Telesat reports revenue and profit increase, and a contract win in Brazil
PARIS – Satellite fleet operator Telesat on July 26 reported slightly higher revenue and gross profit for the three months ending June 30 compared to a year ago even after stripping away the effects of a higher U.S. dollar against Telesat’s home currency, the Canadian dollar.
Ottawa-based Telesat said its Telstar 19V Ku- and Ka-band high-throughput satellite, scheduled to launch over Brazil in early 2018, was already proving the validity of its design with a large Ku-band win from a Brazilian customer.
Telesat has already sold Telstar 19V’s Ka-band capacity to Hughes Network Systems of Germantown, Maryland, which is expanding its consumer satellite broadband business from North America into Brazil.
In a conference call with investors, Telesat Chief Executive Daniel S. Goldberg said Telesat’s wrested the contract from an incumbent satellite provider, whom he declined to identify. He said the company’s winning bid was at prices that were not dramatically lower than prevailing price conditions in Latin America, although the company was obliged to offer free capacity for a limited period to allow the customer to repoint its satellite dishes to Telstar 19V, to operate from 63 degrees west under a Brazilian license.
Goldberg said the pricing environment in Latin America remains under pressure, with transponder leases being signed at rates that are 10-15% below rates of a couple of years ago. In Asia and Africa, he said, the price declines have been sharper, at 15-20 percent.
“There is excess capacity for sure in certain markets, and has been for at least a year now,” Goldberg said. “Demand is still growing; folks want more bandwidth. But industry is going to have to digest” the excess supply by lowering capital investment to give time for demand to grow into the existing capacity.
“Operators are exercising more capex restraint and the excess supply will be mopped up,” Goldberg said. “These conditions have been true for at least 18 months and it will take two, three, or maybe five years to recover.”
Telesat operates 15 satellites in orbit and has two satellites – the Telstar 19V and another, which Telesat calls Telstar 18V, co-owned with APT Satellite of Hong Kong – on order and scheduled for launch in the first half of 2018.
Both satellites are under construction by Space Systems/Loral of Palo Alto, California, and scheduled for launch aboard SpaceX Falcon 9 rockets.
In addition to these two large geostationary-orbit satellites, Telesat has two small Ka-band low-Earth-orbit prototype satellites under construction and scheduld for launch in 2017.
Telesat needs to launch these two smaller satellites to keep its reservation with international regulators for a constellation of small spacecraft to deliver global Internet services.
Industry officials remain divided on whether Telesat’s ultimate goal is to build a multibillion-dollar satellite network or to sell its license at some point.
Goldberg said Telesat has issued a request for information to industry hardware manufacturers to solicit design input for the future constellation. But Telesat not begun soliciting prospective customer support even though it has received expressions of interest from multiple customers, he said.
For the three months ending June 30, Telesat reported revenue of 232 million Canadian dollars ($178.4 million), up 2 percent from a year ago and up 1 percent after accounting for the U.S. dollar’s rise in value compared to the Canadian dollar.
EBITDA, or earnings before interest, taxes, depreciation and amortization, was 82.5 percent of revenue, compared to 81.4 percent a year ago. Backlog at June 30 stood at 4.5 billion Canadian dollars, which Telesat said is among the highest in the fixed satellite services industry as a percent of revenue.
In a July 26 filing with the U.S. Securities and Exchange Commission (SEC), Telesat said 51 percent of its revenue is denominated in U.S. dollars, as is 43 percent of its operating expenses and 87 percent of its total debt.
Telesat’s debt totaled 3.8 billion Canadian dollars as of June 30. In the six months ending June 30, Telesat paid 97 million Canadian dollars in interest, up 8 percent over a year ago. Telesat’s debt covenants require the company to keep its secured, U.S. dollar debt-to-EBITDA ratio below 5.25. As of June 30, Telesat’s ratio was 3.45.
The increase is in part because Telesat in 2016 began making incentive payments to satellite builder Airbus Defence and Space for the Telstar 12 Vantage satellite launched in late 2015.
Satellite operators often insist that manufacturers forgo some 10 percent of the manufacturing contract’s value, which is paid out, with interest, in annual increments so long as the satellite functions as designed.
Perhaps more than any other major satellite operator, Telesat has maintained a steady stream of revenue in recent years by leasing spare satellites to other operators for limited amounts of time.
Goldberg said this business is unpredictable but that he saw no reason the company would not continue to conclude two or three such deals per year in the coming years.