GlobeNewswire Inc | Jul 30, 2020 07:01AM EDT

July 30, 2020

OTTAWA, July 30, 2020 (GLOBE NEWSWIRE) -- Telesat today announced its financial results for the three and six-month periods ended June 30, 2020. All amounts are in Canadian dollars and reported under International Financial Reporting Standards (IFRS) unless otherwise noted.

For the quarter ended June 30, 2020, Telesat reported consolidated revenue of $208 million, a decrease of 10% ($23 million) compared to the same period in 2019. When adjusted for changes in foreign exchange rates, revenue declined 11% ($25 million) compared to 2019. Revenue decreases were primarily due to a reduction of service for one of Telesats North American DTH customers and lower revenue due to the completion of the term for prepaid services in a customer agreement that was accounted for as having a significant financing component. In addition, revenue associated with short-term services provided to another satellite operator in the second quarter of 2019 did not recur in 2020.

Operating expenses for the quarter were $46 million, an increase of $8 million from 2019. When adjusted for changes in foreign exchange rates, operating expenses increased by $7 million from 2019. Approximately 50% of the increase in operating expenses was the result of a provision for bad debt primarily related to customers in the mobility sector whose business is under pressure from COVID-19. Other increased expenses include compensation associated with the Low Earth Orbit (LEO) program, professional fees, and in-orbit insurance.

Adjusted EBITDA1 was $164 million, a decrease of 17% ($33 million) or, when adjusted for foreign exchange rates, a decrease of $34 million. The Adjusted EBITDA margin1 for the second quarter of 2020 was 79.1%, compared to 85.2% in 2019.

For the quarter ended June 30, 2020, net income was $162 million, compared to net income of $135 million for 2019. The positive variation for the quarter was principally the result of higher non-cash foreign exchange gains in 2020, arising from the translation of Telesats U.S. dollar denominated debt into Canadian dollars and lower interest expense, partially offset by non-cash losses on financial instruments in 2020 compared to gains in 2019.

For the six-month period ended June 30, 2020, Telesat reported consolidated revenue of $417 million, a decrease of 8% ($37 million) compared to the same period in 2019. Revenue decreases were primarily due to a reduction of service for one of Telesats North American DTH customers and lower revenue due to the completion of the term for prepaid services in a customer agreement that was accounted for as having a significant financing component. In addition, revenue associated with short-term services provided to another satellite operator in the second quarter of 2019 did not recur in 2020. These revenue decreases were partially offset by higher equipment sales and new services provided to users impacted by a failure of a competitors satellite in April 2019.

Operating expenses for the six-month period were $92 million, an increase of $14 million from 2019. Approximately 40% of the increase in operating expenses was the result of a provision for bad debt primarily related to customers in the mobility sector whose business is under pressure from COVID-19.Other increased expenses include compensation associated with the LEO program, professional fees, and in-orbit insurance.

Adjusted EBITDA1 was $330 million, a decrease of 14% ($54 million) or, when adjusted for foreign exchange rates, a decrease of $53 million. The Adjusted EBITDA margin1 for the first six months of 2020 was 79.3%, compared to 84.7% in 2019.

For the six months ended June 30, 2020, the net loss was $116 million, compared to net income of $307 million for 2019. The negative variation for the period was principally the result of non-cash foreign exchange losses in 2020, arising from the translation of Telesats U.S. dollar denominated debt into Canadian dollars compared to foreign exchange gains in 2019, and non-cash losses on financial instruments in 2020 compared to gains in 2019.

Our second quarter results reflect certain factors that we anticipated, namely the non-renewal late last year of a contract with a North American DTH customer and the end of the revenue amortization period of a contract with another customer, as well as certain factors that we had not anticipated, namely the COVID-19 pandemic and a paucity of opportunities this year to provide short-term satellite services to other satellite operators, commented Dan Goldberg, Telesats President and CEO. These anticipated and unanticipated factors account for our reduced revenue and Adjusted EBITDA1 over the first two quarters of this year relative to the prior period. Having said that, the overwhelming majority of our revenues appears to be unaffected by the pandemic and we continue to have robust operating margins and strong cash flow, which is underpinned by our substantial contractual backlog. In addition, we continue to make substantial progress on the development of our planned revolutionary LEO satellite constellation as well as our other strategic objectives, including leveraging our valuable spectrum rights.

Business Highlights

-- At June 30, 2020: Telesat had contracted backlog2 for future services of approximately $2.9 billion.Fleet utilization was 81%.

Telesats quarterly report on Form 6-K for the quarter ended June 30, 2020, has been filed with the United States Securities and Exchange Commission (SEC) and may be accessed on the SECs website at www.sec.gov.

Conference Call

The toll-free dial-in number for the teleconference is +1 800 952 5114. Callers outside of North America should dial +1 416 641 6104. The conference confirmation number is 4333921. The access code is 5349569 followed by the number sign (#). Please allow at least 15 minutes prior to the scheduled start time to connect to the teleconference.

Dial-in Audio Replay:A replay of the teleconference will be available one hour after the end of the call on July 30, 2020 until 11:59 p.m. ET on August 13, 2020. To access the replay, please call +1 800 408 3053. Callers outside of North America should dial +1 905 694 9451. The access code is 3381962 followed by the number sign (#).

About Telesat

Backed by a legacy of engineering excellence, reliability and industry-leading customer service, Telesat has grown to be one of the largest and most successful global satellite operators. Telesat works collaboratively with its customers to deliver critical connectivity solutions that tackle the worlds most complex communications challenges, providing powerful advantages that improve their operations and drive growth. Telesat LEO, our Low Earth Orbit network will revolutionize global broadband connectivity by delivering a combination of high capacity, security, resiliency and affordability with ultra-low latency and fiber-like speeds.

Privately held and headquartered in Ottawa, Canada with offices and facilities around the world, Telesats principal shareholders are Canadas Public Sector Pension Investment Board and Loral Space & Communications Inc. (NASDAQ: LORL). For more information, visit www.telesat.com.

Contact:Michael BolithoTelesat+1.613.748.8828ir@telesat.com

Forward-Looking Statements Safe Harbor

This news release contains statements that are not based on historical fact and are ''forward-looking statements'' within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this news release, the words anticipated, appears, continue, planned and "continue", or other variations of these words or other similar expressions are intended to identify forward-looking statements and information. Actual results may differ materially from the expectations expressed or implied in the forward-looking statements as a result of known and unknown risks and uncertainties. Detailed information about some of the known risks and uncertainties is included in the "Risk Factors" sections of Telesat Canada's Annual Report on Form 20-F for the fiscal year ended December 31, 2019 and in Telesat Canadas Quarterly Report on Form 6-K for the quarters ending March 31, 2020 and June 30, 2020, all of which can be obtained from the SEC website.

Known risks and uncertainties include but are not limited to: risks associated with operating satellites and providing satellite services, including satellite construction or launch delays, launch failures, in-orbit failures or impaired satellite performance, the impact of COVID-19 on Telesats business and the economic environment, the ability to successfully deploy an advanced global LEO satellite constellation, the availability of government and/or other funding for the LEO satellite constellation, the receipt of proceeds in relation to the re-allocation of C-band spectrum, volatility in exchange rates, the ability to expand our existing satellite utilization and risks associated with domestic and foreign government regulation. The foregoing list of important factors is not exhaustive. The information contained in this news release reflects Telesat's beliefs, assumptions, intentions, plans and expectations as of the date of this news release. Except as required by law, Telesat disclaims any obligation or undertaking to update or revise the information herein.

Telesat CanadaUnaudited Interim Condensed Consolidated Statements of Income (Loss)For the periods ended June 30 Three months Six Months (in thousands of 2020 2019 2020 2019 Canadian dollars) Revenue $ 207,834 $ 231,299 $ 416,507 $ 453,612 Operating (46,051 ) (37,953 ) (91,527 ) (77,073 ) expenses Depreciation (55,615 ) (62,584 ) (111,222 ) (124,875 ) Amortization (4,306 ) (6,442 ) (8,617 ) (12,106 ) Other operating gains 9 (14 ) (212 ) (87 ) (losses), net Operating 101,871 124,306 204,929 239,471 income Interest (51,067 ) (65,190 ) (105,801 ) (130,272 ) expense Interest and 1,540 5,301 5,792 9,976 other income (Loss) gain on changes in fair (827 ) 22,827 (44,599 ) 80,163 value of financial instruments Gain (loss) on foreign 125,270 58,438 (165,422 ) 128,778 exchange Income (loss) 176,787 145,682 (105,101 ) 328,116 before tax Tax expense (15,164 ) (10,213 ) (11,364 ) (20,747 ) Net income $ 161,623 $ 135,469 $ (116,465 ) $ 307,369 (loss)

Telesat Canada Unaudited Interim Condensed Consolidated Balance Sheets (in thousands of Canadian dollars) June 30, December 31, 2020 2019 Assets Cash and cash equivalents $ $ 1,187,273 1,027,222Trade and other receivables 73,051 64,062 Other current financial assets 3,971 210 Prepaid expenses and other current 40,846 43,724 assetsTotal current assets 1,305,141 1,135,218Satellites, property and other equipment 1,389,473 1,458,933Deferred tax assets 14,610 12,412 Other long-term financial assets 32,242 57,730 Other long-term assets 8,068 8,264 Intangible assets 792,752 802,791 Goodwill 2,446,603 2,446,603Total assets $ $ 5,988,889 5,921,951 Liabilities Trade and other payables $ 24,559 $ 26,247 Other current financial liabilities 42,533 38,281 Other current liabilities 80,846 72,315 Current indebtedness 25,456 24,408 Total current liabilities 173,394 161,251 Long-term indebtedness 3,842,108 3,688,391Deferred tax liabilities 325,989 348,762 Other long-term financial 46,513 42,511 liabilitiesOther long-term liabilities 416,214 435,711 Total liabilities 4,804,218 4,676,626 Shareholders' Equity Share capital 154,895 154,895 Accumulated earnings 914,590 1,031,055Reserves 115,186 59,375 Total shareholders' equity 1,184,671 1,245,325Total liabilities and shareholders' equity $ $ 5,988,889 5,921,951

Telesat Canada Unaudited Interim Condensed Consolidated Statements of Cash Flows For the six months ended June 30 (in thousands of Canadian dollars) 2020 2019 Cash flows from operating activities Net (loss) income $ (116,465 ) $ 307,369 Adjustments to reconcile net (loss)income to cash flows from operating activities Depreciation 111,222 124,875 Amortization 8,617 12,106 Tax expense 11,364 20,747 Interest expense 105,801 130,272 Interest income (5,860 ) (10,130 ) Loss (gain) on foreign 165,422 (128,778 ) exchange Loss (gain) on changes in fair value of 44,599 (80,163 ) financial instruments Share-based compensation 4,885 7,108 Loss on disposal of 212 87 assets Other (30,803 ) (54,246 ) Income taxes paid, net of income taxes (10,965 ) (50,237 ) receivedInterest paid, net of interest received (95,933 ) (93,097 ) Operating assets and liabilities (44,882 ) 10,195 Net cash from operating activities 147,214 196,108 Cash flows used in investing activities Purchases for satellite programs (897 ) (1,727 ) Purchase of property and other equipment (9,122 ) (4,589 ) Purchase of intangible assets (5 ) (24,901 ) Net cash used in investing activities (10,024 ) (31,217 ) Cash flows used in financing activities Repayment of indebtedness (12,972 ) (15,637 ) Payments of principal on lease (712 ) (586 ) liabilitiesSatellite performance incentive payments (4,771 ) (4,861 ) Government grant received 5,013 ? Dividends paid on Director Voting ? (10 ) preferred sharesNet cash used in financing activities (13,442 ) (21,094 ) Effect of changes in exchange rates on 36,303 (25,986 ) cash and cash equivalents Increase in cash and cash equivalents 160,051 117,811 Cash and cash equivalents, beginning of 1,027,222 768,433 periodCash and cash equivalents, end of period $ 1,187,273 $ 886,244

Telesats Adjusted EBITDA margin(1):

Three months ended June 30, Six months ended June 30,(in thousandsof Canadian 2020 2019 2020 2019 dollars)(unaudited)Net income $ 161,623 $ 135,469 $ (116,465 ) $ 307,369 (loss)Tax expense 15,164 10,213 11,364 20,747 Loss (gain)on changes infair value of 827 (22,827 ) 44,599 (80,163 )financialinstruments(Gain) losson foreign (125,270 ) (58,438 ) 165,422 (128,778 )exchangeInterest and (1,540 ) (5,301 ) (5,792 ) (9,976 )other incomeInterest 51,067 65,190 105,801 130,272 expenseDepreciation 55,615 62,584 111,222 124,875 Amortization 4,306 6,442 8,617 12,106 Otheroperating (9 ) 14 212 87 (gains)losses, netNon-recurringcompensation 264 293 624 704 expenses^(3)Non-cashexpenserelated to 2,290 3,456 4,885 7,108 share-basedcompensationAdjusted $ 164,337 $ 197,095 $ 330,489 $ 384,351 EBITDA Revenue $ 207,834 $ 231,299 $ 416,507 $ 453,612 Adjusted 79.1 % 85.2 % 79.3 % 84.7 %EBITDA Margin

End Notes

1 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 Telesats operating performance.

Adjusted EBITDA allows Telesat and investors to compare Telesats 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 Telesats 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 Telesats liquidity or as a substitute for net income as an indicator of Telesats operating performance.

2 Remaining performance obligations, which we refer to as contracted revenue backlog, represents Telesats 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 majority of Telesats contracted revenue backlog is generated from contractual agreements for satellite capacity.

3Includes severance payments and special compensation and benefits for executives and employees.