Telesat has 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 Telesat’s 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 EBITDA was $164 million, a decrease of 17% ($33 million) or, when adjusted for foreign exchange rates, a decrease of $34 million. The Adjusted EBITDA margin 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 Telesat’s 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 Telesat’s 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 competitor’s 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 EBITDA was $330 million, a decrease of 14% ($54 million) or, when adjusted for foreign exchange rates, a decrease of $53 million. The Adjusted EBITDA margin 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 Telesat’s 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, Telesat’s President and CEO. “These anticipated and unanticipated factors account for our reduced revenue and Adjusted EBITDA 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.”