Telesat Corp Q3 FY2025 Earnings Call

Hello, and welcome to the Telesat Third Quarter 2025 Financial Results Call. I will now turn the conference over to James Ratcliffe. Please go ahead.

Thank you, JL, and good morning. Thank you for joining us today. Earlier this morning, we filed our quarterly report for the period ending September 30, 2025, on Form 6-K with the SEC and on SEDAR+. Our remarks today may contain forward-looking statements. There are risks that Telesat's actual results may differ materially from the results contemplated by the forward-looking statements as a result of known and unknown risks and uncertainties. For a discussion of known risks, please see Telesat's annual report and updates filed with the SEC. Telesat assumes no responsibility to update or revise these forward-looking statements. I'd now like to turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.

Thanks, James, and good morning to everyone. Thanks for joining us this morning. Q3 was in line with our expectations, and I'm pleased with Telesat's performance in the first 9 months of this year in both our GEO and LEO segments. In GEO, our team continues to execute in a disciplined, focused manner as we work to maximize the cash flow from our existing satellite fleet. The biggest revenue headwind in the quarter, when compared to the third quarter of 2024, was the Nimiq 5 renewal with DISH. As we've shared earlier, DISH renewed the Nimiq 5 contract, but at a lower rate and capacity that declines over the renewal period. That renewal, combined with the nonrenewal by DISH of our Anik F3 satellite, which reached the end of its station-kept life, could no longer support direct-to-home video services, accounts for nearly half of the total revenue decline year-over-year. In LEO, we continue to make strong progress on the development of the satellites, ground infrastructure, and the software for the network. As a reminder, our first launch is planned to take place late next year. I'm very pleased with all the good work that's taking place on the program. And on the commercial side, we're seeing strong interest in Telesat Lightspeed across our target segments, particularly at this time with aero and government users. We remain very focused on concluding customer agreements and adding to our contractual backlog. In addition to our progress in the GEO and LEO businesses, we took an important step in the quarter to optimize the company's capital structure and enhance our financing options. In September, we distributed 62% of the equity in Telesat Lightspeed to a wholly owned indirect subsidiary of Telesat Corporation. I'm also pleased to say that our advisers are engaging with the advisers to the major holders of our GEO debt with the objective of finding the best path forward to addressing that debt. Finally, and as we announced earlier this year, Andrew Brown will be retiring from Telesat after 6 years as the company's CFO. We found a worthy successor to Andrew in Donald Tremblay, who started with the company on October 20. Donald has 35 years of leadership experience in finance and is very well-suited to lead our finance team going forward. So a big welcome to Donald, who's here with me this morning. As Andrew is in the process of transitioning responsibilities over to Donald, we've asked Andrew to run you through the numbers one last time for his official retirement later this month. So with that, over to you, Andrew.

Thank you, Dan. Good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the third quarter of 2025, Telesat reported consolidated revenues of $101 million, adjusted EBITDA of $47 million, and generated cash from operations of $97 million year-to-date, thus ending the quarter with $483 million in cash. For the third quarter, revenues decreased by $37 million to $101 million. Operating expenses increased by $12 million to $58 million, and adjusted EBITDA decreased by $49 million to $47 million. The adjusted EBITDA margin was 46%. I would note that the margin in our GEO segment was approximately 62%. The revenue decrease for the quarter was primarily due to a lower rate on the renewal of a long-term agreement with a North American direct-to-home customer and the expiration of a separate agreement with that customer. Other factors included reductions in services for certain enterprise customers, particularly in the Indonesian rural broadband program, and a reduction in services for another North American direct-to-home customer. The increase in operating expenses was primarily due to higher Telesat Lightspeed headcount growth, along with higher legal and professional fees, and offset by higher capitalized engineering costs. As usual, we break out the performance of our LEO and GEO segments separately in Note 4 of our financial statements filed on Form 6-K. Interest expense in the third quarter decreased by $5 million during the quarter when compared to the same period in 2024. To note, our cumulative principal amount of debt repurchases is USD 857 million at a cost of USD 450 million, an average price of $0.53. This also results in interest savings of approximately USD 53 million annually. Combined with the previous repayment of USD 356 million of Term Loan B, our overall debt has been reduced by approximately 36%. In the third quarter, we reported a loss in foreign exchange of $32 million as compared to a gain of $36 million in the third quarter of 2024. In the third quarter, we incurred a net loss of $121 million compared to net income of $68 million in the third quarter of 2024. The variance was due to lower revenues, the foreign exchange loss I just mentioned, a loss related to the change in the fair value of financial instruments, and the nonrecurrence of the gain on the repurchase of debt recorded in the third quarter of 2024. For the first 9 months of 2025, cash inflows from operating activities were $97 million, and cash flows used by investing activities were $540 million. In terms of capital expenditures incurred, almost all were related to Telesat Lightspeed. During the third quarter, we completed our third draw on our financing facilities with the government of Canada and the government of Quebec, just receiving $65 million as of September 30, we had drawn a total of $405 million from the facilities. Subsequent to the quarter-end, we have drawn a further $135 million, thus having a total cumulative draw of $540 million. Guidance. As you will also have noted in our earnings release this morning, we reiterated our guidance for 2025 for revenues, adjusted EBITDA, and capital expenditure. The guidance assumes a Canadian dollar to U.S. dollar exchange rate of $1.42. For 2025, we continue to expect full-year revenues to be between $405 million and $425 million. In terms of operating expenses, excluding share-based compensation, we expect spending to be approximately between $75 million and $85 million on Telesat Lightspeed this year. This guidance reflects higher capitalized engineering and the timing of hiring as we continue to ramp up the Telesat Lightspeed team. We continue to expect total adjusted EBITDA to be between $170 million to $190 million, and also reflects provisions we've made for advisory, legal professional fees related to the work with respect to GEO. In respect to capital expenditures, we continue to expect our 2025 expenditures to be in the range of $900 million to $1.1 billion, which is nearly all related to Telesat Lightspeed. To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $480 million of cash and short-term investments at the end of September, as well as $2 billion available under our funding agreements with the government of Canada and Quebec. At the end of the third quarter, the total leverage ratio calculated under the terms of the amended senior secured credit facilities was 8.676x. Telesat is in compliance with all the covenants in our credit agreement and indentures. A reconciliation between our financial statements and financial covenant calculations is provided in the report we filed this morning. Our 6-K provides you notice of interim condensed consolidated financial information on the MD&A. The non-guarantor subsidiaries shown are essentially the unrestricted subsidiaries of minor differences. This concludes our prepared remarks for the call, and I am very happy to turn back to the operator and address any questions you may have. Thank you very much.

Your first question comes from David McFadgen of Cormark Securities.

Yes. So first of all, I just want to say congratulations to Andrew on his retirement. Hope you have a nice retirement there. So a couple of questions. Yes, I'll just start, first of all, on the debt negotiations. I was wondering, could you just maybe give us an idea of do you think you're far apart in terms of what the debt holders want? Or you think you might be pretty close? Just kind of wondering where things stand with respect to that.

David, it's Dan. So it's too early to say. We've started engagement, and we'll just have to take it from there. So yes, too early to say.

I have a question regarding the guidance. You have kept your EBITDA guidance the same, but you reduced your spending on the LEO. This suggests that there would be a lower EBITDA contribution from GEO, yet you didn't alter your revenue expectations for GEO. I'm curious about how you reconcile this since the revenue for GEO remains unchanged, indicating that there shouldn't be a shift in the EBITDA.

Maybe I'll take the first crack at this. So relative to guidance, we've underspent some mostly related to LEO headcount. And that's been 2 things. One, we've capitalized more kind of engineering expense than we originally assumed. So that's number one. And number two, our hiring feels like, at the end of the day, it's going to be sort of more backloaded than what the budget assumed. In any event, so that explains the kind of underspend on the LEO OpEx, but it’s been offset by greater spending than anticipated around professional fees, and that's pretty much entirely around the refinancing exercise and the transaction where we spun out the equity stake in Telesat LEO. So in any event, I mean, that's kind of how it's played out. So yes, so at the end of the day, OpEx down on LEO headcount because of capitalized engineering and just a slower ramp, but offset by increased professional fees, mostly around the transaction that we announced spinning out LEO.

I think most people would have viewed those as one-time and would hit EBITDA by that, but at least we know what's going on.

Yes. I mean, fair point. I mean, just to be transparent about it, that's what it was.

So you called out the 2 sectors where you're seeing, I guess, stronger interest than others, aero and government. Are you seeing a really increased demand, say, from the defense sector, that defense could be kind of viewed as its own?

Yes. That's a great question because when we work with government, a lot of that is around rural broadband programs. But what I was referring to in my opening comments is much more on the defense side. So we know that the current government of Canada has committed to meet Canada's NATO spending obligations, and other allies have made similar commitments. The government of Canada is announcing a budget today. And based on everything we're reading and based on everything we're seeing, we expect there will be a meaningful uptick in defense spending. Lightspeed, and we've talked about this before, is sort of a dual-use infrastructure. It's designed for rural broadband connectivity for commercial aero, for maritime services for cellular backhaul, and the like, but it also has great utility for defense use cases as well. And given what Canada is saying about the importance of Arctic sovereignty, given the amount of spending that Canada will be doing with its allies to meet its defense obligations. And I think an expectation from the government that when it's spending a lot of money with its allies, there's some expectation that the allies will, in turn, reciprocally be contracting with Canadian providers. All of those things give us a great deal of optimism about us to grow our business and leverage Lightspeed for those defense requirements, both with the government of Canada and Canada's allies.

So just following up on that comment, the Canadian government has committed to a minimum revenue commitment of $60 million a year for 10 years. I would have thought that most of that $60 million was not defense. Can you confirm that?

Yes, that's correct. The funds will be used for rural broadband connectivity. The agreement creates a capacity pool that we sell to rural Canadian ISPs at below market rates. The $60 million annually for 10 years supports this capacity, and we anticipate generating additional revenue once that capacity is available to those ISPs. Any commitments from the Canadian government for defense purposes would be in addition to that.

So there's a potential for that to be significantly greater. So you also said that the first launch for satellites is planned late next year. I thought that the satellites were going to start to be launched in Q3 '26.

No, no. I think for many, many quarters now, we've been talking about late next year.

I guess I was incorrect on that one. Okay. Like I mean you have a book of SpaceX, right? So can you give us an idea of what month you expect the satellites to start to go out?

It will be late as we're probably looking at a December launch with a couple of Pathfinder satellites that we'll use for testing and validation and to make available to significant customers for their own testing as well. Then 2027 should be a very busy launch schedule for us as we launch nearly all the remaining satellites in the constellation.

You're still expecting to start to generate revenue on Lightspeed in the fourth quarter of '27, correct?

Yes. That's exactly right. We expect to enter global service by the end of 2027. So that's right.

Your next question comes from the line of Edison Yu of Deutsche Bank.

So firstly, I just want to come back to the carve-out of the LEO equity. Could you walk us through the main rationale behind this move? And like would you contemplate raising more equity for Lightspeed, or like potentially use it as a sort of currency as part of other transactions?

The rationale behind this move is to optimize our capital structure and improve our ability to raise additional funds in the future. By establishing a controlling interest in an entity separate from where our debt is held for our GEO activities, we gain more scope, flexibility, and options for using that stake to secure additional funding if necessary. This is the main goal of the transaction. Currently, we do not have plans to issue more equity. The funding for the first 156 satellites, which is essential for launching a compelling global network, is fully covered by commitments from the government of Canada and Quebec, our own equity contribution, and USD 300 million in vendor financing. So we are in a solid position. This is how we are approaching the situation.

We have observed some recent spectrum transactions in the industry. What are your thoughts on the spectrum supply-demand situation and how you see it evolving in the long term? Additionally, what role do you think Telesat might play in the D2D market?

The significant spectrum transaction involved SpaceX acquiring the S-band rights from EchoStar, which was primarily focused on obtaining spectrum for direct-to-device communications. There are rumors about potential similar transactions, but we have no insights on those. Our main priority remains deploying Lightspeed, which is an advanced global broadband constellation, rather than a direct-to-device network. While we possess the capability and expertise to launch a direct device network, our current spectrum availability is limited to the C-band spectrum that remains after the U.S. and Canadian regulators repurposed a portion for 5G. We still retain two-thirds of that spectrum, but we are not prioritizing a direct-to-device network at this time. Notably, the FCC has recently issued a notice regarding the potential use of the remaining C-band spectrum utilized by the satellite industry for 5G, which Telesat will monitor closely. We have satellites with C-band coverage and capacity in the U.S. and Canada, and we actively participated in the previous FCC proceedings regarding the reallocation of that spectrum. If similar actions occur in the future, we will engage and participate actively again.

Your next question comes from the line of Caleb Henry of Quilty Space.

A follow-up on the launch side of things. You mentioned first launching some Pathfinders and then serial launches. Are you planning a gap between those 2? And if so, can you quantify how much time would be in between the first launch and the second? And if you're anticipating any design changes or upgrades, or tweaks that might come from that learning period?

Thanks for the question, Caleb. It has always been our intention to launch the Pathfinder satellites. We will conduct extensive testing on the ground, but there's nothing quite like the confidence gained from testing the satellites in orbit under real conditions. It's likely going to take about 2 to 4 months. Once we launch those satellites, we will need to conduct some orbit raising and thoroughly test everything, including the onboard processors, inter-satellite links, and traffic handoff between satellites and the ground. We will take on some of this testing ourselves in collaboration with MDA and customers. We know the customer community is eager to participate in various tests with us. That is the plan. We have a thorough testing schedule, and given all the testing we will have done on the ground, we expect the results in space to be confirmatory. We anticipate confirming the findings from our prior ground testing once the satellites are in orbit.

I also thought this morning, Telesat had announced the partnership and investment in Farcast. Can you share how that fits into the planned user terminal portfolio for Lightspeed?

Yes. We've made a couple of announcements already. We will have a suite of different user terminals for each of the different verticals that we're focused on. I think to date, we announced a collaboration with CE around aeronautical FPAs. We've announced a collaboration with Intellian on both flat panel antennas and a dual parabolic antenna, which, for certain applications, can still make sense. And then the one today with Farcast, Farcast is a very innovative company with a very innovative technology where they interleave the transmit and receive elements of one of these flat panel antennas. And there are real advantages that you get from that. I mean, basically, you get a smaller user terminal that's still highly capable. And we've been working with Farcast for some years now and feel very optimistic about the progress that they've made and the advantages that leveraging their technology can give us and our customers across a whole range of different verticals. And I'd say we're not the only satellite operator out there that's enthusiastic about the technology that they're developing. So that's our approach. It's very much, I'd say, an open ecosystem in many ways in terms of the user terminals that can be used. We'll have a modem that can be integrated into these various flat-panel and dual parabolic antennas. Our constellation can also operate in a transparent mode. So in some circumstances, customers can bring their own waveforms and their own modems. There's some segment of customers where that might be attractive. We've always said that the trajectory of the technology development around the flat panel antennas is moving in a very favorable way. And this announcement with Farcast, I'd say, is just a manifestation of that. We're excited about it.

You announced a modem supplier? I assume it's one single company.

Yes. So for the modem user terminal, this is a development that we took on us. We are partnering with some vendors to do the detailed design that Telesat will own. And we're also partnering with a candidate contract manufacturer for development production here in Canada to be announced at a later time.

And then just last question. We've seen a decent amount in the news about LEO constellations or tech companies that are excited about the idea of space-based data centers for AI, Musk and Bezos and StarCloud, and NVIDIA. Is this something that Telesat will be interested in doing as well? And can it be done with the baseline Lightspeed constellation? Or would that require some sort of upgrade?

Caleb, you broke up a little bit there. Would you just mind repeating the question?

Sure. Sorry. I was asking if Telesat has interest in space-based data centers for AI because of the amount of enthusiasm we're seeing between kind of other players like Musk and Bezos, and if that can be done with the existing Lightspeed architecture, or if that requires any changes?

So maybe a couple of thoughts on that. One, we're bullish about leveraging AI to improve the efficiency of the network in terms of managing traffic and the like. So that's number one. Number two, AI is going to just drive a lot of broadband usage. And so that is accretive to what we're doing too; three, every single one of our satellites is basically a flying computer processor. And so we see it absolutely playing a role in the kind of larger global digital infrastructure, including in connection with AI. But I don't think that will be leveraging Lightspeed so much for kind of space-based data centers. I see lots of advantages and benefits from the development of AI in terms of how our constellation will be operated and used. But we're not contemplating Lightspeed per se to be used as kind of in-space data centers. I think that's a little bit different.

Your next question is from Chris Quilty of Quilty Space.

Dan, I believe you mentioned that you're still aiming for the end of 2027 for the service launch. Could you please clarify if you need all 198 units for the initial launch, or is it possible to start with just a portion of them?

We expect to have 156 satellites, which we anticipate will be in orbit by the end of 2027. We can initiate global service with 96 satellites, and we will do that. The remaining 60 will follow shortly after. That is the plan.

So 96 would give you geographic coverage, but not the capacity.

I think we can start customers up on 96 satellites, and there are many who are eager to have Lightspeed in service and begin utilizing it. However, we will move from 96 to 156 in just a couple of months.

And in order to launch service, you need the gateway ground network. Where are we at in that process?

Yes, we're making good progress there. We've already announced a deal with Orange for a European teleport and have made some announcements with Vocus for teleports in Australia. We are also building 3 or 4 teleports in Canada, for which we've procured the land. Currently, we're in the process of selecting landing station locations in the U.S., Latin America, and Asia, and we are well advanced in that site selection. Intellian is contracted to build all of the gateway antennas and is making good progress. We're on track with the rollout of our landing station infrastructure.

And obviously, higher altitude helps with siting, but do you anticipate any areas or regions where it's more difficult and you might have to actually have fiber laid more than just setting up at an existing teleport facility?

I don't think so. We have identified strong candidate locations in all the necessary regions. All of these gateways will be connected with fiber, linking to strategically placed points of presence around the world. That process is progressing well. It’s important to remember that our constellation features intersatellite links. We will initially roll out about 25 landing stations globally, with plans to add more later. Customers will also have the option to establish their own landing stations. The intersatellite links provide us with greater flexibility and reduce the number of landing stations needed for a fully connected global network.

A follow-up on just the constellation build. I know it's a fixed price contract, but so more of MDA's issue. But are you seeing any challenges related to the tariff situation, which seems to change on a weekly basis?

Not yet, and we're in contact, as you can imagine, with MDA all the time to date. And so what's happening is MDA is building the satellites at their factory outside of Montreal. They're sourcing some of the components from here in Canada. They're sourcing components from Europe. They're sourcing components from the U.S. So there are components coming from other parts of the world as well. And so it's really where MDA could potentially be at risk is if they're importing components from the U.S. and Canada implements retaliatory tariffs, which they haven't done to date. That's where there would be more risk. But so far, Canada hasn't implemented retaliatory tariffs. And as far as we can tell from MDA, they're not being adversely impacted by the tariffs that are out there.

Looks like SpaceX and OneWeb may actually get into India sometime next year, not this year as I thought. But with that market opening up, do you have a specific plan for that market? I think you had an announcement with Nelco some years ago. Is that still the partner? And have you evolved the strategy?

We're engaged with a number of parties that will be good partners for us in India. We'll need to get market access from a satellite perspective, and then our customers will need their own authorizations to be service providers and provide service to their customers in India. So in any event, we've been following closely the developments in that market. From a GEO perspective, it's a market that I've certainly been active in for decades. So it's a market that we know well. We think that Lightspeed can offer a lot to users in India and help the government achieve some of their public policy objectives around broadband connectivity and the like. So yes, we've got a plan there.

SpaceX got its first customer for its plug-and-play capability, which is really acting as a transport layer for other satellite operators. Is that a consideration for Lightspeed? And how would that be implemented in the future?

So it's interesting this question of making the constellations interoperable at the optical level. Our optical terminals are coming from TSAT. We were deliberate in selecting an optical terminal that was compatible with the U.S. government's standard that came from the Space Development Agency, I believe. So we will be interoperable with other constellations that are also meeting the FDA's standards. So that's one. And then with respect to SpaceX, we've given some thought to how we could make Lightspeed interoperable with SpaceX at the optical level. Technically, there's a relatively straightforward path to get that done. So it's the old you can do it. And then the next question is, should you do it? Are there benefits to Telesat, SpaceX, and, importantly, the user community for us to be interoperable? And I'd say that's still something that I think we all need to reflect on a little bit more. But there's certainly a path there to get that done.

Final question. You're like the only space company that hasn't mentioned Golden Dome on their conference call for the obvious reason. But as you mentioned, you are SDA compliant on the terminal side. Is there a path forward, and any discussions that you expect around potentially working on that program or contributing?

I haven't mentioned Golden Dome on this call, but I have discussed it in previous calls. In those discussions, we noted that Lightspeed could significantly contribute to a Golden Dome network. From my understanding, Golden Dome is a collection of interoperable networks, some of which will be space-based and others ground-based, and they all need to communicate with each other. We believe Lightspeed can play a pivotal role because of our optical intersatellite links and the orbits we're utilizing, which would enhance the resiliency of the overall network. Canada has shown interest in partnering with the U.S. on Golden Dome, and historically, Canada and the U.S. have cooperated on defense matters through NORAD. Moreover, the Space Force, Pentagon, and Department of Defense are aware of Lightspeed's capabilities and are interested in what we can offer. Therefore, we see Golden Dome as another significant defense opportunity that could enhance the broader Lightspeed business case.

This concludes the Q&A session. I will now turn the call over to CEO, Dan Goldberg, for closing remarks.

Thank you all for joining us this morning. I want to take a moment to recognize that this is Andrew's last earnings call with us. Andrew and I have worked together for 27 years. Before we finish, I want to highlight the impressive career Andrew has had, particularly in the satellite industry. He has served as CFO for at least four or five publicly traded satellite companies and has had a successful career in the tech world prior to joining the satellite sector. So, thank you, Andrew, for being an exceptional colleague and CFO. We deeply appreciate all your contributions to Telesat over the past six years, and we wish you all the best. I'll sign off now, but I'll hand it over to Andrew for a few words. Thank you all for joining the call, and we look forward to speaking with you again when we release our full-year numbers. Over to you, Andrew.

Look, Dan, thank you so much for your kind words and indeed, the event of partnership over many years and 6 years here at Telesat. And welcome Donald coming. He'll do a great job. And just to say personally, I feel very proud of what we've collectively achieved to date, and with a great future ahead. And also sincerely would like to thank all my colleagues around this table and people that we worked very closely together over the years, and thank the Board. And so that's it. I will miss our quarterly calls. And with that, thank you very much, and thank you, Dan again.

Okay. Thank you all.

This concludes today's conference call. You may now disconnect.