Telesat - Q1 2024
May 10, 2024
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the conference call to report the first quarter 2024 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 Bolitho, Director of Treasury and Risk Management. Please go ahead, Mr. Bolitho.
Michael Bolitho (Director of Treasury and Risk Management)
Thank you, and good morning. This morning, we filed our quarterly report for the period ending March 31, 2024, 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, please see Telesat's annual report and updates 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.
Dan Goldberg (President and CEO)
Okay, thanks, Michael. My opening remarks are quite short this morning, given we hosted an earnings call just six weeks ago when we released our Q4 and full year numbers. I really just want to note that we're tracking to the 2024 guidance we gave earlier, and we're moving out as quickly as we can on Telesat Lightspeed, now that we have understandings in place for all the financing we need for our first 156 satellites. Our CapEx guidance this year is for between CAD 1 billion-CAD 1.4 billion, or around $750 million-$1 billion, which is pretty much entirely for Lightspeed, and you'll see that unfold as we report our results throughout the year.
So with that, I'll hand over to Andrew, who will speak to the Q1 numbers in more detail, and then we'll open the call up to questions.
Andrew Browne (CFO)
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 fourth quarter of 2024, Telesat reported consolidated revenues of $152 million, Adjusted EBITDA of $111 million, and generated cash from operations of $76 million, at the end of the quarter, with $1.8 billion of cash. The fourth quarter of 2024, compared to the same period in 2023, revenues decreased by $31 million to $152 million. Operating expenses decreased by $6 million to $47 million, and Adjusted EBITDA decreased by $28 million to $111 million. The Adjusted EBITDA margin was 72.8% as compared to 75.7% in 2023.
The revenue decrease for the quarter was primarily due to a reduction in services and a lower rate on the renewal of a long-term agreement with a North American direct-to-home customer, as well as lower revenues from certain mobility and Latin American customers and lower equipment sales to Canadian government customers. Looking at OpEx, the decrease in OpEx is primarily due to lower non-cash share-based compensation and higher capitalized engineering expenses relative to the prior period. Interest expense decreased by CAD 4 million during the fourth quarter when compared to the same period in 2023. The decrease in interest expense was primarily due to the repurchase of notes and Term Loan B. This was particularly offset by an increase in interest rates on the US dollar Term Loan B facility itself.
In the fourth quarter, we recorded a loss in foreign exchange of CAD 68 million, as compared to a gain of CAD 10 million in the fourth quarter of 2023. The loss for the three months ended March 31, 2024, was mainly the result of a stronger US dollar to Canadian dollar spot rate as of March 31, 2024, as compared to the spot rate as of December 31, 2023, and the resulting unfavorable impact on the translation of our US-denominated debt. Our net loss for the fourth quarter was CAD 52 million, compared to net income of CAD 28 million for the same period in the prior year. The change was primarily due to the loss on foreign exchange, as mentioned.
For the quarter ended March 31, 2024, the cash inflows from operating activities were CAD 76 million, and the cash flows used by investing activities were CAD 20 million. In terms of capital expenditures incurred, they were primarily related to a lower orbit constellation, Telesat Lightspeed. Guidance. As you will also have noted in our earnings release this morning, we have reaffirmed our 2024 guidance. This guidance assumes a Canadian dollar to U.S. dollar exchange rate of 1.35. For 2024, Telesat still expects its total full-year revenues to be between CAD 545 million and CAD 565 million. In terms of operating expenses, excluding share-based compensation, we are still looking to spend between CAD 80 million and CAD 90 million, attributed to the Telesat Lightspeed. In terms of total Adjusted EBITDA, Telesat still expects to be between CAD 340 million and CAD 360 million.
As highlighted on our last call, we will begin the process of showing GEO and LEO separately, and we have accordingly set out this in our note four of our financial statements. In respect to expected capital expenditures, as we discussed last quarter, we continue to expect our 2024 cash flows used in investing activities to be in the range of CAD 1 billion-CAD 1.4 billion, as Dan has highlighted, which is nearly all related to expected Telesat Lightspeed capital expenditures. To meet our expected cash requirements for the next twelve months, including interest payments and capital expenditures, we have approximately CAD 1.8 billion of cash and short-term investments at the end of March, as well as approximately $200 million of borrowings available under a revolving credit facility.
Approximately CAD 1.25 billion of cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from our ongoing operating activities. Leverage at the end of the fourth quarter, total leverage ratio is calculated on the terms of the amended senior secured credit facilities was 5.7 times to one. Telesat has complied with all the covenants in our credit agreement and indentures. In terms of our debt repurchases, we were active subsequent to quarter end and up to May 8, 2024, where we purchased debt with a cumulative principal amount of $219.5 million, in exchange for an aggregate cost of $98.9 million.
Combined with the debt repurchases completed in 2022 and 2023, Telesat has now repurchased the cumulative principal amount of $806.5 million at an aggregate cost of $438.3 million. Just about including the repayment in 2020 of approximately $341 million of the outstanding Term Loan B, combined with our repurchases, our overall debt has now been reduced by approximately 34% or $1.1 billion in US dollars. In addition, this also results in interest savings of approximately $55 million annually. A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning. Our 6-K provides the unaudited, interim, condensed, consolidated financial information in the MD&A. The non-guarantor subsidiaries shown are essentially the unrestricted subsidiaries with minor differences.
With that, I think we will conclude our prepared remarks for the call. I'm very happy to answer any questions that you may have. We will now turn back to the operator. Thank you.
Operator (participant)
Thank you. We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. So please press star one. At this time, if you have a question, there will be a brief pause while the participants register. We thank you for your patience. The first question is from Edison Yu from Scotiabank. Please go ahead. Your line is open.
Marcelo Tirmizi (Analyst)
Hey, good morning. Thank you for taking our questions. Mainly just some housekeeping ones. On the cash flows is quite strong in the quarter, despite the EBITDA declining. Were there any one-time benefits here? And how do you think this kind of trends for the rest of the year?
Andrew Browne (CFO)
No, I think our cash flows, I think, underscore the high margins that we've got. If you look at our GEO business, our margins are approximately 80%, and I think it's one of the great things of our existing business. Notwithstanding the fact that indeed, you know, we've identified that we will see, you know, drops this year, but that's, that's the underlying cash flow.
Marcelo Tirmizi (Analyst)
Understood. And then appreciate, obviously, the breakdown of GEO and LEO, and you've got some consulting revenue on the LEO side. Is the 1Q a good run rate to take for the rest of the year, the contribution from LEO consulting?
Dan Goldberg (President and CEO)
I don't think so. It's not a big part of our business at this stage. Obviously, not until LEO is sort of, you know, up and in service, late 2027, are we gonna see meaningful revenue. Up until then, there might be some more kind of incidental stuff. We're doing some work with the U.S. government that's sort of lumpy in nature, and I think this came from a contract that we have with NASA that we've talked about before, where we're demonstrating some features on LEO's ability to communicate with other in-orbit spacecraft. So, but it's kind of low to no margin stuff, too. It's a good thing for us to be doing, to be demonstrating capabilities and tightening the relationship with the important U.S. government user.
But, yeah, it's not kind of gonna be a big driver of our top line results or certainly our Adjusted EBITDA for the year.
Marcelo Tirmizi (Analyst)
Understood. Thank you.
Operator (participant)
Thank you. The next question is from Arun Seshadri, from BNP Paribas. Please go ahead. Your line is open.
Marcelo Tirmizi (Analyst)
Yes, hi, just a couple from me. First, just wanted to understand, so the Government of Canada is planning to take senior equity, you know, I guess, above the above lenders and shareholders. Is that right? Like, so, so their equity in LEO is going to be structurally senior equity ahead of, you know, existing lenders and shareholders?
Dan Goldberg (President and CEO)
So maybe a couple of things. I mean, there, you know, what we announced six weeks ago is that the Government of Canada, we reached terms with the Government of Canada on a roughly CAD 2.1 billion Canadian dollar loan, and we disclosed what the terms of that are. It's 15 years, it pays during construction. It's got a carries a rate of CORRA plus 475 basis points. So it is, it is, it's fundamentally a loan, and the Government of Canada will be the kind of, you know, a, alongside of the Government of Quebec and our, and the vendor financing that we're getting. It, it'll be the sort of senior secured lender in connection with the Lightspeed constellation and in the Unrestricted Group, where we're building Lightspeed.
So that's kind of number one. But yes, as part of the deal, there is kind of an equity feature. The Government of Canada is getting 10 warrants covering 10% of the equity in the Lightspeed project, and those warrants are struck at an equity value of $3 billion for the Lightspeed project. So anyway, I'm just trying to be responsive to your question about senior equity. It is kind of a form of equity participation in the Lightspeed project itself, as opposed to, you know, the common shares of Telesat Corporation.
Marcelo Tirmizi (Analyst)
So effectively, thank you for that, Dan. That was clear. So I think what you're saying is that it is effectively equity, I guess, at first preference on Lightspeed, and then the residual equity would be what flows through the equity of Telesat.
Dan Goldberg (President and CEO)
Yeah, I wouldn't think about it as first preference. I'd think about it that right now, you know, Telesat owns 100% of Lightspeed. And in the future, if the Government of Canada exercise these warrants, they would be an equity participant alongside of Telesat.
Marcelo Tirmizi (Analyst)
Okay. So you're saying it's not structurally senior equity, then? That it's actually-
Dan Goldberg (President and CEO)
No.
Marcelo Tirmizi (Analyst)
you know, alongside whatever equity there is.
Dan Goldberg (President and CEO)
That's right.
Marcelo Tirmizi (Analyst)
Understood.
Dan Goldberg (President and CEO)
Yep, that's exactly right.
Marcelo Tirmizi (Analyst)
And then is there any... I mean, I guess, like, is there anything specific, either direction? Is it, you know, as you finish off the financing, you know, would you—from the Government of Canada's perspective, would it make sense, you know, would it make sense for them to have the entire, the Telesat cash flow also be as credit support for that financing? Or is it, you know, I guess, on the flip side, would they insist that, Lightspeed be separated, you know, from Telesat in order to sort of finish off the financing? And I guess if the latter is the case, then would you—how would you manage solvency requirements to make sure that that happens?
Dan Goldberg (President and CEO)
So, maybe I'll start answering this. And, so first off, and just so everyone understands how this works, the Government of Canada is lending us money. It's gonna be, you know, in the unrestricted group, and the cash that Telesat Lightspeed generates is gonna be used to support the borrowings in that unrestricted group. And so again, we've mentioned that, you know, our funding sources beyond our own, you know, $1.6 billion equity contribution is going to be borrowings from the Government of Canada, the Government of Quebec, and, you know, some vendor financing. And so, you know, those borrowings are gonna be supported and secured in, or secured by, our Lightspeed activities.
So, yeah, so, you know, could in the future others potentially be, you know, behind the Government of Canada in terms of being supported by Lightspeed cash flows, or could, with the government's consent, something different be done? Yeah. But right now, that's kind of how it's set up. I think we've always been pretty clear about how Lightspeed's getting financed and the fact that we've got a restricted group and an unrestricted group. And I mean, it's fundamentally being project financed, and our financing sources are Government of Canada, Government of Quebec, some vendor financing, and then again, our own meaningful equity contribution. So I hope that's helpful. And then we should probably move on. Yep.
Marcelo Tirmizi (Analyst)
Yes. You know, I think that's very helpful, Dan. And then, like, can I ask one last thing? And that is, I noticed that the Restricted Payment hasn't fully been made yet. Just would you... I guess, the expectation is that Restricted Payment will be made, and then, once that's done, are there any other things that need to be done to put a bow on, you know, I guess, what else needs to be done from a timing standpoint to put a bow on the all of the financing requirements? Thanks.
Dan Goldberg (President and CEO)
The Restricted Payment, I think it's $125 million.
Speaker 10
120, yeah. Yeah, there's a remaining restricted payment of $150 million--$120 million-
Dan Goldberg (President and CEO)
Yeah.
Speaker 10
to be made under the $150 million general basket.
Dan Goldberg (President and CEO)
Yeah, and we expect that will get done in the coming days.
Speaker 10
Yes, coming days, correct.
Dan Goldberg (President and CEO)
And then beyond that, again, we'll, you know, at this point in time, we've got all of the financing lined up for the 156 satellites. We do need to conclude definitive funding agreements with those sources that I've described, Government of Canada, Quebec, and the vendor financing. But we've already kind of started down that road and are highly confident that we're gonna get there. So that's, I'd say, the final, you know, bow that needs to be tied. But we're moving forward, as we said in our remarks. I mean, we've got meaningful cash on our balance sheet at this point in time, and we're gonna start spending that money so that we can move this program forward as quickly as we can, because...
We are hugely bullish on the opportunities that are out there in the market, and we want to come to market and get in service as quickly as we can.
Marcelo Tirmizi (Analyst)
Thanks very much.
Dan Goldberg (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Chris Quilty, from Quilty Space. Please go ahead. Your line is open.
Chris Quilty (Partner)
Thank you. So Dan, just to follow up and, you know, I'm not going to hold you to it, but on the Government of Canada, Government of Quebec, and the vendor, is that something that, you know, in the next 3-6 months sort of time?
Dan Goldberg (President and CEO)
Yeah, yeah, yeah.
Chris Quilty (Partner)
Obviously-
Dan Goldberg (President and CEO)
Yeah. Yes, Chris. Yeah, no, we, you know, we believe that should get done before the end of the summer. And hopefully, you know, yeah, we've got a lot of momentum with the Government of Canada, as you can imagine, and the Government of Quebec, which are the big contributors here. So yeah, we're talking about, you know, in the coming months.
Chris Quilty (Partner)
Gotcha. So I was gonna say, the summer ends in October in Florida, but I'm assuming you're talking
Dan Goldberg (President and CEO)
Well, I'm working on an Ottawa summer, which ends a little bit earlier. It hasn't... Yeah. Anyway, spring hasn't really even shown up yet, so, anyway, yeah.
Chris Quilty (Partner)
Yeah, so, and also the CapEx in Q1, I mean, obviously, you, you just closed the financing deal, but CapEx in Q1 was a little bit lower than I was expecting. Is it fair to assume you're probably more towards the CAD 1 billion than the CAD 1.4 billion? And, you know, Andrew, typically, in these large-scale, long-term programs, is it fair to assume, you know, year one, 30%, year two, 40%, year three, 30% type of, you know, of, of how it falls out in timing? Or should we look at this as sort of a, a longer, slower climb? Just general framework of, how you expect it to pan out.
Andrew Browne (CFO)
Yeah. I think, Chris, that, you know, given the nature of the program, you know, on supply chain and getting everything sort of moving forward, so I think in this year that we, you know, our guidance, 1-1.4, we think that's a, that's a solid number. And so by implication, it means we'll see kind of more payments upfront as we get all of the suppliers in place. So that's probably the best way I would characterize it. And then thereafter, as we go through the different milestones over the next 2-3 years, it'll be more of a kind of a slow pace to the contract and the, you know, the operational milestones, Chris.
Chris Quilty (Partner)
Great. One other question for you, Andrew. The you had given the expected OpEx for the Lightspeed program. I'm assuming that is OpEx that's running through the PNL and strips out, you know, whatever is getting capitalized. And can you-
Andrew Browne (CFO)
Yeah, correct.
Chris Quilty (Partner)
Give a sense of what is getting capitalized in, you know, as part of the program? And is that, you know, again, if as the construction goes and more gets capitalized, do we see that Telesat OpEx staying flat because everything gets rolled into capitalization? Or do you expect it to grow, you know, in the out years? I mean, it's gonna grow in the out years, but-
Andrew Browne (CFO)
Yeah. Yeah.
Chris Quilty (Partner)
Necessarily.
Andrew Browne (CFO)
So in terms of the sources and uses, we try to make it a little bit clear in terms of the CapEx spend is third-party CapEx spend, so with vendors. So in that regard, you know, the capitalized costs are there. In terms of the overall level of effort, you know, the amount of capitalized staff, we build up, we ramp up our staffing infrastructure quite rapidly, and therefore, you get to sort of a constant state relatively quick in the program in terms of the level.
Chris Quilty (Partner)
Understand. Another question, I mean, you've predicted the data side of the business, you know, being down about $75 million. As some of those contracts roll off, have you programmed in being able to resell some of that capacity? And, you know, what sort of luck have you seen on the data side in reselling data?
Dan Goldberg (President and CEO)
Yeah. Oh, for sure, we assume that there's some capacity that has come back into inventory that we'll resell, and I suspect we've already resold some of it. And the guidance that we gave for this year will have kind of captured our assumptions, at least about all of that. Was there another part to your question, Chris?
Chris Quilty (Partner)
No, that was it. It was that simple.
Dan Goldberg (President and CEO)
Okay. Yeah.
Chris Quilty (Partner)
But I will ask you a difficult question, which is the elephant in the room question, Intelsat SES. And you'll probably have Lightspeed on orbit before the regulators get done with that, but, you know, what are your general thoughts on that transaction and how it impacts you?
Dan Goldberg (President and CEO)
Yeah. Well, first off, I mean, we all know that those were conversations that have been taking place between SES and Intelsat some time ago. And they both confirmed that there had been discussions, and then they both, you know, they each announced that those discussions had come to an end. But yeah, I was never, I'd say, persuaded that, you know, that that was the end of it, so it wasn't a big surprise to us, I'd say, that they made the announcement that they did recently. And I think it's. That announcement, I think, fits within kind of the same framework that we've been talking about for a little while, which is to say the industry is changing quickly.
There are these new entrants and, you know, Starlink and, and in the future, Kuiper, that are impacting the industry, and, and we all believe that industry consolidation, you know, would be a response to that. We've seen some already with Viasat and Inmarsat and Eutelsat and OneWeb, and now this big transaction as companies kind of organize themselves to remain competitive in this changing landscape. For us, I don't think it's going to have any real impact in terms of how we compete in the market, what the prospects of Lightspeed, and the like are. We've been competing against each of them, you know, for decades now, and they've each, you know, they're already each, you know, meaningfully larger than Telesat.
Coming together, obviously, they'll be larger still, but I don't think there's anything that should be, you know, too dramatically different in, in the combined competitive profile versus us competing against each of them, individually. So, yeah, you know, all to say, we weren't surprised. It fits with our expectation that, consolidation would happen in the industry. It's probably not the last deal. Certainly, there'll be, you know, there are fewer players as more consolidation takes place, but I suspect that, you know, there could be more consolidation still in the future. So anyway, that's how we think about it. And, again, I mean, we're, you know, actions speak louder than words.
You know, our vision is that, and I don't think it's even a vision anymore. I think we're all watching it real-time. There is a transition that's taking place in the industry right now as, particularly, you know, what we think of as, you know, enterprise users, which is to say non-video. It's in the process of transitioning off of GEO and down to LEO, and for good reason, something that, you know, we saw coming, something that, you know, we think that we're well organized for with our plans for Lightspeed. So anyway, that's where our focus is right now, just making sure that we execute well on Lightspeed and bring to the market what we're convinced our addressable market is focused on.
So our enterprise customers, government customers, and the aero and maritime customers, they're, they're wanting, you know, affordable, high throughput, low latency, distributed, resilient, kind of seamlessly connected, connectivity, and we'll be able to deliver that in Lightspeed.
Chris Quilty (Partner)
Great. I appreciate it, and I hope spring comes soon for you.
Dan Goldberg (President and CEO)
Thank you, Chris.
Andrew Browne (CFO)
Thanks, Chris.
Operator (participant)
Thank you. The next question is from Marcelo Tirmizi, from Ares Management. Please go ahead, your line is open.
Marcelo Tirmizi (Analyst)
Hey, guys. Thanks for taking the question. You said earlier in response to a question that you will be making a CAD 120 million restricted payment in the coming days. Given that you already have such a significant amount of cash at the LEO entity and are waiting to spend the money until once you finalize terms later this summer, what is the rush to make the cash transfer so soon?
Dan Goldberg (President and CEO)
Sure. Hey, Marcelo, thanks for the question. First off, I think the... I'm looking at our first-
Speaker 10
It's $150. It's $120.
Dan Goldberg (President and CEO)
Yeah. So the payment is $120. And then as far as urgency, look, we're moving forward with Lightspeed in advance. And by moving forward with Lightspeed, I mean, we are going to be spending meaningful amounts of money this year. You've heard the CapEx guidance that we've given. In advance of completing these definitive agreements, we have a sufficiently high level of confidence on the one hand, that we'll conclude those definitive agreements, and on the other hand, you know, kind of a strategic urgency to get going with the Lightspeed program.
So we're moving out, and when we talk about the CapEx spending that we've guided to this year, that—like, we're opening the spigots now, and MDA is going to be and our other vendors, you know, contracting with the supply chain, ordering parts, hiring people. We're moving out here. So that's the plan. That's what we'll be doing.
Speaker 10
That makes sense. And in terms of discussions regarding an extension on your revolving line of credit, I know it's due later this year. I know today you're in compliance with the revolver covenant, but if I roll forward your leverage ratio to year-end based on the guidance, and I understand you're not tested today since there's no revolver usage, but, and I think the company may not be in compliance by year-end. Like, do you think that could impact a revolver, or do you think it's fine without having a revolver? How are you thinking about discussions?
Michael Bolitho (Director of Treasury and Risk Management)
... Okay. Yeah, Marcelo, it's certainly something that we look at, that we review. You know, we have a business that generates—our GEO business, as we just talked about earlier, a few minutes ago, is still generating cash. And, you know, in terms of a revolver, in 17 years, I believe we have drawn a revolver once.
Speaker 10
Yeah, totally makes sense. And just one last question on utilization that has declined so much sequentially, I know there's an interplay between utilization and then just, like, what your pricing per transponder is. Can you talk about just, like, when you think about utilization, like, are you targeting a certain utilization, or how do you think about where utilization is versus where you wanna be?
Dan Goldberg (President and CEO)
Yeah, no, I'll take it. Yeah, we target 110% utilization, to be honest with you. I mean, that's, that's where we'd like to be. Probably everyone does, but barely anyone really gets there. I still think even with the decline in utilization that we've had, we still probably have one of the highest asset utilization numbers in the sector right now. We concluded this quarter at 77%, but it is down meaningfully from where we ended Q4, which was up and around 85%. And what's driven that, the biggest culprit has been the business we've lost in the maritime space.
Fundamentally, we talked about that on our last call, that you know there was some renewals that we did not secure, particularly in the maritime space, that have moved mostly as far as we can tell over to Starlink. And I'm not gonna you know guide right now on you know what we think utilization will be in the future, but we're focused on remarketing that capacity. From a pricing perspective, there's been downward rate pressure in the industry for you know years now. And the you know the kind of the slope of that decline has varied throughout those years. So we were you know seeing significant downward pricing pressure. I'm looking at one of my colleagues, probably five or six years ago. It moderated.
It was still downward price pressure, but the extent of it had moderated. And again, I'm speaking as if, you know, we're living in a homogeneous world. It really varies by region. And we had noted before that probably where we were seeing the steepest declines were in Africa, in Latin America. But again, things started to moderate a little bit. Right now, I'd say, the slope of the downward pressure is probably picking up a little bit again, but not dramatically. So anyway, so... But look, I mean, the laws of supply and demand are alive and well in our industry, like in others. And so, yeah, but that's what has accounted for the decline in utilization. It's mostly been in the maritime space.
There is some downward pricing pressure, but not what I would describe as sort of extreme at this point.
Marcelo Tirmizi (Analyst)
Great. Thanks so much.
Dan Goldberg (President and CEO)
Okay, thank you.
Operator (participant)
Thank you. The next question is from Matt Lapides, from Abry Partners. Please go ahead. Your line is open.
Matt Lapides (Managing Director)
Hey, guys. Thanks for all the color here. Wanted to follow up on the maritime comments. Can you talk about what type of maritime customers you've been losing? Are they cruise lines? Are they large global shipping companies? Are they both? Are they personal, you know, yacht segment? Just any color you can provide on the type of maritime customers where you're seeing the most defection, I suppose-
Dan Goldberg (President and CEO)
Yeah, yeah, yeah
Matt Lapides (Managing Director)
would be helpful.
Dan Goldberg (President and CEO)
Yeah, the biggest has been in the cruise space. And in particular, probably for us, in the Caribbean. We just had, you know, a meaningful amount of capacity there. So I'd say that accounts for the lion's share of the losses, cruise in Caribbean. And then there's, you know, probably on the margins, there's been some erosion. I don't know, maybe maritime transport and stuff like that, but the driver's been cruise.
Matt Lapides (Managing Director)
Got it. Can you talk about how much of that business, if you look back three years ago, how much of it is now gone? I mean, is there more of it to come is really what I'm trying to get at.
Dan Goldberg (President and CEO)
Yeah, we've been, you know, staring at that. I'll ask my colleague, John. We've absorbed a lot of the hit. John, do you wanna offer any thoughts around that?
Speaker 10
Yeah. If you go back three years, that's probably not the right time to go back to, because in the past two years, we had some pretty significant increases in maritime. But from the past two years to this year, we're expecting roughly half the revenue decline that Rusley has?
Dan Goldberg (President and CEO)
From where we were.
Speaker 10
From where we were over the past couple of years.
Matt Lapides (Managing Director)
Yeah, that, that's helpful. And then just one follow-up to an earlier question about the Government of Canada's equity position in LEO. I just wanna make sure I understand the flow of funds. If, you know, five, six years from now, Lightspeed's up, it's everything you hoped it would be in terms of generating lots of cash, and in the LEO subsidiary business, if there is excess cash flow after servicing the debt, there's a dollar of excess cash flow, where does that extra—first dollar go to? Does it go to the equity holder, does it go to the equity holders of the LEO subsidiary, or is it shared ratably amongst up at the ultimate holding company, such that all stakeholders would get their pro rata share of that dollar?
Dan Goldberg (President and CEO)
There's nothing in the contemplated definitive documents that we're talking about that would ratably share that between the equity holders of Telesat Corporation and Telesat LEO. No.
Matt Lapides (Managing Director)
Okay. Thank you for clarifying. That's it for me. Appreciate it.
Dan Goldberg (President and CEO)
Thank you.
Operator (participant)
Thank you. The next question is from David McFadgen from Cormark Securities. Please go ahead. Your line is open.
David McFadgen (Analyst)
Okay, thank you. Yeah, a couple of questions. So if I understand you right, I think you said that you expect to conclude the definitive agreements with the government, and it could take as long as to the end of the summer. Is that, is that correct?
Dan Goldberg (President and CEO)
Yeah, yeah. Again, I mean, we're dealing with the Government of Canada here, so can't be too precise about the timing on when exactly it would come to a close, but that's our expectation, given the momentum that we have and what an extensive blueprint we have in terms of what the terms are. Yeah, we think that having this done by the end of the summer is a realistic timeline.
Okay. And so even though you may not have those agreements concluded until the end of summer, you're still gonna spend CAD 1 billion-CAD 1.4 billion, and I guess you can do that because you have all that cash sitting in the non-restricted set. Is that, is that what gives you the confidence to just spend the way you are?
Well, it gives us... I mean, what gives us the confidence to spend that money before having the definitive agreements concluded is just a lot of conviction that we'll get those definitive agreements done, given all the good work that we've done with these funding sources and how much these funding sources wanna see this project move forward. And then, as I said, on the other hand, we gotta get going. We've got pricing locked in with our suppliers, and we've got a great opportunity out there in the market. Our customers are wanting us to have, you know, this service available to them as quickly as we can. If they had their way, you know, we'd have it, you know, available, like, now.
So we gotta move, and waiting around for another 3 or 4 months, knowing, as we do, and we believe that, again, a high degree of confidence that we're gonna get all this funding that we need, just, you know, doesn't seem to be, on balance, the right thing to sit on our hands and go through a process that we're pretty, you know, have a lot of conviction about where we're gonna land, with these funding sources. We so, yeah, so we've decided to move forward and move forward with speed.
David McFadgen (Analyst)
Okay. And so I would imagine that the vast majority of that spend might be, will be on satellite build and design and everything, correct?
Dan Goldberg (President and CEO)
The most significant portion of the CapEx that we'll be investing this year is, yeah, it's gonna go towards satellites. There'll be some launch payments. There'll be some other stuff for user terminals and landing stations, but the biggie will be, you know, our friends at MDA giving them the cash that they need to turn on their supply chain and move forward.
David McFadgen (Analyst)
Right. And so because MDA is prime contractor, all that money is gonna go through MDA, right?
Dan Goldberg (President and CEO)
I wouldn't say all of it, but I'd say a very meaningful portion of it.
David McFadgen (Analyst)
Right. Okay. Okay. And then, just a question on your, you know, the fact that you've lost some business to maritime, you think it's going to Starlink. It's my understanding that Starlink doesn't offer any SLAs, and you would, when you have Lightspeed up, you would offer SLAs, so wouldn't that give you a competitive advantage?
Dan Goldberg (President and CEO)
Yeah, we think it will. But we need our Lightspeed constellation to deliver the service, so that's why we're bullish about our prospects to take, you know, the market share that we need in order for that project to be successful. I think there are a number of features of the Lightspeed constellation that will give us a good competitive advantage and allow us to present a tremendous value proposition to the customer community, the ability to provide SLAs and CIR and give our customers an enormous amount of autonomy to manage the bandwidth that they'll be contracting from us. I think all of those things will allow us to be successful. But yeah, David, that's one of the features for sure.
We'll be offering our customers SLAs, and we think that's important to some subset of them.
David McFadgen (Analyst)
Okay. All right. Thank you so much.
Dan Goldberg (President and CEO)
Okay, thank you.
Operator (participant)
Thank you. The next question is from Alex Nolan from Invesco. Please go ahead. Your line is open.
Alex Nolan (VP)
Thanks. My question was answered. Wasn't able to take myself out of the queue. Thanks.
Dan Goldberg (President and CEO)
Thank you.
Operator (participant)
Thank you. Once again, please press star one on your device's keypad if you have a question. The next question is from Walter Piecyk from LightShed. Please go ahead. Your line is open.
Walt Piecyk (Analyst)
Thanks, Dan. I apologize if this is kind of a redundant question, but I've kind of heard this. I wanna make sure that this is put to bed. This: MDA will start constructing these satellites prior to you finalizing the agreements with the Government of Canada, correct?
Dan Goldberg (President and CEO)
Correct.
Walt Piecyk (Analyst)
Okay. And then in terms of the overall market, you know, now that you've seen a little bit more of what Starlink has been doing, different verticals they've gone into, I'm not sure many people, at least initially, expected them to go after maritime. I know that there were some of your peers that were claiming they couldn't do airplanes and that are on airplanes. Just curious, when you look at the market opportunity for your LEO constellation, has it changed at all or as you kind of approach construction now?
Dan Goldberg (President and CEO)
I don't believe so at all. It and listen, you know, Starlink's having a big impact on the market, and they're having an impact on our business, which, you know, I don't love. But what I do love is, it is, I think, 100% validated the strategic direction that we took Telesat in going some years back. And you're right, there were folks that doubted whether they'd penetrate the maritime market and the, you know, backhaul market and doubts about the aero market. We were convinced that a LEO architecture was, you know, not only a good infrastructure to support those services, but one that would have a significant competitive advantage, and Starlink is demonstrating that in real time. And so...
But no, our market thesis, our business plan, it's intact. Yeah, we're seeing—yeah, here again, for me, it's just reinforced everything. Our customers know now that LEO is the best way to address so many of these requirements. They are taking services from Starlink, and it provides, you know, a pretty good service, but it doesn't give everything, it doesn't give everyone everything that they want. We've talked about, you know, the SLAs. We've talked about their ability to manage their own bandwidth pools and whatnot, so it doesn't give enterprise users everything they need, number one. Number two, the customers don't wanna put all of their requirements with one supplier.
They don't do that with all sorts of their enterprise, you know, infrastructure, whether it's cloud or, you know, internet connectivity, kind of writ large, whether it's satellite or not. So they want multiple providers. Yeah, there's huge opportunity here. So there's nothing that we've seen in Starlink that causes us to question the, you know, various assumptions that we made when we got ourselves on this Lightspeed path. If anything, all of our thinking around the immensity of the opportunity and why LEO will have a competitive advantage capturing those requirements has been validated by everything we've witnessed over the last, you know, 12+ months.
Walt Piecyk (Analyst)
You know, on past calls, I talked about, or we talked about, the ability to sign up, you know, people to, you know, pre-reserve the capacity, right? Existing enterprise customers or maybe new ones saying, "Hey, we're gonna take part in this." And I think the issue was, you know, getting to that point of finalization, and that once that occurred, we might be able to see some of those press releases start to hit. You know, understanding that things aren't financed, or excuse me, finalized, if you started the construction, isn't that sending enough of a message to these customers that we can start seeing some releases from you guys or some indications of enterprises, signing up for capacity on the new constellation?
Dan Goldberg (President and CEO)
Yeah, listen, you're right. I think, you know, calls like this one and we're in a small industry, so when this supply chain all gets under contract, you know, that'll ripple through the industry. If anyone had any doubts about whether or not Telesat was gonna proceed with this program, those should be put to rest if they haven't already been put to rest, you know, I think they should be put to rest in the coming days and weeks. But, so I think that it will be a great sign to the customer community that, you know, Lightspeed is coming. And look, we're only about two years away from launching our first satellite, so, right, it ain't that far away.
And we are gonna be very focused on trying to secure customers and making those announcements and reporting backlogs so that, you know, all sorts of different audiences can track the progress we're making. My own expectation is, it'll still be closer to in-service, when, you know-
Walt Piecyk (Analyst)
Mm-hmm
Dan Goldberg (President and CEO)
We're able to make more of those announcements. But I still have an expectation that we'll be able to announce, you know, commitments, you know, in advance of being in service. And you can imagine that with all of my colleagues here on the commercial side, we're very focused, and we're very engaged with the customer community right now, and they're excited about Lightspeed. So yeah, all I'd say there is stay tuned. We're very focused on that, and we'll be very transparent about the commitments that we get.
Walt Piecyk (Analyst)
If I can, just one last one on EchoStar. I mean, they're facing some financial distress, particularly, as they approach the end of the year, which is I think the time for a renewal. Have you had any preliminary discussions? Any, any thought on that might, how that might play out?
Dan Goldberg (President and CEO)
Well, you know, we talked about what one of the headwinds that we're facing this year is an expectation that... And they use—the renewal that we have coming up, it comes up in October, is on our Nimiq 5 satellite, which they use, they're the exclusive user of that satellite. And so, you know, the guidance that we gave for this year, you know, captures all sorts of different outcomes that we might get there. And on the last call, we had said that we've started the conversation with EchoStar about their thoughts about whether, you know, they're gonna wanna renew or not. But we haven't advanced it that much since we had our last call just six weeks ago. And so it's not clear to me where we'll end up.
I think regardless of the scenario, we're going to see a meaningful reduction in the amount of revenue that we recognize from Nimiq 5 post, you know, renewal date in October. But whether they renew all of it, some of it, or none of it, it's still not clear to us at this point in time, and we've got a great relationship with EchoStar. We've worked with them for years. We know that Nimiq 5 is being used to distribute content today to their subscriber base. We know that, you know, they do have a lot of other things that they're focused on, and saving cash is pretty high on that list.
So anyway, all to say that, yeah, we'll give an update once we have one, but right now we don't have an update from the call that we had just six weeks ago.
Walt Piecyk (Analyst)
Got it. Thank you.
Dan Goldberg (President and CEO)
Thank you, Walter. Thanks, Walter.
Operator (participant)
Thank you. At this time, we will turn the call back over to Mr. Goldberg. Please go ahead.
Dan Goldberg (President and CEO)
Okay. Well, operator, thank you very much, and everyone, thank you for joining us this morning. And we look forward to chatting with you when we release our Q2 results. So thank you all, and have a nice weekend.
Walt Piecyk (Analyst)
Thank you. Carry on.
Operator (participant)
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.