Telesat Corp Q1 FY2022 Earnings Call

Good morning, ladies and gentlemen. Welcome to the conference call to report the First Quarter 2022 Financial Results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat; and Andrew Browne, Chief Financial Officer of Telesat. I would like to turn the meeting over to Mr. Michael Bolitho, Director of Treasury and Risk Management. Please go ahead, Mr. Bolitho.

Thank you, and good morning. This morning, we filed our quarterly report on Form 6-K with the SEC and on SEDAR. Our remarks today may contain forward-looking statements. There are risks that Telesat's actual results may differ materially from the results contemplated by the forward-looking statements as a result of known and unknown risks and uncertainties. For a discussion of known risks, please refer to Telesat's annual and quarterly reports filed with the SEC. Telesat assumes no responsibility to update or revise these forward-looking statements. I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.

Thank you, Michael. Good morning, everyone. This morning, I'll share some thoughts on the quarter, and I'll give an update on the business. I'll then hand over to Andrew, who will speak to the numbers in detail, and then we'll open the call up to questions. In the past, I think there's probably been too much overlap in what Andrew and I have each shared in terms of financial performance. So I'm really going to try to focus my comments on the key developments in the quarter and the key objectives we're working on. So as noted in the earnings release, we're off to a good start for the year. As you know, we had a key contract with the DISH network on our Anik F3 satellite that came up for renewal at the end of last month. As I suggested would likely be the case on our Q4 earnings call in March, we ended up getting a partial renewal. DISH renewed a little more than half the capacity they had previously been taking, although at a rate that's lower than what they had been paying. The renewal is for 2 years with an option to extend for an additional year beyond that. Separately, we entered into a contract with another long-term customer for almost all of the capacity that DISH didn't renew. Capacity that will be used for broadband connectivity for the cruise market. With the DISH renewal and the separate agreement for cruise services, we're well positioned to deliver on our guidance for the year. Taking a step back and looking at the market for satellite services more broadly, it appears to us that the level of activity and the demand for services is somewhat stronger than what we saw at this time last year with the pricing environment that we described is broadly stable. With COVID restrictions easing, we've seen more demand in the aero and maritime markets, and it appears also that higher energy prices may be leading to a bit of an uptick in activity in that market as well. With an 84% capacity utilization rate at the end of last quarter, however, one of our challenges tends to be finding available capacity on the fleet to satisfy some of the opportunities we're seeing out there. Shifting gears. In March and April, we purchased Telesat unsecured notes with an aggregate face value of USD 60 million, something we believe will be accretive to the company and signals our confidence in our future prospects. Consistent with our covenants, the notes that we purchased will be canceled. We've been authorized by our Board to purchase up to an incremental USD 100 million face value of additional Telesat debt. Finally, turning to Telesat Lightspeed. Last month, we shared the current Lightspeed business plan with the export credit agencies and now are fully reengaged with them to secure their commitments for the program. The plan is for 188 satellites plus 10 in-orbit spares, which keeps us within the same CapEx envelope we were working with previously, notwithstanding the cost increases we've seen from supply chain shortages and other inflationary pressures. On our last call, I said we expected to have a much better sense of where things sit with the ECA by the end of June, and we're still focused on that time frame. We remain enthusiastic about the prospects for Telesat Lightspeed and remain heavily focused on completing the financing and commencing the full-scale construction of the program. So with that, I'll hand it over to Andrew and then look forward to addressing any questions.

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 2022, Telesat reported revenues of $186 million, adjusted EBITDA of $146 million, and generated cash from operations of $43 million with over $1.5 billion of cash on the balance sheet at quarter end. For the quarter of 2022 compared to the same period in 2021, revenues decreased by $5 million to $186 million. Operating expenses increased by $24 million to $64 million and adjusted EBITDA decreased by $6 million to $146 million. The adjusted EBITDA margin was 78.4% compared to 79.8% in 2021. Between 2021 and 2022, changes in the U.S. dollar exchange rate had a minimal impact on revenue, operating expenses, and adjusted EBITDA. The revenue decrease was primarily due to reduction in service from one of Telesat's North America's direct-to-home customers, some reductions and terminations on contract renewals of certain services, and a decrease in equipment sales to Canadian government customers. This was partially offset by increased services provided to customers in the mobility market as it continues to recover from the impact of COVID-19. The increase in operating expenses was principally due to higher noncash share-based compensation expense and to a lesser extent, the reversal of the bad debt provision in the fourth quarter of 2021, which had the impact of lowering operating expenses in the prior period and also included some higher expenses in respect to being a public company. These are partially offset by higher capitalized engineering costs associated with the increased activity in the Telesat Lightspeed program. Interest expense increased by $7 million in the fourth quarter when compared to the same period in 2021. The increase in interest expense was primarily due to interest on the 2026 senior secured notes, which were issued in April 2021, partially offset by the impact of the maturity of one of our interest rate swaps in September 2021. As Dan had mentioned, in March and April, we repurchased our senior secured notes with a face amount of $60 million by way of open market purchases. These repurchases resulted in a gain in the fourth quarter of CAD 21 million. We will also show a further gain in the second quarter of approximately $17.5 million. All of the notes we purchased will be canceled. As Dan has also mentioned, we have authorization to purchase up to a further USD 100 million face value of debt. The gain on changes in fair value of financial instruments for the fourth quarter of 2022 reflects primarily changes in fair value of our interest rate swaps and prepayment options on our notes. The loss on changes in fair value of financial instruments for the fourth quarter of 2021 primarily reflects the changes in the fair value of our interest rate swaps and prepayment options. For the fourth quarter of 2022, the cash inflows from operating activities were $43 million, and the cash flow generated from investing activities was $47 million. Included was $65 million by way of receipt of the remaining Phase 1 U.S. C-band clearing process and with virtually all the capital expenditures relating to our lower orbit constellation. Guidance. As you will also have noted in our earnings release this morning, we are reiterating our previously stated 2022 guidance. Our guidance reflects the Canadian dollar to U.S. dollar exchange rate of 1.3%. For 2022, Telesat expects its full-year revenues to be between $720 million and $740 million. Telesat expects adjusted EBITDA to be between $525 million to $545 million in 2022. With respect to expected capital expenditures. And as Dan has also noted, we are continuing to work at this time to finalize our financing and contract with our key suppliers. For now, we expect our 2022 cash flows used in investing activities to be in the range of USD 100 million to USD 120 million, including capital expenditures to further advance our Lightspeed program. Once we have greater visibility around the construction and financing of our Telesat Lightspeed program, we will provide a further update on our anticipated capital expenditures for the year, which could increase substantially. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1.5 billion of cash and short-term investments at the end of December, as well as approximately USD 200 million of borrowings available under our revolving credit facility. Approximately $1 billion in cash was held in our unrestricted subsidiaries. In addition, we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the fourth quarter, leverage as calculated on the terms of our amended senior secured facilities was 5.67:1. Telesat has complied with all the covenants in our credit agreements and indentures. A reconciliation between our financial statements and financial covenant calculations is also provided in the report we filed this morning. Our 6-K provides the unaudited interim condensed consolidating financial information in the MD&A. The non-accounted-for subsidiaries shown are essentially the unrestricted subsidiaries with some minor differences. So that concludes our overall prepared remarks for the call. Now we'll be very happy to answer any questions we may have. We will now turn back to the operator.

We will now take questions from the telephone lines. Your first question is from Jason Kim from Goldman Sachs.

This is Julia on for Jason. On Lightspeed funding, what are the additional steps that need to happen in order to complete the financing? And we continue to hear about the supply chain and inflation issues across all markets. How are you thinking about your early investment needs now versus your initial plan?

Julia, it's Dan Goldberg. Regarding the Lightspeed financing, we've mentioned previously that the key element we need to finalize is our discussions with the export credit agencies. We've already secured around CAD 4.2 billion in financing, which includes our existing contributions and commitments from both the government of Canada and the government of Quebec. Additionally, we anticipate a capital expenditure of about USD 5 billion for the program. Our primary focus is to complete discussions with the export credit agencies, especially after making progress in Q4 before we encountered supply chain challenges that led to delays and increased costs. We spent much of Q4 and some of the early months of this year collaborating with Thales alongside our other suppliers to revise the project schedule. Now that we've updated the program and resolved those issues, we are back in contact with the export credit agencies. As I mentioned in our last call, I expect that by the end of June, we will have a clearer understanding of our position with the ECAs. We are also addressing the inflationary pressures we've faced. Our current plan, which we are discussing with the export credit agencies, includes a constellation of 188 satellites in orbit, with an additional 10 spares for redundancy and resilience, along with all necessary ground facilities, launch vehicles, and software platforms, all of which fit within the USD 5 billion budget. We believe this is a robust enterprise-grade constellation, and we feel optimistic about our progress.

Awesome. I have two more questions. Regarding Anik F3, it's encouraging to see the partial renewal with DISH and the leasing of the remaining capacity. In the past, you mentioned that DTH contracts typically generate around CAD 70 million in annualized revenue and EBITDA. Currently, how much revenue and EBITDA is the Anik F3 satellite generating? Additionally, how should we anticipate that run rate for the next few years?

Yes, you are correct. We have mentioned that a typical DTH contract tends to generate approximately CAD 70 million in revenue. We are very pleased with the renewal we secured with DISH, and we are even more satisfied with how quickly we managed to contract the remaining capacity and start generating revenue from it. However, we will not be providing a new run rate for Anik F3. We have provided guidance for the year, and with the completion of the DISH renewal and the new significant contract for cruise services, we feel quite confident in the guidance we have given. Andrew just reiterated it a few moments ago. Beyond that, we will not be disclosing more detailed information regarding what F3 will generate moving forward.

Got it. Makes sense. And then on Nimiq 5, that's coming up for renewal in 2024. I know that's a few years out, but in your view, are there any differences between Nimiq 5 and Anik F3 in terms of the importance to your customers?

Yes. We believe there are significant qualitative differences. We discussed some of these with Anik when we were engaging with the market about the Anik F3 renewal. Anik F3 was utilized to support services for DISH that were not central to their primary multichannel offering. It catered to a more niche market, focusing on ethnic broadcast services, primarily non-English content. This is not the case with our other DTH satellites, like Nimiq 5, which closely supports DISH's core DIRECTV services that are broadly accessible to their subscribers. This also holds true for our other DTH contracts with Bell and Shaw. Therefore, F3 was indeed different in that it provided significant services, but those services were not essential to DISH's main DTH offering.

My last question is about the bond buyback program. Is there a specific reason for the USD 100 million face value program that was authorized? Initially, your bond buyback concentrated on the unsecured bonds. Will these be your focus moving forward, considering their current trading status?

Regarding the amount, I apologize, but I can't specify. We felt it was appropriate based on the cash we have available for various initiatives. There's no precise reasoning behind it; it simply felt right. In the future, if we decide to change our approach, we can certainly do so. As for the tranches, we're keeping an open mind, and we want to clarify that we're not committing to any debt buyback at this time. We have authorization to buy back debt, and we completed purchases in March and April. We believe it’s beneficial for the company to maintain this flexibility, and we want to be transparent about having that authorization without feeling obligated to act on it.

The next question is from Arun Seshadri from Crédit Suisse.

First, I wanted to ask about the reduction in scope of Lightspeed. Can you discuss whether you expect to use the full 5 billion dollars for a one-third reduction in scope? Clearly, you're facing increased costs for the overall program. Is there any potential for a decrease in the funding needed?

I doubt it. We've made significant progress in developing this program, so it doesn't seem likely. We're not inclined to overspend, but I don't think that's the case here. In fact, what we're doing is very capital efficient. When you consider the amount of capacity we're planning to deploy and the capital needed for that, it's impressive. This constellation will have around 10 terabits of capacity, which is more than what all in-orbit GEO satellites combined provide. It truly disrupts the market with its capabilities. Additionally, in terms of capital efficiency, our satellites are large, complex, and capable, featuring a service life of over 10 years, plus additional time for launching and testing. While we acknowledge the inflationary pressures, we believe our offering will be disruptive in service quality and pricing, while still securing the necessary returns. So, in summary, I don't think there's much room to reduce that number.

Got it. And then just a broader question. Obviously, with the moving to the right of Lightspeed timing, you're obviously also seeing Kuiper come at a similar time now. I think you had probably a 1- to 2-year lead over them, which has sort of gone by the wayside somewhat. So just first, your thoughts on that. And second, given that Lightspeed has moved to the right, what are your current thoughts on the GEO satellite fleet and sort of a longer-term CapEx envelope that you would need to sort of deploy in order to keep that business in good shape.

I will begin by addressing your initial question regarding Kuiper. We firmly believe that Amazon is committed to developing Kuiper. Frankly, a one-year head start is not significantly impactful in terms of our competitive position. We are constructing a constellation specifically designed for the enterprise and government sectors, which Telesat has catered to for the past five decades. While Kuiper will also serve some of those markets, their constellation seems primarily optimized for the consumer broadband sector. Additionally, it appears they will lack polar coverage, which presents certain limitations. Therefore, our business case remains strong. This is a vast market that we understand thoroughly, and we are well-acquainted with our customers. We have designed our constellation to provide us—and our customers—with distinct competitive advantages in our target sectors, including backhaul for ISPs and mobile network operators, the aeronautical market, the maritime market, and the government sector. We are pleased with our recent contract with NASA, which we announced and highlighted in this earnings release. Regarding the delays we've experienced, it is worth noting that other satellite operators are similarly facing delays. I have not encountered any satellite operator, whether new or established, who has not had their timelines pushed back recently, primarily due to supply chain issues. This informs our perspective on Kuiper. As for GEO and replacement capital expenditures, we are addressing them one at a time. We will not replace a satellite unless we believe there is a solid business case. Our financial investments are always aimed at delivering the returns that our shareholders expect, as demonstrated by our long-standing history in this market. Moving forward, we will not commit to replacing every GEO satellite but will evaluate each one as it comes up for renewal. We will assess our existing business and engage with customers to determine if it makes sense to proceed on the DTH side, which largely depends on our discussions with DISH, Shaw, and Bell concerning the satellites supporting their services. There are also emerging technologies that may allow us to extend the life of some satellites without full replacements. We've considered such technologies and noted that for certain DTH satellites, customer contracts may expire long before the satellites reach the end of their operational lives, as is the case with Nimiq 6 and Anik G1. Overall, that outlines our current thinking. Moreover, we continue to be open to exploring opportunities to build new GEO satellites, irrespective of replacements, as long as there are compelling business cases to support such ventures.

Got it. Got it. That's all I had.

The next question is from Raghav Garg from DoubleLine.

Can you just talk about the utilization? I saw it picked up from 80% to 84%. But can you tell us whether some reduction in supply? Or can you just walk us through that pickup in utilization?

The last bit of what you said chilled off for me, but I think Chris got it.

I think he was asking about the increasing utilization. Is it a factor of increased usage or reduction in capacity.

Yes, that's an excellent question. We should have highlighted this earlier. At the start of this year, we transitioned our Anik F1R satellite into what we refer to as inclined operations. This process involves backing off slightly on station keeping to conserve fuel, a common practice among satellite operators to extend the lifespan of satellites approaching the end of their operational life. We also have another satellite, Anik F1, that has been in inclined operations for quite a while. When we report utilization, we base it on station capacity. So, to clarify, we concluded last year with an 80% utilization rate. In January of this year, we placed Anik F1R into inclined operations and subsequently excluded it from our utilization calculation for station capacity. On average, Anik F1R had lower utilization compared to the rest of our fleet. Removing it from the calculation increased the fleet-wide utilization to 84%. However, if we were to make an apples-to-apples comparison, the utilization would have remained flat at 80% for Q1. I appreciate you bringing this up, and going forward, we will strive to communicate such changes more clearly to avoid any confusion.

Got it. And a follow-up, just trying to triangulate on DISH. I know you probably can't talk about the specifics. But just looking at the 2023 backlog, it seems like it's only picked up an incremental $10 million between year-end and today. Am I missing anything just to get a sense of how big that contract and the maritime contract is? Is that the right way to think about it? If you can help me there?

Yes, that's a good question. We signed the DISH contract in April during Q2, so it was not included in the Q1 backlog number. You can ask me about it again in Q2 when we report those numbers. The backlog calculation is based on contracts in place at the end of March, and since the DISH contract was signed in April, it is not reflected in the current backlog.

Very helpful. Just one last question. Regarding the $750 million in the LEO backlog, how quickly do you anticipate that ramping up? Is securing the ECA deal a significant factor in selling that capacity in the future? What kind of timing do you foresee for the ramp-up of the LEO capacity?

Regarding the increase in backlog, yes, I anticipate an increase. We currently have a significant backlog related to LEO, which amounts to $750 million reported so far. Once our financing is secured and we begin full-scale production of the constellation, we will be entering into more contracts with customers before the launch. Our objective is to have the backlog number significantly higher than the current $750 million by the time we launch any satellites, and we will provide updates on that progress as it occurs.

The next question is from Amer Tiwana from Imperial Capital.

I have 2 questions. First one is regarding guidance. I just wanted to unscramble it a little bit. You obviously got the partial renewal from DISH done, and you were able to put some of the excess capacity or all of it from that satellite into a newer contract as well. Does it mean that we could be looking towards the higher end of guidance as you move through the year? Are you confident that you can hit that given that you've had these 2 positive things because I believe you said on the last call that if you didn't get the DISH contract, you'd be towards the low end of guidance. So just some comments around that would be helpful.

I will take that. Andrew will probably provide more details. But yes, you are correct. Our guidance range was designed to include the full spectrum of outcomes with DISH, and given that we secured the renewal and entered into another contract, we feel quite comfortable being within that range. Andrew will likely agree that we are leaning more towards the upper end of the range. It's still early in the year; today is May 6, so we have a long way to go. However, in our earnings release, we indicated that we are off to a good start and can reaffirm our guidance. Overall, we feel positive about our current position, and we have increased confidence that we are trending more towards the upper side of the range rather than the lower side.

Sounds good then.

Could you discuss the delays affecting the LEO constellation? Is it reasonable to think that this situation might benefit the GEO business? Could we expect more opportunities for the GEO sector in the coming years? I'm trying to grasp the future direction of the business. It was previously declining at a higher single-digit rate, but now we're noticing some stabilization in revenue and EBITDA. Please share your insights on the potential for the GEO business in the near term.

I'll start with the macro perspective regarding the legacy satellite operators. The longer the new disruptive constellations are delayed, the more opportunities there are for GEO assets to stay fully utilized. This could lead to improved pricing dynamics as asset utilization rates become tighter across the industry. In terms of Telesat, we are seeing an increase in activity; however, our high utilization rate makes it difficult to capitalize on it fully. The quick resale of the Anik F3 capacity indicates that certain markets are experiencing capacity shortages. Following the principles of supply and demand, these shortages should eventually lead to better pricing dynamics, though we haven't seen significant changes yet. There are some marginal improvements in select markets. It's worth noting that market conditions are not uniform; for example, some key cruise markets, like the Caribbean and possibly the Mediterranean, appear to be facing capacity shortages, while other regions, such as Africa, still have excess supply. Overall, while it's a positive sign for GEO operators, including Telesat, we aren't ready to make a definitive change to our outlook. However, it does seem supportive.

I think that's all I have. So thank you very much for your time.

The next question is from Brandon Karsch from Kennedy Lewis.

You've mentioned a couple of times that you're seeing a lot of demand, but you're actually having a hard time supplying it based on your utilization, but you're only at 84% utilization. So can you help me understand what the delta is there? And what's preventing you from selling that other 16%? Is it just a location of your satellite? Or is it meeting some redundancy in orbit?

Yes, it's exactly what I was just referring to. We have capacity that serves a variety of markets. Some of these markets currently have higher demand. The areas where we have more excess capacity tend to be those that are a bit more challenging, like Africa. We have excellent capacity over Africa, which presents opportunities. However, if that capacity were available in other markets, we would be able to sell it much faster. Our utilization rate is fairly favorable compared to the industry average right now. I believe the industry overall is likely below 80% utilization. This is our challenge. We remain committed to maximizing our capacity, but that is the reality. Looking back at our reported utilization rates over the years, we've done well, and I think they've even trended upward during the pandemic. I don't want to exaggerate our situation; we are not overwhelmed with unsatisfied demand. I did note a trend showing improvements in certain sectors and regions, which is positive. However, we may not always be able to satisfy specific requests. For example, due to increased demand for government services in Ukraine, some users have had to transition from Russian satellites and need accommodation on other satellites, but we simply don't have the available capacity to meet those needs. That's an illustration of my point.

Okay. That's helpful. And then I know you don't want to give specific numbers on new contracts on F3. But I mean, could you give me a sense generally of if you're trading from broadcast to enterprise on a given satellite for the same amount of capacity. So how does pricing typically compare between those 2 use cases?

It's difficult to make a direct comparison between the situation with DISH and other scenarios. The DISH renewal has its own unique factors. I'm not trying to dodge the question, but it's complicated to address. If there were other opportunities, like for more generic broadcast services—maybe in a market like Latin America—it wouldn't be too different from what we see in the broader broadcast or video market. However, the specifics surrounding the DISH renewal fall into a different category entirely.

Okay. Understood. And then just the last one for me. It seems like you're seeing some benefit from aero and maritime coming back as the world continues to reopen. If we just look at where we are now for that vertical compared to where we were pre-COVID, how far back do you think we are at this point?

That's a great question, and I wish our Chief Commercial Officer was here because I'm hoping that someone else in the room can help me, but I saw a statistic that said something like while only...

70% of the cruises.

Well, only 70% of the cruise are kind of back in the water going out with passengers and whatnot, that the bandwidth requirements that they have, which is like...

More than 100%.

It's well over 100% of where they were pre-pandemic. I mean it doesn't take a rocket scientist to figure out why everyone just wants a whole lot more bandwidth. It was meaning that the bandwidth requirement was meaningfully higher, like at the end of Q1 than it was pre-pandemic, even though they're only about 70% of the cruise ships out there. So here again, not a surprise everyone wants more bandwidth. That's kind of the inexorable trend. And yes, and the pandemic certainly accelerated that, right? If you're out on a ship, you need to have access to Zoom, you need just all of that. You're using cloud services. So that's kind of what it looks like. And we believe that's kind of the future of broadband connectivity demand. That's why we're building Telesat Lightspeed and why we're so bullish about it.

Okay. Great. So it sounds like some room to roam there still on the cruise side though, and then what about the aero side?

I haven't seen specific numbers like that, but it’s definitely back up. Passengers, planes, and demand are all rebounding. I’m not sure if bandwidth demand has surpassed pre-pandemic levels, but I suspect it has. We're getting closer to where we used to be, and we'll assess that further before our next call. The dynamics are certainly improving, which I mentioned in my opening remarks, and we have benefited from this trend so far this year.

The next question is from Walt Piecyk from LightShed.

Dan, you mentioned things being back on track with the ECAs. Can you just provide a little bit more color on what that means and whether that we should infer anything in terms of timing?

What it means is that in October, we learned from Thales that they couldn't adhere to the previously communicated schedule. They also indicated there were pricing pressures. We were in advanced discussions with the export credit agencies, which we had to pause because the business case they needed to support required updates based on the news from Thales. When I say we're reengaged with them, I mean we have a new, current plan, which we shared with them just before Easter, allowing us to resume discussions. We've had extensive technical, commercial, financing, and regulatory updates with them. From a timing perspective, they have work to do, including engaging with their technical and commercial advisers, and we need to respect their processes. They are currently processing the information we've shared, and we expect to have a clearer understanding of our position with them around the end of Q2, which is June 30. We've provided them with a lot of information and they are doing their work. We've indicated that we want to move quickly because we see a strong market opportunity.

Got it. You recently announced something with NASA related to the LEO project. As ECA and Thales progress, where do you expect to achieve prelaunch success in terms of signing contracts? What do you anticipate the pace will look like over the next 6 to 12 months?

I believe there are significant opportunities for prelaunch projects, particularly in terrestrial areas. This includes broadening connectivity for large rural broadband initiatives that Telesat Lightspeed is well-equipped to support. We will collaborate with mobile network operators, focusing on rural regions. This will involve extending networks for internet service providers and mobile operators in both developed and developing nations. Additionally, we see potential in the maritime sector for prelaunch agreements. The aerospace market may have a longer sales cycle due to the extensive regulatory requirements and certification processes needed for aircraft terminals. Nonetheless, I remain optimistic about prelaunch opportunities in aerospace, especially with Lightspeed's innovative network capabilities and its advanced optical inter-satellite links that can gather substantial capacity around airports and busy flight paths. On the government front, while procurement processes can be complex, I am cautiously hopeful. The current situation in Ukraine highlights the critical need for reliable and low-latency satellite connectivity, which is drawing renewed interest from allied governments in understanding the role of space in modern military operations. Lightspeed could significantly enhance services for government users. Regarding prelaunch possibilities, we have some ongoing work with DARPA, including plans to launch two satellites by the end of this year to showcase our optical inter-satellite links' effectiveness. We also have a deal with NASA focusing on inter-satellite communications using radio frequency. Although I won't provide specific backlog targets for Lightspeed at this moment, it's impressive that we have already secured $0.75 billion in backlog before the full-scale rollout of the constellation has begun.

That's a very detailed but somewhat targeted view of the market. When you presented your information several months ago, I assume you believe that the constellation can capture 1% of a $430 billion market. Was that assessment a thoughtful exercise based on the various opportunities you identified, or was it simply an estimate based on the capacity you plan to launch? Can you provide a bit more insight into that?

We don't operate that way. We have developed a detailed business case and demand model. We've broken the world down into around 100,000 small micro quadrants. In each of these quadrants, we analyze the various sectors we intend to serve and assess whether fiber is the best option for transmission in that specific area, or if microwave or another satellite connectivity would be more suitable. This is how we've constructed our model, and soon we will connect with all of you to explain what we've accomplished. However, this is not a simple commitment to invest $5 billion in Lightspeed and claim we will have 10 terabits globally. We're more strategic than that.

Maybe you should have said 1.1% and people might have taken a little bit more...

I cannot believe that there is anyone who has been more thorough and meticulous in creating a demand model for every sector. This includes backhaul connectivity and every micro quadrant around the earth, such as aerospace, maritime, and government. In aerospace, it covers commercial and private jets, sizing every type of jet, and in maritime, it encompasses cruise ships, maritime transport, high-end yachts, and smaller yachts. That is how we have approached this.

So it's just amazing that there is a focus on like small DISH renewals when there's a $4 billion target revenue...

I understand where the stock is trading right now and our market cap, and it's frustrating for us. We need to be more proactive about sharing information on Lightspeed. We're presenting at two investor conferences this month, so you'll be hearing a lot more from us. We're very optimistic about this opportunity. We need to collaborate with the export credit agencies we've been working with for some time. The support from the Government of Canada and the Government of Quebec has been excellent, and they are strong partners for us. Now we need to complete our work with the export credit agencies and expand our outreach, not only to our customer community but also to the investor community.

Okay. Thank you, everyone. We've run out of our allotted time. Operator?

Yes. Thank you.

Yes. No. We've run out of our time. I think my answers were on the long winded/wholesome side. But in any event, yes, we appreciate everyone's time this morning. We will be presenting at Goldman Leveraged Finance Conference later this month, JPMorgan Equity Conference in Boston later this month. So we're looking forward to speaking with everyone about what's been happening in the business in our plans. We feel like we're off to a great start for the year. We had a really, I think, a positive Q1 and laid some good foundations for the rest of the year. And so with that, we appreciate everyone's time, and we'll talk to you when we put out our second quarter numbers. So thank you.

Thank you, cheerio.

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