Telesat (NASDAQ and TSX: TSAT), one of the world’s largest and most innovative satellite operators, today announced its financial results for the threemonth and one-year periods ended December 31, 2022. All amounts are in Canadian dollars and reported under International Financial Reporting Standards (“IFRS”) unless otherwise noted.
“I am pleased to report that we outperformed our 2022 financial guidance, including the increased and updated guidance we provided when we released our second quarter results in August last year,” commented Dan Goldberg, Telesat’s President and CEO. “Telesat continues to generate strong cash flow, ending the year with $1.7 billion in cash, deliver industry-leading Adjusted EBITDA margins1 , and maintain high capacity utilization and a substantial contractual backlog, closing the year at $1.8 billion.”
Goldberg added: “Last year we progressed our discussions with our suppliers and financing sources for Telesat Lightspeed, our revolutionary planned Low Earth Orbit satellite constellation. Although we had planned to complete our financing arrangements around the end of last year, it has taken longer than anticipated and we now believe that we will have greater clarity on those arrangements in the near term. Telesat Lightspeed represents a transformative growth opportunity for the company and a highly compelling value proposition for enterprise and government customers.”
For the year ended December 31, 2022, Telesat reported consolidated revenue of $759 million, stable compared to the same period in 2021. When adjusted for changes in foreign exchange rates, revenue declined 2% ($15 million) compared to 2021. The slight reduction in revenue is primarily due to a reduction on the renewal of a long term agreement with a North American DTH customer and, to a lesser extent, revenue from short term services provided to another satellite operator in 2021 that did not recur in 2022. This was offset by higher revenue from aero and maritime customers as well as the completion of an equipment sale in 2022 to the U.S. Defense Advanced Research Projects Agency (“DARPA”) combined with higher consulting revenue arising from DARPA and a NASA project. The DARPA and NASA projects both relate to U.S. government LEO programs.
Operating expenses for the full year 2022 were $259 million, an increase of $22 million from 2021. When adjusted for changes in foreign exchange rates, operating expenses increased by $20 million compared to 2021. The increase was primarily due to higher equipment sales relating to the DARPA program and higher expenses associated with becoming a public company. This was partially offset by lower non-cash share-based compensation and bonus expense relative to 2021.
Adjusted EBITDA1 for the full year 2022 was $568 million, a decrease of 5% ($32 million) or, when adjusted for foreign exchange rates, a decrease of 8% ($46 million). The Adjusted EBITDA margin1 was 74.8%, compared to 79.2% in 2021.
For the year ended December 31, 2022, Telesat’s net loss was $80 million compared to net income of $155 million for the prior year. The negative variation of $235 million was principally due to the negative non-cash foreign exchange impact on the conversion of our U.S. dollar denominated debt combined with the recognition of Phase I accelerated clearing payments for the repurposing of C- 2 band spectrum in 2021. This was partially offset by the gain on the extinguishment of debt associated with our debt repurchases in 2022.
For the quarter ended December 31, 2022, Telesat reported consolidated revenue of $207 million, an increase of 10% ($19 million) compared to the same period in 2021. When adjusted for changes in foreign exchange rates, revenue increased 6% ($11 million) compared to 2021. The revenue increase was primarily due to the completion of an equipment sale in 2022 to DARPA and higher revenue from aero and maritime customers. This was partially offset by a reduction in revenue upon renewal of a long term agreement with a North American DTH customer.
Operating expenses for the quarter were $80 million, an increase of 12% ($8 million) compared to the same period in 2021. When adjusted for changes in foreign exchange rates, operating expenses increased by 10% ($7 million) compared to 2021. The increase was primarily due to higher equipment sales related to the DARPA program, partly offset by lower non-cash sharebased compensation and bonus expense relative to the same period in 2021.
Adjusted EBITDA1 for the quarter was $139 million, a decrease of 4% ($6 million) or, when adjusted for foreign exchange rates, a decrease of 9% ($12 million). The Adjusted EBITDA margin1 was 67.2%, compared to 77.1% in the same period in 2021.
Telesat net income for the quarter was $92 million, compared to net income of $113 million for the same period in 2021. The negative variation of $21 million was principally due to the recognition of Phase I accelerated clearing payments for the repurposing of C-band spectrum in 2021, partially offset by a positive non-cash foreign exchange impact on the conversion of our U.S. dollar denominated debt as well as lower income tax expense.
2023 Preliminary Financial Outlook
- Telesat expects its full year 2023 revenues (assuming a foreign exchange rate of US$1 = C$1.35) to be between $690 million and $710 million.
- Telesat expects its Adjusted EBITDA1 (assuming a foreign exchange rate of US$1 =C$1.35) to be between $500 million and $515 million in 2023.
- For 2023, Telesat expects its cash flows used in investing activities to be in the range of $40 million to $70 million. Once Telesat has finalized arrangements around the construction and financing of its Telesat Lightspeed program, it will provide a further update on the anticipated capital expenditures for the year.
Business Highlights
▲ At December 31, 2022:
- Telesat had contracted backlog2 for future services of approximately $1.8 billion (excluding contractual backlog associated with Telesat Lightspeed).
- Fleet utilization was 89%.
Telesat’s annual report on Form 20-F for the year ended December 31, 2022, has been filed with the United States Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities, and may be accessed on the SEC’s website at www.sec.gov and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com.
End Notes
- The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, Telesat uses revenue and deducts certain operating expenses (including share-based compensation expense and unusual and non-recurring items, including restructuring related expenses) to obtain operating income before interest expense, taxes, depreciation and amortization (“Adjusted EBITDA”) and the Adjusted EBITDA margin (defined as the ratio of Adjusted EBITDA to revenue) as measures of Telesat’s operating performance. Adjusted EBITDA allows Telesat and investors to compare Telesat’s operating results with that of competitors exclusive of depreciation and amortization, interest and investment income, interest expense, taxes and certain other expenses. Financial results of competitors in the satellite services industry have significant variations that can result from timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, the effects of other income (expense), and unusual and non-recurring items. The use of Adjusted EBITDA assists Telesat and investors to compare operating results exclusive of these items. Competitors in the satellite services industry have significantly different capital structures. Telesat believes the use of Adjusted EBITDA improves comparability of performance by excluding interest expense. Telesat believes the use of Adjusted EBITDA and the Adjusted EBITDA margin along with IFRS financial measures enhances the understanding of Telesat’s operating results and is useful to Telesat and investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA as used here may not be the same as similarly titled measures reported by competitors. Adjusted EBITDA should be used in conjunction with IFRS financial measures and is not presented as a substitute for cash flows from operations as a measure of Telesat’s liquidity or as a substitute for net income as an indicator of Telesat’s operating performance.
- Remaining performance obligations, which Telesat refers to as contracted revenue backlog (‘‘backlog’’), represents Telesat’s expected future revenue from existing service contracts (without discounting for present value) including any deferred revenue that Telesat will recognize in the future in respect of cash already received. The calculation of the backlog reflects the revenue recognition policies adopted under IFRS 15. The majority of Telesat’s contracted revenue backlog is generated from contractual agreements for satellite capacity.
- Includes severance payments and special compensation and benefits for executives and employees and one-time bonus as a result of the close of the Transaction.
- 2021 balances were adjusted to take into account the retroactive impact of the change in accounting policy associated with the capitalization of software as a service arrangements. In addition, a formal valuation of restricted share units in the fourth quarter of 2021 resulted in an increase in compensation and employee benefits of $6.9 million and $9.5 million in the second and third quarter of 2021, respectively, with corresponding decrease of $16.4 million in the fourth quarter of 2021. For additional details, refer to Note 3 and Note 26 of the financial statements included in the Telesat’s Form 20-F for the year ended December 31, 2022, which has been filed with the SEC and at the SEDAR, and may be accessed on the SEC’s website at www.sec.gov and SEDAR’s website at www.sedar.com.
