. So that concludes our prepared marks for this call, and now we'll be happy to answer any questions you may have. With that, we'll turn back to the operator.
spk01: Thank you. We'll 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 answer your question at any time by pressing star 2. Please press star 1 at this time if you have a question. First question is from Walter Pischik from LightShed. Please go ahead.
spk05: Nice. Dan, can you give us a little bit more specific timeline on when you expect to finalize things at the ECI? I know that you just stated in your prepared remarks, finished up with Alice very recently contacted ECAs. When is that going to be finalized? And then what is the approximate amount of the incremental financing that you think that you're going to need to secure?
spk04: Thanks, Walter. So let's see. As far as timing and when things will be finalized, You know, so what we said before, as I mentioned this morning about, you know, the ECA timeline is, yeah, we had expected sort of, you know, by now to have a good sense of where we stood with the ECAs. So in the process with the ECAs is, you know, you engage with them, you sign a term sheet, and then it takes some months to, kind of close your financing and sign definitive documents. I understand from our advisors that once you have a term sheet, you've got a pretty high degree of certainty around your financing. So if I sort of do apples to apples, what I thought we would know by now, I now think we'll know in a couple of months. So call it sometime in Q4. and by that, you know, have a good sense for where we are with the ECAs. Is this thing coming together or not? So that's our sense around timing with the ECAs, and then, you know, to follow on what I said.
spk05: So that event, though, that you're saying is in Q4, is the term sheet, or that's the... the finalization of a term sheet that was previously signed.
spk04: Yeah, it's going to kind of, I mean, by the end of Q4, I think, yeah, we've got a good sense of where we are, and maybe the full term sheet is signed by that point, too, though harder for me to say.
spk05: And then it would take another, so basically it's into Q1 to finalize a term sheet that would hopefully be signed by the end of the year.
spk04: No, I think, no, I mean, look, you know, I've never done one of these ECA things, and they've got all sorts of procedures above and beyond what commercial lenders have. But no, it would be our expectation that, yeah, we'd have a good sense of where we stood with them in the next few months. The term sheet will, I don't know, take a little bit longer thereafter, but I don't think it's unreasonable to believe that by the end of this year, that term sheet should be in place. And from our perspective, based on all the advice that we've gotten. Once we have that term sheet in hand, we're going to feel comfortable about making meaningful expenditures and moving forward with the program. So the launch of the program doesn't have to await having, you know, going through the entire definitive document process based on the advice that we've been getting. And then And maybe I'll pause there. Did you have any other questions about that?
spk05: No, no, no, just the incremental. Yeah, thank you.
spk04: Yeah, so then on the incremental financing, you know, a couple of things. As we've said, you know, because of this inflationary environment that we're in, because the schedule got elongated, which we've talked about before, you know, the program costs have gone up. You know, we've talked about light speed as like a $5 billion CapEx investment. kind of project, and when we kind of look at the current costs and the inflationary pressures and whatnot, it's up, you know, probably the CapEx sub-10%, but it's up. It's up some, you know, hundreds of millions of dollars. The biggest unknown for us right now, too, I mean, and I think we've now got a good sense for where the capital costs are coming. I mentioned it took us longer than we would have liked, but we now have a final proposal from TALIS. But another unknown is with the ECA lenders, they, for those of you, they often require contingent capital to deal with different cost contingencies that can arise over the course of a multi-year program. And that's stuff like schedule delays, cost overruns, all that sort of stuff. And so we don't know at this point in time the magnitude of what's referred to as contingent equity, this contingent capital. And so when we think about what that incremental, and I should also say, you know, what we've said in the past is the ECA financing should cover, you know, most of the remaining of financing that we needed, but it was never, you know, all of it. We always knew that we were going to need to raise a little bit of extra money. So when we think about this incremental financing, I'd say it's going to be you know, at least kind of 10% of our overall capital cost, and it could be more depending on, you know, where we end up with the ECA lenders on this contingent capital.
spk05: So that... Is any of this, Dan, commentary from the ECAs in terms of them saying, look, we need you to do this incremental 500 to a billion... in order for us to get to our term sheet, and do they require that to specifically be equity, or is it something that could be layered on as subordinate debt?
spk04: That's a good question. I mean, what they're most focused on, obviously, is that it's subordinate to them, and that it's kind of fund-certain. And so, yeah, but beyond that, I think I'm looking at our general counsel is closer to this stuff than I am, but yeah, I think that's what, you know, would satisfy them. And for sure, I mean, we've been engaging with these ECA lenders for some amount of time, so we've got, you know, kind of a decent sense for the, we're not done yet, as I mentioned, but we got a sense already for what the overall kind of, you know, financing package that we're going to need to have lined up is going to be. And as I mentioned, now that we've got a better sense for, now that we've got this final TALIS proposal, a better sense for what the total CapEx is. Yeah, it's apparent to us. We always knew we needed to raise some incremental financing. Now we know that it's going to need to be a little bit bigger because of the cost increases and the sense that we're getting around the contingent. capital, and so yeah, we've been out, you know, engaging, looking to secure this financing, and so yeah, just wanted to get that out there.
spk05: So is it, again, is it tied to the ECA, meaning that are you going to have to do this before they reach their finalized term sheet in the fourth quarter?
spk04: I don't think so. I don't think so. But they're going to need to have visibility that we're going to have all of our financing in place so that they can go forward.
spk05: Given the telus, it seems like you're kind of locked in on one at this point. and prices go up, that doesn't seem like a favorable situation. What's their appetite for coughing up some vendor financing, given that they're partly responsible for not managing their own supply chain better?
spk04: Well, look, first off, you know, we think that Dallas is a top vendor for advanced satellite constellations, you know, number one. But the reality is we are operating in an inflationary environment. We are operating in an environment where supply chains are stretched. And, I mean, just look across the industry. Kind of everybody's getting delayed in their program right now. But we're not locked into Dallas. I mean, I think, you know, they're a good prime contractor. I think they've got a great track record. But we're not locked into Dallas.
spk05: The time keeps pushing out a bit, and then now the price creeps up. It's centralized on TELUS. I mean, at some point... No, I mean... They can go fly, right? I'm sorry, Walter, one more time. Should maybe send a message at some point that maybe they need to share some of this pain?
spk04: Look, suffice to say, you know, they've been sent a message. I'm comfortable where we are now. Our huge focus right now is is getting this thing financed right now. Our objective is to get that done and to get going on the construction of the program by the end of the year. That's what we're trying to execute on right now. Has it been frustrating that we've encountered these delays and whatnot? Yeah, it hasn't been what we've wanted, but things are teed up right now. and they're going to be teed up with the ECAs and whatnot, and we're going to know a whole lot more, you know, in a few months' time. That's my expectation. Okay, and I'm sorry for the other... Hey, Walter, I've got to say I love talking to you, but you can't filibuster on the call here, so maybe one more from you.
spk05: Okay, one more then, just on the equity versus debt, meaning that you said you've already been having conversations. Can you give us a sense on... is where that is in the cap structure on the initial conversation you've had. That's my final question.
spk04: That's a great question. I'm glad we let you ask one more. So look, just like we think our debt's been trading below fair value, we don't think our current share price is a fair representation of the value of Telesat and the value of our future prospects with Lightspeed and whatnot. That's how management feels. Our board strongly feels that way. Our two largest shareholders feel that way. So suffice to say, when we think about raising this incremental financing, we're all really focused on raising it in a way that's not dilutive to the equity at a minimum, but rather that's accretive to the equity. So that's what our focus has been. Thank you very much. Thank you.
spk01: Thank you. Next question is from Mike Pace from JP Morgan. Please go ahead.
spk02: Hi, thanks, and good morning. Just to follow up on the incremental financing, I guess does that, let's call it the 10% of the budget or so, does that include or contemplate any more money coming from the restricted group? I believe there's still maybe a couple hundred million dollars of basket ability, or is that excluding any additional money?
spk07: Andrew, do you want to take that? Yeah, no, it does not. What Dan is talking about is indeed like looking at other sources of financing, and that is not part of what we're speaking about, Mike.
spk02: Okay, and then to follow up to that, I guess, you've been buying back a lot of debt in the open market, I guess. How do you think about balancing bond buybacks with balance? the potential need for GEO to help continue to support LEO in the context of the GEO free cash flow?
spk04: I mean, Andrew, can I take the first crack at this? Look, we're totally committed to our GEO business and are totally prepared to make incremental investments in GEO so long as we've got a good business case. And so, you know... I think that what we've been doing with some of our cash to repurchase this debt has been the smart thing for us to do. And we shared this morning that the board just authorized us to buy up to an incremental US $100 million of debt. But like we've said before, we're not committing to do that. We don't have to do that. So, yeah, you know, our business is generating a lot of cash. A lot of that cash gets built up in the restricted group, and we're focused on putting it to use in good ways to support the overall business where our debt's trading where it is. I don't know. I mean, it just strikes us that You know, we can spend the money that we've been spending to be accretive to the overall business, but still leave us with sufficient cash to make the investments that we need to make to continue to support the geo business. And I don't know, it sounds like a long answer, but that's exactly how we think about it when we look at new geo programs On a regular basis, I'm looking around the room because there are some things that we're thinking about now. So long as there's a good business case for us to put money to work to invest in the geo business and there might be some opportunities out there, we're going to do that. That's right.
spk02: Okay, and then Dan or Andrew, I don't know who wants to take this one, but I guess with the guidance raised earlier, you know, is that a function of Q2 outperforming for you guys? Maybe that, I guess, termination fee from a LATAM customer, and if you can quantify that latter point, that would be really helpful. And if it wasn't a Q2 beat, you know, what changed in the second half of the year for you guys to get to, you know, plus $15 million or so midpoint to midpoint?
spk04: I'll start. I mean, I think it's all the things that I hit in our script. If you remember when we originally gave guidance to we were clear that, the big uncertainty for the year was where we were going to land with DISH on the renewal. So when we gave guidance at the outset of the year, we were real clear that the guidance embraced kind of, you know, all possible outcomes. We get no renewal, you know, we get a partial renewal, and then obviously, you know, we got the partial renewal, and I think we already said on our last call, that gave us the confidence to start making noises that we're gonna be higher up in the guidance range. And then beyond that, the environment's just been pretty good. We've been signing a good amount of business on the mobility side. You see the utilization of the fleet growing. On the expense side, Frankly, with some of the delays in LEO, we put off some of the OPEX that, you know, we thought that we might incur earlier in the year. So, I don't know, it's kind of been all of those things that led us to do it. And no, it really wasn't that termination charge really at all. And so everyone knows, I mean, they try to be transparent about this stuff, which is why we called it out. in the release, that was order of magnitude about 5 million Canadian. But it really, on the year, it really didn't have any impact on the year. It probably put more money, revenue in Q2 than it otherwise would have, but that's revenue that we would have captured over the course of the year anyway. So in terms of how we had thought about our guidance at the outset of the year, it's not that wouldn't have been impactful.
spk07: I just add on the operating side of the house, we're pretty lasered on controlling our expenses, so we're all over that. So that's contributed as well.
spk04: Yeah, and I'm sorry, Mike, just while we're on the topic of guidance and whatnot, we've shared with everyone that we got this, I think, very positive contract with DARPA to build two satellites in LEO that they'll be using to demonstrate. It's mostly about demonstrating inter-satellite optical links. And we said there's really not a whole lot of margin for us in that opportunity. And I think we gave the dollar of value contribution. Andrew, what did we say?
spk07: Yeah, in fact, as part of the opening remarks, we actually said that. In fact, we called it out. and said that, I'll just read, also stated and provided in preliminary 22 guidance on March the 18th, included in our revenue expectations the recognition of a significant hardware sale with the provision of related services to DARPA later this year, and that was part of an $18.3 million US dollar.
spk04: Yeah, so for us, we're assuming that that we recognize that revenue this year. There's a chance that it gets pushed to next year. If it does, that'll be revenue impacting, but because as we said, there's really not a lot of margin there. It won't be adjusted EBITDA impacting, we think. So anyway, just to call that out again for everyone.
spk02: That was actually my next question. So if you don't mind, um, just how much DARPA money was in the second quarter, if anything, and can you just give us a rough kind of cadence of how that might flow through the rest of the year and maybe leak into early next?
spk04: I don't think I'm looking around the table. There really wasn't anything material in the first half of this year, really. The big swinger is kind of probably Q4 of this year, I think, is what we're expecting.
spk07: It would be Q4 is when we're expecting the DARPA sort of monies to come in. And as we said, as Dan had said, so that's the equation for the revenues. But on the adjusted EBITDA side, we're pretty good. So we don't see any changes to that. Because as we outlined when we talked about the DARPA contract, it's very important here for a business with the U.S. government. So therefore, there's very little margin coming from it because it's about the future growth and development. So hence, it won't impact our adjusted EBITDA.
spk02: Great. Thanks, guys.
spk01: Thank you. Thank you. The next question is from Aaron Seshadri from Credit Suisse. Please go ahead.
spk06: Yes, hi, guys. Thanks for taking my questions. First for me is just, you know, if you could provide, you know, Dan, is it a more realistic view, I guess, on light speed in the context of, you know, a smaller constellation, you know, Amazon's Kuiper project, Timing, I guess, coinciding with the new launch dates, you know, possibly in that 25-26 timeline. And then, obviously, Utilsat OneWeb. You know, are you in your revised or if you've revised your plans on Lightspeed, any context you can give in terms of, I guess, for fixed income investors, a little bit more of a cadence of what those kind of, your 125 look like under the new kind of light speed configuration?
spk04: Thanks for the question. Apologies, I'm not sure I totally followed it. I mean, here's how we think about the timing. And one thing I want to note is when we get our committed and we start the program, we're going to update everyone on what our schedule expectations are and whatnot. Just to note that. Look, we're out in the market every day talking to customers. Everyone would like Lightspeed to be coming sooner than later. There's no doubt about that. It's been frustrating for them and frustrating for us that schedule has moved to the right, but we continue to have just total conviction that what we're gonna be bringing to the market, and you're right, we're starting with, it's 188 satellites and 10 spares, that it will be a very capable, very disruptive constellation. It's probably also gonna be the case You know, I expect that we're going to be very successful with it. I expect we're going to grow it over time, just like, you know, I think other LEO folks think about their constellations. But, look, it's focused on the enterprise segment, including government. It has features, kind of enterprise-grade features that we don't believe some of these other constellations have. are going to have, and we think it's going to really resonate in the market, whether it's aero connectivity, maritime connectivity, providing enterprise grade services for corporates, telcos, ISPs. Those are the folks that we're engaged with in the market now. Those are the folks that are excited about Lightspeed coming. We've mentioned we've already got 750 million Canadian of backlog right now, and, you know, as you know, we haven't even finished securing our backlog. So my expectation is, you know, we get this thing financed and going. Our focus is on late this year, and that once, you know, that's done and we're rolling and the customers see that, you know, Telesat and TALS is building and can see hardware and we're doing more in-orbit demonstrations that we'll be signing up more customers and creating more backlog, which we'll be reporting on every quarter. That's our expectation. That's what we think. And, you know, I don't think we're going to own this market. It's a huge market. You know, we've estimated the TAM at $420 billion-ish. I'm looking around the room in the, like, 2030 kind of, timeframe or something like that. We envision getting a very small percentage of that, no doubt. Amazon will take a share of that market, so will SpaceX, so will OneWeb, so will Viasat, Inmarsat, SDS, all of them. It's a big market. Now, we strongly believe you need to bring the right value proposition to that market to be successful. we think that tell us at light speed is that it's gonna be a great value proposition, but that's how we think about it, and that's reinforced by all the conversations we're having with the customer community. So I hope that's responsive.
spk06: No, it's helpful from a high-level context, so I appreciate that. Then just wanted to understand the mechanics around the ECA discussion. Our prior sort of expectation was that the inflation in the overall program was effectively addressed by shrinking the satellite constellation, by shrinking the constellation by the significant number of satellites, roughly a third. Are we talking about inflation being an additional sort of 10% on top of that sort of the inflation that shrinkage accounting for the inflation? I guess that's question one. And question two is, in terms of, are we talking structurally with additional funding being required junior to the ECA? Was that just purely a function of the additional inflation? Or are we talking about a portion of the original funding now required, you know, the ECA saying, listen, it's a smaller fund constellation, therefore, here's what we're going to give you on an ECA level and the rest has to be raised in a junior fashion? Or is it more in terms of structure change, I guess? So those are the two questions.
spk04: Yeah, okay. Those are good questions. So on the increase in the cost of the capital program, I tried to hit it in my script. It's two things. It is inflation. You know, Dallas went back out and before making their final proposal and rounded up again with their suppliers. So part of it's Dallas, and we've got other suppliers too. So part of it is inflation, and part of it is, as we said before, our schedule's longer. And with a longer schedule, it just means you've got to carry everything longer. Those were the two main contributing factors. That's number one. And then your second question was, about what kind of drove this incremental debt and whatnot. Well, it's two things I would say. And I tried to hit this a little bit, but one, the cost of the program went up, so we need to raise more money, number one. Number two, we had always said we need to raise some incremental financing. At one point we thought, you know, Some of that might make sense to do through equity, but with our shares trading where they are and our strong belief that, again, doesn't represent fair value, less interested in raising that incremental financing by issuing equity. And then what I said about just this unknown right now, about the magnitude of the contingent capital requirements that the ECAs are going to require. We've always known, I mean, they require that, I think, for almost every program they lend under. We knew, having engaged with them for a while, that they were gonna be looking for that from us as well. I don't think there's anything about us going from 298 to 188 with the ECAs that really changes that so much, but it's really those other things that I mentioned. It's the inflation, it's the impact of just having a longer schedule, it's the fact that we always needed to raise some incremental financing, and at this point in time, issuing equity is just a whole lot less attractive to us than it might have been with the shares trading at a much higher level. And then, yeah, just being prepared for at the end of the day where we land with the lenders on the magnitude of the contingent capital.
spk06: Has there been any change to the French ECA's posture on participating post-OneWebUtilSat?
spk04: Not that we can see, and certainly not you know, anything that we've heard from Taos, you know, but in truth, you know, BPI, which is the export credit agency in France that we've been engaged with, BPI has always been a large, if not the largest, utilization shareholder. So, you know, for us, kind of nothing's really changed, if you know what I mean, they're They're a big utilization shareholder now. They have been for, I'm sure, as long as we've been engaged with them on this project. And assuming that the one web transaction goes through, it looks like they'll continue to be a big utilization shareholder. So I don't think it's really changed the complexion.
spk06: Okay. And then the only reason I ask the question is this whole context of creating a Leo, sort of European Leo champion and And if the Utilsat-Leo kind of Utilsat-OneWeb combination kind of de facto becomes that, does that change the dynamic was sort of the thought, but it sounds like it's not really impacting you.
spk04: Well, I mean, I think that I'm no savant on BPI's mandate, but I believe fundamentally these export credit agencies are there to support their domestic exporters to you know, help create jobs and develop technologies and whatnot. And Talos, obviously, you know, will be a big beneficiary of the Lightspeed contract and intends to hire a lot of people and will be developing, you know, state-of-the-art technologies. And so I think, you know, that fits quite nicely within BPI's mandate.
spk06: Got it. One last thing, if I could sneak in, on 2023, You've mentioned the ANACF2 issue and sort of quantified that. Thank you for that. And you've given us some sense of how DISH looks in 23 at a high level, but directionally, X DISH and X the ANACF2 impact, how do you see the, you know, at a high level, how do you see the backlog, et cetera, and how do you see the trend line for 23 versus 22 on the restricted group set? Thanks.
spk04: So on DISH, you know, we said we got a two-year renewal from DISH that came, you know, I think kind of at the end of April of this year. And we had said that DISH has an additional option year to extend for another year beyond the two-year renewal. So DISH should be, our expectations should be stable throughout 2023, 2025. Yeah, it comes up. So no impact there. And then as far as what 2023 looks like, it's too early. We'll give guidance when we give guidance for 2023. Anyway, but we wanted to let everyone know about this anomaly on F2 and to be as clear as we could be about how we're seeing it, what F2 contributes today, what the potential financial impact for 2023 could be, and we'll update on that because, as we've said, there are a lot of things that we can do, that we think we can do, to mitigate the impact of that F2 anomaly. We're working on that now with our customers and whatnot, so I think we'll be able to say more about that later. We will update as we go along for sure.
spk01: Got it. Thank you. Thank you. The next question is from Jason Kim from Goldman Sachs. Please go ahead.
spk08: Thank you and thanks for all the details so far. I'm going to ask the light speed cadence question in a different way. You're obviously focused on finalizing the financing for the project. But given the delays, your expected revenue ramp will also going to happen later than you probably initially planned for. So at this point, in the context of your debt coming here in 2026, how do you envision the refinancing to take place for your existing debt? Are you assuming that there will be enough of a revenue backlog and visibility into the real business such that you can refinance the cap structure before the debt becomes current in the balance sheet?
spk04: Yeah, I'll take a crack at this. Yeah, look, by the time we get out to when our debt, you know, is in the main kind of, you know, maturing, everyone's going to know a whole lot about, you know, tell us that light speed and the traction that we're getting in the market. We'll have been reporting our backlog all along the way. So I think the market will have massive visibility into how we're doing, how our competitors are doing, what portion of this, you know, cam are we getting, where exactly we are in terms of, you know, cadence of, I mean, just everything. So I think, you know, yeah, I think the market will have great visibility and we'll be able to assess tell us about future prospects based on where Lightspeed is at that time. I mean, anyway, Jason, that's how we think about it. And we're going to be very transparent with everyone around, you know, how we're doing on Lightspeed. And, of course, the rest of our colleagues. Yeah, thank you.
spk08: And then had your launch schedules been pushed out as well?
spk04: Has the launch – so what we – look, the last, you know, the last update we gave on schedule, we said we'd be launching in 2025. And when we finalize our financing and get the program going, we'll update, you know, all the schedule updates. you know, when launches occur, when, you know, the polar constellations in service, when global coverage. So we'll provide an update then.
spk08: Thank you. And then I'll end with a big picture question for Dan, and that is for years we've been talking about M&A in this space, but not much has happened. But, you know, just over the past year, we've seen two deals announced, one with Biosat and MRSAT, and then another one, obviously, with, you know, between UTELSAT and OneWeb. And we saw some press reports involving a few of your other satellite peers just in the past week. So how are you thinking about all of these M&A activities and what they mean for TELUSATs?
spk04: Yeah, no, we've definitely all been talking about the potential for industry consolidation for quite some time, and I think I'm on the record saying we expect it to happen. We expect that, I don't know, given technology changes, given new entrants, given the synergies that can be achieved when you bring these companies together, the things that we're seeing in the market and the things that we're hearing in the market, I'd say, yeah, fully consistent with our expectations. And the two deals that you referenced, in many ways, you know, they're two different deals, two different types of things. You know, there's Inmarsat, Viasat, and then there's Utilsat, OneWeb. And for me, they say, I don't know, a couple of things. The market's changing. We're seeing in some ways a transition in our industry where probably the biggest, most promising growth opportunities in the future, it's all around broadband connectivity. High throughput, low cost, highly reliable, secure, global broadband connectivity, I think that's a big driver of the combination between Inmarsat and Viasat. And what you're seeing with Utilsat, I actually think it's the same thing. How does an existing satellite operator best position themselves to capture what all of us believe is going to be a huge market and explosive demand. And I don't know, I wasn't surprised at all with what Udalset announced, what was it, a couple of weeks ago. I mean, the reality is, and you've seen how we're orienting our business, we think Leo's the right answer. We think Leo's the future. We think it's the best architecture to bring the best value proposition to that global broadband connectivity market, particularly for enterprise applications. And so, I don't know, Jason, so what we're seeing today, I don't know, kind of fully reinforces our own thesis and whatnot about where the market's going. what the best technology is to capture this demand. And I got to say, I think it's a good thing for the industry. I think for years we had too many operators launching too much duplicative capacity in some ways. Seeing some of this consolidation will invariably result in some rationalization of the supply side of the industry, which I think will be good for the sector. And I think, you know, with Eutelsat making this one web move and with what we're doing with Lightspeed, these are the technologies that need to get developed if satellite is going to be relevant in a world where the users, the enterprise users, are demanding high throughput, low latency, affordable broadband connectivity. So anyway, long-winded answer, but that's how we think about it. And that's why we're excited about the path that we're on.
spk08: Thank you, Dan.
spk03: Okay, we are out of time for questions. Dan?
spk04: Yeah, okay, Michael, thank you. Thank you, everyone, for participating. Thank you, operator, and we look forward to chatting with everyone when we issue our Q3 results. So thank you very much. Yeah, thank you.
spk01: Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.
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