Telesat Reports Results for the Quarter and Six Months Ended June 30, 2023

Ottawa, Canada, August 11, 2023 –Satellite operator Telesat (NASDAQ and TSX: TSAT) today announced its financial results for the three and six-month periods ended June 30, 2023.  For the quarter ended June 30, 2023, Telesat reported consolidated revenue of CDN$180 million, a decrease of 4% (CDN$ 7 million) compared to the same period in 2022. When adjusted for changes in foreign exchange rates, revenue declined 6% (CDN$ 12 million) compared to 2022. 

“I am pleased with our financial and operating performance for the second quarter and first half of the year,” commented Dan Goldberg, Telesat’s President and CEO. “We are on track to meet the guidance we gave at the outset of the year and, as a result of our continued disciplined execution, delivered industry-leading Adjusted EBITDA margins1, high capacity utilization, a substantial contractual backlog of CDN$ 1.6 billion, and a cash balance of CDN$ 1.5 billion. In addition, in the second quarter and subsequent period we strengthened our financial position by repurchasing notes with a cumulative face value of US$296 million, recognized nearly $350 million of C-band proceeds following validation of our spectrum clearing efforts, and successfully launched our LEO 3 demonstration satellite.”

Goldberg added: “But certainly the biggest development so far this year is our separate announcement this morning that we have selected MDA to be the prime satellite contractor for Telesat Lightspeed; that, by leveraging MDA’s industry-leading digital beamforming antennas and integrated regenerative digital processor, we maintain the full advanced performance capabilities of Telesat Lightspeed while also achieving a material reduction in the capital and financing costs for the program; and that Telesat Lightspeed is now fully funded through global service delivery taking into account the company’s own equity contribution, certain vendor financing, and aggregate funding commitments from its Canadian federal and provincial government partners. Telesat Lightspeed will revolutionize broadband connectivity for enterprise and government users and represents a highly compelling growth and value creation opportunity for Telesat and its stakeholders.”

All amounts are in Canadian dollars and reported under International Financial Reporting Standards (“IFRS”) unless otherwise noted.

For the quarter ended June 30, 2023, Telesat reported consolidated revenue of CDN$180 million, a decrease of 4% ($7 million) compared to the same period in 2022. When adjusted for changes in foreign exchange rates, revenue declined 6% ($12 million) compared to 2022. The decrease was mainly due to a termination of service by a South American customer combined with reduction of revenue from one of its North American DTH customers. This was partially offset by increased revenue from the work the company is performing for NASA relating to satellite-to-satellite communications in Low Earth Orbit (LEO).

Operating expenses for the quarter were $52 million, a decrease of $7 million from 2022. When adjusted for changes in foreign exchange rates, operating expenses decreased by $8 million compared to 2022. The decrease was primarily due to lower non-cash share-based compensation, partially offset by higher costs associated with the procurement of third party satellite capacity required to support certain customer networks that could no longer be supported on Anik F2 once it commenced inclined operations.

Adjusted EBITDA1 for the quarter was $139 million, a decrease of 5% ($8 million) or, when adjusted for foreign exchange rates, a decrease of 8% ($12 million). The Adjusted EBITDA margin1 was 77.1%, compared to 78.4% in the same period in 2022.

For the quarter ended June 30, 2023, Telesat’s net income was $520 million compared to net loss of $4 million for the same period in the prior year. The positive variation for the three months ended June 30, 2023, was principally due to C-band clearing proceeds recognized in the quarter combined with a positive variation in foreign exchange gain (loss) on the conversion of U.S. dollar debt into Canadian dollars and a higher gain on the repurchase of debt. This was partially offset by higher interest expense and higher tax expense.

For the six-month period ended June 30, 2023, Telesat reported consolidated revenue of $363 million, a decrease of 3% ($9 million) compared to the same period in 2022. When adjusted for changes in foreign exchange rates, revenue declined 6% ($21 million) compared to 2022. The decrease was mainly due to a reduction of revenue from one of our North American DTH customers and a termination of service by a South American customer. This was partially offset by higher equipment sales to Canadian government customers, increased revenue from aero and maritime customers, and higher revenue from the NASA program.

Operating expenses for the six-month period were $105 million, a decrease of $18 million from 2022. When adjusted for changes in foreign exchange rates, operating expenses decreased by $20 million compared to 2022. The decrease was primarily due to lower non-cash share-based compensation, partially offset by higher costs associated with the procurement of third party satellite capacity required when Anik F2 commenced inclined operations and higher equipment costs related to sales to Canadian government customers.

Adjusted EBITDA[1] for the six-month period was $278 million, a decrease of 5% ($14 million) or, when adjusted for foreign exchange rates, a decrease of 8% ($24 million). The Adjusted EBITDA margin[1] was 76.4%, compared to 78.4% in the same period in 2022. For the six months ended June 30, 2023, Telesat’s net income was $549 million compared to net income of $56 million for the same period in the prior year. The positive variation for the six months ended June 30, 2023, was principally due to C-band clearing proceeds recognized in the quarter combined with a positive variation in foreign exchange gain (loss) on the conversion of U.S. dollar debt into Canadian dollars and a higher gain on the repurchase of debt. This was partially offset by higher interest expense and higher tax expense.

Business Highlights

  • Telesat announced today that it has entered into a contract with MDA to be the prime satellite manufacturer for the Telesat Lightspeed constellation. Telesat also announced that Telesat Lightspeed is now fully funded through global service delivery taking into account the company’s own equity contribution, certain vendor financing, and aggregate funding commitments from its Canadian federal and provincial government partners.
    • The finalization of the Canadian federal and provincial government funding is dependent on a number of conditions, including completion of confirmatory due diligence and the conclusion of definitive agreements.
  • At June 30, 2023:
    • Telesat had contracted backlog2 for future services of approximately $1.6 billion (excluding contractual backlog associated with Telesat Lightspeed).
    • Fleet utilization was 87%.
  • C-band Spectrum Cleared:
    • On June 30, 2023, the Wireless Telecommunications Bureau of the U.S. Federal Communications Commission (FCC) completed its validation of Telesat’s Phase II certification of accelerated C-band clearing activities in the 3.7 GHz band. The FCC confirmed that Telesat has completed all requirements for relocating customers from the 3700-3820 MHz band in the contiguous U.S. along with all required Earth station equipment modifications.
    • These Phase II relocation requirements were fulfilled six months in advance of the December 2023 deadline and Telesat is now eligible to receive its second accelerated relocation payment of US$259.6 million, expected to be received by December 2023. - An amount of $344.9 million (US$259.6 million) was recognized during the three months ended June 30, 2023, and was recorded under other operating gains (losses), net.
  • Successful Launch of LEO 3 Demonstration Satellite:
    • In July 2023, Telesat’s LEO 3 demonstration satellite was successfully launched.
    • The LEO 3 satellite features Ka- and V-band payloads and will provide continuity for customer and ecosystem vendor testing campaigns following the decommissioning of
  • Telesat’s Phase 1 LEO satellite.
    • Having achieved signal acquisition, solar arrays deployment, and successfully passing initial satellite health tests, Telesat is now in the process of testing the full satellite.
  • Debt Repurchase :
    • For the three months ended June 30, 2023, and subsequent period, Telesat repurchased debt with a cumulative principal amount of US$296.0 million by way of open market purchases for an aggregate cost of US$156.9 million.
    • Combined with the debt repurchases completed in 2022, Telesat has repurchased a cumulative principal amount of US$456.0 million for an
  • aggregate cost of US$233.9 million. 

2023 Preliminary Financial Outlook

  • Telesat continues to expect its full year 2023 revenues (assuming a foreign exchange rate of US$1 = C$1.35) to be between $690 million and $710 million.
  • Telesat continues to expect its Adjusted EBITDA1 (assuming a foreign exchange rate of US$1 =C$1.35) to be between $500 million and $515 million in 2023.
  • For 2023, as a result of the Telesat Lightspeed contract announcement, Telesat now expects its cash flows used in investing activities to be in the range of $175 million to $225 million.

Telesat’s quarterly report on Form 6-K for the quarter ended June 30, 2023, has been filed with the United States Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities, and may be accessed on the SEC’s website at www.sec.gov and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedarplus.ca.

End Notes
[1] The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, Telesat uses revenue and deducts certain operating expenses (including share-based compensation expense and unusual and non-recurring items, including restructuring related expenses) to obtain operating income before interest expense, taxes, depreciation and amortization (“Adjusted EBITDA”) and the Adjusted EBITDA margin (defined as the ratio of Adjusted EBITDA to revenue) as measures of Telesat’s operating performance.

Adjusted EBITDA allows Telesat and investors to compare Telesat’s operating results with that of competitors exclusive of depreciation and amortization, interest and investment income, interest expense, taxes and certain other expenses. Financial results of competitors in the satellite services industry have significant variations that can result from timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, the effects of other income (expense), and unusual and non-recurring items. The use of Adjusted EBITDA assists Telesat and investors to compare operating results exclusive of these items. Competitors in the satellite services industry have significantly different capital structures. Telesat believes the use of Adjusted EBITDA improves comparability of performance by excluding interest expense.

Telesat believes the use of Adjusted EBITDA and the Adjusted EBITDA margin along with IFRS financial measures enhances the understanding of Telesat’s operating results and is useful to Telesat and investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA as used here may not be the same as similarly titled measures reported by competitors. Adjusted EBITDA should be used in conjunction with IFRS financial measures and is not presented as a substitute for cash flows from operations as a measure of Telesat’s liquidity or as a substitute for net income as an indicator of Telesat’s operating
performance.

[2] Remaining performance obligations, which Telesat refers to as contracted revenue backlog (‘‘backlog’’), represents Telesat’s expected future revenue from existing service contracts (without discounting for present value) including any deferred revenue that Telesat will recognize in the future in respect of cash already received. The calculation of the backlog reflects the revenue recognition policies adopted under IFRS 15. The majority of Telesat’s contracted revenue backlog is generated from contractual agreements for satellite capacity.

[3] Includes severance payments and special compensation and benefits for executives and employees.

 

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