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Telesat said it is close to announcing fresh details on Lightspeed financing with the government of Canada as the company announced its financial results for the last fiscal year Thursday (March 28).
While the terms will be released after close of markets Thursday at the earliest CEO Dan Goldberg told investors in a phone call today that he is grateful for “the strong support” he has received from the federal government since supply chain issues, a supplier switch, the pandemic and inflation delayed the buildout of Lightspeed by several years.
And the terms from the government were released late in the afternoon on March 28th on the U.S. Securities and Exchange Commission website
The terms read, “On March 28, 2024, Telesat Corporation (“Telesat”) announced that it received a letter from the Minister of Innovation, Science and Industry of the Government of Canada (the “GoC”) regarding an investment by the GoC in the Telesat Lightspeed LEO Project (the “Project”). The letter indicates that, following several months of negotiations between Telesat and federal officials, the GoC is prepared to invest CAD$2.14 billion in the Project by way of a loan (the “Loan”) to Telesat Leo Inc. (“Telesat LEO”), a wholly owned subsidiary of Telesat that is developing and will own and operate the Telesat Lightspeed constellation. The Loan will carry a floating interest rate that is 4.75% above the Canadian Overnight Repo Rate Average (CORRA) with a 15-year maturity. Interest is payable in-kind during the Project construction period, followed by a 10-year sculpted amortization. In addition, Telesat LEO will provide the GoC with warrants for 10% of the common shares of Telesat LEO based upon an equity valuation for Telesat LEO of US$3 billion (the “Warrants” and together with the Loan, the “Investment”).”
“There are a ton of people throughout the Government of Canada who have worked really hard with Telesat, and engaged closely with us over the past few years, and I just want to note that my colleagues and I appreciate all their hard work and commitment to the program,” Goldberg said.
The province of Quebec, Goldberg added in the question-and-answer period with analysts, is expected to be “a meaningful funding participant in our program,” especially now that MDA has been identified as the prime contractor in the past fiscal year. Telesat is now manifested to launch Lightspeed satellites starting with SpaceX Falcon 9, no earlier than 2026.
“Now that MDA is our prime contractor, the amount of investment in Quebec is going to change dramatically,” Goldberg said of Telesat expectations. (He did not share the funding situation from the province of Ontario, another major government stakeholder in the process.)
While the company pointed to SpaceX Starlink and Eutelsat OneWeb grabbing some market share in the meantime, Goldberg continued to emphasize that Lightspeed – more targeted for the corporate and government market than Starlink – is meant to be “bridging the digital divide” for areas that lack good Internet access.
One major benefit is Lightspeed will require far fewer satellites for global access than these other constellations, Goldberg emphasized. Still, Goldberg warned of worries of SpaceX being able to “cannibalize” some of the low Earth orbit constellation market in the gap – which is not something Telesat necessarily wants to see, but which indicates the need in that space for consistent Internet access.
Past internal forecasts of Telesat, he pointed out, showed that roughly 50% of enterprise revenues were “migratable to Lightspeed over time” – and the company feels that they can offer customers “a better value prop(osition)” for enterprise users than the competition.
“Our highest priority is on focused execution of the Lightspeed program,” Goldberg said of the next fiscal year. “We’re hugely bullish on our prospects in the market, as well as our ability to deliver extraordinary value proposition for our customers and significant value creation for shareholders.”
SpaceX, he added in a question-and-answer period with analysts, oftentimes signs short-term or even month-to-month agreements with customers. Goldberg did not know if that is the case for the cruise market, one of the markets that Lightspeed is considering, but he said Telesat has been in touch with the major companies. Those companies “like what we can offer, and the flexibility that we offer, and our ability to concentrate capacity at ports and on key shipping lines. They like to have a diversity of suppliers.”
Telesat’s financial results noted Lightspeed is now “fully funded through global service delivery, subject to certain conditions” and that the company plans to use “key technology advances” to improve the performance and efficiency of the network when it launches. The company also expects to save $2 billion U.S. in capital costs and the total cost of borrowings will be $750 million U.S. lower than the prior plan.
Aside from the Lightspeed news, Telesat announced its results (in Canadian dollars) for both the three-month and one-year periods ending on Dec. 31, 2023. Their backlog stands at $1.3 billion CDN and their cash flow had a year-end balance of $1.7 billion.
The biggest headwind is revenues continuing to decline from direct-to-home satellite customers, as well as less money from enterprise services customers amid the aforementioned competition in satellite services. Capital costs will increase in the next fiscal year as well, but temporarily due to the development of Lightspeed.
That said, the lower revenues and increased expenditures will lead to a “substantial decrease” of adjusted EBITDA to a third less than the midpoint 2023 guidance. The company plans to offset that by “rigorously managing our legacy cost structure” while building out Lightspeed.
The company reported a 7 percent decrease in yearly revenues to $704 million, with a slightly larger (9 percent) taking into account changes in foreign exchange rates. This was due to “a rate reduction on the renewal of a long-term agreement with a North American DTH (direct-to-home) customer combined with a reduction of capacity and rate by another one of our North American DTH customers,” as well as finishing a non-recurring equipment sale to the U.S. Defense Advanced, among other factors.
Operating expenses fell 21% to $205 million, which was approximately the same after foreign exchange rates changes were taken into account. “The decrease was primarily due to lower non-cash share-based compensation, higher costs for equipment sales in 2022 relating to the DARPA program, and lower insurance costs,” Telesat reported in its results.
Adjusted EBITDA fell 6% to $534 million before foreign exchange rates, and net income was $583 million compared with a loss of $82 million in fiscal year 2023. The income gain came due to C-band clearing proceeds and foreign exchange rates.
The company’s financial outlook forecasts revenues of between $545 million and $565 million in fiscal year 2024, with adjusted EBITDA between $340 million and $360 million, and cash flow between $1 million and $1.4 million. This all assumes a foreign exchange rate of $1 US equalling roughly $1.35 CDN.
Another item of note at Telesat was the large increase in headcount as Lightspeed approaches launch. In 2023 the company had a little less than 500 people, with roughly 35% of them on Lightspeed-related work. Goldberg said in the phone call that the “absolutely top-notch talent” now has swelled their headcount to 740 employees, a 50% increase, with nearly two-thirds of the team working on Lightspeed.
Update: Late on March 28, 2024, the U.S. Securities and Exchange Commission posted the new Canadian government terms on their website.
