Telesat Corporation

All participants, please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. This conference is being recorded. Cette conférence est enregistrée. All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the conference call to report the first quarter 2025 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. James Ratliff, Vice President of Investor Relations. Please go ahead, sir.

James Ratliff Thank you, Maud. Good morning, everyone, and thank you for joining us today. Earlier this morning, we filed our quarterly report for the period ending March 31, 2025, on foreign 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 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 would now like to turn the call over to Dan Goldberg, TELUSAT's President and Chief Executive Officer.

Okay, thanks James, and thank you all for joining us this morning. My opening remarks today are going to be quite short, given we hosted an earnings call just six weeks ago when we released our Q4 and full year numbers. I'm pleased with Telesat's performance in the first quarter in both our GEO and our LEO segments. In GEO, the team continues to demonstrate disciplined execution in a challenging market environment. And in LEO, we're making excellent progress with Telesat Lightspeed on both the technical and commercial fronts. In addition to the agreements with Orange and ADN that we announced earlier, and the term sheet with Space Norway announced in March, we signed a significant multi-year agreement with Viasat in April, just last month. Viasat is a sophisticated satellite operator and service provider and is today the largest provider of in-flight broadband connectivity services to the commercial airline industry and an important provider for defense applications, including to the U.S. government. As such, the meaningful commitment to Telesat Lightspeed that they've made is a powerful and concrete testimony to the capabilities of the Lightspeed constellation and the huge opportunity we have in the fast-growing enterprise and government service markets. The last time we spoke, I said we believed our LEO backlog at the end of 2025 would eclipse the 1.1 billion Canadian dollars of GEO backlog that we reported at the end of 2024, assuming foreign exchange is more or less stable. We're at nearly 1.1 billion Canadian in LEO backlog today, And I'm optimistic we'll be able to secure additional commitments over the balance of this year, which would allow us to achieve our LEO backlog expectations. We have a robust pipeline of opportunities and strong momentum and are very focused on closing additional deals. So with that, I'll hand over to Andrew, who will speak to the numbers in more detail, and then we'll open the call up to questions.

Thank you, Dan. Good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the first quarter of 2025, Telesat reported consolidated revenues of $117 million, adjusted EBITDA of $67 million, and generated cash from operations of $139 million. We ended the quarter with $797 million of cash. For the first quarter of 2025, revenues decreased by $25 million to $117 million from the first quarter of 2024. Operating expenses increased by $6 million to $53 million. and adjusted EBITDA decreased by 43 million to 67 million. The adjusted EBITDA margin was 57.7%. I would note that the margin in our geo segment was approximately 74%. The revenue decrease for the quarter was primarily due to a lower rate on the renewal of a long-term agreement with a North American direct-to-home customer. Other factors included reductions in services for certain enterprise customers, particularly an Indonesian rural broadband program and lower equipment sales to Canadian government customers. The increase in operating expenses was primarily due to increased headcount at Telesat Lightspeed, along with higher legal and professional fees, partially offset by an increase in capitalised engineering costs and lower share-based compensation. As usual, we break out the performance of our LEO and GEO segments separately in Note 4 of our financial statements filed in Form 6K this morning. Interest expense decreased by $8 million during the fourth quarter when compared to the same period in 2024. The decrease in interest expense was primarily due to the impact of our debt repurchases, along with the impact of lowered market rates and our floating rate term loan. And just to note, our cumulative principal amount of debt repurchases to date is $849 million, at a cost of $459 million, an average price of just under 53 cents. This also results in interest savings of approximately US$54 million annually. In the first quarter, we recorded a gain on foreign exchange of US$2 million as compared to a loss of US$68 million in the fourth quarter of 2024. Our net loss for the first quarter was US$51 million compared to a net loss of US$52 million for the same period in the prior year. The variance was due to lower revenues, a loss related to a change in the fair value of financial instruments and offset with the impact of the year-on-year foreign exchange improvement, as I mentioned. For quarter 1-25, the cash inflows from operating activities were $139 million, and the cash flows used by investing activities were $235 million. In terms of capital expenditures incurred, almost all were related to light speed. Also, during the quarter, We completed the first two draws on our financing facilities with the governments of Canada and Quebec, thus receiving $340 million Canadian dollars. Guidance, as you will also have noticed in our earnings release this morning, we have reiterated our guidance for 2025. The guidance assumes a Canadian dollar to U.S. dollar exchange rate of Canadian 1.42. For 2025, we continue to expect full-year revenues to be between $405 to $425 million. In terms of operating expenses, excluding share-based compensation, we expect to spend approximately $110 million to $120 million on tele-satellites this year as compared to $72 million in 2024. In terms of total adjusted EBITDA, we expect to be between $170 million to $190 million on a consolidated basis. In respect to capital expenditures, and as previously disclosed and discussed, we continue to expect our 25 capital expenditures to mean the range of $900 million to $1.1 billion Canadian, which is practically all related to Telesat Lightspeed. To meet our expected cash requirements for the next five months, including interest payments and capital expenditures, we have approximately $800 million of cash in short-term investments, and at the end of March, as well as $2.2 billion available under a funding agreement for the governments of Canada and Quebec. At the end of the first quarter, the total leverage ratio is calculated under the terms of the amended senior secured credit facilities of 7.24 times. Telesat is in compliance 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 consolidated financial information in the MD&A. The non-guarantor subsidiaries shown are essentially the unrestricted subsidiaries with minor differences. So this concludes our prepared remarks for the call. I'm very happy now to turn back to the operator and address any questions you may have. Thank you very much.

Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1. You may control your question at any time by pressing star 2. Please press star one at this time if you have a question. There will be brief pause while participants register for questions. We thank you for your patience. Our first question will be from Addison Yu from Deutsche Bank. Please go ahead.

Hey, this is Laura for Addison. Thank you for taking my question. And actually, my question is about lightspeed outlook. So back in late 2023, I think you put out some revenue EBITDA targets for live speech, including like 600 million revenue in 2028 and 400 million EBITDA. And also like more than like 3 billion revenue in 2032 and 2.7 billion EBITDA. So I think without a doubt, a lot has happened since then. So I guess my question is, how are you feeling about those targets and the assumptions and opinion? And also, do you think there are any variables that are much different than expected? And also, when you might consider updating this framework?

Okay. Thanks for the question. It's Dan. I'm not sure I heard. everything but I think I got the gist of it. So we have published some projections for light speed, revenue, EBITDA, CapEx and the like as part of an investor presentation that we did. That's available on our website. And yeah, that's still very much our plan, our current thinking in terms of our expected performance. In terms of variables, I'd say that things are still very much intact in terms of our outlook regarding our performance. Certainly, the build-out of the Constellation is going to plan, and our partners are executing well across all the various warp streams that we have, and things are from a budgetary perspective, a scheduled perspective, are proceeding consistent with our expectations. And then the market itself, I think if anything, and we've probably referred to this in recent calls, from our perspective, everything we're seeing out there in the market reinforces our conviction that LEO is sort of ascendant in the market And I think I said on our last call that in addition to the verticals that we're focused on, like backhaul for terrestrial wireless operators, maritime, aviation, aero, probably the one vertical that we're even more bullish on than we were when we put the plan together, I'd say it's probably around our government services, particularly in light of some of the geopolitical shifts that we've seen over the last six months or so. And so, yeah, I think our thesis remains intact. And while there are always changes out there in the environment, I think on balance, If anything, we have greater conviction about our ability to deliver on our plans and our projections.

Okay, gotcha. Yeah, I appreciate the call.

Thank you.

Thank you. Our following question is from Chris Quilty from Quilty Space. Please go ahead.

Thanks, Dan. Just wanted to follow up on that government question. You've had a couple of recent hires in that area. Can you just perhaps outline for us what your government go-to-market strategy looks like and where you expect to focus those efforts domestically, internationally, and internationally?

Yeah, thanks, Chris. So, you know, with respect to government, you know, our focus naturally is with allied governments. So, you know, that's certainly the focus. In Canada, you know, we're a Canadian company. We've been, you know, engaged with the government of Canada for decades and decades. So, you know, that's kind of a very much of a direct kind of go-to-market activity. In the U.S., there again, we've been providing services to the U.S. government for decades as well. We do have our own kind of foreign mitigated entity down there as a Canadian company to do business directly with the U.S. government. There are advantages to setting up a, you know, kind of a proxy company, a foreign mitigated entity that has its own board to mitigate, you know, any kind of foreign influence. So we have that in place and we made, I think, an announcement maybe just last week about a new senior addition to the team there. We have, I think, really good leadership that's running that organization and a good board of directors that provides supervision. So with the U.S. government market, we're positioned and have taken the steps to do business directly with the U.S. government, but we'll gladly work with all of the long-time service providers and U.S. government integrators that we've worked with for decades. whether it's the proliferated LEO RFP that's out there. We think that Lightspeed is really well architected to meet the needs of governments, including the U.S. government. And so we're very open to working with partners, longstanding partners, new partners as well, to serve the U.S. government. And then I'd say around the rest of the world, it's kind of the same. You know, there are many allied governments that we've done business directly with over the years. For sure, it'll be the case that there are, you know, domestic players in each of those markets that will be great partners for us. And here again, we think that Lightspeed brings something compelling to the government services market. So anyway, Chris, that's all we're thinking about it.

And I'm assuming it's a combination of both direct and partnering in terms of the go-to-market with the government customers.

Yep, that's exactly right.

On light speed, I think we're still on track for first satellite deliveries in the next year, but what are the next major, well, maybe one or two major milestones we should be watching for?

Yeah, well, to be clear, you know, we're expecting our first launch to be toward the end of next year. So the first satellite delivery, you know, will technically be earlier than that. So we've got a critical design review with NDA in a couple of months.

Six months.

Six months' time. So, you know, towards the end of this year, that's something that, is an important milestone. We feel good about it. What else? Pay attention to landing station announcements. We've announced one or two so far, but there will certainly be more of those throughout the course of this year. And next year, we've made some announcements around user terminal development, and we'll update folks on that. And then I'm just trying to think. I mean, those will be the things that will be obvious, you know, kind of from the outside looking in. Yeah, I'd say those are things. And then obviously once we get into next year, you know, we'll be taking satellite deliveries and then we'll, you know, have a launch. So we're not that far off Oh, my colleague, Michelle Farhey, our CTO, is pointing out we're building pretty close to our headquarters here across the river in Quebec a facility where we'll do satellite flight ops. Our NOC will be there. We'll have a data center there. There will be a cyber facility there. So anyway, and that's expected to come online toward the end of this year. So anyway, you know, we're super busy, but making really good progress across all the different important work streams. So, yeah, it's very gratifying.

You mentioned on the user terminal and maybe just to focus on the IFC portion of that, I think right now you've got you know, two solutions in, you know, Viosat with their existing terminal and Fincom, which is the Airbus solution that are both electromechanical. You know, how important do you think it is to have small electronic KA market, or do you think, you know, eventually we'll see a combination? Again, maybe your thought on LEO only versus multi-orbit. just in terms of the architecture that airlines will adopt?

Yeah, listen, I think it's a positive for sure that many of the existing antennas that are out there are kind of backwards compatible with light speed. It just makes it so much easier for us to hit the ground running with our partners because all of these planes today that have, you mentioned the ThinCom antenna, there's the Biosight antenna, Those are light-speed compatible, so it's kind of a built-in addressable market from day one. That's great. Viasat announced that they're making their own ESA, which is going to be light-speed compatible. It's going to be a multi-orbit antenna, from what I understand. We announced, I think earlier this year, maybe it was late last year, that we're working with KEST for an all- ESA, electronically steerable antenna, for the aero market. There are other players out there as well that are building ESA antennas for the aero market for both commercial and for private jets. So long as some of those are Ka-band and some of them are Ka-band, those should be fully compatible with Lightspeed. And I think it's important that those antennas exist. I think the airlines are attracted to them because they're lighter weight. They can have a lower profile, which makes them more fuel efficient and the like. And so the airlines like those. And then with respect to multi-orbit versus LEO only, I mean, at the end of the day, the airlines will decide. you know, what meets their interest best, and different players are taking different approaches to this, so we're going to see it play out real-time, Viasat, and we're very pleased with the agreement that we announced with Viasat last month. That'll be a multi-orbit offering. Clearly, you know, Viasat's the largest provider of in-flight connectivity services to the commercial market today, and you know, they're on the front lines there, and it's clear a lot of their customers are excited about having a multi-orbit solution. Equally, there are others that are turning to Starlink, which is obviously a LEO-only solution, and so I think for Lightspeed, you know, we're happy if Lightspeed is leveraged in a LEO-only way. I've heard some some integrators and some airlines talking about LEO-LEO solutions, so they would work potentially with two LEO providers just for the incremental resiliency and redundancy and the like. So we'll see how it plays out, but again, I think from Telesat's perspective, whether it's multi-orbit, whether it's LEO only, and for sure, we think there are real advantages We think LEO is a great value prop for the aeronautical market and for some of the other verticals too. But we think we're well positioned in either setting, multi-orbit, LEO only. And we've really designed Lightspeed to provide really compelling service for the aero segment And, yeah, so we're pretty bullish around that.

And if I can, a final question. I mean, the LEO backlog went up $600 million sequentially, if I assume 80% is Viasat. It's like a half-billion-dollar deal. Are there other customers out there of that scale, or do you think, obviously, I guess we should assume Viasat was the biggest potential customer, customers since they're the largest IFC provider but you know what should we think about in terms of other customers are there out there other customers out there that are you know nine-figure customers are we looking at that you expect to announce it's a great question Chris I I think it's going to be a

A mix. I think the Viasat contract is a very meaningful contract. I think that there will be other commercial players out there that will sign significant deals. Maybe they won't quite be at the Viasat level, but they could be still in that nine-figure zip code. when I think about conversations that we're having and what the pipeline looks like. And then there's the government segment. And I think that there could be meaningful commitments around there too. Government opportunities are always a little bit harder to wait just because you're dealing with governments. And so there's always more complexity there. But We know that the government requirements are significant. We know that the U.S. government, that the allies of the U.S. government are all talking about increasing their defense spending to meet their NATO commitments. And we know that space is kind of, you know, front of mind for so many of these allies as they've seen for instance the conflict play out uh in the ukraine and and and so and so we think that there could be some very meaningful uh opportunities uh for light speed in the government services market but but you know kind of being specific around the timing of those the quantum of those is always a little bit hard um But, you know, for the avoidance of doubt, we're very bullish on our opportunities there and think that that's going to be a meaningful part of the Lightspeed business, including kind of pre-launch business. So anyway, stay tuned.

Very good. Thanks, Dan.

Okay, thank you.

Thank you. Our following question is from David McFadden from Cormac Securities. Please go ahead.

Great, thank you. A couple of questions. So I was just looking at the LEO EBITDA loss in the quarter. It was definitely lower than what I was expecting. I thought that 110 to 120 million number would sort of be even throughout the year. So I was wondering if you can give us an update on sort of the cadence that you would expect to get to that 110 to 120 million. Andrew, you want to take that?

Yeah, I think, David, we're pretty consistent. I mean, it's a lot of timing, and we're hiring, ramping up staff, et cetera. So it's really about that. We feel pretty comfortable with the guidance that we have given, because this is a big program that we're developing. So obviously, between one quarter and another quarter, you may have things that shift slightly, but overall, we feel pretty comfortable with where we are.

I can tell you so much of it is headcount driven. We are adding a lot of new colleagues around here. I think You know, I have the data somewhere here. But for instance, we've got 60 new colleagues that will be joining us. So they've already accepted their offers. They haven't shown up yet. Since the, you know, Q1 ended, we added, you know, a whole lot of new people. So anyway, you'll see it in our numbers. We are, yeah, we're ramping up our spending as we execute on the program. Yep.

Okay. And then just a question on Viasat. So, you know, in the press release it says that they're going to use ICP for aviation, maritime, enterprise, and defense. Is there a vertical that Viasat services today that they're not planning to use ICP for? I don't think so.

I don't, I mean, it's a better question for Viasat, but certainly, you know, if you looked at the press release that we issued and they issued at the time, I think I think it covers pretty much all of their verticals. I think, you know, the main focus probably coming out of the gate will be commercial aero business. But, no, my expectation is that they, at a minimum, want to have the ability to leverage light speed for all the different verticals that they're participating in. So that's... That's my expectation. Someone's pointing out to me, to the extent that they're doing direct-to-consumer Internet, that that's not the focus. But for Aero, defense applications, maritime, they've got a business, kind of a rural broadband business. All of that, I think, is fair game for how they think about multi-orbit and leveraging light speed.

Okay. So, I mean, it's my view that probably every geo-operator will probably want to license light speed. So, have you entered into any other discussions with other geo-operators right now?

Yeah, we have. It's a great question. I don't expect everyone who is a geo operator today to go out and build their own leo constellation and so and yet everyone i think sees where the market is going so uh for sure particularly with a lot of the regional uh uh geo operators around the world and you know many of these uh companies tell us that has supported uh through our consulting business for years so we have good relations with uh with these different companies around the world. So, yeah, you know, how those discussions play out at the end of the day, you know, stay tuned. But I think that, I mean, just to answer your question, David, yes, we're engaged with a pretty wide range of regional geo-operators that are interested in finding a compelling LEO project. solutions so that they can continue to meet the needs of their existing customers, including quite oftentimes their own domestic governments.

Okay. And then I noticed when you talked about Space Norway, you expect to conclude that deal in the latter half of this year. I was wondering if you could give us an idea of the magnitude of that deal. Like, would it be 50% of ISAT, 100% of ISAT?

Yeah, it's a little premature. And, look, you know, a deal isn't closed until a deal is closed. And I, you know, think that having that done by year-end feels like that's pretty reasonable. But here again, you know, Space Norway is the government of Norway. And back to my comments about how deals with governments can sometimes, you know, take a little bit longer. That could take a little bit longer. And then in terms of quantum, yeah, I'd say stay tuned on that one, too. You know, Space Norway is the, you know, the old Telenor space business. So on the one hand, they've got a lot of purely commercial requirements, much like Telesat has in our business. And then they have their own government requirements for Norway, and I think they have close relations with the other Scandinavian governments and whatnot, and, of course, their allies. So anyway, so hard to say just right now. What that will look like in terms of quantum, my expectation is it should be a pretty meaningful agreement, but we're still working with them on figuring that all out.

Okay. And two more, if I may. So I believe Taiwan wanted to make or was planning to make a decision about whether they were going to license Lightspeed or not this year. So I don't know. Can you provide us with any updates on that?

Well, you know, we've always been pretty clear. I don't think we've ever confirmed that we're in discussions with any particular government. Space Norway is different because we've signed and announced a term sheet there. So we are, as I said, David, Lightspeed has been specifically architected to meet a lot of the pretty rigorous requirements that governments have in terms of consolation capabilities, cyber kind of standards, other standards that government users have in terms of resiliency and some other features that are important to government. So anyway, all I would say is we've had multiple conversations with various governments around the world as governments more and more think about leveraging LEO to meet their growing space requirements. I think that's really all we can say. As we have deals to announce, we'll announce them. That's pretty much all I can say. Again, with that caveat that government procurement even with your own domestic government, let alone, you know, uh, foreign governments, it's always a process that's a bit opaque, uh, with lots of moving parts and variables. And so it's always a bit of a mud scheme to make, make too many specific predictions around, around how those things play out.

Okay. And then just lastly, um, have you entered into negotiations yet with the dev holders?

So there, I would say, and we said this when we released our full year numbers, we've got a number of important corporate priorities this year. And, you know, seeking to refinance the restricted group balance sheet with the kind of geo-lenders, that's an important corporate priority for us. So in answer to the question, no, we haven't really fully engaged with the restricted group lenders at this point in time, but back to the comments around it's an important corporate priority for us to try to make progress on that this year. The expectation is that that's something that we will be doing you know, sooner than later. And so, uh, that's our plan. Okay.

All right. Thank you. Okay.

Thank you.

Thank you. Our last question is some Walter paycheck from light shed. Please go ahead.

Hi all. This is Joe on for Walt. Um, I noticed in the filing that there's a table that shows the piece of anticipated drawdowns for the build out of light speed. Um, is that pretty locked in at this point or, uh, what would cause that schedule to change, uh, around the margin other than like Forex? Kind of like an Andrew question.

Dan, maybe I'll take it in the first instance and Andrew can chime in. Um, so basically we, we, um, our ability to draw down from the facilities that we have with the government of Canada, the government of Quebec, are mostly tied to milestones with our vendors. And so I think, you know, so long as the vendors are executing the plan, we're probably going to be reasonably consistent with, you know, whatever schedule that we filed. What could cause it to move to the right is if our key vendors, and look, the big one is MDA, if they were to get late and the milestones that are kind of tied to those drawdowns. If those milestones were to shift out to the right, then our drawdowns will shift down to the right. And look, you put yourself in the company's shoes. As soon as we draw down, then the interest starts kicking on those drawdowns. So we certainly don't want to draw down any earlier than we need to. So I think the schedule that you see is kind of our best approximation of when we anticipate we'll need to make those drawdowns tied to the milestones that we have with our various vendors. And here again, if they're late on those milestones, then we'll draw down a little bit later than what's there.

Yeah, I think that covers it very clearly. We're all over the cash, very focused. We've got these milestones that are all related to the progress of the program, and we're in good shape right now. So, yeah, that's it.

And then like a follow-up on the interest associated with Lightspeed. So my understanding is that gets capitalized. Yes. And when does that become P&L interest expense, I guess, as opposed to being capitalized?

At the end of the program.

So when the whole constellation is up, or does it change over time as birds go up in the air? We're at 156 satellites. Okay. And then just the last one, back to Biasat, it's more just a general question. On the user terminals, what's the status of some of the antennas with, I guess, getting regulatory approval? And how long does that process usually take? get a general sense.

Yeah, Joe, thanks for that. That's definitely a better question to put to Viasat than us. I mean, we have a decent understanding of the certifications that are required and a decent understanding of that process. But that will principally be, looking at my general counsel as I say this, principally that will be Viasat's responsibility. We'll certainly be working with them to make sure that the modem, the user terminal, kind of more broadly speaking, the antenna and whatnot, are compatible with Lightspeed and will support them as they get the approvals that they need. But yeah, I would say what we need to do is well understood. And Viasat, again, being the largest provider of In-flight connectivity services is about as, you know, probably more experience than anyone in obtaining those certifications. So anyway, that, but when we, you know, for us, that's not something that is a worry for us in terms of when we'll be able to start serving Viasat and supporting them with their end user customer. Okay, thanks.

Thank you. That concludes the question and answer session. I would now like to turn the meeting back over to Mr. Goldberg.

Okay, operator, well, thank you very much. Thank you, everyone, for joining us this morning. And we look forward to speaking again when we release our second quarter numbers. So thank you again. Thank you very much.

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