Telesat Corporation

Good morning, ladies and gentlemen, and welcome to the conference call to report the second quarter 2024 financial results of 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. James Ratcliffe, Vice President of Investor Relations. Please go ahead, Mr. Ratcliffe.

Thank you, Paul, and good morning, everyone. This morning, we filed our quarterly report for the period ending June 30th, 2024 on Form 6K with the SEC and on CDAR+. Our remarks today may contain forward-looking statements. There are risks that TELUSAT'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 please see TELUSAT's annual report and updates filed with the SEC. TELUSAT assumes no responsibility to update or revise these forward-looking statements. I will now turn the call over to Dan Goldberg, TELUSAT's President and Chief Executive Officer.

Okay, thanks James and good morning to everyone. Q2 and the first six months of this year have unfolded consistent with our expectations. As a result, we're reaffirming all of our guidance for the year and keeping focused to make sure we meet those objectives. When we hosted our first quarter call in early May, we indicated we were seeking to conclude our Lightspeed funding agreements with the governments of Canada and Quebec by the end of this summer. This is obviously a key priority for us. I'm happy to say that we've had good and sustained engagement with government representatives, and we are optimistic that we remain on track to achieve this timing. We'll make a separate announcement once the definitive funding agreements are concluded. Beyond that, we're making strong progress executing on the Lightspeed program. As MDA, our prime satellite contractor, noted on its earnings call last week, they've now selected and onboarded 90% of the suppliers for the Lightspeed program, and they remain on track for their full-year ramp-up plan. We've increased our own headcount since the start of the year by nearly 20% as we staff up to execute on light speed, and the team is making excellent progress on the program. As we noted in today's earnings release, our focus this year remains twofold. For our geo activities, the emphasis is on maximizing EBITDA and cash flow by doing what we can to mitigate anticipated revenue declines and rigorously managing our cost structure. And on LEO, it's all about execution, closing our funding agreements, staffing up, building out all the various elements of the Lightspeed network, including the satellites, the ground infrastructure, and the software that we need, and commercializing it in the key verticals we're focused on. I'm very pleased with the progress we're making in all of those areas. We're hugely bullish on our prospects in the market, as well as our ability to deliver an extraordinary value proposition for our customers, and significant value creation for our shareholders. With that, I'll hand over to Andrew and then look forward to taking any questions.

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 2024, Telesat reported consolidated revenues of $152 million and adjusted EBITDA of $103 million. The first six months of 2024, the company generated $66 million in cash from operations ending the second quarter with $1.4 billion of cash. For the second quarter of 2024, and compared to the same period in 2023, revenues decreased by $27 million to $152 million, operating expenses increased by $5 million to $56 million, and adjusted EBITDA decreased by $35 million to $103 million. The adjusted EBITDA margin was 67.8% as compared to 77.1% in the first quarter of 2023. The revenue decrease for the quarter was primarily due to reduction in services and a low rate on the renewal of a long-term agreement with a North American direct-to-home customer, as well as lower revenues from certain mobility and Latin American customers. The increase in operating expenses is primarily due to higher wages and benefits, bad debt expense and costs associated with consulting contracts, partially offset by lower non-cash share-based compensation and higher capitalized engineering expense associated with Telesat. like to be. Interest expense decreased by $7 million during the second quarter compared to the same period in 2023. The decrease in interest expense was primarily due to the repurchase of notes and Term Loan B. This was partially offset by an increase in the interest rate in the U.S. Term Loan facility. In the second quarter, we recorded a loss in foreign exchange of $34 million as compared to a gain of $67 million in the second quarter of 2023. The loss for the three months ended June 34 was mainly the result of the strengthening U.S. dollar, the Canadian dollar spot rate, to the quarter as compared to the spot rate as at December 31, 2023, and the resulting unfavorable impact on the translation of our U.S. dollar denominated debt. Our net income for the second quarter was $129 million compared to the net income of $9 million for the same period in the prior year. The change was primarily due to the one-time recognition of CBAT clearing income in the second quarter of 2023, along with the impact of the foreign exchange loss, as I had mentioned earlier. For the six months ended June 30, 2024, cash inflows from operating activities were $66 million, and capital expenditures were $334 million in the same period, almost all of which were related to telesatellite speed. Actual cash used in investment activities was $220 million, in the first six months of the year. Certain capital expenditures were incurred late in the second quarter and subsequently accrued. This is reflected in the increase in trade and other tables at quarter end. Guidance. As you will also have noted in our earnings release this morning, we have reaffirmed our 2024 guidance. This guidance assumes a Canadian dollar to US dollar exchange rate of Canadian 1.35. For 2024, Telesat still expects its full year revenues to be between 545 and 565. In terms of operating expenses, excluding share-based compensation, we are still looking to spend between $80 billion to $90 billion, attributed to Telesat Lightspeed. Interested either there? Telesat still expects to be between $340 billion to $360 billion. As promised, we are also showing our GEO and LEO results separately, and it's reflected in Note 4 of our financial statements filed on Form 6K. In respect to expected capital expenditures, we continue to expect our 2024 cash flows used in investing activities to be in the range of $1 billion to $1.4 billion, which is nearly all related to expected telesatellite speed CapEx. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1.4 billion of cash in short-term investments at the end of June, as well as approximately $200 million of borrowing capacity available under a revolving credit facility. Approximately $1.2 billion in cash was held in our unrestricted subsidiaries at the end of the quarter. In addition, we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the second quarter, total leverage ratio as calculated under the terms of the amended senior secured credit facilities was 5.619. TELUSAT is in compliance with all the covenants in our credit agreements and indentures. In terms of our debt repurchases, we repurchased year-to-date an amount of $262 million at a cost of $120 million, including accrued interest. This includes an amount of $43 million purchased after quarter end. Combined with the debt repurchases completed in 2022 and 2023, we've now repurchased a total principal amount of $849 million at a cost of $459 million, including accrued interest. This also results in interest savings of approximately $55 million annually. Including the repayment in 2020 of approximately $356 million U.S. dollars of term loan fee, our overall debt has been reduced now by approximately 26% of $1.2 billion. A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning. Our 6K provides the analysis interim condensed consolidated financial information in ending in A. The non-guarantor subsidiaries shown are essentially unrestricted subsidiaries with minor differences. So that concludes our prepared remarks for the call and I would be very happy to answer any questions you may have. So with that I will turn back to the operator for the question and answer session. Thank you.

Thank you very much. Yes, we will now take questions from the telephone lines. If you have a question please press star one on the device's keypad. You also can cancel your question at any time by pressing star two. So again, please press star one at this time. If you have a question, there will be a brief pause while the participants register. Thank you for your patience. We have a first question from Edison Yu from Deutsche Bank. Please go ahead. Your line is open.

Good morning. Thank you for taking our questions. First, just want to clarify that the negotiations are on track. Are you basically saying that it will conclude in the next couple weeks based on your end of summer timeline?

Yeah, that's... effectively, right, our expectation is that in the next couple of weeks, we will conclude the agreements and make a separate announcement about that.

Understood. And I guess, is there anything that still needs to be worked out? Or is this sort of more, you know, the right people got to make the right signatures? Or is there anything kind of outstanding?

No, as I said in my prepared remarks, we've had really good engagement with the government representatives. These are representatives from the Government of Canada and the Government of Quebec. There are a good number of agreements that need to get concluded in order to document all the different features of the funding arrangements. At this point in time, I don't see any significant impediments or obstacles in getting this done in the coming weeks. And so, yeah, we're just, you know, it's a big funding arrangement with multiple agreements, and we're just working through all that. But there's nothing, yeah, kind of extraordinary about what remains to get done.

That's him. You're switching to the guidance on the CapEx obviously implies a pretty substantial step up, even at the low-end range. I guess, how do we think about what determines if you end up close to $1 billion, close to $1.4 billion, and what sort of jobs at Delta?

Andrew, do you want to take that?

Yeah, sure. If you look at our flow of CapEx, In the second quarter, it's approximately about $309 million or so. So if you kind of multiply that by three, you actually get to a billion from a mathematical perspective. So that's why we feel pretty comfortable where we are with the range.

Yeah, and maybe I would just add that, you know, it's a sign that the program is on track. I mentioned, again, in my prepared remarks that MDA, who's the prime and is going to be the beneficiary of so much of our capital spending this year and next. They've done a great job of getting all their suppliers online, their placing orders, and they're moving out exactly as we would like them to. And so, yeah, we felt, you know, everything we're seeing tells us that we're going to be tracking the guidance. And as Andrew said, you know, there was a big spend in Q2 and everything we're seeing is showing good progress and that our suppliers will achieve the milestones they need to achieve in order to unlock the payments that we've sort of budgeted for.

Thank you. I'll jump back into Q. Okay.

Thanks.

Thank you. The next question is from David McFadden from Cormark Securities. Please go ahead. Your line is open.

All right. Thank you. A couple of questions. Can you just give us an update on where you stand with respect to negotiating that one DTH customer? I think the contract is up for renewal this fall.

Yeah. Thanks, David. So just for everyone's benefit, we've got a renewal with EchoStar on our NIMIC 5 satellite that comes up in early October, and we've said that on our last two calls, I think, that we've been engaged with Echostar. So we're not done yet. I've mentioned before, we know Echostar well. We have a good relationship with them. We've done business with them for a very long time. So we've certainly had a number of exchanges, but we're not done yet. So my expectation, obviously, with this renewal coming up in about two months' time, we'll be landing on a resolution pretty soon. Certainly, I think that by the time we do our Q3 call, we'll be able to provide a lot of detail around where we landed. But at this point in time, still having discussions with them.

Okay. And maybe a couple of questions on light speed. Um, so in terms of defending agreements, you know, you'd say more that you expect to have them signed by the end of summer. Um, is that what both the government of Canada and the government of Quebec? Cause I think in the past you were primarily referring to the government of Canada.

Yeah, no, it's our expectation that it'll be, uh, with, with both of them. And again, it's why, you know, it's taken a little while, um, Again, we're tracking the timeframe that we'd envisioned a few months ago when we put out our Q1 numbers. But because it is the government of Canada, it is the government of Quebec, we also have this vendor financing. And so all of that needs to get done. It takes a little bit longer than if it were, one, just a purely commercial kind of funding syndicate. And two, yeah, with these government funding, there are, yeah, kind of special considerations. So, yeah, it'll be with the government of Canada, with the government of Quebec, and it all feels like it's moving in the right direction. I have to say, just because I'm a former lawyer, it ain't over until it's over. But we're highly confident that we're going to get there in the coming weeks.

Okay. And then can you update us on... Your total spend to date on Lightspeed?

Andrew? For looking at the half year, as we said, we've spent $334 million in total, of which half is $220, and the balance has indeed been reflected in the accounts payable that we see on the balance sheet. And those are Canadian dollars, right, Andrew? Yes, correct, Canadian dollars, correct.

I think the budget for Lightspeed is $3.5 billion. So you spent $3.34 million Canadian so far on the project? Yes. Okay.

No, no, no. That's just what we've done so far this year. But we've been making investments in the program for the past few years including payments with launch providers, you know, a lot of the non-recurring engineering investment that's gotten made, user terminal development, just kind of across the board. So, Andrew, I don't know if you want to say anything more about that.

Yeah, no, I can. If you go all the way back to the development, back to 2020, on a Canadian dollar basis, looking at CapEx, it's about 980 million CapEx is what we have spent doing all of the work that we have done to get where we are today.

currency and Canadian dollars okay okay all right that's great thank you thank you thank you the next question is from Chris Quilty from space please go ahead your line is open guys so congratulations you put up better results than I was expecting for q2 but that begets the question you maintain for your guidance and so Did you see anything that was pulled forward into Q2, maybe just first question?

No. No, the quarter unfolded, yeah, like we expected.

All right. So I therefore kind of didn't model the back half down as much as perhaps I should have to stay at kind of the midpoint of the guidance. Putting aside MIMIC 5, which I had already accounted for, when you look at the base of the business, are there any other large contract roll-offs or the other issues you've sort of identified, maritime and Latin America, are those getting better or worse?

I think, look, we gave guidance at the outset of the year. Like in any year, there are always puts and takes. In the main, the year has been unfolding like we expected. There were some renewals that we didn't think we were going to get that we did. There were some things that we thought would roll off in a certain time frame. We still think they're going to roll off, but they're rolling off a little bit later. And then, you know, equally there are some things that played out in a way that was probably worse than what we thought. One of the things I'd note, and we flag it in the 6K statement, is our customer, Explore, which is a Canadian rural broadband provider that serves its customers with a mix of satellite, terrestrial wireless, and fiber. Explore is going through a restructuring process right now, and as a result, we've bumped up our bad debt provision in the quarter, and we're trimming our expectations for what we'll do with them for the rest of this year. So I'd say that was one that we didn't anticipate when we gave our guidance at the outset of the year, but that's something that will be a bit of a headwind in the second half of the year and potentially next year as well.

And remind me, Dan, because they bought all the Viasat and Hughes Canadian payloads for Viasats 1 and 2. but you guys were involved in the deal, if I can say, as sort of a middleman through that contract, if I remember correctly. So I wasn't expecting there was a huge revenue or margin contribution on that.

Yeah, no, not really so, but you're right. You're right in the sense that Explore uses satellite capacity from Telesat, Biosat, and Hughes. But no, we didn't act as a middleman for any of that. We own the payload, I'm sorry, the Canadian payload for Viasat 1, and we did a long-term deal with Explore to use that payload, but they did their own direct deals with Hughes and Viasat for their other capacity so that that doesn't flow through our P&L.

Okay, I got it partly right.

Well, you know, that's usually better than I do, so that's pretty good. Okay.

All right, second question for Andrew, I guess. Spending a billion dollars in the back half of the year is no small feat for the government, but for Telesat, that's a big chunk of money. And clearly, people are not building stuff at that rate. How much of that should we think of as prepayments to, and how does that flow through MDA to the supplier base? in terms of the revenue contribution on the other side?

So maybe Chris, I'll take this one. And I won't speak to MDA's revenue recognition or, I mean, talk to them about that. But our suppliers need the money. They're ordering equipment right now. I mean, don't forget, we're launching satellites two years from now. which means that those satellites are going to be getting built in the coming months. And so they're ordering, you name it, solar arrays, I'm sitting here with my CTO. Help me out, Dave.

All of the various components of the spacecraft, the mechanical, the propulsion system, solar arrays, attitude controls.

People are building stuff. The supply chain is building stuff. They're ramping up. They're spending money. And, you know, as much as I would like to think that, you know, everyone, you know, wants to do telescope a great big favor, In my experience, all these companies want money before they start spending money. So that's the flow of funds. And here again, and I'm somebody that is always squeamish about spending money, but the reality is we're hitting a schedule, and they're moving out. And the worry would be if we weren't spending the money, then our schedule, to me – and to other people that know this industry, it wouldn't be credible. The reality is, yeah, we're spending a lot of money over the next 24 months because people are buying stuff and building stuff, and that's exactly what's going on.

Speaking of stuff, I have to ask, it's a company but also an industry question around your selection of PSADs. You know, for your optical terminal, I think you were involved with INARAC on a couple phases of DARPA station. And obviously that technology is absolutely critical, you know, to the sort of performance and economic returns you expect. So can you perhaps give us a little soliloquy on the process there?

Yeah, and our world-class, long-standing CTO, Dave Wendling, is sitting in the room with me, but I'll take the first crack at this, Dave, and you can come around. So, yeah, these optical intersatellite links are a key part of the Constellation, and for everything on the Constellation, whether that's the onboard processor, the... the antennas, the digital antennas, or these optical links, we're always trying to make the right choice between cost, capability, and kind of reliability, heritage, and whatnot. So we had, and there are a lot of folks right now that are coming forward with good optical technology in space We worked with MDA in making this selection, so that's something else I'd note. This was kind of a joint effort, a joint determination between Telesat and MDA. And the reality is we landed on TSAT because they kind of most checked the box on those different variables, performance, reliability, cost, schedule. all of that, so TSAT has good heritage here. They have a very good, capable optical link. At the end of the day, it was a competitive process, and at the end of the day, we at MDA judge that TSAT was the best vendor for it. It's not a black mark against any of the other companies out there that are making optical links. We felt like we had a number of good alternatives, but at the end of the day, TSAT got over the line for us. Dave, I don't know if there's anything else.

I think you said it well, Danny. I just note that it was a very disciplined down selection and selection process in the final analysis end. As you said, TSAT came out on top in a very tough process.

And final question, you know, listening to the MDA call the other day, clearly you're top of the heap with them, but they apparently have a new undisclosed customer that's sort of grown in size very quickly. This would lead someone to believe it might be a government customer, which tends to exert priority. Again, I'm speculating, but these are the things we've seen happen before. Do you have any concerns? I know they're ramping up. into a capacity of like 2,000 satellites a year, but they're ramping up. Is their growing book of business turning anything for you?

So the short answer is no. They're right down the street from us, about an hour and a half away from us. We know MDA well. Our teams are well integrated. We've got a lot of former MDA employees here. They probably have a couple of former Telesat employees on their side. We have, I'd say, a really good working relationship with MDA at all the different levels kind of throughout our organizations. We've worked with MDA for decades, not as a satellite prime, principally on the antenna side and whatnot, although they've been building satellites for years and years. So no, we don't have any concern, we're in close contact with them as they ramp up their staff, as they ramp up the supply chain. We, including myself, meet with them on a regular cadence. Which is not to say that we're relaxed and complacent. This is a huge program for us. It's a huge program for them. Both of us need this program. to be successful. I like that dynamic where we both have a lot of skin in the game. But no, I mean, it's something that we're going to keep monitoring very, very closely. But no, I feel good right now about where they are on the ramp up and how our teams are engaging in the like. And if we feel differently about that, we'll let you know.

Great, thanks.

Thanks, Chris.

Thank you. The next question is from Walter Pichek from Lightshead. Please go ahead. Your line is open.

Thanks, Dan. Just a quick, first a quick follow-up on one of Chris's questions with regard to, you know, you have this strength in the first half of the year relative to guidance. Are you basically assuming that Echostar is a zero in terms of revenue for the fourth quarter as they kind of work through their cash issues? Is there some probability associated with that when you put together your guidance numbers?

Well, when we put together our guidance, and we said this before, it captured a range of outcomes with ECHOSTAR, and we haven't changed any of those assumptions in terms of what those range of outcomes could be. So no, the back half of the year and our thinking about it hasn't deteriorated because we've learned something new or our thinking has changed about ECHOSTAR from where we stood at the outset of the year when we gave the guidance. And I guess the other thing I'd say is yeah, we all track what's going on in the sector, including what's going on with Echostar. The reality is, to date, the direct home satellite business is obviously still generating a significant amount of cash flow at Echostar. To date, NIMIC 5 is being fully used by Echostar. My expectation is to the extent that they renew with us, then that will be a reflection that NMIC 5 is still an important part of their distribution infrastructure and they'll find a way to pay for that because it's important that they continue to provide service to their DTH customers and continue to enjoy the benefit of that cash flow. And so my expectation is they'll find a way to make sure that they're paying us. I'm just pausing here. Are we still online? Okay, sorry. Our screen was flickering here. I wasn't sure if we had lost the line.

That was a good response. Maybe it was just flickering positive feedback. Yeah, I mean, I agree. I mean, look, if they have to generate some level of free cash flow in one element of the business and they can't switch off in the next five, then you've got to get – why not just put a gun to their head then and just not let them off the hook for a lower renewal?

Well, I mean, look, you know, with all of our customers, you try to, yeah – frame things in a kind of a win-win way as best you can. You don't always get there, but we've been working with Echo Star for nearly 20 years now, and we have a good relationship with them. We've talked about this before. We all know it. The direct-to-home satellite business is facing real secular headwinds. We try to work with, whether it's, you know, Bell or Echo Star or... Shaw, you know, try to work with them to sustain that business because there still are millions of households across North America that rely on those services. And so, yeah.

I just feel like on this renewal, however many years it's going to be, you know, also longevity of the site itself, it's like this is the last one. Five years from now, there are a couple million subs lower. then they're not going to be maybe as nice to you as you're sounding like you want to be nice to them in this negotiation. In other words, this could be the last negotiation of your 20-year relationship, so why not just squeeze in for everything you can?

Yeah, I don't know. We've been doing this for a long, long time. It's not how we approach our customers and the market. Anyway, so stay tuned.

uh we're you know going to conclude one way or another our renewal discussions with them and then we'll be able to provide an update on that in a couple months time hsf on the leo um you know now the mba is kind of talking about it more obviously there's seemingly more confidence in the market that the project's moving forward um has this opened up any additional you know pre-sales on the enterprise side i realize obviously the launch is still a couple years out but wondering if you've got any kind of additional commitments. And to that end, in terms of the market size beyond enterprise, you know, what GlobalStar and Apple have done in this recent phone, again, getting back to the directed device, I know this is not the target market that you want, but is there any rethinking in that in terms of directed advice. I mean, I think SkyGlo had an announcement yesterday with the new Pixel phone. It seems to be a market developing. I mean, using the GlobalStar stuff, it's been great, you know, in the whole coverage that exists. Just curious if your thought process has changed in terms of trying to attack that market.

It's a great question, but no, it hasn't. The reality is, you know, the spectrum that light speeds operating on the cave and spectrum is ideal for broadband connectivity but it's not ideal for you know direct device you know you know providing a broadband connection even an air bank connection to a handheld smartphone so and we believe the market that the verticals that were focused on are great opportunities for us. They're large, they're deep, they're fast-growing, and we've optimized the constellation to serve that market. The frequencies are really well-suited to serve that market. And so, no, that remains the focus. And then as far as pre-sales activities, Lightspeed's moving forward. I mean, if anyone still has any questions about that, yeah, I mean, I don't know what to say, but we're obviously spending money, MDAs ordering stuff, and we're all ramping up our staff. And, I mean, Lightspeed's going forward. I think the customer community understands that. We've got salespeople and business development people running all around the world engaged with the customers that we know well in these different verticals. And so nothing to announce right now.

I know you only announced material contracts, but could you at least comment whether there have been incremental bookings? Maybe they're not significant enough to call out.

No, no, no.

Other than any bookings since the last earnings call?

No, no, but it wasn't our expectation that there would be any. We're having good engagement with... really good prospective users in the key verticals that we're focused on, Arrow, Maritime, Government, Enterprise. It wasn't my expectation that we'd be announcing anything since putting out our Q1 numbers, but the market knows what we're building. Users are excited about it. There's a clear validation that the customer community is highly receptive to Leo. You see the traction that Starlink is getting. And we think that we're bringing something really compelling to the market. So anyway, stay tuned. And we'll be very transparent about the orders we're getting right now. We've got about $750 million of take-or-pay commitments on Lightspeed. which we do not include when we talk about the 1.1 billion Canadian backlog that we report in the earnings release. The light speed backlog is separate and apart from that. And we'll, you know, as that moves, we'll report on it and we'll talk about the wins that we have and the like. Great. Thank you. Thanks.

Thank you. The next question is from Sean Mahoney from Bank of America. Please go ahead. Your line is now open.

Yeah, thanks for taking the questions. First, I noticed a large working capital outflow for the restricted group and a large working capital benefit for the unrestricted group in the quarter. So just wondering, does that reflect any intercompany flows or is it just a coincidence that those numbers largely offset? Or do you use the remaining unsub investment capacity as you indicated you would on the last call?

Yeah, so that's the investment down from Telesat Canada into the unrestricted group. And from a timing perspective, it's just showing up top in operations. But next quarter, you'll see it down as an investment in.

Okay, got it. Thank you. And then for GeoOpX, Q2 was up sequentially. It seems like at least part of that was due to the impact of expense associated with Explore that you mentioned, as well as higher professional fees. How should we think about run rate geo op-ex? Should we look more to Q1 or do you expect to continue to incur higher bad debt expense with Explore or higher professional fees for some time?

If you look at our geo business overall, we'll point out our actual EBITDA margin is 80%, which is pretty high, pretty significant. And we said on our last call, we were expecting geo-OPEX to be down 4% in our plans, and that's contained within the guidance, and that's still what we are actually sticking to now. On the bad debt, I just shared the bad debt amount, delta, is about 2 to 3 million. So on a grand scale, it's not that sort of material. But as we said on the last call, in terms of OPEX, and as Dan had alluded to in spending money, we are pretty judicious on what we do and how we spend money and which is good. So as I say, that's what we said on a call that I'll turn you off.

Okay. Got it. Um, and then on the, um, the bad debt expense that you mentioned, um, yeah, let's say it went up like 3.3 million in a quarter. So call it 1.1 million a month. Um, are you still recognizing revenues, um, from explore and just kind of offsetting that with bad debt expense?

Yeah, we are currently recognizing revenue with Explore. They're making partial payments, so we continue to recognize revenue so we know more about what their plan is to go forward.

Okay, and can you quantify what their remaining obligations are, I guess, under the contract? Like how much of your backlog includes the Explore obligations?

Yeah, we'll help you out there. So, John, remind me, it goes out until January 2027. Yeah, so it would be, you know, 25 and 26. It's probably order of magnitude about 40 million Canadian of backlog that's in that 1.1 billion. Now, you should also know that about a third of that was prepayment. And so when we uh, recognized, uh, revenue from Explore each quarter, about a third of it is just, uh, non-cash deferred revenue. So that's, but, but, but that's what it is, Sean.

Okay, got it. Thanks. Um, and then the last one, I know a few people have asked, so I'll just try it one more time on the guidance. Um, So the low end of the guidance implies second half revenues of about $240 million, which would be $40 million in dollars a month. And you did $305 or about just north of $50 million per month in the first half. I know that there's the renewal with EchoStar that comes up, I can't remember, September or October. But in the past, you've said that those DTH birds are about $70 million a year. Could be more, could be less. But just wondering if you could help us understand the drop-off of at least, or I guess even if you lost 100% of that Echo Star contract, it seems like you're still assuming some pretty steep declines in the rest of the business in the second half of the year. Thanks.

I'm looking at Andrew. Maybe I'll take this. I guess how we thought about the year, certainly, even if DISH renews, we expect that it'll be at a materially lower rate. So we've captured different outcomes with DISH that explain part of the decline. We've got this issue with Explorer. We'll see where we land on that. So it's things like that. I'd note also there's, we take a look at kind of all of our business activities periodically. We're giving consideration to selling kind of a non-core business that we own. and that could potentially get done in the near term, so it would be impactful for this year. It contributes revenue. It doesn't contribute a whole lot of EBITDA to us, but that, if we were to do that, would weigh somewhat on the top line at least. So it's all those kinds of things. And then, yeah, we gave a range, right? I mean, there's a low end of the range, there's a high end of the range, and... And yeah, Andrew, do you want to add anything?

Yeah, indeed. If you look at the OPEX, you know, as we know, as Dan said, we're hiring people. So our OPEX, indeed, in LEO, our investment in LEO from the people perspective is going to increase. If you look at our segmentation operating expenses for the six months was about $32.8 million, and our guidance we've given for OPEX and LEO is between $80 to $90. So that will also kind of play in overall as to what the increase is.

Potential increase in off exit second half versus first half so that plays in right down to adjust the deep attack as well And I will say what we are prudent as well in what we do and maybe one other thing James is pointing out to me that and now that we've broken out our geo and Leo numbers separately it's easier for you guys all to see but we recognized revenue in Leo for the first half of the year that and that's Chunky, you know nonlinear kind of revenue. It was the consulting contract that we had I think that this one was with NASA NASA Which which there's more revenue recognition in the front part of the year than there is in the back part here again It's not contributing a whole lot of either But it'll it'll impact the top line. So anyway, Sean, it's kind of all those things but but there's certainly nothing that Other than the Explorer restructuring that's going on, we don't know where that's going to land. There's nothing about how the second half of the year is shaping up that's really anything different than the way we were thinking about the second half of the year. at the outset of this year when we gave our guidance.

And if you look at the segmentation breakout we've done, which I think is very useful and very transparent, the numbers we just sort of are the issues we just mentioned about the OPEX and the revenues. Leo, you can actually see that quite clearly, and particularly pertaining to the first three months.

Okay, got it. Thank you. And then just the last one for me, based on what you said, that non-core asset that you mentioned is that

in the restricted group and can you can you give us any sense for an order of magnitude of what you expect to sell that for you know is that like a 5 10 million or we talk 100 million or yeah it's so one it is in the restricted group um it's not um it's certainly not material from an ebitda perspective because as i mentioned it's pretty much ebitda neutral for us and then you know, in terms of top line contribution, order of magnitude, it's kind of in the 10 plus million Canadian contribution top line. Um, so that, that's, that's what it looks like. Oh, and then in terms of proceeds, um, we, we, we can't say yet, um, because, you know, uh, we don't have anything to show yet, but it's not going to be, uh, really material, but any proceeds that, uh, that we do get from that activity, if we sell it, we'll come into the restricting group.

Okay, thanks. All for me.

Okay, thank you.

Thank you. There are no further questions registered at this time. I will turn the call back to Dan Goldberg.

Okay, operator, thank you very much, and thank you all for joining us this morning, and we look forward to chatting with you again when we release our Q3 numbers. So thank you very much. Thank you very much.

Thank you. The conference has now ended. Please disconnect your line at this time, and we thank you for your participation.