Telesat Corporation (NASDAQ:TSAT) Q3 2023 Earnings Call Transcript
Telesat Corporation (NASDAQ:TSAT) Q3 2023 Earnings Call Transcript November 6, 2023
Operator: Good morning, ladies and gentlemen. Welcome to the conference call to report the Third Quarter 2023 Financial Results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat; and Andrew Browne, Chief Financial Officer of Telesat. I would now like to turn the meeting over to Mr. Michael Bolitho, Director of Treasury and Risk Management. Please go ahead, Sir.
Michael Bolitho: Thank you, and good morning. This morning, we filed our quarterly report on Form 6-K with the SEC and on SEDAR. Our remarks today may contain forward-looking statements. There are risks that Telesat'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 a discussion of known risks, see Telesat's annual and quarterly reports filed with the SEC. Telesat assumes no responsibility to update or revise these forward-looking statements. I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.
Daniel Goldberg: Okay. Thank you, Michael. This morning, I will share some thoughts on our financial results and give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in detail, and then we will open the call up for questions. We have been executing well so far this year, are on-track with the key financial, strategic, and operational objectives we have been focused on. We are tracking our guidance, received the final roughly $260 million of U.S. C-band clearing proceeds, and completed some meaningful additional debt repurchased in the quarter that we think will strengthen our financial position and create value for shareholders. Obviously, a huge focus for us is executing on Telesat Lightspeed our advanced broadband LEO network, and I will give some updates on that.
Since sharing on our Q2 call that we selected MDA as our prime contractor, and are fully-funded for the program, we have done a significant amount of work with MDA to advance the program, including further engagement with the supply chain. Both Telesat and MDA are ramping-up their teams to execute Lightspeed. And I have been really pleased, but not surprised, by the extraordinarily capable people we are bringing on board and the really strong interest we are seeing from professionals throughout the industry, to join us to work on this flagship program. We also announced in the quarter another key Lightspeed contract This one with SpaceX for fourteen Falcon 9 rockets to launch the advanced satellites making up the Lightspeed network. I believe it is SpaceX's largest commercial launch contract.
Falcon 9 is the most reliable rocket out there. And SpaceX has a demonstrated high launch cadence that will go a long way toward ensuring that, we bring Lightspeed to market, consistent with our schedule. They have been a great partner for Telesat on a number of our prior programs, and we are very pleased to be working with them on Lightspeed. Our other key focus is concluding our funding arrangements with our Canadian federal and provincial partners. We are fully-engaged with them at this time and remain optimistic that we will be able to reach financial close, consistent with the timeframe we shared previously, which is to say, later this year or early next year. The Telesat Lightspeed program advances a wide range of important public policy goals, including bridging the digital divide, spurring advanced manufacturing, IP development, exports, and high-quality jobs, as well as important climate and national security objectives.
Our federal and provincial partners in Canada have been strong and consistent supporters of the Lightspeed program, and we are grateful for that. We remain hugely bullish about Telesat Lightspeed and are looking forward to sharing more detailed information with investors about our business plan and expectations. To that end, Andrew and I plan to get on the road, to meet with investors in both the U.S. and Canada over the next couple of weeks. We are looking forward to it. With that, I'll hand over to Andrew and then look forward to addressing any questions you may have.
Andrew Browne: Thank you, Dan. Good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the third quarter of 2023, Telesat reported revenues of $175 million, adjusted EBITDA of $133 million and for the nine months ended September 30th, 2023, we generated cash from operations of $156 million and we held $1.8 billion of cash on the balance sheet. In the third quarter of 2023, compared to the same period in 2022, revenues decreased by $5 million to $175 million. Operating expenses decreased by $6 million to $50 million and adjusted EBITDA decreased by $4 million to $133 million. The adjusted EBITDA margin was 75.9%, compared to 76% in 2022. Between 2022 and 2023, changes in the U.S. dollar exchange rate had a positive impact of $3 million on revenues, a negative impact of $1 million on operating expenses, and a positive impact of $2 million on adjusted EBITDA.
When adjusted for changes in foreign exchange rates, revenues decreased by $8 million, operating expenses decreased by $7 million and adjusted EBITDA decreased by $7 million. The revenue decrease for the quarter was mainly due to lower revenue from certain South American customers. OpEx to decrease the operating expenses was primarily due to lower non-cash share-based comp, partially offset by higher costs associated with the procurement of third-party satellite capacity required to support certain customers networks that could no longer be supported on ANAC S2 constant, once it commenced client operations. Interest expense increased by $11 million during the third quarter when compared to the same period in 2022. The change was due to an increase in interest rates on the U.S. Term Loan B facility, combined with the foreign exchange impact in U.S. dollar denominated in interest expense.
This was partially offset by the impact of the repurchase of notes in 2023, combined with the impact of the maturity of one of the interest rate swaps in September of 2022. In the third quarter, we have recorded a loss from foreign exchange of $77 million, as compared to a loss of $99 million, the second quarter of 2022. The loss of the three months ended September 30th, 2023 was mainly the result of a stronger U.S. dollar to Canadian dollar, which the resulting unfavorable impact on the cancellation of our U.S. dollar denominated debt. Our net loss for the third quarter of 2023 was $3.3 million compared to net loss of $228.7 million in the prior year, the variation was principally due to the positive impact on the conversion of a U.S. dollar debt into Canadian dollars and the gain on the repurchase of our debt.
Also, to mention for the nine months ended September 30th, 2023, our net income was $545 million, the significant net income was primarily due to the U.S. C-band clearing proceeds recognized in the second quarter of 2023, combined with the year-to-date gain on the repurchase of our debt. For the nine months ended September 30th, 2023, the cash inflow from operating activities of $156 million, and the cash flows generated from investing activities were $264 million. The cash flows generated from our investing activities was due to the proceeds received from Phase 2 -- as mentioned and partially offset by capital expenditures. In terms of capital expenditures incurred, they were primarily related to a lower orbit constellation, Telesat Lightspeed, and the newly acquired an NH4F satellite.
Turning to guidance, as you will also have noted in our earnings release this morning, we've maintained a previously provided revenue and adjusted EBITDA 2023 guidance. The guidance assumes a Canadian dollar to U.S. dollar exchange rate of Canadian 1.25. Telesat continues to expect its full year 2022 revenues be between $690 million and $710 million. In terms of adjusted EBITDA, Telesat continues to expect between $500 million to $515 million. In respect to capital expenditures, we continue to expect our 2023 cash flows used in investing activities to be in a range of $175 million to $225 million. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1.8 billion of cash and short-term investments at the end of March, as well as approximately $200 million borrowings available under our revolving credit facility, approximately $1.3 billion in cash was held in our unrestricted subsidiaries.
In addition, we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the third quarter, leverage as calculated under the terms of amended senior secured credit facilities was 5.46 times to one. Telesat has complied with all the covenants in our credit agreement and indenture. As Dan has indicated, in the third quarter and including the subsequent period, we have repurchased debt with a principal aggregate amount of $195.3 million, at a cost of $137.4 million combining these repurchases with repurchases done in 2022, we have repurchased a total amount of $587 million dollars at an aggregate cost of $332.7 million. In addition, this also results in interest savings of approximately $40 million annually.
Since the end of 2020, when Telesat were paid approximately $340 million of its term loan B. Our overall debt has been reduced by approximately 28%. A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning, our 6-K provides an audited interim condensed consolidated financial information in the MD&A. The non-guarantor subsidiary shown or essentially the unrestricted subsidiaries with minor differences. So that concludes our prepared remarks for the call, and now we'll be very happy to answer any questions you may have. And with that, we'll now turn back to the operator.
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