Telesat Canada has announced its financial results for the three-month and one-year periods ended December 31, 2018. All amounts are in Canadian dollars and reported under International Financial Reporting Standards (“IFRS”) unless otherwise noted.
For the quarter ended December 31, 2018, Telesat reported consolidated revenues of $232 million, a decrease of 8% ($21 million) compared to the same period in 2017. When adjusting for the impact of foreign exchange rate changes, revenue decreased by 9% ($22 million) compared to the same period in 2017. The decrease was primarily due to short-term services provided to other satellite operators in the 4th quarter of 2017 that did not re-occur in 2018, and the end of service or service reductions for certain customers, partially offset by the impact of the implementation of IFRS 15 and revenue related to the Telstar 19 VANTAGE satellite, which entered commercial service in August 2018.
Operating expenses of $71 million for the quarter were 52% ($24 million) higher than the same period in 2017, primarily because of non-cash compensation expenses of $26 million recognized for the 2018 year associated with restricted share units and stock options granted during the fourth quarter. Adjusted EBITDA1 for the quarter was $190 million; a decrease of 8% ($17 million) compared to the same period in 2017. The Adjusted EBITDA margin1 for the fourth quarter of 2018 was 82.2%, compared to 82.0% in the same period in 2017. The impact of foreign exchange rate changes on operating results was not meaningful.
On January 1, 2018, Telesat adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers. For the three-month period ended December 31, 2018, the adoption of IFRS 15 had a net positive impact of approximately $7 million on revenues, an approximately $5 million reduction in operating expenses and a positive impact of approximately $12 million on Adjusted EBITDA1. The adoption of IFRS 9 had no impact on revenues, operating expenses and Adjusted EBITDA1.
Telesat’s net income for the quarter was a loss of $187 million compared to net income of $72 million for the quarter ended December 31, 2017. The $259 million difference was the result of a higher non-cash loss on foreign exchange arising principally from the translation of Telesat’s U.S. dollar denominated debt into Canadian dollars, losses on financial instruments, and lower operating income in the fourth quarter of 2018.
For the year ended December 31, 2018, revenue was $903 million, a decrease of 3% ($24 million) compared to the same period in 2017. When adjusted for changes in foreign exchange rates, revenues declined 2% ($16 million) compared to 2017. The decrease was primarily due to lower short-term services provided to other satellite operators and the end-of-service or service reductions for certain North American customers, partially offset by the impact of the implementation of IFRS 15 and revenue related to the Telstar 19 VANTAGE satellite. Operating expenses were $186 million, a decrease of 1% ($2 million) from 2017. In 2018, the impacts of IFRS 15 implementation and lower compensation expense associated with certain payments to stock option holders made in connection with the cash distribution to shareholders in the first quarter of 2017 were offset by higher share-based compensation expense and higher cost of equipment sales. Adjusted EBITDA1 was $752 million, a decrease of 1% ($5 million) or, when adjusted for foreign exchange rates, an increase of $3 million. The Adjusted EBITDA margin1 for 2018 was 83.3%, compared to 81.6% in 2017.
The adoption of IFRS 15 had a net positive impact of approximately $19 million on revenues, approximately $21 million reduction in operating expenses and a positive impact of approximately $40 million on Adjusted EBITDA1 for the year ended December 31, 2018.
For the year ended December 31, 2018, the net loss was $91 million, compared to net income of $505 million for 2017. The decrease in net income for the year was principally the result of foreign exchange losses in 2018, arising from the translation of Telesat’s U.S. dollar denominated debt into Canadian dollars compared to foreign exchange gains in 2017, and losses on financial instruments in 2018, compared to gains in 2017.
“2018 was a busy year and I am pleased with both our financial and operational performance,” commented Dan Goldberg, Telesat’s President and CEO. “As a result of our continued operating discipline, we maintained our favorable Adjusted EBITDA1 margin, achieved strong free cash flow generation, and meaningfully increased our cash balances year over year. We also launched and brought into service two new geostationary satellites – Telstar 18 VANTAGE and Telstar 19 VANTAGE – and launched our first Low Earth Orbit (LEO) satellite, an important step in moving forward with our planned revolutionary global LEO broadband satellite constellation. Looking ahead we remain heavily focused on increasing the utilization of our in-orbit satellites and executing on our key growth initiatives, particularly our LEO program.”
In April 2018, Telesat entered into amended Senior Secured Credit Facilities, which reduced the applicable margin from 3.0% to 2.5% on the then outstanding borrowings of US $2,344 million.
In July and August 2018, Telesat entered into agreements with two leading satellite-manufacturing teams, Airbus Defence and Space and a consortium of Thales Alenia Space and Maxar Technologies, to advance the system design and validate required technologies for Telesat’s LEO constellation. In January 2019, Telesat announced that both teams had successfully completed the system requirements review phase, a process that is expected to culminate in each firm making a proposal to Telesat for the construction and implementation of the Telesat LEO constellation.
In October 2018, together with Intelsat, SES and Eutelsat, Telesat participated in the creation of the C-Band Alliance, a consortium formed to facilitate the potential repurposing of certain C-band spectrum in the United States for 5G
In January 2019, Telesat announced that it had entered into an agreement with Loon, a subsidiary of Google’s parent company Alphabet under which Loon will deliver a network operating design that Telesat can use to support its LEO constellation.