Telesat - Earnings Call - Q3 2020
October 29, 2020
Transcript
Speaker 0
Good morning, ladies and gentlemen. Welcome to the Conference Call to Report the Third Quarter twenty twenty 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 Beliso, Director of Treasury and Risk Management.
Please go ahead, Mr. Beliso.
Speaker 1
Thank you, and good morning. Earlier today, we issued a news release containing Telesat's consolidated financial results for the three month and nine month periods ended 09/30/2020. 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 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 additional information about known risks, we refer you to the Risk Factors section of our annual report on Form 20 F for the 2019 fiscal year filed with the SEC on 02/27/2020, and our quarterly reports filed with the SEC on 04/30/2020, 07/30/2020 and earlier today. The information that we are discussing today reflects our expectations as of today and is subject to change. I accept as required by security laws, Telesat disclaims any obligation or undertaking to update or revise its information, whether as a result 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
Thanks, Michael, and good morning, everyone. This morning, I'll discuss our third quarter and year to date financial results and give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in more detail, and we'll open the call up to questions. For the third quarter and adjusting for FX, revenue was down 14% relative to Q3 last year. Adjusted EBITDA was down 19.5%.
And our adjusted EBITDA margin was 80%, which is lower than the roughly 86% we had in the prior period. The revenue decline was driven by two contracts we've discussed on prior calls. First, the nonrenewable by Shaw at the end of Q3 last year of one of its DTH contracts and second, the end of the revenue amortization period of a large prepayment we received years ago from WildBlue on our Anika-two satellite, each of which has a roughly three percent top line impact with the WildBlue one being non cash. In addition, in Q3 last year, we recognized revenue from a short term satellite services agreement with another satellite operator, something that didn't recur in Q3 this year. Lastly, and of less consequence than these other factors, we had some revenue headwinds owing to COVID.
OpEx was up by approximately $4,000,000 in the quarter versus Q3 last year, principally from increased compensation driven by our LEO program as well as higher fees for professional services. And turning to our results for the first nine months of the year and again adjusting for FX, revenue decreased 10% versus the prior period, OpEx was up 16%. Adjusted EBITDA was down 16%. And the adjusted EBITDA margin was nearly 80%, which was down from nearly 85% last year. The revenue and expense variances were in the main, driven by the same factors accounting for the changes Q3 over Q3, but with the addition of some COVID related bad debt expense we recognized in the first half of this year.
Turning to some key metrics. Backlog at the end of last quarter was 2,800,000,000 and fleet utilization was 81%. And looking at how our revenues broke down on an application basis for the quarter, Broadcast was 51% of total revenue, Enterprise Services 46% and Consulting and Other 3%. On a geographic basis for Q3, North America accounted for 82% of revenue, Latin America 8%, EMEA 5% and Asia 5%. Looking ahead, we remain strongly focused on commercializing our available in orbit satellite capacity, maintaining our operating discipline, further developing our advanced LEO constellation and leveraging our valuable spectrum rights, all while we're doing everything we need to do to keep our employees safe and support our customers through the pandemic.
So with that, I'll hand over to Andrew.
Speaker 3
Thank you, Dan. Good morning, everyone. I would now like to focus on highlights on this morning's press release and filings. Overall, as Dan has noted, in quarter three, we achieved revenues of $2.00 $2,000,000 adjusted EBITDA of $162,000,000 with over $1,200,000,000 of cash on the balance sheet at quarter end. This is an increase of approximately two fifteen million since December 2019.
Our adjusted EBITDA was driven by lower revenues and higher operating expenses. The revenue decline was partially driven by two contracts we anticipated and discussed on our prior calls. Firstly, the non renewals I saw at the end of Q3 last year of 168 contracts and secondly, the end of the revenue amortization period of a large prepayment that we received several years ago from WildBlue, now BioSaf on our Anak F2 satellite and is noncash. We know the two factors, unanticipated at the beginning of the year, have an impact on our revenues, lack of opportunities to provide short term services to other satellite operators and the impact of COVID-nineteen pandemic. In the 2019, we provided short term service to other satellite operators, and that revenue we did not see in 2020.
Operating expenses were up €4,000,000 in the quarter versus the same quarter last year. The increase is mainly attributable to higher compensation and professional fees incurred in support of our lower air corporate program. We made no further bad debt provisions during the quarter. Our adjusted EBITDA margin was 80.4 as compared to 85.7% in the 2019. Comparing the 2020 with the same period in 2019, changes in the U.
S. Dollar exchange rate had a negative impact of €1,000,000,000 on revenues, no impact on operating expenses and a negative impact of €1,000,000,000 on adjusted EBITDA. Depreciation and amortization decreased by €9,000,000 during quarter three compared to the same period in 2019. The decrease was mainly due to the useful life for accounting purposes of Teletub and a cash utilized in the 2019. Interest expense decreased by $4,000,000 in the 2020.
This decrease was mainly due to the refinancing of Telenetoc's debt at lower interest rates in the 2019. In the third quarter, we recognized the gain of $6,000,000 on financial instruments, reflecting changes in interest rates during the quarter and consequent changes in the fair value of our interest rate swaps and the prepayment options on our senior and senior secured loans. In 2020, as the value of The U. S. Dollar decreased by about 1.9% from the end of the 2020, We also recorded a gain on foreign exchange of $66,000,000 during the fourth quarter, which arose from the translation of Telegraph's U.
S. Dollar denominated debt into Canadian dollars. Tax expense for the quarter was 16,000,000 For the nine months ended 09/30/2020, cash inflows from operating activities were $300,000,000 and cash outflows used in investing activities were $78,000,000 As noted on our 03/01/2020 call, we continue to expect our cash outflows used in investing activities to be in the range of USD 60,000,000 to USD 80,000,000 during 2020, including capital expenditures we may make in connection with our LEO constellation prior to making a full commitment with our prospective suppliers. There may be meaningful additional CapEx this year in connection with LEO if we enter into definitive contractual commitments to build the Constellation. If we make such commitments, we would expect to update our CapEx guidance accordingly as we go forward.
To meet our expected cash requirements, the next twelve months include interest payments and capital expenditures with approximately $1,200,000,000 of cash and short term investments at the end of the second quarter as well as approximately $200,000,000 of borrowings available under our revolving credit facility. Approximately $444,000,000 in cash was held in our unrestricted subsidiaries, in addition we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the quarter, K-twelve has complied with all covenants in our credit agreement and debentures. A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning. So with that, that concludes our prepared remarks for this call, and I'm happy to answer any questions you may have.
I will now turn back to the operator.
Speaker 0
Thank you. We will now take questions from the telephone lines. The first question is from Mike Pace with JPMorgan.
Speaker 4
Hi, good morning, everyone. I guess, Dan, in the past, I think, this is going back a few years ago, I guess, you talked about the percentage of your business that you thought was susceptible And I'm wondering if you guys have thought about that same question for LEO capacity. Obviously, some of it would be from you. And how you think about how those existing customers might, could, would transition to a LEO constellation?
Does that make sense economically for them with switching costs, etcetera? So if you could start there. I have a few follow ups as well.
Speaker 2
Yes. Thanks, Mike. We've done a lot of work on that actually, evaluating kind of our existing customers and looking at how their networks are configured and making judgments about which of those would sort of be logical candidates to transition to LEO over time. And so obviously, it's not our ZTH business. I got to say there's a bunch of background noise.
I don't know if there's somebody that can if the operator can help out. So the DTH is a little bit less than half of our total revenues. That wouldn't go. And then there are in our non DTH business, there are, yes, some set of requirements that look like they'd be a really good fit for LEO networks that are, yes, just very much focused on big broadband links, which is what LEO is really well optimized for. And I would say, probably true for a significant part of maritime activities, particularly cruise and we think aero as well.
We think those are our customer segments that would be natural. So beyond that, I wouldn't want to make any, I don't know projections just at the moment on kind of what portion of our current enterprise business would move over to LEO. But at a high level that's what it looks like. And I would say transitioning customers doesn't happen overnight. It's a lot of work to go into the field.
Certainly, even for the customers that would maybe excluding the mobility customers Aero and Maritime whose antennas already can track. But it wouldn't happen without a meaningful amount of work even with those customers to track. At a minimum, they're going to need a new modem that's compatible with our new LEO system. But over time, look,
Speaker 3
we
Speaker 2
think that LEO is going to be just a phenomenally compelling value proposition. It's going to be super high throughput, super low latency, extraordinarily reliable, extraordinarily secure and we can achieve a price point that is lower than what can be achieved with GEO. So anyway, Mike, those are just some high level thoughts.
Speaker 4
I guess to follow-up on that, another question I had was, I think it was in the last call that you said that you're not really going after the consumer broadband place. And I do realize, right, your business model is more of a wholesaler. But I guess, does that tell us that personally that isn't going to go after a consumer broadband vertical? Or could resellers might come in, buy your capacity and take on that segment? Or is the does the business case not make sense for consumer broadband for your LEO constellation?
Speaker 2
Well, I mean, it's you're right. I mean, we're focused on more of a B2B orientation when it comes to right? I mean, are four verticals we're focused on: backhaul connectivity for mobile network operators and telcos and ISPs, aero, maritime and government services. For that first category, it's absolutely the case that telcos, ISPs, others are going to be taking our capacity and then providing a service to their customers, many of whom are consumers. That's how it works today with that vertical that we serve and it's absolutely going to be the case with LEO, that will be five gs, it will be LTE, it will be WiMAX, Wi Fi, it will be all that.
I guess what you're driving at though is, will those enterprise customers do kind of a direct to home business? Will they take a Telusat LEO terminal and install it on somebody's house? That's not really our focus. And I don't think those aren't the conversations that we're having today with our telco ISP customers. And yes, and the reason is we're still skeptical that the antenna that would go on a consumer's home is going to be low cost enough and high performing enough for that to make sense.
I do believe in the fullness of time, whatever the hell that means, that that antenna will be available and that our Constellation can support going to the consumer market when that antenna is cheap enough and capable enough. But that's not on our kind of near term even medium term roadmap. But what do I know? If that antenna comes a little bit sooner than we would expect, and it should come, right? It's going to be the great thing about being in Ka band is it leverages the whole millimeter wave five gs ecosystem, all the antennas and chipsets that are going be built for that.
But in any event, it's not on our kind of near term, medium term roadmap. And if it comes sooner, that'll be great. That'll be upside for our business case. But it's not how we're thinking about it right now.
Speaker 4
Okay. Fair enough. And then as it relates to Canadian C band, and again, I know this has been brought up before, but just is there can you give us a quick refresh, if there is, on any regulatory deadlines or milestones or any updates that you've had with regulators since the last time we spoke?
Speaker 2
Yes. No, it's timely. I mean, think let's see, the Government of Canada issued a what is called a consultation. It's like a rulemaking proceeding in The U. S, issued a consultation document in August proposing to reallocate some C band spectrum to for mobile terrestrial use, principally five gs, not unlike is what is the plan south of the border to free up C band spectrum and make it available for mobile network operators for five gs.
They appended to their consultation Telesat's own proposal that we made to the Government of Canada. That, as far as I know, was unprecedented that the government would append a private party's proposal to a consultation like that. Comments were actually due on Monday, so earlier this week. We believe there's going to be strong support for the proposal that we've made. And at a high level, our proposal is that we would meaningfully accelerate the clearing of C band spectrum so that it can be made available to Canadian mobile network operators.
At the same time, that other mid band spectrum is planned to be made available. The government of Canada right now plans to auction 3,500 megahertz spectrum in June. And under the Telesat plan, we would double the amount of spectrum, mid band spectrum that's available for both network operators in that time frame. So in any event, our comments went in on Monday. And again, we don't have access to all of those comments at this point.
They haven't been published yet. But we think there's going to be some strong support for our proposal. We believe it is really the only path where lots of mid band spectrum can be made available in the near term for five gs and being able to make that spectrum available without prejudicing the important services that are currently being provided with that spectrum. And it's much like in some ways, it's like in The U. S.
It's broadcast. But here in Canada, in addition to broadcast, it's rural broadband services, it's public safety services, it's national security services. So you've got to find a way to seamlessly transition those users if that spectrum is going to be made available for five gs and Telusat's come forward really with the only plan to do that. So anyway, came in on Monday. Reply comments will be due in a couple of weeks.
The record should be ripe for consideration by the end of this year. And so we'll see. But I'd say that's the update. I'm cautiously optimistic that our plan will be the one that is adopted just because we think that more than anything else advances kind of all the key policy objectives, getting five gs out there, not prejudicing the existing important services and giving Telesat some proceeds that we've committed to invest in our LEO project, which the government's been a strong supporter of because it is a great way to bridge the digital divide here in Canada and create a lot of jobs in an export driven sector, which is to say kind of a new space economy. So anyway, that's what it looks like to us right now, Mike.
Speaker 4
Great. I'll leave it at there. Thank you.
Speaker 5
Thank you.
Speaker 0
The next question is from Robert Struggall with RIS Investments.
Speaker 2
The LEO,
Speaker 3
pretty expensive. You mentioned you have $1,000,000,000
Speaker 2
Robert, I'm afraid we you're breaking up and that we can't hear you very well.
Speaker 3
It's going to be expensive to build out. Am I right about that?
Speaker 5
Do you hear
Speaker 2
Just barely, Robert. If there's anything you can do to have a better connection, that would be helpful.
Speaker 3
I put you on speaker. Do you hear me better now?
Speaker 2
Not really, but anyway, go ahead and ask your question if we can make it out.
Speaker 5
LEO program is going to be quite expensive to build out. There's talk that you're going to be going public. Could you tell us what is the status of that? And what you'll be getting on the C band? Because you have very valuable C band also.
Could you tell us about the financial situation? Because you're indicating you have $1,000,000,000 in cash. Okay. Loral and the pension company the Canadian pension fund owns all your stock. So can you tell us what's going on there?
I guess L'Oreal stock is going down. And the talk is that you're trying to go public.
Speaker 2
Yes, I was able to hear that. It sounded like there were kind of a couple of questions there. So on what we refer to as the roll up, which Laurel has made some disclosure about before. Think the last disclosure that L'Oreal and Telesat made on the roll up was back when we released Q2 numbers. And at the time, both Telesat and L'Oreal said that Telesat shareholders were in advanced discussions around the roll up.
We don't have an update to that right now. That kind of remains the status. When something when there's been a material development there, we'll update the disclosure. On LEO, what we've said before is that, that project we expect would be sort of multiple billions of dollars of CapEx. We haven't said anything further than that at this time.
We've said that we expect it would be financed kind of roughly onethree equity, twothree debt. We've said in terms of the debt that we would be looking to project finance it and to work with export credit agencies in North America and Europe, where most of the content for the LEO project would be produced that we would be looking to the export credit agencies to provide the debt financing for that. On the equity, yes, we pointed to the cash that we have on the balance sheet. We pointed to C band proceeds that we expect to receive from The U. S.
C band clearing process there. Telesat was allocated, I think it was US344 million dollars to clear our C band spectrum down there. We're making good progress in terms of our ability to clear that spectrum by the FCC's deadlines. With Canada, I've just gave the status on where the C band process is in Canada. We don't know what the Government of Canada will do.
I said, we think we've put a great proposal forward. We've committed to take any proceeds that we receive from that process and invest them in Leo. But it's a bit early to speculate as to where that process will land and what the magnitude of those proceeds will be. And certainly, if Telesat were to go public and it tells us that we're to issue equity as part of that process. Certainly, the proceeds of an offering could be used to invest in LEO.
So anyway, that's where all of that stands right now.
Speaker 5
Let me ask you a question about L'Oreal. L'Oreal owns quite a bit of your stock and the pension Canadian pension company owns quite a bit of your stock. You have a lot of cash. I know you want to use it to LEO. But what about buying back some of that stock or taking the company public?
As far as I know, you're in the process of going public. Don't know
Speaker 3
if that's revealed to the world,
Speaker 4
But I believe you have
Speaker 5
to go public in order to do LEO. And you just indicated you're doing onethree stock and twothree debt on the LEO. And I hate to think about a company like Intelsat that got itself with so much debt that they filed for bankruptcy even though they got most of the C band. So the question I have is where are we at this process? I mean, I think you've got the greatest thing going.
Musk loves it too, the LEO, and the uses are boundless for companies that would want to utilize it. I don't know about an Apple or something like that or whether they talk about consumer, but certainly, Apple would like to have its own way of doing things through the Internet versus going through everybody else and every other company that I could think of. So but you're not getting financing from them. It seems like you can do your own financing. Could you just tell us give us an idea what your plans are for the future?
Speaker 2
Yes. Well, Robert, I mean, agree with you. We're super bullish about the opportunity and the prospects for TELUS at LEO. We're we've been in this industry for over fifty years. I think we're extraordinarily good at what we do.
I'm totally persuaded that we've designed the most capable, advanced, compelling low earth orbit satellite constellation that will be extraordinarily well received in the market and should be a great investment for us. That's we've been working on this project for some years now. And yes, we're very bullish about its prospects. So I've described our plans in terms of how we're going to go about financing the project. But yes, no, I think I'm in violent agreement with you.
It's a great opportunity. The returns on that investment should be very compelling. And we think it's a great use of our capital in terms of growing the business and creating a lot of equity value going forward.
Speaker 5
So with that, Robert, I think
Speaker 2
I got to cut you off here. But we appreciate your questions and look forward to catching up later maybe.
Speaker 5
Thank you. Thank you.
Speaker 0
Thank you. The next question is from Joe Gergarevich with Pretium Partners. Please go ahead.
Speaker 6
Hi. Thanks for taking the question. Sorry if I missed this, but for the nonrecurring items that impacted your top line, like the customer nonrenewal and then the end of the amortization benefit that you got, when did those lap?
Speaker 2
This should be the last quarter that they're really showing up. I'm looking around the table. But the Shaw contract, my recollection, came to an end in like October. So if there's any if there's an impact on Q4, it won't be kind of the full impact that we experienced in the first three quarters of this year. And that's same with the end of the amortization period of that other contract.
My recollection was we ended amortizing that revenue also in about October. So Q4 shouldn't have much, if any, impact from those.
Speaker 6
Okay. Great. That's helpful. And also, so the part that was impacted by COVID, can you just help quantify what that impact was to the top line?
Speaker 2
It was around give me a second, Joe. I don't know. I mean it's around roughly about 10% of the decline in the quarter, order of magnitude. So we were down like $35,000,000 Order of magnitude, about 10% of that came from COVID impact.
Speaker 6
Okay. So roughly $3,000,000 of the decline?
Speaker 5
Yes. Order yes. Okay.
Speaker 6
And just one more question. Can you just remind us what your exposure is to cord cutting that we're seeing going on with your customers? How you're kind of working with them through the issues and challenges that are happening? And then how you might mitigate this through your contracts with them?
Speaker 2
Well, mean, the cord cutting that affects the subscribers of our direct to home satellite customers. So for us that's Bell and Shaw in Canada and it's the DISH Network in the They have take or pay contracts with Telesat. And so our revenues with them aren't directly tied to their subscriber counts at any point in time. Obviously, when those contracts come up for renewal, if their businesses aren't healthy, then that impacts the likelihood of whether or not they're going to renew those services with us. And look, we said that we didn't renew the Shaw contract last year.
Part of that was because of the impacts that Shaw is experiencing with their business. And so in any event, what we do is we know those three customers well. We've worked with them for a very long time. On average, I think we still have about four years left on average of those direct to home satellite contracts with those three customers. So some of them come up earlier, some of them come up later.
And yes, we are engaged with them and look for ways to I think all of us have a vested interest in making sure that, that business remains viable. They're generating that business generates a significant amount of cash flow for those three customers today. So yes, we work with them and we look for creative ways to keep those services going in a way that where everyone continues to generate a sensible return. So beyond that, that's kind of how it works.
Speaker 6
Thanks. That's really helpful. And just if I can squeeze in just one more. Just following up on the LEO satellite, what is your time line? Or what should we expect for the build out plans over the coming years?
Speaker 2
So right now, we're engaged with our prospective vendors, so the companies that would build the satellites and launch the satellites, I'd say we're in very advanced discussion to them right now. And my expectation is that we'd be in a position to make some announcements about who those vendors are by the end of this year.
Speaker 6
Great. Thanks, guys. That's all I got.
Speaker 2
Okay. Thank you. Thank
Speaker 0
you. The next question is from Arun Seshadri with Credit Suisse. Please go ahead.
Speaker 6
Yes. Hi. Thanks for taking my question. Just a couple from me. Dan, as sort of a senior statesman in the new
Speaker 4
satellite
Speaker 6
industry, you've seen a lot of cycles. We're now at sort of what looks like, at least for the near term, somewhat sort of low end valuations the cycle. A lot of satellite providers trying different tactics or strategies to sort of expand multiples. We have sort of vertical integration with suppliers. We've got LEO.
We've got NEO. We've got all sorts of different strategies. Just would love to hear your thoughts on is this time different? Are there significantly more challenges today for the industry that are depressing multiples in terms of competitive substitution, fiber substitution, cord cutting, etcetera, that change the dynamics and make us look more secular? Or do you feel like we're just sort of in another predictable sort of down trough level and eventually we come
Speaker 3
back? Maybe your thoughts there would be very helpful. Thanks.
Speaker 2
Yes. Okay. Thanks. So I mean, for sure, the industry has had all sorts of evolution and all sorts of ups and downs over the last three decades or so. I mean, there was analog to digital.
There was fiber coming in. I mean, there have been all sorts of threats to the industry over the last few decades. And equally, there have been all sorts of promising opportunities for the industry. So yes, there was analog to digital. Yes, there was fiber coming in.
But there was DTH. There was the move from SD to HD. And so yes, today it remains the case that the industry faces some threats. Today's threats are cord cutting for sure on the video side and some capacity excess focused more on the enterprise markets. Those are the threats.
I'd say the opportunities are all around what really does just look like an insatiable demand for broadband connectivity and the need to have that ubiquitous. And there satellite is really good at that. So I think that the underlying factors are a little bit different. The threats have evolved. The opportunities have evolved.
But just like in the past, all of us are working really hard to figure out how do you navigate that. And if you look at how everyone's navigating it and yes, plans are a little bit different, but everyone's trying to orient themselves towards being able to capture that explosive growth in broadband demand. And so actions speak louder than words. You can look at each one of these companies and look at how they're trying to position themselves to capture that growth. Where we think the answer is LEO and not just any LEO, we think the answer is building a LEO constellation that leverages kind of the most advanced technologies and is oriented towards the enterprise segment.
And we think that's going to give us a really strong value proposition that we'll be bringing to the market that I think is going to be really compelling. And I think it's going to give us a kind of long term sustainable competitive advantage in that market. So anyway, I mean, so that's what we're doing. And then maybe the last thing I'd say, and we've seen this in the industry as well. We've seen times when a lot of new entrants have come into the industry.
We've seen other times when the industry has been consolidating. I think over the next twenty four months, we're going to see a little of both. SpaceX is in some ways a new entrant in the satellite services market. Amazon would be a new entrant in the satellite services market. And I expect that there will be some consolidation of other players, some of that horizontal, some of that vertical as the existing players sort of reposition themselves to be successful in the market.
But I feel really good about where we are. We've worked really, really hard laying the foundations for our growth plans and positioning ourselves to be, I think, really effective to capture that what is just undeniably strong demand for global broadband connectivity in those verticals that we're focused on. So we feel good about that. So anyway, that's a view.
Speaker 6
Appreciate those thoughts, Dan. And then at a high level, if you could also talk about Telesat in terms of leverage and for
Speaker 3
the debt
Speaker 6
markets. Through this investment period in LEO, it sounds like you're taking a relatively conservative approach in terms of Telesat's own balance sheet. But can you talk about sort of an upward bound for leverage through this investment period that you feel comfortable with given the sort of recent multiple contraction and your view where the growth is coming from over the next few years?
Speaker 2
What would I say? I mean, and maybe Andrew will have some thoughts about this too. The way our industry works is you have these kind of lumpy CapEx cycles. And so and you've seen what Telesat's done. I mean, I think we've been very disciplined and very conservative in terms of how we've operated the business.
I think we've been appropriately restrained when it's come to making new investments over a period where there has been some excess capacity. You continue to operate our business with extraordinarily high operating margins and have been very disciplined in terms of what we've done with our cash. Equally though, there are opportunities for the business to put a lot of capital to work, we think that you're going to achieve very attractive returns on that capital, well then you move. And obviously, when you're in one of those cycles, when you're making more substantial capital investments, obviously, that's going to have some impacts on your balance sheet. And as you see in the sector, companies go through periods of time where they're making meaningful capital investments, maybe kind of leverage trends up over that period of time.
And then the assets are brought online. You know, tell us that also we like to pre sell a lot of our capacity so that when those assets are brought into service, you have a lot of revenue generation and a substantial amount of EBITDA and cash flow contribution given the way we run our business. So that's sort of my expectation. I'm not prepared to say right now that there's some particular leverage number that where we're comfortable, where we're not comfortable. I think it's more involved than that.
So I would say, we're only ever going to make investments and move forward with our balance sheet in a way that we think, I mean, is smart, is responsible, is protective of the equity. And so once we are in a position to say more about our investment plans about LEO, we'll be able to share a lot more around that. But for me that's and as I've been doing this for a long time including at Telesat. So I think that's how we're thinking about it. That's how the management team is thinking about it.
Certainly how our shareholders will think about it. So I hope that's responsive.
Speaker 5
Okay.
Speaker 1
We just have time for one more question.
Speaker 0
Certainly. The last question will be from Harry Wu with Ares. I
Speaker 4
had a couple, if it's okay. The first one is just on DTH broadcast side. Obviously, we're lapping the Shaw renewal. Can you just give us a sense over the next twelve, twenty four months what the renewal pipeline sort of looks like in that business?
Speaker 2
We never just because it's competitive sensitive, it's sensitive, competitive information. We'll talk about kind of the average duration of the contract, but we don't talk about specific contracts. But what I could suggest is, if you look at our SEC filings, we tend to note when the satellite was launched, what its operational life is. So you can kind of get a sense for which of those contracts should be coming up in the more near term. So I'd sort of point you to that.
Speaker 3
Got it.
Speaker 4
Okay. And then we've spoken a lot about LEO business or the LEO constellation today. Can you just give us a sense of what the opportunities are with respect to the, I guess, more traditional legacy GEO business? And then also related to that, are there any CapEx plans to sort of build out additional LEO satellites over the next couple of years?
Speaker 2
Yes. Listen, I mean, it is a difficult operating environment right now. But look, I mean, we've got an 81% overall fleet utilization. That's been pretty stable over, gosh, I don't know, I mean, the last bunch of quarters. The environment's again, I've seen environments that are more robust.
But I think we're all doing a pretty good job maintaining asset utilization. Pricing pressures are, I'd say not as bad as they were a couple of years ago. So there are absolutely opportunities that we're still seeing in the market. Demand for broadband connectivity, particularly with COVID, it's hurt the mobility sector, aero and maritime. But there have been some countervailing benefits on the providing broadband connectivity into rural communities, for instance, which TELUS does a lot of.
So that's kind of what the environment looks like right now. And then as far as opportunities to build more geo satellites, certainly, we'll look when a satellite comes up for replacement, we're pretty hard headed folks. We look very hard to see, is there a good business case to build a replacement satellite. So those are always opportunities. And then beyond that, we've spoken before about a very large opportunity that TELUS has been engaged with for a very long time with the government of Canada.
It's not quite geo. It's actually a highly elliptical polar constellation, but they're kind of geo class satellites. They're kind of big satellites that would be in a highly elliptical orbit. And that's certainly something an opportunity that we continue to engage on and remain bullish about. So and that's a big opportunity for Telesat.
So anyway, so those are some of the things that we're eyeing right now.
Speaker 4
Great. Thank you so much.
Speaker 2
Okay. Well, thank you very much. And operator, thank you for managing the call. With that, we thank everybody for joining us this morning and look forward to speaking with you again when we release our fourth quarter and full year numbers. So thank you very much.
Speaker 0
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