Telesat - Earnings Call - Q1 2021
May 14, 2021
Transcript
Speaker 0
Good morning, ladies and gentlemen. Welcome to the conference call to report the First Quarter twenty twenty one Financial Results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat and Andrew Brown, Chief Financial Officer of Telesat. I would now like to turn the meeting over to Mr. Michael Belifo, Director of Treasury and Risk Management.
Please go ahead, Mr. Belifo.
Speaker 1
Thank you, and good morning. Earlier today, we issued a news release containing Telesat's consolidated financial results for the three month period ended 03/31/2021. This news release is available on Telesat's website at www.telesat.com under the tab Investors. We also filed our quarterly report on Form six ks with the SEC this morning. Our remarks today may contain forward looking statements.
There are risks that Telusat's actual results may differ materially from those contemplated by the forward looking statements as a result of known and unknown risks and uncertainties. For additional information about known risks, we refer you to the Risk Factors section of our annual report on Form 20 F for the 2020 fiscal year and in our quarterly report on Form six ks, both of which can be obtained on the SEC website. The information that we are discussing today reflects our expectations as of today and is subject to change. Except as required by securities laws, Telesat disclaims any obligation or undertaking to update or revise this information,
Speaker 2
whether as a result
Speaker 1
of new information, future events or otherwise. I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.
Speaker 2
Okay. Thank you, Michael. This morning, I'll discuss our first quarter results and give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in more detail. Then we'll open the call up to questions.
Comparing our Q1 results to the same period last year and adjusting for foreign exchange rate changes, revenue was down 6%, operating expenses were 11% lower, Adjusted EBITDA was 5% lower and our adjusted EBITDA margin was 80%, slightly higher than the prior period. The largest contributor to the FX adjusted revenue decrease was the impact of the COVID-nineteen pandemic, particularly on customers serving the aeronautical and maritime markets, while the improvement in OpEx was driven by the reversal of a bad debt provision last quarter as compared to a bad debt provision we took in Q1 twenty twenty in response to COVID. Turning to some key metrics. Backlog at the end of the quarter was $2,500,000,000 and fleet utilization was 79. Looking at our revenues broke down on an application basis, broadcast was 52% of total revenue, enterprise services 46% and consulting and other 2%.
And on a geographic basis for the year, North America accounted for 83% of revenue, Latin America 8%, EMEA 5% and Asia 4%. Turning to our Telesat Lightspeed constellation, we made significant progress moving the program forward last quarter, including announcing that Talos Selenya Space is our prime contractor, that MDA will be building the advanced Phase III antennas for the light speed satellites and that the government of Quebec is making a million investment in the project. Last month, we raised US500 million dollars for Lightspeed by issuing a secured bond, and we expect to finalize the rest of the Lightspeed financing in the coming months. In parallel with that, we continue to do a lot of important work with Thales, MDA and other key suppliers to progress the program. Lastly, we continue to make steady progress toward becoming a public company, something we expect will occur in the third quarter of this year and which can further support our growth plans.
In sum, it was a busy quarter and what promises to be a busy year for us. And with that, I'll hand over to Andrew.
Speaker 3
Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the 2021, KennyFab reported revenues of $190,000,000 adjusted EBITDA of 152,000,000 and generated EUR 75,000,000 to 79,000,000 of free cash flow with almost EUR 900,000,000 of cash on the balance sheet at quarter end. For the 2021 and compared to the same period in 2020, revenues decreased by EUR 80,000,000 to EUR 190,000,000. Operating expenses decreased by EUR 6,000,000 to EUR 40,000,000 and adjusted EBITDA decreased by EUR 40,000,000 to EUR 152,000,000.
The adjusted EBITDA margin was 80% compared to 79.6% in 2020. Between 2020 and 2021, changes in the U. S. Dollar exchange rate had a negative impact of $5,000,000 on revenues, a positive impact of $1,000,000 on operating expenses and a negative impact of $5,000,000 on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenue decreased by €13,000,000 for 2021 when compared to 2020.
Operating expenses decreased by €5,000,000 and adjusted EBITDA decreased by 9,000,000 The largest single contributor to the decrease in revenues, excluding the impact of foreign exchange, was the adverse impact of the COVID-nineteen pandemic on certain customers, certainly the commercial airline and other industries. The decrease in operating expenses for 2021 was a result of the reversal of the bad debt provision in current quarter compared to a bad debt provision recognized in the 2020. This improvement was partially offset by additional higher rates for Telesat Lightspeed program. Depreciation and amortization decreased by GBP 5,000,000 when compared to the same period in 2020. The decrease is mainly due to the end of useful life for accounting purposes of our Alenic F1OR satellite in 2020.
Speaker 1
Interest expense decreased by GBP 13,000,000
Speaker 3
in the fourth quarter when compared to the same period in 2020. The decrease was mainly due to lower interest rates when expanding debt and lower debt balances in 2021. The gains and losses in financial instruments reflect changes in deferred values of our interest rate swaps and the prepayment options on our senior and senior secured loans. In the 2021, we recognized a loss of €25,000,000 related to financial instruments. In 2021,
Speaker 4
we also recorded a gain
Speaker 3
on foreign exchange of €35,000,000 during the quarter compared to a loss of €291,000,000 in the 2020. Income before taxes was €63,000,000 in the quarter compared to a loss of $282,000,000 in the 2020. Tax expense increased by $26,000,000 during the quarter when compared to the same period in 2020 and was largely attributable to gains from foreign exchange and certain financial instruments and lower interest expense in 2021.
Speaker 2
For the 2021,
Speaker 3
the cash inflows from operating activities were €99,000,000 and the cash outflows used in investing activities were €20,000,000 Virtually, all of the capital expenditures related to a lower order concentration. As we previously advised, for 2021, we expect our cash flows due to the investing activities to be in the range of USD 140,000,000 to USD 160,000,000, including capital expenditures to further advance our life fee program while we progress our financing arrangements. Subject to the progression of our financing, we may be needing some additional CapEx this year in connection with Lightspeed as we move into full production we expect to happen in the coming months, and we will update our CapEx guidance at that time. To meet our expected cash requirements for the next twelve months, including interest payments and capital expenditures, with $883,000,000 of cash and short term investments at the December as well as approximately $200,000,000 of borrowings available under our revolving credit facility. Approximately USD $642,000,000 in cash was held in our unrestricted facility.
In addition, we continue to generate a significant amount of cash from ongoing operating activities. At the end of the quarter, leverage as calculated on the terms of our amended senior secured credit facilities was 4.42x to one. Thirty seven million compiled with all the covenants in our credit agreement and indenture. A reconciliation between our financial statements and financial covenant calculations is provided in the report that we filed earlier this morning. After the end of the quarter of April twenty seven, Telesat issued $500,000,000 or 5.625% senior secured notes due in 2026.
KellyTat intends to use the net proceeds of this offering to fund additional investments into one of the more unrestricted subsidiaries for the development of KellyTat LiteSea. So that concludes our prepared remarks for this call, and I would be very happy to answer any questions that you may have. I will turn it back to the operator.
Speaker 0
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. You. And the first question is from Mike Pace from JPMorgan.
Please go ahead. Your line is now open.
Speaker 5
Hi, everyone, and good morning. Few questions, and I'll just do them one at a time because it's easier for me, if that's okay. So for the enterprise business, I'm wondering if you guys can dig into a little bit on the COVID impact in the Aero and Maritime segment of yours. I guess, how much in your estimation didn't work its way through the system in 2020? Or what was the lost revenue that you think there?
And then on a sequential basis, I guess enterprise in Q1 versus enterprise in Q4, I realize there's an FX impact there as well too, But can you quantify if there was any incremental COVID headwind, I guess, sequentially as well?
Speaker 2
Mike, it's Dan. I didn't get the first part of your two part question. Maybe I'll answer the second part, and I'm looking at my colleagues. On the top line, I don't think there was any incremental COVID headwind experienced in Q1 relative to Q4. But can you repeat the first part?
Didn't follow-up.
Speaker 5
Yes. I guess just to simplify it, how much did these the Aero and Maritime segment hurt the business in 2020 from COVID issues from Aeritime and Maritime customers? Because I'm trying to figure out, as that comes back in 2021, right, how much of a tailwind could that be versus 2020?
Speaker 2
So let's see. I mean,
Speaker 1
I
Speaker 2
the I'm think just trying to do some math here. If you give me a sec.
Speaker 1
Sorry. But I can't you the same thing.
Speaker 2
So hold on. Yes, I'd say that on the EBITDA line, COVID impact was probably a little bit less than two percent.
Speaker 4
Of total? Okay.
Speaker 5
Yes. Okay, got it. And then in the Broadcast business, I think there was some disclosure, a slight reduction from a North American DPH customer. It sounds vaguely familiar, so I don't know if that's new disclosure or not, but correct me if I'm wrong on that. But can you
Speaker 2
please No, this is the Shaw impact that we had disclosed, got it at this point, probably twenty four months ago or something.
Speaker 3
Okay.
Speaker 5
Got it. And then short term satellite lease revenues that were that didn't happen in 2020, does that come back in the future at all? Or is that just tough to know?
Speaker 2
It's tough to know. I mean, we've always said on those things that they're lumpy, they're a bit unpredictable. As you know, we had none in 2020. There could be something this year. I don't think it'll be all that material.
It won't be as meaningful as what we had seen in years prior to 2020. But there could be something this year. If there is something, we'll flag it when it comes. Got it. Then But I do think I'm sorry, Jeff, but just to finish the thought.
I do think, though, that there's still a requirement for operators preserving their frequency rights. But again, I think part of it, I think, is everyone's just trying to figure out what the future looks like. And so a lot of what we did was preserving cave and rights for satellite operators that wanted to launch mostly big geo cave and platforms. And I think that people are pausing a little bit right now.
Speaker 5
Yes. Then just a question on geo versus LEO as it relates to, I guess, the enterprise business. Dan, I think you've said in the past that you thought around 25% of revenues, might be better suited for your LEO constellation. And I just want clarity, did you mean, if you said that, which I think you did, 25% of total or 25% of enterprise? Because I know historically
Speaker 2
Yeah. Yeah. Yeah. No. And I'll sort of reaffirm that.
And again, it's not science. It's art in some ways. But we've tried to be rigorous in terms of looking at the existing customer requirements we have and asking ourselves which could be provided more effectively with a LEO architecture. It's something like that, of magnitude around 25%, yes, of total revenue.
Speaker 5
Got it. And then on the EchoStar Hughes call, they mentioned that they bought some more capacity from you, I believe, for Puerto Rico. I'm just wondering, is this meaningful rounding? And then I'll just throw in my last question for the finance guys on the call. The term loan B, I realize that you have no more amortization because of the payment in the fourth quarter of 'twenty.
I just wanted to understand, is there still a cash sweep that exists? Or did the payments kind of push that out as well, too?
Speaker 2
I'll start with the Hughes deal. It was a good deal for us, we have a good long term relationship with Hughes and the larger corporate family there. But I wouldn't say that, that was really material for us. It was a good deal. I'm glad we did it.
It's good for their business, too, but nothing, Mike, that we think is material. For sure, if we did, we'd be flagging it.
Speaker 1
Mike, it's Michael Boyle, on the cash sweep, it pushes it out is the short answer to your question.
Speaker 5
Got it. Thanks, guys.
Speaker 0
Thank you. The next question is from Joe Gergerovich. Please state your name and proceed with your question. Your line is now open.
Speaker 4
Hi, thanks for taking the question. Guess I just following up on the last one here just now. Can you just talk about what your capital allocation priorities and how we should expect you to divert cash flow, in particular at the RemainCo?
Speaker 2
It's hard hearing the back half of your question, Joe. The first one, I think, was kind of capital allocation priorities, I think. And then you showed off a little bit at the end. I couldn't hear the second bit.
Speaker 4
Yes. So I'm just wondering how you think about allocating your capital in the core Telesat Group.
Speaker 2
In the core Telesat Group, you mean at the restricted in the restricted entry? Yes. Okay. Don't know if I'll invite my finance friends to comment, and I can chime in as well.
Speaker 3
I would say in terms of as we said this morning, in terms of our overall sort of CapEx forecast for this year, we're looking at a range of USD 140,000,000 to USD 160,000,000. That does include some CapEx in respect of our light speed program. And indeed, as we progress our financing, we will look to potentially look to in the later in the year to indeed roll out our light speed program where we would expect to see meaningful more CapEx. So that is our approach to what our CapEx allocation is as we see it this year.
Speaker 2
Yes. Maybe I'll just ask because Joe was wondering, okay, but what about the restricted entity? And there, I guess, Joe, mean, the probably not terribly different from how we've approached the business for the last long, long time, which is to say, we've got geo satellites that will come up for replacement, provided that we've got a good business case to replace those satellites, then we'll certainly allocate some of the cash that should be building up at Telesat Canada for those purposes. I'd say that'd be kind of priority number one. If they're good, accretive investments to be made in our existing GEO business replacing existing satellites, building new GEO satellites, again sort of opportunistically, then we'll definitely do that.
But if those opportunities don't exist, then it'll be, yes, more focus on building cash and delevering.
Speaker 4
Thank you. That's helpful. I just have one more too, following up on the enterprise question from earlier. Is there any reason to think that this business shouldn't recover in line with global travel and then as we kind of come out of COVID here?
Speaker 2
It should. I mean, definitely faced prior to COVID, I think we've said that maritime, aeronautical combined represented about 10% of our business. I'm looking at my colleagues for affirmation as I say that. But yes, that's right. And then with COVID, that declined.
And so for sure, when our customers in the aero and maritime market, particularly the cruise market, are back in full swing, that's got to have tailwinds for us. So yes, that's the right way to think about it, I think. You. Actually, I just thought
Speaker 4
of one more. What should we expect for cash taxes in 2021? I guess what drove the higher payment in the first quarter here?
Speaker 3
Just in terms of our cash expectations, the higher cash tax payments, the higher tax expense on our P and L reflects indeed the gains on foreign exchange, which was quite substantial in the quarter and it means the lower interest that we received. So we would say overall in terms of what do we think our actual cash taxes will be for the full year. I'd say it's probably consistent with what we had seen in Q1, I think, a kind of on an even basis going forward for the rest of the year.
Speaker 4
Great. Really helpful. Thank you, guys.
Speaker 0
Thank you. The next question is from Jason Kim from Goldman Sachs. Please go ahead. Your line is now open.
Speaker 6
Great. Thank you very much. And first a big picture question for Dan. So you got the legacy Tulsa business that generates a lot of free cash flow, but it has been declining. Then you have an exciting growth opportunity in LEO where, you're leveraging a couple of things that you have that are unique.
Then those are priority orbital rights and your satellite technology leadership. So over the long term, do you look at these silos as permanently separate, or is it more of a temporary financing arrangements given the cost of the upfront investments in terms of how you're financing LEO? But over time, you think you
Speaker 1
will recombine these two silos?
Speaker 2
Yes. I mean, it's for sure the case, Jason, that we're financing LEO like we're financing it, not because we see it as some totally foreign distinct business addressing some new market with that wasn't the rationale at all. The rationale, as you can well appreciate, was that there are a whole series of restrictions that we face in the Telesat Canada silo in terms of raising the kind of capital that we need to fund the Lightspeed constellation. That pushed us into financing it in the separate credit silo, particularly given that these export credit agencies exist that will project finance. So that absolutely was the driver.
And the way we plan to manage the business is, again, not to have two separate finance teams, legal teams, even sales teams, regulatory teams. They're because yes, I mean, it's by and large overlapping customer bases and the like. The plan to manage the business with kind of one team, not being careful to make sure that we're making the proper charges back and forth so that all of that's done in a proper way and the like. Whether can I sit here today and say, yes, in 2027, we'll collapse everything? I don't know.
I mean, just honestly, I don't know. We'll have to see how the business evolves. We'll have to see where the financing markets are in the time and all of that. So I certainly wouldn't rule it out. That might be a massively logical thing to do.
But equally, we don't sit here today and say, That's something that we're definitely going to do. But to take a step back and to your point, the reason we financed this thing the way we have is a reflection of the fact that given the constraints that we had with our covenants and the like on the restricted side, it compelled us to finance this over in this unrestricted side.
Speaker 6
Okay. That's very helpful. And then I know you've been asked this before, but I think it's worthwhile to hear from you again. And that is, what can Lightspeed do that other LEO constellations cannot do or will have difficult time doing? Are you competing directly against them?
Or are you addressing at different end markets or customers?
Speaker 2
I mean, I'll answer this question, although in full candor, some of it is a bit still shrouded in mystery. And I say that because we don't have full visibility into the capabilities of some of these other systems that are talked about. StarLink, for instance, there's still not as much technical information out there that would allow a company like ours who's, I'd say, very sophisticated in terms of understanding the capabilities of different satellites and constellations, we still don't have all the information that we would need to really assess exactly what the capabilities are. And I'd say that's true for Kuiper as well. Less true for OneWeb, where there's, I'd say, a lot more information that we have access to.
So with that caveat, I guess I'd say a couple things. One, we've always been very clear. Our focus is on the enterprise segment. It's backhaul connectivity for mobile network operators and ISPs. It's connectivity for the aeronautical market, the maritime market and for the government services market, markets that we understand very well.
And designed our constellation from day one to serve those markets. And we worked very closely with certain customers in those segments to make sure that we were, yeah, going to be able to meet their requirements. And so which is not the case with some of the other constellations. I think Starlink, Kuiper in particular, have
Speaker 3
been
Speaker 2
very plain spoken about the fact that their principal focus is on the consumer market. And I can tell you, if we, from day one, were focused on the consumer market, our constellation architecture would look different. They're different markets. If you want to, yes, build a constellation to efficiently address one, you're almost, by definition, trading off your ability to efficiently address the other. OneWeb, on the other hand, I think we all know they started out talking about focused on the consumer broadband market and then kind of pivoted their business focus, not so much the design of their constellation, but their business focus over to more of the enterprise market.
And so anyway, a lot of words, but important to note, we are focused on different markets. There is limited information about some of these other constellations. But then back to our constellation and why we believe that we're going to have a significant competitive advantage focusing on the markets that we're focused on, you got to roll up your sleeves and just get right into the weeds of these technologies. All of our satellites have very high throughput, high capacity inter satellite links. We think that's essential to effectively address the aeronautical market, the maritime market and the government market.
I don't know what Piper is going look like with respect to that. I'm still Starlink is introducing some inter satellite links, but I think that their capability is they're less capacious, I think, than our inter satellite links, one that doesn't have them. All of our satellites have process payloads that gives us real advantages in terms of routing traffic, in terms of improving the efficiency kind of the link, which allows us to get you squeeze out more bits, frankly, through a limited amount of spectrum. All of our satellites have very high performing phased array antennas, which mean and incredible capabilities in terms of hopping beams, which gives us immense flexibility in terms of how we lay our coverage down in a very dynamic way over the visible earth for any given satellite. And then you overlay on top of all of that what will be a very powerful kind of software program that will orchestrate all of those disparate parts and then making it a very fast, responsive system.
You add all that stuff up, it's going to be, we believe, just an extraordinarily compelling value proposition for the customers. And yes, something that will give us, we believe, a competitive advantage in the market and our customers a competitive advantage in their market. Anyway, Jason, a lot of words. And again, some of it is still a bit shrouded in mystery in terms of what others are doing, but that's how we think about it.
Speaker 6
That's all very helpful. Thank you.
Speaker 0
Thank you. The next question is from Walter Piecyk from Lightspeed. Please go ahead. Your line is now open.
Speaker 4
It's Lightspeed. Thank you. Dan, can you give us an update? Verizon and AT and T are pretty fired up to get the C band stuff cleared. Are you already incurring any expenses that you're getting reimbursed for?
And then if not, if it's really just about getting those incentive payments, obviously, that near term one for 2021 looks solid. The larger payments that can extend to 2023, do you have better clarity now that maybe there's going to be some acceleration of those payments rather than having to wait till maybe 2022 or 2023 that you could see a lot of that kind of front loaded?
Speaker 2
We believe that we'll be in a position to be entitled to all of the payments that were kind of earmarked for Telesat either by the end of the either by the end of this year or sometime if it should slip in the first half of next year. We believe that we've taken all the actions that we need to take to clear all of the spectrum that we and our customers have been using.
Speaker 4
Think I understand. Are you talking about the $85,000,000 relative to the 2021 clearing targets? The full amount, meaning the $260,000,000 you think also could be accelerated to the first half of next year?
Speaker 2
Yes. We were provided $344,000,000 off the top of my head, and we believe that we'll have taken all the actions that we need to take to be fully entitled to all of that and that if things happen like the FCC says they'll happen, yeah, we should be in receipt of all of that money within the next either before
Speaker 6
the end of this year
Speaker 2
or we think shortly thereafter.
Speaker 4
Well, the SEC certainly has enough cash to make that payment. That's for sure. There a do you get taxed on that? Or is there a way you can receive that in a tax efficient manner?
Speaker 2
We do get taxed on that. And Got yes, so
Speaker 4
you. And then any so obviously, U. S. Moving pretty quickly. Obviously, C band a lot more important than millimeter wave.
There must be some pressure on the Canadian regulators to hash out what the plans are for up there. Like what's going on with that? What's the latest in terms of moving forward on C band for Canada?
Speaker 2
We don't have an update on it, to be honest with you. I think I had said I think it was on the last call we've gotten a question about this, and we had said that the regulator plans to auction the 3.5 gigahertz spectrum. Think that was supposed to take place by the June. Some parties I saw recently had asked for a delay in that. That already represented, I think, a six month delay.
I think it originally was supposed to happen at the end of by the end of last year. But because of COVID, they pushed it out. And I believe that certain wireless operators in Canada had asked the regulator to delay it further. So but the minister, I believe, indicated that they won't do that. So I believe it's the case that the three point five auction is to take place, I think, before the June.
Now the C band spectrum is adjacent to that. And as I've said before, I think it would make sense for the bidding parties, the wireless operators, to know what the full mid band picture looks like, ideally before they're having to participate in an auction for the other chunk of the mid band spectrum, the 3.5 gigahertz. The C band proceeding, as I said last time, should be ripe for decision. The record is set. We all make comments, reply comments and the like.
But I don't have an update as to when a decision will be taken. But if I'm right and the regulator also sees a logic in getting that decision out there before the 3.5 auction, then that suggests something should be coming relatively soon.
Speaker 4
Right. So your point is that they've made it clear that they're not delaying this. But I mean, it seems odd that every one of the operators, I think, has indicated that, look,
Speaker 3
we need to know what's going
Speaker 4
to happen with the C band. So if they're not delaying it, then doesn't that kind of imply that we should hear something within the next thirty days?
Speaker 2
Yes, potentially. But the regulator, for all I know, might be prepared to launch the 3.5 auction with the C band proceeding still pending. But I don't know. Mean, for sure, I think we're going That have to
Speaker 4
sounds like bad policy, but I guess you never know. We'll have
Speaker 2
to see. We'll have
Speaker 7
to see.
Speaker 2
So yes, but we would expect just to finish off, we would expect to see a decision on that soon, but we're just guessing.
Speaker 4
Just one last one. You progress on the LEO launch, I assume there's like ongoing dialogue with potential customers. How has that gone since the last quarter? Has there been traction? Or does it not really occur until you get closer towards launch?
Speaker 2
No, we're heavily engaged with the customer community right now.
Speaker 4
And what's the feedback been like so far?
Speaker 2
Yeah, it's all very positive. Folks yeah, the feedback's been very, very positive. And as I've said before, I mean, we already have a substantial amount committed backlog associated with LEO.
Speaker 4
Yeah, we're getting very good. Is surprise types there in of customers that as you kind of this is a new product for you, right? It's obviously going to be much better in terms of its performance. Have there been surprises in terms of new applications that potential customers have been interested in and have been querying you about as part of this Constellation?
Speaker 2
Not really. I not really. I'd say the only one and it wasn't so much of a surprise, but there's certainly been interest in kind of uber low latency connectivity for high frequency trading. Maybe there's a great opportunity there. But in the main, as I've said before, the verticals that we're focused on, We know them well.
We know those customers well. There's education, for sure, that's required with the customer community to help them understand exactly how this new constellation will operate. But no, I don't think there have been any surprises in terms of the kinds of applications that customers will want, not at least now. Now, look, for sure
Speaker 4
I mean, it'll be interesting because it seems like the reduced latency, to name one of the many benefits, should theoretically really broaden the market opportunity, no?
Speaker 2
We believe that the addressable market for a low latency LEO constellation, yes, is much bigger than the addressable market for a higher latency GEO constellation for sure. Absolutely. But we anticipated all that. I was just responding to but we've been surprised. Think the answer is
Speaker 4
in future quarters, it will be great to get maybe some representative examples of new industries that this new product and this new service has enabled or at least generated some interest for, even if you're talking about it at a higher level?
Speaker 2
Yes. If we see that, we'll certainly show. But our expectation is it's the commercial airlines, it's the cruise ship companies, it's government users, it's the mobile network operators around the world who need this connectivity today. And so the requirements exist today, but there's a gap in terms of what's available today. What they want is an affordable, low latency, high throughput, highly reliable, ubiquitous broadband pipe.
And that's just not there today. What they have instead is a higher latency, maybe more expensive geo connectivity pipe or some microwave or something like that, that's the big opportunity here for us.
Speaker 4
Yes. Thank you. Thanks, Dan.
Speaker 0
The next question is from Tim Lash from Twin Oak Capital.
Speaker 8
Just wanted to understand on what path the financing was on vis a vis the manufacturing process? Are they on separate tracks? Is manufacturing moving forward? Where are we in that side of things? Is it contingent on completing the full financing?
Or are the wheels in motion? Is the design baked? Where are we in the actual Constellation manufacturing process? And how does that look?
Speaker 2
Thanks, Tim. So we are and we said this I think I made note of it in the release. I certainly we made note of it in my comments at the start of the call. We are doing work with Talos. We're doing work with MDA.
We're doing work with some other suppliers. I think we've made some announcements about other companies that we're working with to start moving Lightspeed forward. And I should also say, we've been doing work with Talos now for probably two years, derisking all sorts of elements around Lightspeed, like the processors, the inner satellite links, doing work with MDA on the Phase III antennas. So a lot of that work had been going on for some time. But since we announced Tau's MDA, we've done, I'd say, more work still.
We haven't completed the financing at this time, as we've said. We've made some good progress even so far from the start of this year with the investment by the government of Quebec with the bond issuance that we did last month. We are in what I would describe as very advanced discussions with the export credit agencies about the terms under which they would fund the program. And I mentioned that we've done all the work that we need to do in The U. S.
To clear our C band spectrum, which should unlock another roundabout $300,000,000 for the program. So that's where we are right now. That's where we are with respect to the financing. And that's where we are in terms of moving the ball forward with our suppliers right now.
Speaker 8
Got it. Just a follow-up on that. In terms of launch vehicle providers, any update there? I know Blue Origin, their time line keeps slipping out. Any change to your time line?
Are you going to be able to slot in alternative launch providers? Where does that stand?
Speaker 2
Yeah. We think we've been tracking Blue Origin very, very closely, and we believe that they'll be certainly up and running by the time that we need them. We will be launching probably prior to the time that they well, I'm not sure about their latest schedule. For us, yeah, we have real conviction that they're going to be in the game when we need them to be in the game. And then we're in discussions with other launch providers as well.
And I expect we'd be in a position to make some announcements about that certainly before the end of the year is our expectation.
Speaker 8
And just when thinking about your launches, I mean, obviously, you have bigger satellites. I mean, what is sort of the launch capacity on these vehicles in terms of satellites per launch that you're able to get up with the people you're talking with?
Speaker 2
It's different with the different rockets, obviously. It also differs slightly depending on which orbit we're launching into. For Blue Origin, it's roundabout 30. And again, our satellites, I need to emphasize this, and I've emphasized it on prior calls, these are meaningful satellites. We're not launching little cube sets or nano sets.
These are pretty big, very capable, very advanced satellites. So to say that we can put 30 plus satellites on a New Glenn rocket, it's significant. They've got a great big fairing. The performance on that rocket is very impressive. So that's a lot of mass and a lot of volume that we're launching to orbit.
On a Falcon nine, I think if we're going to inclined orbit, we're looking at around fifteen, sixteen satellites, something like that. If we're going to polar, more like around 13 satellites, something like that.
Speaker 8
Got it. And one last question on the launch. Has there been given where you are in your financing timing and your relationships, any change to your ultimate kind of launch time line for the Constellation? Are we still on track with the original or the announced expectations for going into orbit?
Speaker 2
Yes. Yes, we expect to start launching in right around two years' time, something like that will commence. So no, no changes to the expected schedule.
Speaker 8
Excellent. Thank you.
Speaker 2
Okay. Thanks.
Speaker 0
Thank you. The next question is from Robert Struggall from RIS Investments. Please go ahead. Your line is now open.
Speaker 7
Yes. We have some formidable competition with Elon Musk is able to raise billions of dollars from Google and other enterprises while we're trying to get financing. And we already have an ongoing great business and probably a better product than a way musket than Elon Musk is is launching, but he also launched Tesla from nowhere. And and he's been seeking customers now. He's putting up a lot of stuff there.
We're talking about two years in the future. We're still talking about financing. And we don't have an IPO yet. So
Speaker 2
how do you respond to that? Robert, what I'd say is we are doing work on the Constellation. It's not like we're sitting on our hands. We're doing a lot of work and spending real money right now, as you can see when you look at our financials, with our suppliers. So we're moving forward in that regard.
We are bullish on the design and the capabilities of our Constellation, particularly given the markets that we're focused on. We do, as you say, have an existing business. We know these customers. We understand their requirements. And the other thing I'd say is we've never believed that we'd be entering this market without any competition.
We've been operating in a highly competitive environment for decades now, and I don't expect the future to be any different. This is not going to be a winner take all game. You're right. Elon Musk is a formidable entrepreneur and businessman and SpaceX is a formidable company. If they focus well and execute well, then they should be successful in the market.
But I don't think their success implies that Telesat and some of the other competitors also aren't going to enjoy success in the market. The market is massive. It's growing. We're focused in part on different segments of the market. So and on the financing, look, I feel good about where we are on the financing.
We've got a significant amount of cash on the balance sheet today. I'm confident that the lenders that we've been working with are going to follow through. The IPO is well kind of in train. As I mentioned, we expect to go public in the third quarter. So yes, we're bullish about our outlook.
Speaker 7
Can we get a partner that's in a private enterprise like an Apple or some other company? Google threw money at Musk, why can't they throw some money at us because we got a great product.
Speaker 2
I don't know, Robert. Listen, we're always open, of course, to working with good partners that can help us be even more successful. So we're very focused right now on the key things that we need to get done, finish the financing, continue to move the work forward with our suppliers, get the public offering done, get the C band money in and the like. So that's our focus. But for sure, we'll look always to have strong partners as we go forward.
Do you
Speaker 7
have any comment excuse me, the last question I asked, do you have any comment on the thousands of satellites that Musk is putting up now, the space junk? Will they be getting in your way or the quality of the product compared to your product? Again, you're you're he is behind them and then and Musk is a guy that can really improve things very quickly and change things very quickly. And you gotta give him a lot of credit on that score. So, you know, $3,000,000,000 is a lot of money to spend on something that could be obsolete in two years with Musk on the other side of that transaction.
Speaker 2
It's a mixed question you asked there, Robert. On the one hand, heard a question
Speaker 7
I'm a mixed up.
Speaker 2
Was a question about the state.
Speaker 7
I love your company. We bet quite a bit of money on your company, and we think you're gonna be a big winner. You already are a big winner, and you will be a big winner. But again, you're against the former guy, you may know him, Musk, who's got billions of dollars that is behind him right now and he's putting up thousands of satellites right now as we speak.
Speaker 2
So Robert, all I'd say is, look, we appreciate your support and your confidence in the company. What can I tell you? Super optimistic about our plan. As I said, StarLink can be successful, Telesat can be successful. There will be some others that are
Speaker 5
going
Speaker 2
to be successful serving this big market as well. And I'm confident in Telusat's going to be one of them. The
Speaker 0
next question is from Jonathan from Rupert Capital.
Speaker 4
Hey, Dan. With respect to if we go back to Canadian C band, if we were
Speaker 5
to see our proposal accepted and we received 200 megahertz of C band spectrum in Canada with a flexible use license, How do you think about the timing on getting that hypothetical 200 megahertz monetized and money into our coffers?
Speaker 4
Well, I mean,
Speaker 2
probably the big part of your question, and thanks for it, is about whether the Government of Canada were to greenlight our proposal, which as you note would have us engaging in effectively running an auction. So I think from the time government were the government to take a decision like that, it would probably take us some months working with an external auction expert that we have engaged with already. It would take us probably some months just to make sure that we reflected all the different requirements, restrictions and whatnot that the regulator would invariably articulate as part of it. So that's my guess. It would take us some months.
And then in terms of how long it would take to get cash in the door, that it's too early to say whether the spectrum would first need to be cleared. So there are questions about that. I don't know. And I guess I'd hasten that, Jonathan. Still, it's premature.
Like we're really unsure what the regulator is going to do with our proposal. Certainly, proposal was that TeleSouth would be in a position to auction the spectrum. Could be the case that the regulator takes a decision that looks more like what the FCC did, where the FCC auctioned the spectrum and instead made kind of clearing payments and cost reimbursement payments to the satellite operators. That could be another path. The regulator could reject our approach altogether.
So it's hard sitting here today to say to move quickly to kind of the logistics about what that would look like. But anyway, long story short, if they greenlighted our proposal, we've already done a lot of work. We already have engaged one of the auction experts that does this stuff for a living. It'd take us a couple of months before we'd be in a position to start the auction. And then I wouldn't want to speculate right now on how long it would take from there from the conclusion of the auction to actually have cash in.
Speaker 5
Got it. Okay. And then with respect to the IPO timing in the reference to Q3, once we're public or tell us about just what type of marketing that we should expect in either the run up to the IPO or post the IPO in terms of an Analyst Day or roadshow marketing as we sort of launch this process and start courting equity investors? How do we think about just the timing on that? And then what additional disclosures around the business plan on Lightspeed and other details will be shared with the marketplace?
Speaker 2
Secure, I guess, I just need to be a little bit careful because regulators tend to scrutinize what companies say when they've got a pending transaction like this. But what I would say is that and we've shared this before, we've engaged Goldman Sachs and BMO to support us in the process, and we're going to work closely with them. And it won't be their first rodeo, frankly, not our first rodeo We'll work closely with them to make sure that we execute this transaction in a good, thoughtful, professional way. Certainly, I believe that Lightspeed will be an exciting part of Telesat's growth story. And so certainly, my expectation is that we'll be talking to investors about that.
But Jonathan, I probably can't say much more than that at this point.
Speaker 5
Fair enough. Thank you very much.
Speaker 2
Okay. Thanks.
Speaker 4
Okay. We have time for one more question.
Speaker 0
Perfect. The last question is from Brandon Karsh from York Capital. Please go ahead. Your line is now open.
Speaker 6
Hi. Thanks for hosting the call today and taking the question. Just to clarify something from earlier, the 10% of revenue you said is from Maritime and was that all of your Maritime and Aero revenue, or is that just a more consumer driven use cases such as commercial air and cruise?
Speaker 2
It was pretty pretty much all of it. Pretty much all of it. And and, it was kind of around about 10%, and I suspect that it's it's it's lower now. I I haven't looked at it today. Bit lower It'd be a given given COVID.
But, yeah, it it it was meant to encompass pretty much all of our error on merit, and I would say probably excluding government data.
Speaker 6
And is it possible to quantify how much of that is the more directly impacted use cases such as commercial air and cruises?
Speaker 2
Would be almost all of it. The satellite capacity that we provide to our customers that's then used for providing broadband connectivity to cruise ships, other yachts and whatnot, and to the commercial airline market companies that we've worked with, like Gogo and the like, yeah, that would account for pretty much all of that 10%.
Speaker 6
Okay. Appreciate the color there. Then if I look at the reconciliation at the end of the quarterly report, it looks like there's about 7,000,000 or $8,000,000 worth of services that were provided from the were provided by the restricted subsidiaries to the unrestricted subs. You provide a little bit more color on what exactly is included in here and whether because of those, I should maybe think about EBITDA at the restricted sub as being a little bit higher than what you're reporting for the consolidated entities?
Speaker 4
Well,
Speaker 1
basically, Brandon, it's Michael Maloneko. The right now, Telesat Canada provides most of the services that the unrestricted subs need to develop LEO. That's going to evolve over time, but it's the executive, the legal, the finance, but it's also at this point in time, it's the satellite engineering and development work. And that will transition over time as we sign contracts and complete work. In terms of the second part of your question, our covenant EBITDA calculation actually does take into account, we are obliged to back out the effect of the unrestricted stock when we calculate covenant EBITDA.
So the covenant EBITDA reflects the expenditures that are being made on behalf of Telesat LEO because they're backed out.
Speaker 6
Yes, I see that that's shown in the LTM calculation. I guess it would just be helpful to maybe see that covenant calculation on a quarterly basis too just to get a better sense of what the restricted group EBITDA is looking like on a quarterly basis.
Speaker 1
We've never provided that when we think about it, but we've never provided it historically.
Speaker 6
Okay. Yes, just something that would be helpful. And the last thing is just one more housekeeping item. For the bad debt reversal that flowed through this quarter versus the bad debt provision in the first quarter of last year, can you quantify each of those?
Speaker 3
What we could say, I mean, the bad debt approximately is about $6,000,000 It's hopefully sort of two thirds recovery and $2,000,000 reflecting the provision we closed from last year. So that's kind of the absolute number.
Speaker 6
Thank you. That's all from me. Appreciate you hosting the call.
Speaker 2
Thank you. Okay. Operator, thank you very much for your support on this. Thank you all for joining us, and we look forward to chatting with you when we release our Q2 numbers. So thank you very much.
Speaker 4
Thank you
Speaker 2
very much. Have a great weekend.
Speaker 0
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.