Telesat(TSAT) - 2025 Q4 - Annual Report

Financial Position and Debt - As of December 31, 2025, Telesat's U.S. dollar-denominated debt financing amounts to US$2,145.6 million, with significant exposure to foreign currency fluctuations impacting interest payments and capital expenditures [166]. - Approximately 47.1% of Telesat's revenue and 51.6% of operating expenses were denominated in U.S. dollars for the year ended December 31, 2025 [165]. - Telesat's future revenue is expected to be significantly impacted by the value of the Canadian dollar against the U.S. dollar, which could affect its ability to repay Canadian dollar debt [169]. Capital Investments and Revenue Sources - Over 80% of Telesat's expected capital investments in the Telesat Lightspeed program over the next two years will be in currencies other than Canadian dollars, primarily U.S. dollars and Euros [168]. - Telesat anticipates that a material part of its revenues from the Telesat Lightspeed constellation will come from regions where it currently has limited presence, including Europe, Africa, and Asia [182]. - Telesat's analysis of the total addressable market for the Telesat Lightspeed constellation may be inaccurate, potentially leading to lower-than-expected revenues [186]. Competition and Market Position - Telesat faces strong competition from established players like SpaceX and Amazon, which have greater financial resources and advanced satellite deployment capabilities [188]. - The Telesat Lightspeed constellation may struggle to attract customers due to the operational status of competitors like Eutelsat Group/OneWeb and SpaceX, which have already made significant market inroads [189]. - Telesat lacks in-house satellite launch capabilities, relying on third-party providers, which may hinder its competitive position against companies like SpaceX and Blue Origin that have their own launch vehicles [190]. Regulatory Compliance and Challenges - Regulatory compliance is critical for Telesat, as it must navigate complex authorization processes in multiple countries, including Canada, the U.S., and Brazil, to operate its satellites [192]. - Telesat was granted spectrum authorization for Commercial-Ka bands on December 6, 2024, but is still seeking access to Mil-Ka frequencies, which are not included in that authorization [195]. - Failure to obtain or maintain necessary regulatory authorizations could adversely affect Telesat's ability to offer services and impact its financial condition [209]. Operational Capabilities and Technical Risks - The Telesat Lightspeed constellation is projected to consist of over one hundred satellites, with numerous technological risks and uncertainties that could adversely affect Telesat's operations and financial condition [172]. - The Telesat Lightspeed constellation will require significant operational capabilities to achieve commercial viability, which Telesat must develop effectively [181]. - Telesat's Lightspeed satellites will be launched into a low LEO orbit at approximately 400 km for testing before being raised to an operational orbit at around 1,300 km, with planned orbit phases lasting about six months each [212]. Intellectual Property and Legal Risks - Telesat's success depends on its ability to obtain and maintain intellectual property protection for its technology, which is critical for competitive advantage [227]. - The company may incur significant expenses if it fails to protect its intellectual property rights, which could adversely affect its competitive position and financial condition [233]. - Telesat's ability to enforce its intellectual property rights may be limited due to the high costs and uncertainties associated with litigation [244]. Shareholder and Governance Issues - MHR and PSP Investments have substantial governance rights over Telesat, which may conflict with the interests of other shareholders [247]. - The issuance of additional Class B Variable Voting Shares could dilute the voting power of existing Class B shareholders [252]. - Telesat may raise additional equity capital to fund Telesat Lightspeed, which could result in substantial ownership dilution for existing shareholders [251]. Taxation and Financial Implications - Telesat may be subject to SIFT tax, which could reduce after-tax returns for holders of Telesat Partnership Units [288]. - Changes in Canadian tax laws, including interest expense deduction limitations effective from 2024, may adversely affect Telesat's profitability [298]. - Telesat's tax liabilities could be impacted by changes in the mix of earnings across jurisdictions with varying tax rates [298].