All participants, thank you for standing by. The conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the conference call to report the fourth quarter 2021 financial results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat, and Andrew Browne, Chief Financial Officer of Telesat. I would now like to turn the meeting over to Mr. Michael Bolitho, Director of Treasury and Risk Management. Please go ahead, Mr. Bolitho.
Thank you, and good morning. This morning, we filed an annual report on Form 20-F with the SEC. 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, risk factors, and uncertainties, which are discussed in Telesat's annual report filed with the SEC on Form 20-F. Telesat assumes no responsibility to update or revise these forward-looking statements. I will now turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer.
Good. Thanks, Michael. Good morning, everyone. This morning, I'll discuss our fourth quarter and full year financial results and give an update on the business. I'll then hand over to Andrew, who'll speak to the numbers in more detail, and then we'll open the call up to questions. Looking first at the full year numbers and adjusting for foreign exchange rate changes, revenue and adjusted EBITDA were both down 4% relative to the prior year, and our adjusted EBITDA margin remained stable at 79.6%.
The revenue and adjusted EBITDA decrease was primarily due to a reduction of service for one of our North American direct to home customers, the reduction or non-renewal of some services in the enterprise segment, including as a result of the full year impact of contract restructurings in 2020 for our mobility customer as a result of COVID-19, and lower consulting revenue as well. The revenue decline was partially offset by an increase in revenue from short-term services provided to another satellite operator in 2021, which didn't occur in 2020, as well as increased services provided to customers in the mobility market as it began to recover from the impact of COVID-19. Looking at our fourth quarter numbers and adjusting for FX, revenue was down 5% relative to Q4 2020.
Adjusted EBITDA was down 7%, and our adjusted EBITDA margin was 77.5% versus the 79.5% in Q4 2020. The revenue and adjusted EBITDA reductions were primarily due to lower equipment sales to certain government customers, the reduction or non-renewal of certain services in the enterprise segment, and a reduction of services for one of Telesat's North American direct to home customers. Turning to some key metrics, backlog at the end of 2021, excluding backlog associated with Telesat Lightspeed, was CAD 2.1 billion, and fleet utilization was 80%. Looking at how our revenues broke down on an application basis in 2021, broadcast was 51% of total revenue, enterprise services 47%, and consulting another 2%.
On a geographic basis for the year, North America accounted for 83% of revenue, Latin America 7%, EMEA 5%, and Asia 5% as well. Beyond the numbers, 2021 was an eventful year for Telesat, including becoming publicly traded, clearing the C-band spectrum we've used in the U.S., and receiving payment for the first portion of the $344 million allocated to Telesat in the FCC's C-band clearing proceeding and making substantial progress on Telesat Lightspeed. With respect to Telesat Lightspeed, last year, we announced a CAD 1.44 billion and a separate CAD 400 million investment in the program by the Government of Canada and the government of Quebec, respectively, which brings to over CAD 4 billion the amount of financing we've lined up for Lightspeed to date.
We also concluded an agreement with the Government of Ontario to use Telesat Lightspeed to help bridge the digital divide, which, along with our government of Canada agreement previously announced, contributes to the over CAD 750 million in contractual backlog we had in place for Telesat Lightspeed at the end of last year. Again, that backlog is incremental to the backlog that I mentioned earlier, where we ended last year. Lastly, we did a huge amount of work with the supply chain for Lightspeed, advancing the key technologies underpinning the high-performing satellites and systems that are key to its operation. As we noted last quarter, Thales Alenia Space, who we've been working with on Telesat Lightspeed, informed us late last year that the global supply chain issues out there will delay the construction and in-service date of the Lightspeed constellation.
These issues are also putting upward cost pressures on the program. We're working through these issues with Thales now, and we expect to share an updated business plan in the near term with the export credit agencies with whom we've been in discussions to provide financing for the program. That will allow us to get those discussions moving again. Although these supply chain issues have been unwelcome, we remain enthusiastic about the prospects for Telesat Lightspeed and are focused on completing the financing and commencing the full-scale construction of the program in the near term. Before summing up and handing over to Andrew, I wanted to note that I've spoken to a number of our debt investors over the past few months, including addressing a range of questions about Telesat Lightspeed.
Reflecting on those discussions, we thought it was important to reiterate a few points on our call here this morning, sort of in the affirmative, just so we're all aligned on how we're thinking about the world. First, it's our plan in the main to operate our GEO business and our LEO business, Telesat Lightspeed, as an integrated business. Which is to say, the same management team, same sales team, technical and operations teams, and the same corporate support functions like finance, legal, human resources, IT, and the like. The fact that LEO is being financed in a separate credit silo has been solely a function of the borrowing covenants that exist in our current credit facilities, not the fact that we think about it as a separate business.
Second, Telesat Canada, our restricted entity, owns 100% of the equity of our LEO subsidiary, and we have no plans at this time to move that subsidiary out from under Telesat Canada. Third, we expect our GEO activities will continue to generate significant cash, and we intend to use that cash in a way that strengthens the business, which could include paying down current debt and otherwise managing our leverage profile. These are all points that we've made in the past, but we thought it would be useful to reiterate those points given some of the questions we've been hearing from folks. We're going to be presenting at quite a few investor conferences over the course of this year and engaging with the market more broadly on what's happening at Telesat, including our expectations on Telesat Lightspeed.
those will all be good opportunities to continue to drive these points home and share our enthusiasm more broadly about our future prospects. With that, I'll hand over to Andrew, and then I look forward to addressing questions.
Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In 2021, Telesat reported revenues of CAD 758 million, adjusted EBITDA of CAD 603 million, and generated cash from operations of CAD 296 million, and with over CAD 1.4 billion of cash on the balance sheet at year-end. For the full year of 2021, and compared to the same period in 2020, revenues decreased by CAD 62 million to CAD 758 million. Operating expenses increased by CAD 53 million to CAD 234 million, and adjusted EBITDA decreased by CAD 50 million to CAD 603 million. The adjusted EBITDA margin was 79.6%, unchanged compared to 2020.
Between 2020 and 2021, changes in the U.S. dollar exchange rate had a negative impact of CAD 30 million on revenues, a positive impact of CAD 6 million on operating expenses, and a negative impact of CAD 25 million on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenues decreased by CAD 32 million for 2021 compared to 2020. Operating expenses increased by CAD 59 million, and adjusted EBITDA decreased by CAD 30 million. Excluding the impact of foreign exchange, the revenue decrease was primarily due to a reduction of service for one of Telesat's North American direct home customers and reduction or the non-renewal of certain services in the enterprise segment.
The revenue decline was partially offset by an increase in revenues associated with short-term services provided to a satellite operator in 2021, which had not occurred in 2020, as well as increased services provided to customers in the mobility market as it began to recover from the impacts of COVID-19. The increase in operating expenses was principally due to higher non-cash share-based compensation, combined with higher wages due to the hiring of additional employees, all primarily to support the Telesat Lightspeed program. This was partially offset by higher capitalized engineering costs. Comparing the fourth quarter of 2021 with the same period of 2020, revenues decreased by CAD 14 million to CAD 187 million. Operating expenses increased by CAD 40 million, and adjusted EBITDA decreased by CAD 15 million to CAD 145 million.
In other operating gains, we reported $108 million, primarily as a result of the recognition of phase one accelerated clearing payments for the repurposing of U.S. C-band spectrum. The gains and losses on financial instruments reflect changes in the fair values of our interest rate swaps and the prepayment option on our senior and senior secured notes. For the full year of 2021, we recognized a loss of CAD 19 million related to financial instruments. We also recorded a gain in foreign exchange of CAD 20 million for the fourth quarter and a gain of CAD 28 million for the full year. Looking at tax expense for the year was CAD 83 million higher than 2020. In 2020, Telesat was able to recognize a deferred tax asset and significantly reduced its tax expenses, whereas no similar recognition occurred in 2021.
The balance of the increase in 2021 was primarily due to an increase in operating income and decrease in interest expense. For 2021, the cash inflows from operating activities were CAD 296 million, and the cash outflows used in investing activities was CAD 273 million, virtually all of the capital expenditures related to a low-Earth orbit constellation, Telesat Lightspeed, offset by the partial receipt of C-band. Turning to guidance, as you will also have noted in our earnings release this morning, we are providing preliminary 2022 guidance. Our guidance reflects a Canadian dollar to US dollar exchange rate of 1.3. For 2022, Telesat expects its full-year revenues to be between CAD 720 million and CAD 740 million.
As you're aware, the term over Anik F3 contract with Dish ends at the end of next month, and our guidance reflects a range of potential outcomes surrounding that contract. Also in 2022, we expect to recognize a significant hardware sale and the provision of related services to DARPA, the U.S. government agency, under a contract we announced in 2020. While we expect this activity to make a meaningful revenue contribution and the opportunity is considered very valuable in positioning Telesat Lightspeed with government customers, and however, the expense associated with this contract is expected to be more or less equivalent to the revenue contribution. Telesat expects its adjusted EBITDA to be between CAD 525 million-CAD 545 million in 2022.
In 2022, operating expenses are forecast to increase as a result of the additional cost of sales related to the government opportunity, as mentioned, and the ongoing impact of hiring for Telesat's Lightspeed program. With respect to capital expenditures, and as Dan noted, we are continuing to work at this time to finalize our financing and contracts with our key suppliers. For now, we expect our 2022 cash flows used in investing activities to be in the range of $100 million-$120 million, including capital expenditures to further advance our Lightspeed program. Once we have greater visibility around the construction and financing of our program, we will provide a further update on our anticipated capital expenditures for the year, which of course could increase substantially.
To meet our expected cash requirements for the next twelve months, including interest payments and capital expenditures, we have approximately CAD 1.5 billion of cash and short-term investments at the end of December, as well as approximately $200 million of borrowings available from our revolving credit facility. Approximately CAD 9.79 million in cash was held in our unrestricted subsidiaries. In addition, we continued to generate a significant amount of cash from our ongoing operating activities. At the end of the quarter, leverage, as calculated from the terms of the amended senior secured credit facilities, was 5.7 times. Telesat has complied with all the covenants in our credit agreement and indentures. A reconciliation between our financial statements and financial covenant calculations is also provided in the report that we had filed this morning.
As we have said, Telesat Canada has structured its investment in Lightspeed through unrestricted subsidiaries. To date, Telesat Canada has invested CAD 1.1 billion in cash into these unrestricted subsidiaries to fund the development of our Lightspeed project. You will also note that our Form 20-F now provides condensed consolidated financial information, and in particular, note 37 of the financial statements. The non-guaranteed subsidiaries shown in the note are essentially the unrestricted subsidiaries with minor differences. I can say that concludes our prepared remarks for this call. I'm now very happy for us to answer any questions, and would like to turn back to the operator.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Walter Piecyk from LightShed. Please go ahead.
Thanks, Dan. I think we can all appreciate that it's gonna be an integrated offering between the GEO and the LEO to come. Obviously, it's gonna be a few years before we see LEO revenue. I would just suggest that to the extent that you can break out expenses that are incremental that otherwise wouldn't be there for LEO. Same thing on CapEx. I mean, I realize the CapEx is gonna have to ramp up to the billions, but even on the CAD 100-200 million of CapEx, kind of what's incremental in anticipation of the LEO, I think would be helpful to kinda understand what's going in the business. Just maybe, you know, kind of thoughts on that going forward.
In terms of the different outcomes for DISH, you said it's embedded within the guidance, but how should we think about this conceptually? Like, what's the worst-case scenario? Is the worst-case scenario even possible? I mean, the worst-case scenario would require DISH to basically go send people to someone's home, I would think, and change the direction of their DISH, which seems unlikely. Can you kind of walk us through conceptually what are some of the possible outcomes there?
Yeah, Walter Piecyk, thanks. I just want to comment on your thoughts. We will give a whole lot more insight on CapEx, what's, you know, for LEO, what's for GEO. Same on the expense side. I know my finance colleagues can speak to this better than I can, but I know in the filing we made with the SEC today, we've now broken out, you know, essentially the financials for the restricted group from the financials from the unrestricted group, which is a pretty good proxy for GEO and LEO. Folks have been asking for that for a while, which we always thought was reasonable, so we've done that.
No, we take your point, and that's how we plan to talk about the business basically.
Sorry, before you get to my second question, was the reason then for those comments, the prepared comments, to send a message to the debt holders that, you know, effectively as LEO grows, that debt will not be stranded with the GEO business at a high leverage ratio? Is that how we should interpret that?
I mean, what we're trying to say is, like, chill.
I get the same questions from investors, like every other day. Why'd you finance, you know, Lightspeed in this separate group? We keep telling everyone we've got no plans to dividend out, you know, Lightspeed. We've got no plans to run it as a separate business. We've got no plans to, like, violate our covenants and, you know, be funneling cash out that, you know, that we're not allowed to. We keep saying those things, but, you know, I don't know, I fault myself. I haven't been sufficiently clear. We thought we'd be, I don't know, kind of affirmatively emphatic, like that's what it is. Look, we announced, I thought, a good contract with a long-standing customer, Anuvu, earlier in the quarter.
Maybe Anuvu announced it. I'm looking at John. Yeah, they announced it. We didn't announce it, but they were emphatic. Hey, we did this meaningful deal on Telstar 19V. It's for a bunch of capacity that serves the Caribbean, but we think about it as a bridge to Lightspeed. For me, I don't know, it just perfectly reinforces what we've been trying to say to everyone, which is, like, this just works. Like, doing Lightspeed, it's good for folks in GEO. The fact that we're a current GEO operator is good for our prospects on Lightspeed. Anyway, I'm gonna keep making the points. But honestly, I wish I'd get the questions a little bit less, you know. But anyway, that you asked the question, Walter, why'd we go out of our way to hammer those points home. It's because we keep getting these questions, and some folks have asked us, "Be explicit." We're being explicit. I don't know how to be more explicit, well, you know, in Canada.
I think that's pretty explicit.
In Canada, there are two official languages. We can do it in French as well if that would help us.
I think the more you talk to equity holders, the focus may turn towards the LEO and the NPV opportunity of the LEO first.
Yeah, yeah. That's the other thing I tried to say. I wanna be clear on that too. You know, we've been told, rightly so, "You guys gotta get out there more and tell us what's going on with your Lightspeed plans." We agree, so we're signed up for more investor conferences than I care to do, but we're doing them anyway. We're gonna be out there a lot. Now we need to finish with our lenders, and I'll talk about that. We need to finish with our contractors on Lightspeed, and then we're gonna be able to say more. But look, we posted an investor deck on our website from a non-deal roadshow we did toward the end of last year.
We're giving people, I think, some pretty good building blocks so that they can think about Lightspeed. We've said what the TAM is. We've said the amount of that TAM that we think that we can capture. We've told people directionally what the total CapEx is on the constellation. We said what we think our EBITDA contribution margin's gonna be. I'm no financial analyst, but that's a lot, you would think, to help people.
No, you provided basic algebra, yeah, to come up with a revenue.
Anyway, I mean, it's not to say we're not gonna.
That's not too hard for people.
It's not to say we're not going to give a whole lot more when, you know, this thing's nailed down a little bit more. We've tried to give people some information so that they can start to appreciate candidly why we are so enthusiastic about Lightspeed. Anyway, back to your question, DISH, range of outcomes. I mean, you know, range of outcomes is they don't renew, they fully renew. Here's what we think right now, and this contract's up, you know, in about six weeks' time. My own feeling is it's looking like a partial renewal. I mean, this satellite's got about three years of life left on it. You know, it's feeling like a partial renewal.
We're not done, but that's what it feels like. Even with the partial renewal, I mean, you saw even, you know, at the upper ends of our guidance, you know, revenue is still down. The biggest driver of revenue and EBITDA being down this year, if you look at our guidance, it's still, you know, the impact of the fact that that DISH contract is, you know, coming to an end. It feels right now like we'll get a partial renewal, and we've been busy in the market, looking to sell the rest of the capacity, and we're feeling pretty good about that right now, and we've always said it's attractive capacity. That's. Yeah.
As Andrew said in his remarks, our guidance kind of embraces those outcomes at, you know, kind of, you know, the low end of the range. We, you know, there's no DISH renewal. But I don't know. Our own guess is it's a partial renewal, and then we'll, I hope if things go well, have the rest of that capacity under contract, you know, certainly by the end of this year.
I think that's.
Look, I mean, I'm sorry, Walter, I just wanna, you know, right. That's what it feels like to us right now. You know, but that, you know, that's our best feel right now for where it's gonna land.
Right. Without anything announced with DirecTV as of yet, it doesn't sound like anything shouldn't change those negotiations substantially anyway.
Look, I mean, we've said this before: we never saw a potential Dish/DirecTV combination as any kind of factor influencing whether they would renew Anik F3 or not. That for-
Yep.
For us was always about, you know, just how important those kind of foreign language broadcast channels, which is a lot of what they do with that satellite, how valuable it is for them to continue with those activities. No, we don't. You know, DirecTV-DISH combination for us was never gonna be a factor for that renewal.
Just one other, if I may. You know, OneWeb is in a bit of a rough spot right now, but if there's a scramble for launch, you know, launch locations elsewhere, do you think that potentially has any impact on the timing of Lightspeed, or is it really just supply chain with Thales at this moment?
The latter. We feel like we're good on the launch side. The things that have delayed our program, yeah, I mean, it's pretty simple. It's the delays that Thales shared with us kind of late last year. That's what's caused us to, you know, have these few months of delay here.
Okay, thank you.
Okay, thanks.
Thank you. The next question is from Mike Pace from JPMorgan. Please go ahead.
Hi, good morning. Thanks for taking the questions. Dan, I appreciate the commentary on the structure and ownership, unrestricted subs, restricted group, things like that, I guess. To ask something a little bit more specific, you know, would you expect there to be any requirements in any pending debt documents for LEO funding that would require the ownership structure to remain in place? Or is this just how you envision running the two businesses together, or is it both?
Chris, our General Counsel is here. Chris, you're closer to that than I am. Do you wanna talk to that?
Well, I think that we certainly expect covenants with respect to the way that Telesat Canada and the LEO subsidiary are going to deal with each other, for sure. In terms of covenants with respect to ownership, we don't know right now.
Yeah.
It's a little bit early. We haven't gotten to that level of detail in negotiating with the ECAs and the other lenders, so it's unclear.
Okay. Appreciate that. Then back to DISH, and I realize, look, revenue and EBITDA guidance is ranges of $20 million or so, and you know, it sounds like the majority or all of that is related to DISH. I guess, just to be clear, that's versus the DISH renewals versus there's a $20 million range versus your expectations or a $20 million range or potential $20 million lower from what you were getting in prior periods, just to put a little bit more specificity on that.
I didn't totally follow that, Mike. I can tell you know, if there was no DISH renewal, we're still in the range. You know, we built the range to you know, deal with that outcome. Look, we haven't given the biggest range in the world either. It's CAD 20 million.
Yeah.
I mean, but that reinforces, I think, what we've always said about our business, which is so predictable. We've got so much backlog. We know our customers. I mean, for the most part, we can call this stuff even with a big swinger out there, you know, like this DISH renewal. We still feel confident about, you know, giving a guidance range that's as narrow as it is. To be clear, I'll try to be clear, if there was no DISH renewal, then we're still within the range. Yeah, more at the bottom end, obviously. Yeah, I hope that answers your question.
Yeah. No, it kind of does, but just to add a little bit to it, is that like, if there was no DISH renewal, is that because you can repurpose the satellite for other uses? Can you repurpose that satellite for enterprise, I guess, as well? I forget which of the DISH satellites are DTH only versus-
Oh, yeah.
Yeah.
No. The entire satellite can be repurposed for other applications. It's a good Ku-band satellite with great coverage over kind of North America, good coverage over the Caribbean. We've talked about this before. It's what has always made us feel. No, look, we're, you know, we'd like a DISH renewal, but we've always felt confident that if we didn't get one, that there'd be, you know, meaningful demand for the capacity. Now, you know, it might take us a little bit more time to fill it up, and, you know, there's rates and all of that, but yeah. Yeah, we always felt comfortable.
If we end up with a partial renewal, then we'll be getting, you know, obviously some capacity back as it's only a partial renewal. We're bullish about our ability to resell that capacity and reasonably timely too.
Anik F3 could be used for enterprise services, not just DTH services?
Yeah, 100%.
Got it. Okay.
Stan?
Yep. Oh, sorry.
Yeah.
Just to ask a little bit more from a prior question, and this is something we get quite often. I haven't had time to read through the entire Form 20-F yet this morning. Just getting back to what the LEO EBITDA drag was in 2021, and rounding is encouraged here. Can you just help us out? I mean, I see an OpEx number for non-guarantor subs. Is that basically the number? Within embedded within the guidance also for 2022, can you help us understand what type of LEO EBITDA drag is incorporated into that?
Yeah. I'll let Andrew talk about it. I mean, just to be clear, we don't think about it as a drag. We think about it as smart investments in our future growth, which we think is gonna-
Understood.
benefit all of our stakeholders. Anyway, Michael Bolitho, do you wanna...
Okay. Yeah, Mike. In the non-guarantor note, substantially, the operating expenses are the LEOs, et cetera. The incremental drag on that is we sort of think it's about, you know, adjusted EBITDA is down at the midpoint in our guidance, about CAD 75 million. Of that CAD 75 million, the additional LEO drag would be on the order of 15% of that.
Yeah, let's not do this drag thing. Don't buy into Mike.
It's a positive. It's all good. Okay.
It's all good.
Yes, we are spending for our future.
Yeah, we are. We're investing. I mean, we understand why you're asking the question, but just for everyone's benefit, like, yeah, we're, you know, we husband our money pretty carefully. We don't invest it in a dumb way, we hope. Anyway, we take your point, Mike.
Dan, fair enough. From now on, I'll say LEO investment. How about that?
That works.
That's good.
Thanks.
Yeah, Mike.
Got it. Sorry, just one more quick one. Might not be easy for you, but I guess as it relates to the Thales agreement, right, there are supply chain timing issues, and then you talked about potential incremental cost. Is there a way to quantify. I guess you have two choices, right? Pay more for the same constellation or make the existing project or constellation a little bit smaller and then maybe spend similar amounts. Can you quantify the potential increase in cost on the same constellation? And then if you have to do something a little bit on a smaller scale side of things, what are the implications there for the business plan and revenue and things like that?
Yeah. No, that's a great question. If you know, when you work through the Form 20-F, which is voluminous, yeah, that's kinda how we lay it out, which is, you know, yeah, it's a tube of toothpaste. If costs are going up, and we're hearing from Thales that there are cost pressures, right? God, I mean, you see it everywhere, but there's supply chain issues which are causing delays, and there are inflationary pressures just across the entire economy right now, and we're getting bitten by kind of both of those things right now.
That's exactly how we kind of frame it in the 20-F, which is, you know, it means if we still, you know, are focused on launching, you know, we've talked about Lightspeed as 298 satellites, and the costs are going up, then we either need to raise more money or we need to descope the constellation and bring CapEx down so it fits within the same spending envelope that, you know, we had before those cost pressures emerged. But you framed it exactly right, and it's how we talk about it in the 20-F. Yet, it's still a wee bit too early for us to say, like, which direction we're gonna go here.
I will note, we've got a lot of scope if we want to kind of downsize the number of satellites. You know, Lightspeed with 298 satellites, you know, is provides 15 terabits of capacity and, you know, is kind of all singing and all dancing and is, you know, an immensely advanced and powerful constellation. I know it was also the case that, you know, we were launching first, you know, our launch cadence was kind of, we're first putting up 78 satellites in polar, and then we're putting up another 110 satellites in inclined orbits. They're more equatorial orbits. And then we're gonna supplement, you know, that'd be 188 satellites combined.
We're gonna supplement it with another 110, I guess, to make the math right, to get to 298. It was our plan once the polar and those first inclined satellites were up. You know, that's the 188. We were gonna have global coverage with those 188 satellites. We were gonna already start turning on the customers, including all these Government of Canada customers, and start generating revenue and EBITDA and the like. The next 110 were gonna come. All to say that even with 100 less satellites, for instance, we still have terabits and terabits of capacity and a very capable global constellation that we feel good about.
We're thinking about which way we go right now. Just sitting here, you know, on Friday, March eighteenth, we'd just rather not put a pin in it right now. I do think that by the end of next quarter, so, end of June, we'll have a real good sense for, you know, what's the constellation gonna look like, where we are, I think, with the ECAs, and we're gonna be able to be much more definitive about that. That's the right question to ask. That's how we're thinking about it right now.
Great. Thank you.
Thank you.
Thank you. The next question is from Arun Seshadri from Credit Suisse. Please go ahead.
Yes, hi guys. Thank you for taking my question. Just, you know, just going back to us for a second on the Thales question. You know, I think you said before that by early February, we're supposed to hear a more sort of exact timeline from them updating you from sort of the general guidance they gave you late last year. Did that specifically happen, or are you still waiting? I guess that's the first question. Secondly, you know, what has changed, you know, from in your communication with them, I guess, you know, from late last year to today, maybe even qualitatively to provide us. I mean, obviously, we understand that there's supply chain issues and specifically.
Qualitatively, what materially has changed relative to your funding the plan, and sort of the details related to that?
Things I would say are unfolding kinda like we expected, which is to say we have heard from Thales. And I, you know, I think we've got on schedule, it's more or less coming in like we had sort of indicated before. It feels like in terms of when we'll enter, kinda global commercial service, it feels like we're, you know, gonna be about a year late. We thought we were gonna be, you know, before we hit these supply chain issues, 2025, for global service. It now feels like we're a year behind that, so it feels like 2026, I think, will be. You know, if things unfold the way we think they will right now, we'll be launching in 2025 and entering service in 2026.
It's not what we wanted, but that's what that feels like right now. I will say we're not the only guys, you know, getting delayed right now. We're getting delayed, you know, in part for a lot of the same issues, supply chain issues. I've heard, you know, at least one other LEO constellation is backed up because of supply chain issues. Other LEO constellations, they've moved to the right just because they've moved to the right. In OneWeb's case, they've now got this launch issue, which I'm sure is gonna be kinda schedule impacting for them in terms of when they can enter service. We've heard from Thales. I mean, God, we speak to Thales, like, 20 times a week, it feels like.
That's what it feels like from a schedule perspective. From a cost perspective, we've got, I would say, something that's preliminary right now, but we're expecting to get something more definitive from them, we're hoping by the end of next month. Yeah, you know, the pace of communications and the pace at which we're receiving information, yeah, it's kinda consistent with the timeline that we had talked about before.
Great. That's helpful, Dan. Thank you. As far as the second question I had was more in terms of, you know, you've got obviously some cash in the restricted sub, in the GEO sub right now, debt that trades at extremely discounted levels, you know, and you have basically cash that sounds like you're still relatively confident in getting the LEO project in totality, fully funded. I guess two questions come up. One, what is preventing you from, you know, reducing debt by buying debt back at a discount and actually making the debt structure thereby more sustainable on the GEO side? And second, do you...
You know, related to that, do you think the shortfall in your funding capability is so large that it freezes you from doing anything opportunistic to reduce your debt balances?
Well, I'll start with the second question, which is no. Look, I mean, we know that we're subject to you know a whole range of covenants that precludes our ability to you know to move money from the restricted group to the unrestricted group. We know that we're gonna have cash building up there. All to say, you know, even if you know we need to find other you know money, more you know financing for Lightspeed, you know we can only do so much. You guys probably know it better than I do in terms of what you know can come out of the restricted sub. No, I think you know we're gonna be generating a lot of cash in GEO.
It's gonna be building up in the restricted group. I don't think that we're gonna be constrained in terms of our ability if we think it's the right thing to do to reduce debt over time. That's the second question. First question, what stopped us from doing it to date? You know, I mean, you can't be in the market buying your debt or securities if you've got, looking at our general counsel, material non-public information. You know, until we put out our numbers and gave our guidance and whatnot, we were precluded from being in the market buying that debt, which we also see as, you know, trading at levels that, you know, look kind of crazy low to us. Yeah, that's what had precluded us.
For sure could be a very attractive, accretive opportunity for Telesat to use some of that cash that, you know, is in the restricted group to take advantage of what might be an attractive opportunity in the market.
Got it. Thank you for those comments, Dan. To your point, I think in prior years, you haven't given point guidance, you know, necessarily. The fact that you're sort of hinting that giving point guidance and sort of encapsulating DISH there could be related to that, to what you just said, right?
I'm not familiar with the term point guidance. Well, I mean, because our equity wasn't public, the only guidance we ever gave was CapEx guidance. I think we were always clear once the equity became public, like other publicly traded companies, it's not our favorite thing to do, but we felt like we had to give some guidance on revenue, adjusted EBITDA and CapEx. That's why we did that.
Understood. Thank you very much.
Okay, thank you.
Thank you. The next question is from Harry Wu from Ares. Please go ahead.
Hi, guys. Thanks for taking the questions. I guess a couple just questions on the forecast. Can you just quantify how much of that revenue in 2022 is coming from the government contract you talked about?
Yeah, easily. You know, we actually disclosed it. We issued a press release announcing the government contract that we referred to, and we think it's a great contract for Telesat. I mean, it's not very accretive from a cash flow perspective, but we won an opportunity back in kind of late 2020, where we're building two satellites for DARPA. You know, what does DARPA stand for? Defense Advanced Research Projects Agency. It's basically the Pentagon's you know internal research group. We announced that we're building two satellites for them, LEO, that have intersatellite links, optical links, so that we can demonstrate, and they can start getting comfortable with optical intersatellite links, which is a key feature of the Telesat Lightspeed constellation.
Anyway, we announced that back on October 14, 2020, and said that, you know, I don't know, I'm looking at this press release now. The phase two base contract represents an $18.3 million program. That's a U.S. dollar number. Yeah, I mean, we've been vastly more specific. We were required to disclose this. I think that's part of U.S. government requirements. When you win a contract like this, you have to tell everyone kind of what you're getting paid. It's a good contract for us. As far as I know, it's coming along well. I think we're doing what we need to do. We're excited to get those satellites up there and start demonstrating the power of you know, optical intersatellite links.
To win that contract, yeah, we did it aggressively, and so we don't think we're gonna lose money. We hope we'll make a little bit of money, but it's, you know, there's a revenue contribution, but there's almost equal expense associated with it, so it's kind of margin dilutive. When you go back and you look at, gee, you know, I forget what the numbers are, you know, at the midpoint of our guidance, revenue's down by X%, but at the midpoint of our adjusted EBITDA guidance, you know, adjusted EBITDA is down even more. I think part of that's because, you know, we're a fixed cost-based business. Like, when we lose, you know, money on the DISH renewal, yeah, I mean, that's almost dollar to dollar at the EBITDA line.
You expect to have a bigger impact in terms of, you know, percentage of decline in EBITDA. Another big contributor to, you know, the margin erosion and whatnot that we're expecting for this year, it's that U.S. government contract. Great to have $18 million of top line contribution, but we're getting that in expense as well. There you go.
Okay, perfect. Okay, then my second question is just, can you just quantify the DISH revenue from Anik F2 in 2021, just so we have a sense of, like, you know, what the range of outcomes on that is?
We've given, you know, at the high level, we've said, you know, like, for these DTH contracts that we have. I'm not necessarily talking about Dish and this F3 in particular, although, you know, kind of fits the mold. I think, Michael, we've said order of magnitude, guys, CAD 70 million, kind of top line, with almost all of that going to EBITDA. That'll get you pretty close to what we would have recognized in 2021 and what the run rate will be, you know, for the first part of this year, right? Because that contract doesn't come up until the end of next month.
Right. I guess my next question is just on the CapEx side of the equation. You guys bumped up the satellite program purchases on the LEO side pretty materially this quarter. I think it was CAD 182 million in the quarter. What was that related to? Is that kind of included in you know the overall CapEx plans or is that? Because obviously you guys haven't started with Thales or any of these other contractors. Just curious if that's part of like the overall CAD 5 billion spend that you know is gonna increase. Just could you talk about that spend this quarter?
I just wanna be clear, when you're talking about this quarter, you mean Q4?
Yeah. In Q4, it looked like the, like purchases for satellite were-
Yeah. No, I mean, I'll give Michael Bolitho what that was, and Andrew.
Yeah.
It was a big prepayment for launcher.
Launcher.
Okay.
Yeah, it's absolutely a part of that overall.
Overall, yeah.
$5 billion CapEx number that we talked about before.
Yeah, that's right.
Perfect. Okay. Last question, I'll just follow up on Arun's question. You guys mentioned obviously the restrictions around, you know, MNPI and not being able to go into market to buy bonds at such discounts. Now that numbers are out, you know, are there restrictions in terms of the credit docs or anything else that would restrict you from going out and buying those bonds at, you know, 50 cents of a dollar?
No. My understanding is if we buy debt, we need to cancel it.
Correct.
Yeah.
No, we're at liberty to do that if we think that's a good idea.
Okay, great.
Thank you. The next question is from Michael McCaffrey from Shenkman Capital. Please go ahead.
Thanks for taking the question. Maybe I could just follow up on Harry's question. I guess, given your prior comment, Dan, that you think the debt levels are at, I forget your exact adjective, but you said that they were at crazy levels, and the comments you've led the conference call with as far as bond holders, you know, not understanding the story or not believing the story or not listening to comments you've made before. I guess why would you not, you know, you said if it makes sense, you'd be looking to buy bonds back at these current discounts. I guess why would you not? Is there some reason to keep as much cash in the restricted group as you do right now and not take advantage of these current levels?
How would I answer that? I don't know. Mike, I guess we just say that, right? Probably not obvious that we'd be explicitly telegraphing everyone in the market exactly what we're going to do. You know, we're not in the business of, you know, I mean, you know, our day job is running a satellite company, not being out in the market, you know, buying securities. But when we talk to people whose day job is being out in the market buying securities, usually they're not like advertising what their next move is going to be. So I don't know. It just doesn't seem obvious to us right now that we need to be super explicit about whether, you know, we go left or we go right.
No, I mean, we have cash that's building up. It's not lost on us that there could be an attractive opportunity there. You know, yeah, that's just kinda how we think about it.
Just one follow-up to that. As you're finalizing discussions with the export credit agencies, does that put any restrictions on using cash on hand or doing anything as it relates to the bond levels? I guess related to that, has the deterioration in your bond levels at the restricted group caused any additional hurdles as it relates to finalizing the export credit financing?
I would say no, there's certainly nothing about our discussions with the ECAs that would constrain our ability to make use of cash in the restricted group to, you know, do any range of things, including repurchasing our debt. No, I don't think that where our debt is trading, you know, the ECA lenders will be, you know, solely collateralized into Telesat Lightspeed. As we've said before, we don't like where the debt is trading. I mean, we think that sends messages about Telesat that, yeah, that don't align with reality. Right? You see debt trading at those kinds of levels, and you think, you know, the company is under some, you know, extraordinary financial duress.
It's certainly not how we're thinking about it. You look at how the business is held up, you look at the cash flows, you look at the predictability of our revenues, yeah, you know, we don't get it. It might not, you know, chill or undermine, and I don't think it will, the outcome of our discussions with the ECAs. We still, it doesn't mean, "Oh, so who cares?" You know, we don't like it. To answer your question, no, we don't think that where the restricted debt trades is going to have a bad collateral impact on getting there with the export credit agencies.
Okay, great. Thank you.
Thank you.
Operator, we have time for one quick question, and then we need to wrap up.
Certainly. The last question will be from Tim Farrar from TMF Associates. Please go ahead.
Hey, thanks for taking the question. I believe in the covenants, there's, on the revolver, if it's 35% drawn and the covenants come into play, is there any plan or reason to have to draw on that revolver? I guess it would be about CAD 70 million. Is there any plan to draw on that and then the covenants would potentially kick in? Based on what we know at the moment, no.
No.
Okay, great. Thank you.
Okay.
Okay.
Okay. All right. Well, listen, we appreciate everyone's time this morning, and we look forward to chatting again when we issue our first quarter numbers. Thank you very much.
Thank you. Bye-bye.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.