Ottawa-based Telesat earnings steady ahead of 'huge' DND contract opportunity

telesat
Dan Goldberg, Telesat CEO and Ottawa's 2019 CEO of the Year. Photo by Mark Holleron

Telesat said Thursday its steady-as-she-goes fiscal 2019 is setting the stage for major growth as the Ottawa-based company prepares to roll out new satellites designed to provide high-speed internet service in the most remote parts of the world.

The global satellite maker reported revenues of $911 million for the fiscal year ending Dec. 31, 2019, up about one per cent over 2018 and virtually unchanged when foreign exchange rates are taken into account. Telesat’s fourth-quarter revenues, meanwhile, fell five per cent year-over-year to $220 million, a drop the company blamed largely on a reduction of service for a broadcast customer and a decline in equipment sales.

However, Telesat also cut its full-year operating expenses by 11 per cent to $165 million and trimmed its fourth-quarter expenses by nearly 30 per cent to $51 million, thanks mainly to lower costs for share-based employee compensation and other expenses such as severance payments and employee benefits.

The satellite maker posted a net income of $187 million in fiscal 2019, compared with a $91-million net loss a year earlier. The company attributed the dramatic turnaround to foreign exchange gains from translating its U.S.-denominated debt into Canadian funds.

Telesat’s adjusted earnings before interest expenses, taxation, depreciation and amortization were up slightly to $763 million for the year. The firm’s order backlog as of Dec. 31 stood at $3.3 billion, down from $3.7 billion at the end of 2018.

During a conference call with financial analysts on Thursday morning, chief executive Dan Goldberg called 2019 a “really productive year” for the company, adding he expects a “pretty stable” fiscal year ahead for Telesat. 

OBJ’s CEO of the Year for 2019 sounded an upbeat tone on the call, telling analysts the company is making “significant” progress in its plan to launch nearly 300 low-Earth-orbit satellites by the end of 2023. The firm says the new constellation of LEO satellites will be able to provide high-speed internet service to customers in remote areas who can’t be reliably served by existing fibre-optic networks.

Goldberg said Telesat expects to start announcing suppliers for the multibillion-dollar LEO program later this year and hopes to have some of the state-of-the-art new equipment in operation by the end of 2022. He said the firm expects the 10-year deal it signed last summer with the federal government to use the satellites to deliver high-speed internet service to rural customers will generate up to $1.2 billion over the life of the contract.

Goldberg also noted the company refinanced US$500 million in debt last fall. He said the refinancing will help lower Telesat’s borrowing costs for new growth capital as it prepares to ramp up production of its LEO satellites and bid on other lucrative contracts, including the Department of National Defence’s plan to station two new high-orbit satellites in the far north.

“It’s a huge opportunity for us,” Goldberg said of DND’s proposed program. 

The CEO told analysts he expects to find out Friday whether Telesat will receive compensation from the U.S. Federal Communications Commission as an incentive for clearing its portion of the C-band spectrum in the United States two years ahead of a 2025 deadline. The U.S. wants to hand over the 300-megahertz satellite spectrum to companies building out 5G networks.

Under a proposal from the FCC earlier this month, Telesat would receive nearly US$375 million for giving up its share of the spectrum. In response to analysts’ questions Thursday, Goldberg said Canadian regulators are keeping a close watch on the situation south of the border, adding he hopes the company will be compensated if it’s asked to yield its portion of Canada’s C-band spectrum to make way for 5G.

“It’s an ongoing conversation,” he said.