Telesat Corporation — 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Financial amounts are Canadian dollars unless stated otherwise; statements are prepared under IFRS.
Business context
Telesat operates a global satellite-services business through 14 geostationary satellites and a Canadian payload on ViaSat-1, serving broadcast, enterprise and consulting customers. Its principal growth initiative is Telesat Lightspeed, a planned low-Earth-orbit broadband constellation. The filing reports one operating segment.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $759.2 million | $758.2 million |
| Operating income / margin | $296.5 million / 39.0% | $409.1 million / 54.0% |
| Adjusted EBITDA / margin | $567.9 million / 74.8% | $600.4 million / 79.2% |
| Net income (loss) | $(80.1) million | $155.0 million |
| Cash from operating activities | $228.8 million | $293.5 million |
- Revenue was nearly flat, up $1.0 million (0.1%). Broadcast revenue fell 8.2% to $358.7 million, while enterprise revenue rose 9.8% to $389.0 million; consulting and other revenue was $11.5 million.
- Operating expenses increased 9.3% to $259.0 million, including higher equipment sales and third-party costs associated with DARPA and NASA work.
- The net loss included a $239.6 million foreign-exchange loss, mainly from translating U.S.-dollar debt as the U.S. dollar strengthened. A $106.9 million gain on extinguishment of debt partially offset the impact. 2021 included $107.6 million of gains related to accelerated U.S. C-band clearing payments.
- Cash and short-term investments were $1.678 billion at year-end, including $1.045 billion held in unrestricted subsidiaries. The company also reported US$200 million of unused revolving-credit availability, subject to facility terms.
- Debt was $3.853 billion before deferred financing costs and related adjustments. Telesat repurchased US$160 million principal amount of 6.5% Senior Unsecured Notes for US$77 million, recording the debt-extinguishment gain.
- The company reported a first-lien net leverage ratio of 5.30x against a 5.75x test level and a total-debt-to-covenant-EBITDA ratio of 6.17x. It stated that it was compliant with its debt covenants at year-end; the revolving-facility maintenance test applies when drawings exceed 35% of the facility.
- Contracted GEO backlog was approximately $1.8 billion, excluding Lightspeed, with $568.9 million expected to be recognized in 2023. The top five customers represented approximately 60% of 2022 revenue and 81% of backlog.
Material changes versus the prior year
- Revenue was stable, but operating income declined by $112.7 million and Adjusted EBITDA fell $32.5 million; Adjusted EBITDA margin decreased 4.4 percentage points.
- Broadcast revenue declined by $32.2 million, primarily due to lower pricing on a DTH contract renewal and reduced services from another North American DTH customer. Enterprise revenue increased $34.9 million, supported by DARPA equipment sales and program work, mobility customers and foreign exchange.
- Operating cash flow declined $64.6 million. Satellite-program cash spending decreased to $31.8 million from $279.9 million in 2021, when Lightspeed development activity was higher.
- The balance-sheet carrying amount of debt increased year over year, principally reflecting foreign-exchange translation, despite the unsecured-note repurchase.
Outlook, risks and contingencies
- Lightspeed funding and schedule: Supply-chain constraints and inflation delayed financing and construction planning, increased expected program costs, and led Telesat to expect deployment of fewer than the previously planned 298 satellites. The company said it would need additional capital. The announced Government of Canada and Quebec financing remained subject to definitive agreements and conditions; the filing does not establish that the full proposed funding was committed and available.
- Regulatory milestones: Telesat expected it would miss milestones for its Canadian authorization and U.S. first-round market-access grant, and planned to seek amendments or extensions. Failure to obtain relief could limit spectrum rights or U.S. market access.
- Operating and competitive risks: Risks include satellite anomalies and aging capacity, launch and supply-chain delays, customer concentration, falling DTH demand, terrestrial competition, industry capacity oversupply, and competition from other LEO systems. Some GEO satellites have known anomalies or reduced redundancy; six uninsured satellites had a combined net book value of approximately $15.4 million.
- Funding, debt and foreign exchange: Lightspeed and satellite replacement require substantial capital. Debt covenants restrict actions including additional borrowing and distributions; variable-rate debt and U.S.-dollar exposure create interest-rate and currency risk. The filing cites US$1.553 billion of debt with LIBOR-linked terms maturing after 2022 and describes uncertainty around the transition from LIBOR.
- Tax disputes: Brazilian tax assessments totaled $89.6 million, and Canadian reassessments were $13.1 million for transfer pricing and $11.6 million relating to research-and-development claims. Telesat challenged the assessments, considered favorable outcomes more likely than not, and recorded no reserve.
- Other items: Goodwill of $2.447 billion and intangible assets of $756.9 million depend in part on future Lightspeed expectations. No impairment was recorded, but impairment testing is sensitive to forecasts and discount rates. The company also disclosed uncertainty about potential U.S. PFIC status for 2021 and 2022 and future years.
- Guidance and dividends: The filing gives no specific consolidated revenue or earnings guidance. Management described priorities of increasing utilization of existing satellites, developing Lightspeed and maintaining operating discipline. Telesat said it did not intend to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether definitive Lightspeed financing agreements are executed, their conditions and total funding available, and the resulting program cost, satellite count and deployment schedule.
- Whether U.S. and Canadian regulators grant milestone extensions or other relief needed to preserve Lightspeed spectrum and market access.
- Cash availability by subsidiary, cash burn and capital needs, and the ability to meet debt service while funding Lightspeed and GEO satellite requirements.
- Debt covenant headroom and the effects of interest rates, foreign-exchange movements and the LIBOR transition.
- Backlog renewals, DTH customer trends and customer concentration, including whether enterprise growth can offset broadcast declines.
- Progress on the Brazilian and Canadian tax disputes, and any subsequent changes to the uninsured satellite fleet or impairment assumptions.
Deloitte issued unqualified opinions on the IFRS financial statements and internal control over financial reporting as of December 31, 2022. The auditor identified goodwill and indefinite-life orbital-slot impairment testing as a critical audit matter, emphasizing the importance of Lightspeed-related forecasts and valuation assumptions.