Operator
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.
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.
Dan Goldberg
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.
Andrew
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.
Operator
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.
Edison Yu
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?
Dan Goldberg
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.
Edison Yu
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?
Dan Goldberg
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.
Edison Yu
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?
Dan Goldberg
Andrew, do you want to take that?
Andrew
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.
Dan Goldberg
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.
Edison Yu
Thank you. I'll jump back into Q. Okay.
Dan Goldberg
Thanks.
Operator
Thank you. The next question is from David McFadden from Cormark Securities. Please go ahead. Your line is open.
David McFadden
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.
Dan Goldberg
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.
David McFadden
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.
Dan Goldberg
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.
David McFadden
Okay. And then can you update us on... Your total spend to date on Lightspeed?
Andrew
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.
David McFadden
I think the budget for Lightspeed is $3.5 billion. So you spent $3.34 million Canadian so far on the project? Yes. Okay.
Dan Goldberg
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.
Andrew
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.
Danny
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?
Dan Goldberg
No. No, the quarter unfolded, yeah, like we expected.
Danny
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?
Dan Goldberg
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.
Danny
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.
Dan Goldberg
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.
Danny
Okay, I got it partly right.
Dan Goldberg
Well, you know, that's usually better than I do, so that's pretty good. Okay.
Danny
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?