Telesat - Earnings Call - Q4 2020

Transcript

Speaker 0

Good morning, ladies and gentlemen. Welcome to the conference call to report the Fourth 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.

Speaker 2

Earlier today, we issued a news release containing Telesat's consolidated financial results for the three month and one year periods ended 12/31/2020. This news release is available on Telesat's website at www.telesat.com under the tab Investors. We also filed our annual report on Form 20 F 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 2020 fiscal year filed with the SEC today. The information that we are discussing today reflects our expectations as of today and is subject to change. Except as required by securities laws, Telenosat disclaims any obligation or undertaking to update or revise this 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 1

Okay, Michael. Thank you, and apologies to everybody for the late start. Our conference provider was having some technical difficulties. So thanks for sticking with us. This morning, I'll discuss our fourth quarter and full year results and give an update on the business.

I'll then hand over to Andrew Brown, who will speak to the numbers in more detail, and then we'll open the call up to questions. So looking first at the full year numbers and adjusting for foreign exchange rate changes. Revenue was down 10% relative to the prior year. Operating expenses were 9% higher. Adjusted EBITDA was 14% lower.

And our adjusted EBITDA margin was 79.6% compared to 83.7% in the prior period. The revenue decrease was due to lower short term services provided to other satellite operators. The nonrenewable by Shaw at the end of Q3 twenty nineteen of one of its DTH contracts, the end of the noncash revenue amortization period of a large prepayment we received years ago from WildBlue on our Anac F2 satellite and the impact of COVID-nineteen, particularly on customers serving the aeronautical and maritime markets. Roughly 60% of the revenue decline last year was from the Shaw nonrenewal and the end of the WildBlue prepayment amortization, the impact of which have been cycled through our results at this point. The increase in operating expenses last year was due to higher professional fees related to higher bad debt expense related to customers hurt by the pandemic, our planned roll up transaction, higher in Orbit insurance expense and higher wages due principally to increase headcount to support development of our light speed LEO satellite constellation.

Turning to the fourth quarter and adjusting for FX, Revenue was down 7% relative to Q4 twenty nineteen as a result of lower short term satellite services provided to other operators. Operating expenses and adjusted EBITDA were both 7% lower And our adjusted EBITDA margin was 79.5%, which was pretty much flat with Q4 twenty nineteen. Turning to some key metrics. Backlog at the 2020 was $2,700,000,000 and fleet utilization was 81%. And looking at how our revenues broke down on an application basis in 2020, Broadcast was 50% of total revenue, Enterprise Services 48% and consulting another 2%.

And on a geographic basis for the year, North America accounted for 82% of revenue, Latin America 8%, EMEA 5%, and Asia 5%. I'm particularly pleased with all the good work we did last year to position Telesat for future growth, including announcing the roll up transaction and taking steps to realize value from our desirable C band spectrum rights, both of which can help us fund our growth plans, including the Lightspeed Constellation. Last month, we announced that we selected Talosalet in the space to build Lightspeed and also that the government of Quebec is making a significant investment in the project. Some background noise. Operator, I don't know if you can do something about that.

Lightspeed is the most advanced LEO broadband constellation under development and will give Telesat and our customers a decisive competitive advantage in serving the global enterprise broadband connectivity market, helping to bridge the digital divide around the world and fueling our growth for years to come. We expect to complete financing for the project in the coming months, launch the first light speed satellites in roughly two years' time with customer beta testing beginning shortly thereafter and start commercial services in the 2023. Looking ahead to the balance of this year, we remain strongly focused on a number of key priorities, including commercializing our available in orbit satellite capacity, maintaining our operating discipline, executing on the Lightspeed constellation, leveraging our valuable C band rights and completing the roll up transaction. Promises to be a very busy year. With that, I'll hand over to Andrew and then look forward to addressing any questions that you might have.

Thank you, Dan, and good

Speaker 3

morning to everyone. I would now like to focus on highlights from this morning's press release and filings in 2020. Pennysat reported revenues of $820,000,000 adjusted EBITDA of $653,000,000 and generated $279,000,000 of free cash flow and with over 800,000,000 of cash from the balance sheet at year end. During 2020, PennySlap repaid $355,700,000.0 of debt, including $341,400,000.0 during the fourth quarter. For the full year 2020 and compared to the same period of 2019, revenues decreased by $90,000,000 to $820,000,000 Operating expenses increased by 15,000,000 to $181,000,000, and adjusted EBITDA decreased by $1.00 9,000,000 to $653,000,000.

Accordingly, our adjusted EBITDA margin was 79.6 as compared to 83.7 in 2019. Between 2019 and 2020, changes in the US dollar exchange rate had a positive impact of 3,000,000 on revenues, a positive impact of 1,000,000 on operating expenses, and a positive impact of 4,000,000 on adjusted EBITDA. When adjusted for the changes in ForEx rates, revenue decreased by £87,000,000 for 2020 when compared to 2019. Operating expenses increased by £15,000,000 and adjusted EBITDA decreased by 106,000,000 The revenue decline was partially driven by two contracts we anticipated and discussed on our prior calls. Firstly, the nonrenewal by Shaw at the end of q three twenty nineteen of one of its DTH contracts.

And secondly, the end of noncash revenue amortization period for the very large payment that we received several years ago from WildBlue, now BioTime, on our ANYK f two satellite. In addition, we also had lower short term services provided to other satellite operators and the impact of the COVID nineteen pandemic. The increase in operating expenses for 2020 was due to higher professional fees relating to proposed rollout transactions, higher bad debt expenses related to a performance. The

constellation. The Comparing the company's 2020 with the same period in 2019, revenue decreased by £18,000,000 to $2.00 £2,000,000 Operating expenses decreased by £3,000,000 and adjusted EBITDA decreased by £15,000,000 to 160,000,000 Depreciation and amortization decreased by 6,000,000 during the fourth quarter and decreased by 32,000,000 for the full year. The decreases were mainly due to the end of useful life for accounting purposes of our Annex f two satellite in late twenty nineteen and our Annex f one r satellite. Satellite. Interest expense decreased by £16,000,000 in the fourth quarter and by £55,000,000 for the full year 2020 when compared to the same periods in 2019.

Decrease is mainly due to lower interest rates and debt for the Telesat refinancings in 2039. The gains and losses on financial instruments reflect changes in the fair value of our interest rate swaps and the prepayment options on our senior and senior secured notes. In 2020, we also recorded a gain on foreign exchange of €147,000,000 during the fourth quarter and a gain on foreign exchange of €48,000,000 for the full year. Tax expense increased by €19,000,000 during the year ended December 21 when compared to the same period in 2019. For 2020, the cash inflows from operating activities were $372,000,000, and the cash outflows used in investing activities were 93,000,000, in excess of 80% of the total capital expenditures related to a lower corporate constellation.

For 2021, we expect our cash flows used in investing activities to be in the range of $140,000,000 to $160,000,000 including capital expenditures to further advance our Lightspeed program while we finalize our financing arrangements. Subject to the progress of our financing, there may be meaningful additional CapEx this year in connection with Lightspeed as we move into full production we expect to happen in the coming months, and we look to update our CapEx guidance, accordingly at that time. To meet our expected cash requirements for the next twelve months, including interest payments and capital expenditures, we have 818,000,000 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 $676,000,000 in cash was held in our unrestricted subsidiaries. In addition, we continue to generate a significant amount of cash from our ongoing operating activities.

We noted that Telesat had paid down debt by $355,700,000 during the year, mainly during fourth quarter, Also in December, with the development and financing of our Constellation, Telesat transferred assets to certain unrestricted subsidiaries relating to the Telesat Lightspeed network, including NGSO spectrum, US market access rights, certain IP, certain fixed assets, as well as certain C band assets together with the right to receive proceeds from repurposing. Concurrently with these transfers, Telesat contributed 193,000,000 US dollars in cash to Telefac Leoholithic, which is an unrestricted subsidiary of Telefac. With the prepayment of the debt, as mentioned, pro form a leverage on the amended senior secured credit facilities was less than 4.5 times two one. As of December 31, the applicable amount on the amended senior secured facilities was 182,000,000 Canadian dollars, reflecting the use of certain baskets to facilitate the asset transfers and the results of fourth quarter activity. At the 2020, Telesat has complied with all the covenants in our credit agreement and interest.

A reconciliation between our financial statements and financial covenant calculation is provided in the report we filed this morning. So that concludes our prepared remarks for this call. I'm now very happy to answer any questions you may have, and we will turn back to the operator. Thank you.

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. The first question is from Mike Pace of JPMorgan. Please go ahead.

Your line is now open.

Speaker 4

Hi, guys. Thanks for taking the questions. I'm not sure where to start, but I'll start with Dan, just some big picture. So I think you announced a satellite manufacturer news, and then I think you were quoted in some articles about the LEO project cost, and I thought I saw upwards of $5,000,000,000 So anything you can confirm, add, or correct on that?

Speaker 1

Yes. Hey, Mike. Good morning. We announced the Talos Selenya space contract probably about a month ago now. And at the time we made that announcement, we said that that contract had a value of approximately US3 billion dollars and that the total CapEx associated with the Lightspeed program, so satellites, launch vehicles, landing stations, things like that, were it was approximately USD 5,000,000,000.

So yes, we can confirm that.

Speaker 4

Got you. And then maybe Canadian C Bands, is there anything to update on us here? Maybe just your best guess on on what happens next and timing?

Speaker 1

Yeah. It's a good question. I I truth, we don't have great insight into the timing about when the government's gonna take a decision. It's certainly ripe for a decision. You know, comments, reply comments, the the record is kind of, ripe for action.

The government of Canada has said that they plan to auction 3,500 megahertz spectrum by the June year. I think it would be handy for all the operators who are thinking about participating in that auction to know about the availability of other mid band spectrum that might be coming. I don't know. So if I had to guess, I would think that the government would come out and take a decision and provide some guidance about other mid band spectrum prior to that time. But I'm not sure.

So we're still waiting on that right now.

Speaker 4

Okay. And I do have a few questions on the restricted group and unrestricted group. So I don't know for Andrew or Mike or even you, Dan, if you want to give this a shot here. But so I see the term loan pay down in the fourth quarter. You moved cash over in other assets, including the C band spectrum.

So my question is and I don't know what the best way is for you guys to answer this, but maybe starting with September 30, what your RP Builder basket was at that point in time and then what it was at year end 02/2020.

Speaker 2

Okay, Mike. It's Michael Boetha. So the the answer to that was the RP Builder basket, I'll use US equivalent numbers, was the equivalent in Canadian dollar terms of about US 1,600,000,000.0 as of the September 30. We transferred the assets on the December 31. The builder basket as of December 31 was approximately a 140,000,000 US dollars.

Speaker 4

Okay. I'm trying to quick math Canadian here then, plus fourth quarter build. Okay. So 1,400,000,000.0, 1,500,000,000.0, so close to 2,000,000,000 Canadian. I guess I understand the cash and the C band value there, but is there something else that you can tell us about the other assets?

And in particular, how you're valuing the Canadian C band within that mix?

Speaker 1

This is Dan. I'll take this one. So we've identified all the different assets that got transferred over to help us get our arms around the values of the different assets that we moved over, we worked with an external firm to make sure that we had confidence about the values that we were assigning. So that's more or less, Mike, the process that we went through. So yeah, we're quite rigorous about it.

Speaker 4

Got it. And then back to Mike or Andrew, do you still have access to your general baskets for RP and permitted investments that hasn't been used?

Speaker 5

That is correct. The general basket of

Speaker 3

USD 150,000,000 is open, Mike,

Speaker 2

as is the 500,000,000 unrestricted subsidiary basket.

Speaker 4

Okay. And then just one more because this is tough for us on the outside looking in. But if you're moving all these assets over to the LEO Group or the unrestricted group at Spectrum and other IP and other assets, does the GEO Group or your core business still utilize these assets? And will the GEO Group need to pay the LEO Group for the use of these assets on a go forward basis?

Speaker 2

The answer to the question is yes to both.

Speaker 4

Okay. Alright. That's all I have.

Speaker 6

Thank you. I'll get back in queue.

Speaker 0

Thank you. The next question is from Walter Piecyk of LightShed. Please go ahead. Your line is now open.

Speaker 7

Thanks for the commentary in the press release about the C band. Just a little follow-up on that. In your proposal, you had mentioned the value to the bidders of knowing they've elevated a spectrum prior to and auctioning your spectrum prior to the 3.5 that's getting auctioned by the June. I'm just curious, how quickly I think you referred to in your proposal maybe an agreement with Auctionomics or the plan to use them toward a structure, a private sale, of your own. If the government basically or the regulator said that that was okay, how soon would you have to know in order for Auctionomics or whoever's designing how you would sell that asset?

How much time would they need, to conduct a process that that you think the government, should be okay with? Again, assuming that you wanna try and get this, and that the bidders would want to have this stuff auctioned prior to the three point five auction.

Speaker 1

It's Dan, Walter. It's a good question. I've been a little bit less close to the mechanics of exactly how that would all work, were we to get authority to do it. But my guess is it would take a couple of months from the time a decision is taken, from the time that we'd be ready to conduct an auction like that, something like that.

Speaker 7

So at this point, given that the government hasn't really said anything, IFCP, it's probably difficult, I guess, to get that stuff auctioned prior to the 3.5. Now we're just on a timeline of like, doesn't it make sense for them to make this auction happen, at least on a similar timeline, maybe third quarter or fourth quarter ideally, so the operators can figure out how they want to allocate their spectrum for five gs.

Speaker 1

Yeah, that's probably right if the government holds to its schedule for 3.5, which I think But they I'm not sure. They've delayed it once already. I haven't heard about any further delays, but you can never rule it out.

Speaker 7

Right. That's a fair point. They could theoretically come out, approve the C band, and at the same time say, Okay, we're just going to slide this back a quarter to try and have them simultaneous or a different time line, I guess. But but there's been no indication that won't yeah. I know we're just speculating right now.

Yeah. Exactly. Okay. On on the LEO, let's assume, for whatever reason, it's you know, there's obviously high demand for five g spectrum as we've seen in The US, and the numbers are very large. And you've got significant capital, and you raised significant cheap capital.

Is there any way to accelerate the LEO timeline from what you've already outlined?

Speaker 1

Probably not. The reality is we're planning to start launching satellites in about two years' time. The satellites that we're building, they're advanced satellites. They've got process payloads and phased array antennas and beam hopping and inter satellite links. So no, I think that the time line that we've articulated is a realistic time line.

But I think trying to accelerate it would be hard.

Speaker 7

Got it. And then just lastly, in terms of just your your core geo business, it looked like enterprise was up sequentially for the first time in in in quite some time. Maybe that was a dropout of some contracts that you kinda lapped over. But when you think about 2021, is there ability to kind of sustain this run rate of CAD 200,000,000 revenue? Or do you think you're still going to face some kind of struggles in terms of like DISH or whoever else that will not want to renew some of their satellites in the broadcast side.

Speaker 1

So I'm sure, Walter, when you were talking about outlook for the business, Were you focused on enterprise or the business more broadly?

Speaker 7

Well, no. I was just pointing out that that was a kind of a bright spot, I guess, you would call it, right? You generated some potential growth. Obviously, did not extend to broadcast, which you outlined the issues that impacted that in the quarter. So kind of mixed my stuff together.

I said Enterprise is looking pretty good. So like how does that translate to the overall bit? Okay.

Speaker 1

Yes. So first off, I'd just observe, we haven't given guidance in the past beyond CapEx guidance, and we're not going to start right at this very moment. But I would say that there were definitely some headwinds that we confronted throughout 2020. And yes, for sure, the nonrenewal on Shaw and that amortizing that prepayment from WildBlue, that accounted for I said around in my opening remarks, about 60% of the total year over year revenue decline. So that's now cycled through.

Barring something unforeseen, we're not expecting to have the kind of headwinds, the kind of top line pressure that we had in 2020. So yeah, I mean, it's a fair question. It's a fair observation. And given that we have cycled through those two big factors, Yeah, that puts us in a different position as we go into 2021. Sadly, COVID is still present.

So it is going to continue to restrain our ability to get back on track with our aeronautical customers, with our maritime customers that they're still very much suffering from COVID. But it's not our expectation that this year, we're going to be facing the kind of headwinds that we had to face in 2020.

Speaker 7

Understood. And if you don't mind, just want to sneak one last one in. The five Last billion one.

Speaker 1

Last one.

Speaker 4

Well, just last one.

Speaker 1

On the

Speaker 7

$5,000,000,000 number for the LEO build, I mean, there's a lot excuse me. There's a lot of investment dollars going to LEO generically. Right? I I get that your optical, links are, you know, obviously, at cost that others might not be putting in, blah blah blah, but launch costs are coming down. What are the dynamics that that could take that $5,000,000,000 number either 20% higher or 20% lower?

Is that are you going to is the way this business works is that it's going to basically be pretty tightly within that range of $5,000,000,000

Speaker 1

It should be. I mean, the reality is the contracts that we're entering into are pretty much fixed price contracts. And the big CapEx is obviously on the satellites and the launch vehicles. So we feel good about that $5,000,000,000 number. Over the course of a program, could things happen that pressure it slightly?

Could it get delayed or something like that potentially? But in the main, these are fixed price contracts. So we feel a high level of conviction around that's what it should be looking like.

Speaker 7

Got it. Thank you.

Speaker 1

Okay. Thank you.

Speaker 0

Thank you. The next question is from Tim Lash of Twin Oak Capital. Please go ahead. Your line is now open.

Speaker 5

Hi. Quick question on the global enterprise satellite broadband market that you're targeting with the LEO. Do you have any initial estimates you could share with us what that addressable market is? I'm particularly curious because it's a market you've largely been in North America to date. And I'm curious of what you anticipate the size of the addressable market being once you get the LEO up in the air?

Any thoughts on that would be helpful.

Speaker 1

Yeah. You know what, Tim? The 20F that we filed this morning has a pretty detailed discussion around our view of what the TAM is for Arleo Constellation. So have a look at that. And you'll see that and we've gone to some pains to emphasize it.

We're not focused on the consumer broadband market. We're very much focused on the market that we've been serving for decades now, which is the enterprise broadband connectivity market. And to be even more specific, backhauling for telcos, mobile network operators, ISPs and other enterprise users providing broadband connectivity to the aeronautical market, the maritime market and the government market. And so the TAM that we described in our 20F is really focused on those enterprise verticals. I'll have a look at that.

And I'm looking the number that we put in, think I know what it is. I just want

Speaker 2

365,000,000,000, I believe. 365,000,000,000

Speaker 1

US.

Speaker 2

Yeah. US. $365,000,000,000 US. It's on page 44.

Speaker 1

There you go. Michael?

Speaker 5

Okay. Thank you. And then just a follow-up. As you should we anticipate a stream of regional wholesale partner agreements that will sort of be announced between now and system launch? Or will those types of agreements tend to come after the network goes up?

Speaker 1

I think that as we look, we've already got a nontrivial amount of backlog on the Lightspeed Constellation. We announced this deal that we did with the government of Canada to bridge the digital divide in Canada. And there we said that was a C600 million dollars contract with the government over a ten year period that we expect to be matched by an equal amount from the users of that capacity, which we expect will be ISPs and telcos and maybe some government users throughout Canada. So in our minds, that's kind of north of CAD1 billion. We announced that Thales is making a capacity commitment in connection with the agreement that we announced for them to build the Constellation.

We've announced one of our longstanding customers, OmniAccess, which provides broadband connectivity to the high end superyacht market, that they've made a commitment. So we've already got a meaningful amount of backlog on Lightspeed. And for sure, consistent with the way that we've been doing business for years, as we get closer to launch, we're going to be out there, we already are, engaging with customers and all of those different verticals that I mentioned, signing and announcing more deals. So yes, that's our expectation. Backlog will grow as we get closer to service launch.

Speaker 5

Great. Just one final question. Any update on the progress with the credit agencies? Any progress there?

Speaker 1

Yes. I mean, we're well engaged with them and have been for quite some time. And we're feeling confident that we're going to be you know, able to close financing arrangements with them. We we've said in the coming months. So, yeah, that that's what I would say.

We're not we're not totally done yet. But but based on all the interactions we're having, based on, the other support that we're getting for the project, we announced this significant investment by the government of Quebec a couple of weeks ago. But, yeah, we feel good about where we are in our discussions with the expert credit agencies and and, where we are on the financing of the project, just kinda broadly speaking. So, yeah, I I think in the coming months, we'll have that

Speaker 4

completed. The

Speaker 0

next question is from Rad Antanov of Linden Advisors. If you're using a speakerphone, please lift up the handset or unmute your line. We're unable to hear anyone.

Speaker 1

My questions have been answered. Thank you.

Speaker 0

Thank you. The next question is from Andy Schipper. Please state your company and proceed with your question. Your line is now open.

Speaker 8

Good morning. Alex Credit Partners. Just a couple of quick questions or or one quick one. With the transfer of the assets, it it looked like the way it was described, it was sent into two different entities. Is there a reason for that?

Or or what should we look into read into that? The cash was was was sent to one entity, and it looked like it was described as the other assets were sent to a different entity.

Speaker 2

Yeah. The it's Christie Francesca speaking. The the the the LEO related assets, the IP and the like, all went into the LEO unrestricted subsidiary and the CBEN assets went into a sister unrestricted subsidiary.

Speaker 8

K. Then looking forward over the intermediate term, can you can you describe how you're thinking about what what type of reinvestment is needed in the GEO satellite constellation, delevering use of cash flow from the GEO business to to utilize the remaining investment in R and P buckets for the LEO? Any guidance there would be very helpful.

Speaker 1

Andy, I might ask you to repeat the second question, but I'll this is Dan. I'll address the first one. Then if you could ask the second piece again, that'd be helpful. So on GEO, as our satellites come up for replacement, we'll just go kind of one by one. I mean, we'll do what we always do.

We won't astonish you. We make capital investments when we've got a strong business case to support them. It's certainly my expectation that we'll be replacing a lot of our geo satellite. It's going to be totally driven by on the broadcast side, on the DTH side. Those are conversations with each of those customers.

That's Bell, Shaw, and Dish. And so right now, they are each using two satellites. And we'll just kind of go one by one with them in those discussions. And for the other satellites, yeah, kind of the same thing. A lot of our satellites have still significant life left on them.

And so we're not, for a lot of them, kind of confronting that question right now in terms of where we are from a replacement perspective. And then beyond that on GEO, I still think that there will be opportunities to maybe launch some new satellites and grow that business. We've talked before about a very long standing program with the government of Canada. This is requirements that they have for connectivity in far, far north, so beyond the line of sight of geo, really. And Telesat's been pursuing that opportunity for quite some time.

And I continue to believe it's matter of when, not if. And then beyond that, we've done a good job of securing rights to expansion frequencies and orbital locations. And we'll be kind of opportunistically looking for ways to develop those slots if, again, there's a compelling business case to do that. But Andy, could you repeat the second part of your question? You had asked then about baskets and whatnot, but I didn't follow it entirely.

Speaker 8

I was just wanting to try to understand how you were thinking about utilization of cash flow. Right? And to me, the bucket seemed to be you need to you need to think about the coming days when when you will need to reinvest in the in the in the geo satellite constellation. You you have debt outstanding that you could utilize free cash flow to to delever, and then there's remaining investment in RP basket available that that more proceeds could be put in to the unrestricted subsidiaries. And I was just trying to get a sense as to how you were how you were thinking about it.

You know, and there's various extremes depending upon I I think a lot of it is predicated upon your outlook for opportunity in the geo business and and the LEO business. So just wanted to get an understanding as to your thinking long a little bit longer term for the utilization of that cash flow.

Speaker 1

What would I say there? I mean, here again, I guess I'd just say, right now, we're focused on completing the financing of the LEO constellation. And we feel good about our ability, as I said, to get that done in the coming months. We have at the end of the year, we did the asset transfer to principally support that activity. I think we've always been pretty clear that one sources of financing that we saw for LEO was leveraging our C band spectrum.

So a lot of what we did at the end of the year was to facilitate that and to follow through on that. And I'd say going forward, yeah, we'll continue to be, I'd say, open minded about availing ourselves of baskets and what other flexibility we have to support the broader business, including Lightspeed. So I think that's how we'll think about how we manage the cash flow and the balance sheet and whatnot going forward.

Speaker 8

Thank you.

Speaker 0

Thank you. The next question is from Jonathan Krotman of Rubrik Capital. Please go ahead. Your line is now open.

Speaker 9

Dan, did you find it interesting that regulators attached the Tele proposal to repurpose Canadian C band to their request for comments? And how would you summarize the feedback that has come back from the various Canadian stakeholders on our proposal?

Speaker 1

I'm told that the Canadian regulator doing that, which is to say attaching a proposal from a company as part of a consultation. I'm told that was unprecedented, which took as a positive sign that there was at least some level of receptivity to entertaining our proposal and finding a mechanism to solicit industry views on it. So yeah. So we thought that was a a positive. And then on the feedback, you know, the the feedback fundamentally, we received mostly good support from what I call the larger incumbent telcos and mobile network operators for the project.

I think, by and large, they all this must have been a surprise they would like the spectrum because it's pretty obvious that they need more mid band spectrum if they're really going to roll out true five gs in Canada, much like what the experience was in The US, that C band spectrum was really needed to do that. Pretty much the same situation exists on this side of the border. So by and large, we got support from most of the big telcos. But a lot of the smaller folks were less supportive of the proposal. And I've got my own thoughts about why they did that.

Maybe I'll share a little of that. Fundamentally, I think they know that the bigger operators are spectrum constrained right now. And it probably doesn't break their hearts that those bigger operators should remain spectrum constrained. It impedes their ability to make big investments and roll five gs out fast. And for the smaller guys, having the larger folks make those investments and roll five gs out fast, that's probably threatening to them.

I don't think that's a great public policy outcome. I don't think that's great for Canadians that they should be deprived a great five gs experience just because maybe some of the smaller guys don't want to face that competitive environment. But my own guess, that's certainly not what they said in their comments. But my own guess is that's where a lot of those guys were coming from. But it's now up to the regulator to make some decisions about what to do.

We think we made a really good case about why our proposal advances the broader public policy considerations that the government cares about, getting real five gs out there for Canadians, stimulating competition, and leveling the playing field in the global satellite industry. The reality is we've got two big competitors that we compete with in Canada and around the rest of the world that got billions and billions and billions of dollars from this US process. And they're taking those proceeds and they're investing them in ways that are going to present a competitive challenge to Teluset. We think it would be a very unfair outcome if our own regulator were to kick our spectrum without providing us with proceeds And we've said that we'd invest all of those proceeds in our Lightspeed Constellation.

So anyway, it's over to them right now, and we're waiting for that decision.

Speaker 9

If we were to get a 200 megahertz flexible use license for our Canadian C band, how quickly could we monetize that? For example, could we engage in near term commercial transactions with other Canadian carriers and then work to clear the spectrum on the follow-up?

Speaker 1

We've made pretty clear. First off, we've proposed that we would clear 300 megahertz of spectrum. And we are on the record as saying that if and yes, we said that 200 megahertz would come back to Teleset. And we're on the record saying that we will conduct a very transparent open auction that one and all can come and participate in. We even said that we were receptive to a set aside of 50 MHz of that 200 MHz that would be available just for new entrants to promote what the government thinks is a good way to stimulate competition.

And we think that were the government to take that decision and authorize us to do that, then yeah, we could get out there in the near term and get that auction done. Because the operators need that spectrum. And the only way they're going to roll out really good, capable, affordable five gs is if that spectrum is made available to them and made available quickly. So that's what we say.

Speaker 9

And one last question on LEO. We have global Ka band priority spectrum rights. How do other future LEO participants that come at Lightspeed, how do they compete against Lightspeed without those rights?

Speaker 1

That's a great question. I mean, now The US, in its licensing rounds, has kind of taken its own approach. They've put less weight on ITU priorities. We'll see what other countries do. But I've been in this industry for a very long time.

We think it's essential to have strong ITU priority spectrum rights, whether you're in GEO or MEO or LEO. So I think it is a challenge that operators who don't enjoy those priority rights, I think it's a challenge that they're going to have. It's a regulatory risk for them that we're not going to have to confront. So we'll have to see how it plays out in countries around the world. But we certainly feel that we're in a more comfortable position having those priority rights.

Speaker 6

Thank you.

Speaker 7

Thank you.

Speaker 0

Thank you. The last question is from Barry Jin. Please state your company and proceed with your question. Your line is now open.

Speaker 6

Hi, this is Barry Jin from Semi Trust. Thanks for taking the question. Do you guys currently have a leverage target for the GEO and LEO silos?

Speaker 1

You know what? This is Dan. I'll because I've got a little more history on what we said before than Andrew does. Andrew's been with us now for, I don't know, a year and a half or something like that. What we've said in the past is that given the amount of contractual backlog we have, given the fairly predictable nature of the fixed satellite service business that we've been comfortable operating Telesat with leverage somewhere around four to five times, something like that.

And CapEx cycles kind of peak and whatnot. And I'd say, in the main, I don't think there's anything that's that dramatically changed in the environment that would cause us to think differently over the long term to operate like that. Maybe over the very long term, and particularly if and when Telesat is public over the long term, probably have leverage that would be even a little bit lower still than the 4x. But just the nature of the satellite business, capital spending is lumpy. And certainly now, as we finance Lightspeed on a consolidated basis, leverage will be meaningfully higher than that four to five times.

It's our expectation, and we said that the Lightspeed program is approximately USD 5,000,000,000 in CapEx. So when you think about that on a consolidated basis, our leverage will grow meaningfully above that four to five times. But again, then the nature of this business, we have said that our light speed satellites will have a useful life of about ten to twelve years and will be and we think that we'll have kind of EBITDA contribution margins not dissimilar to what we've enjoyed on our LEO business. And so our expectation is once LightSpeed is in service and we're ramping the utilization, we'll be generating a significant amount of cash and EBITDA. And our leverage ratios will start to delever in terms of leverage ratios at a quite accelerated basis.

So that's what I'd say. And then I've talked about it on a consolidated basis. It's absolutely the case that our GEO business is in a credit silo that is nonrecourse to how we're funding Lightspeed. So certainly, if you think about it from those two different credit silos, the LEO credit silo, very, very highly levered because there's a lot of spending and borrowings, but really no meaningful EBITDA until we're in service and ramping. The GEO credit silo will have in the coming years much lower leverage ratios, obviously, barring some unforeseen thing, but that's our expectation.

Speaker 6

Got it. Thank you. Just final question. So the 5,000,000,000 number, I believe in the past you mentioned about two thirds of that might be funded with debt. So is it safe to assume all that is going into the LEO silo separate from the GEO silo?

Speaker 1

Yes. That's right. We've said, yes, order of magnitude and again, just focused on how Lightspeed will be financed. Yes, about onethree equity, twothree debt, Could be more like $40.60, something like that. We're still finalizing that with the lenders.

But yeah, it'll look something like that. That's still our Great.

Speaker 6

Okay. Thank you very much.

Speaker 1

Okay. Thank you very much. Operator, thank you, and thank you all for joining us this morning. And apologies again for the late start because of the technical difficulties. We'll be working with our conference service provider to avoid that in the future.

So again, thank you very much for your time. And we look forward to speaking with you when we release our Q1 results. Thank you.

Speaker 0

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.