Telesat(TSAT) - 2023 Q1 - Quarterly Report

Executive Summary & Highlights Full Year 2022 Performance Overview Telesat's 2022 performance saw stable revenue, though it declined on a currency-adjusted basis, leading to lower Adjusted EBITDA and a net loss Full Year 2022 Key Financial Metrics | Metric | 2022 (CAD millions) | 2021 (CAD millions) | Change (CAD millions) | Change (%) | Change (FX Adj. %) | | :-------------------- | :------------------ | :------------------ | :-------------------- | :--------- | :----------------- | | Consolidated Revenue | $759 | $758 | $1 | Stable | -2% ($15) | | Operating Expenses | $259 | $237 | $22 | +9.3% | +$20 (FX Adj.) | | Adjusted EBITDA | $568 | $600 | -$32 | -5% | -8% ($46) (FX Adj.)| | Adjusted EBITDA Margin| 74.8% | 79.2% | -4.4 pp | | | | Net Income (Loss) | -$80 | $155 | -$235 | -151.6% | | - The slight reduction in revenue (FX adjusted) was primarily due to a reduction on the renewal of a long-term agreement with a North American DTH customer and non-recurring short-term services in 2021[2] - The increase in operating expenses was mainly due to higher equipment sales related to the DARPA program and increased costs associated with becoming a public company[3] - The net loss was principally due to a negative non-cash foreign exchange impact on U.S. dollar denominated debt and the recognition of Phase I accelerated clearing payments for C-band spectrum in 2021[5] Fourth Quarter 2022 Performance Overview In Q4 2022, Telesat's revenue increased due to an equipment sale, though operating expenses also rose, resulting in lower Adjusted EBITDA and net income Fourth Quarter 2022 Key Financial Metrics | Metric | Q4 2022 (CAD millions) | Q4 2021 (CAD millions) | Change (CAD millions) | Change (%) | Change (FX Adj. %) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | :----------------- | | Consolidated Revenue | $207 | $187 | $19 | +10% | +6% ($11) (FX Adj.)| | Operating Expenses | $80 | $72 | $8 | +12% | +10% ($7) (FX Adj.)| | Adjusted EBITDA | $139 | $145 | -$6 | -4% | -9% ($12) (FX Adj.)| | Adjusted EBITDA Margin| 67.2% | 77.1% | -9.9 pp | | | | Net Income | $92 | $113 | -$21 | -18.6% | | - The Q4 revenue increase was primarily due to an equipment sale to DARPA and higher revenue from aero and maritime customers[7] - Q4 operating expenses increased mainly due to higher equipment sales related to the DARPA program, partially offset by lower non-cash share-based compensation and bonus expense[8] - The negative variation in Q4 net income was principally due to the recognition of Phase I accelerated clearing payments for C-band spectrum in 2021[10] Strategic Developments and 2023 Outlook Telesat is advancing its Lightspeed LEO constellation project, supported by a strong cash position and a substantial contractual backlog - Telesat is progressing discussions with suppliers and financing sources for Telesat Lightspeed, its planned Low Earth Orbit satellite constellation, and expects greater clarity on financing arrangements in the near term[2] Key Business Metrics | Metric | Value (CAD) | | :-------------------------- | :------------ | | Cash (as of Dec 31, 2022) | $1.7 billion | | Contracted Backlog (excl. Lightspeed) | $1.8 billion | - Telesat Lightspeed represents a transformative growth opportunity for the company and a highly compelling value proposition for enterprise and government customers[2] Consolidated Financial Statements Consolidated Statements of Income (Loss) The income statement details revenue, expenses, and other financial items, resulting in a net loss for FY 2022 and net income for Q4 2022 Summary of Income (Loss) | Metric (CAD thousands) | Q4 2022 | Q4 2021 | FY 2022 | FY 2021 | | :--------------------- | :------ | :------ | :------ | :------ | | Revenue | 206,684 | 187,497 | 759,169 | 758,212 | | Operating expenses | (79,961)| (71,526)| (258,989)| (236,949)| | Operating income | 76,264 | 170,061 | 296,453 | 409,123 | | Interest expense | (67,304)| (48,841)| (221,756)| (187,994)| | Gain on extinguishment of debt | — | — | 106,916 | — | | Gain (loss) on foreign exchange | 72,251 | 20,196 | (239,591)| 27,539 | | Net income (loss) | 92,340 | 112,935 | (80,117)| 155,025 | | Basic EPS | $1.83 | $1.35 | $(1.90) | $1.89 | | Diluted EPS | $1.76 | $1.28 | $(1.90) | $1.83 | Consolidated Balance Sheets The balance sheet shows an increase in total assets and shareholders' equity as of year-end 2022, with relatively stable total liabilities Summary of Financial Position | Metric (CAD thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--------------------- | :----------- | :----------- | | Cash and cash equivalents | 1,677,792 | 1,449,593 | | Total current assets | 1,788,288 | 1,617,435 | | Satellites, property and other equipment | 1,364,084 | 1,429,688 | | Total assets | 6,479,593 | 6,362,451 | | Total current liabilities | 171,396 | 181,955 | | Long-term indebtedness | 3,850,081 | 3,792,597 | | Total liabilities | 4,643,891 | 4,666,158 | | Total shareholders' equity | 1,835,702 | 1,696,293 | Consolidated Statements of Cash Flows The cash flow statement indicates decreased cash from operations, a shift to net cash from investing, and an overall increase in cash for 2022 Summary of Cash Flows | Metric (CAD thousands) | FY 2022 | FY 2021 | | :--------------------- | :------ | :------ | | Net cash from operating activities | 228,848 | 293,497 | | Net cash (used in) generated from investing activities | 74 | (269,968)| | Net cash (used in) generated from financing activities | (104,865)| 605,240 | | Effect of changes in exchange rates on cash and cash equivalents | 104,142 | 2,446 | | Cash and cash equivalents, end of year | 1,677,792 | 1,449,593 | - Cash flows from operating activities decreased in 2022, primarily due to the net loss and changes in working capital, despite adjustments for non-cash items[28] - Investing activities shifted from a net outflow in 2021 to a net inflow in 2022, largely due to C-band clearing proceeds offsetting satellite program expenditures[28] - Financing activities saw a significant reduction in cash used, mainly due to lower debt repayments compared to proceeds from indebtedness in the prior year[28] Non-IFRS Financial Measures Adjusted EBITDA Reconciliation This section reconciles net income (loss) to the non-IFRS measure of Adjusted EBITDA for Q4 and the full year of 2022 and 2021 Reconciliation of Net Income (Loss) to Adjusted EBITDA | Metric (CAD thousands) | Q4 2022 | Q4 2021 | FY 2022 | FY 2021 | | :--------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | 92,340 | 112,935 | (80,117)| 155,025 | | Tax expense (recovery) | 1,786 | 30,786 | 49,929 | 78,377 | | (Gain) loss on foreign exchange | (72,251)| (20,196)| 239,591 | (27,539)| | Interest expense | 67,304 | 48,841 | 221,756 | 187,994 | | Depreciation | 46,691 | 50,370 | 188,755 | 203,772 | | Amortization | 3,775 | 3,932 | 14,979 | 15,983 | | Non-cash expense related to share-based compensation | 11,968 | 23,546 | 67,428 | 73,723 | | Adjusted EBITDA | 138,994 | 144,566 | 567,913 | 600,409 | | Revenue | 206,684 | 187,497 | 759,169 | 758,212 | | Adjusted EBITDA Margin | 67.2% | 77.1% | 74.8% | 79.2% | Definition of Adjusted EBITDA and Backlog This section defines key non-IFRS metrics, Adjusted EBITDA and contracted revenue backlog, used to measure performance and future revenue - Adjusted EBITDA is defined as 'Earnings Before Interest, Taxes, Depreciation and Amortization,' with adjustments for certain operating expenses to measure operating performance[30] - The use of Adjusted EBITDA helps Telesat and investors compare operating results with competitors by excluding variations from non-operational items[31] - Contracted revenue backlog represents Telesat's expected future revenue from existing service contracts, including deferred revenue, without discounting for present value[33] Business Operations & Future Plans 2023 Preliminary Financial Outlook Telesat provides its 2023 financial outlook, projecting revenue, Adjusted EBITDA, and cash flows used in investing activities 2023 Full Year Outlook | Metric | 2023 Outlook (CAD millions) | | :-------------------------------- | :-------------------------- | | Full Year Revenues | $690 - $710 | | Adjusted EBITDA | $500 - $515 | | Cash flows used in investing activities | $40 - $70 | - The 2023 financial outlook assumes a foreign exchange rate of US$1 = C$1.35[13] - Telesat will provide a further update on anticipated capital expenditures for 2023 once arrangements for the Telesat Lightspeed program are finalized[13] Business Highlights and Fleet Metrics The company reports a substantial contracted backlog of $1.8 billion and a high fleet utilization rate of 89% at year-end 2022 Key Performance Indicators (as of Dec 31, 2022) | Metric | Value | | :-------------------------------- | :------ | | Contracted backlog (as of Dec 31, 2022) | ~$1.8 billion | | Fleet utilization (as of Dec 31, 2022) | 89% | About Telesat and Lightspeed LEO Network Telesat is a leading global satellite operator developing the innovative Lightspeed LEO network to provide high-capacity connectivity - Telesat is one of the largest and most successful global satellite operators, providing critical connectivity solutions to customers[19] - Telesat Lightspeed, the company's Low Earth Orbit (LEO) satellite network, is designed to be the first and only LEO network optimized for telecom, government, maritime, and aeronautical customers[20] - Telesat Lightspeed aims to redefine global satellite connectivity by offering ubiquitous, affordable, high-capacity links with fiber-like speeds[20] Additional Information SEC Filings and Conference Call Details This section provides details on the company's regulatory filings and the upcoming conference call to discuss financial results - Telesat's annual report on Form 20-F for the year ended December 31, 2022, has been filed with the SEC and Canadian securities regulatory authorities[14] - A conference call to discuss financial results is scheduled for Wednesday, March 29, 2023, at 10:30 a.m. ET[15] - Dial-in instructions: Toll-free +1 800 806 5484 (North America), +1 416 340 2217 (outside North America), Access Code: 8861182[16] - Webcast access: https://edge.media-server.com/mmc/p/o4qyzpii, with a replay archived on Telesat's website[17] Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The news release contains forward-looking statements, including the 2023 financial outlook and timing for Telesat Lightspeed financing, which are not historical facts[23] - Actual results may differ materially from expectations due to known and unknown risks and uncertainties, including inflation, satellite operating risks, and LEO constellation deployment challenges[24] - Investors should review additional risk factors discussed in Telesat Corporation's annual report on Form 20-F for the year ended December 31, 2022[24]