Good morning, ladies and gentlemen. Welcome to the conference call to report the First Quarter 2019 Financial Results for Telesat. Our speakers today will be Dan Goldberg, President and Chief Executive Officer of Telesat and Michel Cayouette, 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. Earlier today, we issued a news release containing Telesat’s consolidated financial results for the three months period ended March 31, 2019. This news release is available on Telesat’s website at www.telesat.com under the tab Investor Relations. We also filed our quarterly report on Form 6-K with the SEC this morning.

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 and uncertainties.

For additional information about known risks, we refer you to the risk factors section of our Annual Report on Form 20-F for the fiscal year ended December 31, 2018 filed with the SEC on March 1, 2019.

The information that we are discussing today reflects our expectations as of today and is subject to change except as required by securities laws Telesat disclaims any obligation or undertaking to update or revise this information whether as a result of new information, future events or otherwise.

I will now turn the call over to Dan Goldberg, Telesat’s President and Chief Executive Officer..

Thanks, Michael. This morning, I’ll discuss our first quarter results and give an update on the business. I’ll then hand over to Michel, who will speak to the numbers in more detail and then we will open the call up to questions.

Adjusting for foreign exchange rate changes, revenue and adjusted EBITDA last quarter were both approximately 6% lower than Q1 last year.

The decrease comes principally from lower revenue from short-term satellite services provided to other satellite operators and to a lesser extent from reduced equipment sale revenue and revenue from the resource sector, all of which was offset in part revenue from our new Telstar 18V and 19V satellites, which came into service from the second half of last year.

We maintained our strong operating discipline, driven adjusted EBITDA margin of 84.2%. Turning to some key metrics, backlog at the end of the quarter was $3.7 billion and fleet utilization was 83%.

And looking at how our revenues broke down on an application basis for the quarter, broadcast represented approximately 51% of total revenue, enterprise services 47% and consulting and other 2%. And on a geographic basis for the quarter, North America accounted for 83% of revenue, Latin America 9%, EMEA 4% and Asia 4%.

As highlighted in the earnings release, we closed a number of important customer contracts in the quarter, including our first customer contract for our planned LEO constellation.

We’re seeing strong demand in the market for the high throughput, hopefully, literally achieve broadband services our LEO constellation will provide and we’re pleased to see how the Canadian government’s commitment and its recent budget legislation to secure LEO satellite services as part of its broader plan to bridge the digital divide in Canada.

Lastly, we disclosed in the 6-K we filed this morning that our CFO, Michel Cayouette will be retiring within the next 12 months. Michelle has been with Telesat for more than 10 years and we’re very grateful for his significant contributions to the company. We plan to find a strong successor to Michelle and ensure that there’s a smooth transition.

And with that, I’ll hand over to Michelle..

Thank you, Dan, and thank you for those of one word. I have really enjoyed my time at Telesat and I’m very optimistic about Telesat’s plan for the future. My only regret is that that I will not be part of it.

Going back to the first quarter results and compared to the same period in 2018, revenue decreased by $10 million to $222 million, hope everything expenses increased by $1 million to $39 million, and adjusted EBITDA decreased about $8 million to $187 million.

Between the first quarter of 2018 and the first quarter of 2019 the average value of the U.S. dollar in Canadian terms increased by 5.9%. That increase had a positive impact of $4 million on our revenue, the negative impact of $1 million on our operating expenses and the positive impact of $3 million on our adjusted EBITDA.

When adjusted for the changes in the U.S. exchange rate, revenue decreased by $14 million during the first quarter compared to the same period in 2018, hope everything expenses remain constant and that adjusted EBTIDA decreased by $11 million.

Operating expense has remained constant during the first quarter when compared to the same period in 2018 and increase in compensation and employee benefits due to higher non-cash share based compensation was offset by a decrease in cost of sale, mainly due to lower equipment sales.

Depreciation and amortization increased by $8 million during the first quarter when compared to the same period in 2018. The increase was mainly due to depreciation on our Telstar 18 VANTAGE and Telstar 19 VANTAGE satellites, which began commercial service in October, 2018, in August, 2018 respectively.

Interest expense increased by $6 million during the first quarter when compared to the same period in 2018. The increase was mainly due to higher interest rates on our senior secure credit facilities and the decrease in capitalized interest combined with the unfavorable impact relative to the conversion of U.S.

dollar denominated interest expenses into Canadian dollars equivalent. The increase was partially offset by higher net interest received on our interest rate swap. During the first quarter, we recorded a gain on financial instrument of $57 million and a gain on foreign exchange of $17 million.

The gain on financial instruments reflects changes in the fair value of our interest rates floor on our senior secured credit facilities. The prepayment option on our senior notes in our interest rate swap. The gain on foreign exchange was mainly related to the change in the exchange rate use to translate our U.S.

dollar denominated debt into Canadian dollar equivalent at the beginning and the end of the period. Tax expense decreased by $15 million during the first quarter when compared to the same period in 2018. The decrease was mainly due to a decrease in operating income as well as losses on certain financial instruments.

During the first quarter of 2019, cash inflows from our operating activities were $118 million and cash outflows used in investing activities were $17 million. The majority of our investing activities during the first quarter were related to capital expenditure for the development of our plan LEO constellation.

We believe cash and short-term investment at the end of March.

Cash flow from operating activities and borrowing availability under our revolving credit facility will be adequate to meet our expected cash requirements for the next 12 months for activities in a normal course of business including the required interest in principal payments on the indebtedness with excluding capital expenditure for the potential procurement of our plan LEO constellation.

At the end of the first quarter, we work with compliance with the covenants in our credit agreement and indenture. A reconciliation between our financial statements and the financial covenant calculation is provided in the quarterly report we filed this morning.

That concludes our prepared remarks for this call and now we will be happy to answer any question you may have.

Operator?.

Thank you very much. I will now take questions from the telephone lines. [Operator Instructions] Thank you. The first question is from Jason Kim from Goldman Sachs. Please go ahead. Your line is open..

Thank you. And congratulations to Michelle, and good luck with the CFO search to the team. First on to LEO projects, I wanted to get a general sense of the timeline you are currently expecting or regarding the initiative.

I understand a timing can be very fluid, but what are some of the key milestones we should be looking for from here? And when do you think you would have to decide on how to finance the project should you choose to go full steam ahead?.

Thanks, Jason. Let’s see, milestones so we’ve shared previously that we, almost about nine months ago, started a process with two potential suppliers; Airbus on the one hand and then a consortium that we brought together of Thales and Maxar on the other hand.

We’re, at this point in time, reaching the end of that nine month period, where we worked with them to retire a certain technical risk associated with certain dimensions of the constellation and kind of nailed down the design over this nine-month period. So we’re just about to reach the end of that period.

Next up would be getting commercial proposals from both of these prospective suppliers. My expectation is that will happen at some point over the course of the summer. And at that point, I think we’ll be in a better position to sort of assess next steps from a financing perspective.

We’ve already started thinking about how the project could be financed as we’ve said before, there’s sort of multiple financing sources that we would think about and including again, subject to all of our covenants and whatnot cash that we have on the balance sheet, cash flow that we generated to Telesat potential additional equity raise and then other debt borrowings, again, consistent with our covenant arrangement is certainly one of the things – one of the financing sources that we’ve considered and I think, we’ve said before is the potential to work with export credit agencies to finance a portion of the total expenditures for the constellation.

So anyway, that’s a little bit about where things sit now and kind of immediate next steps..

Thanks for that.

And I noticed that pretty early, but any sense of just ballpark figures, what you envisioned the projects to cost?.

No, not yet.

Yes, I mean we said before, it’ll be meaningful though to launch a global, very advanced LEO constellation is a significant undertaking, really want to share anything with the market until such time that we’ve gotten commercial proposals back from with these suppliers and have a better sense for where we think the total costs will come in..

Okay. And the 2024 unsecured notes, they become callable later this year. You can actually just call those with cash on hand to save an interest expense and get rid of some of the covenants in that bond that are relatively restrictive.

Now, how do you think about that from a balance sheet management perspective, understanding that you have other areas about the investment?.

Yes. that’s simply one option that we have on the table. However, as you can, as you know, it will be, if we were to do that, it would be very expensive in term of doing call that for the first call day. So that’s one of the option we have, also that’s, yes, exactly. So, we are looking at different options and definitely one of the options..

Understood.

And can you remind me about the LEO order rights, like what rights you have? What you have to do to maintain those? And in an unlikely scenario, we’re in a scenario, where you choose – you decide not to pursue the full LEO initiative anymore like are you able to sell or monetize those rights?.

So, we have priority rights at the ITU to operate in the Ku-band, we launched a satellite last year and do this even a year before, but it entered, sort of continued online last year.

I want to say last April, if memory serves that effectively allowed us to bringing to use some of the ITU’s rules, our filing, it is likely to be in the case that at the World Radio Conference that the ITU will hold towards the end of this year.

It’s likely to be the case that there might be additional milestones that are put in the place, almost sort of like build out requirements. So, we might have additional obligations to launch additional satellites to continue to protect our rights. So that that’s kind of the extent of the rights, we’ve been – our ITU filing was made through Canada.

So, we enjoy the rights through the government of Canada license that we have from the licensing authority for that. And then Jason, your question about the ability to monetize rights or anything like that. I would just say that it’s really not our focus.

Our focus is much more on developing constellation and building it out, where I feel like making good progress on that. We’re seeing a very significant demand in the market for the type of capability that we envision bringing into the market. So, anyway, I’d say that’s where our focus is..

Understood. And just two more questions if I may, any progress update on collapsing either the organizational structure with the Toronto Stock Exchange. And then second question is – the last question is on the CBA – the C-band alliance, I’m curious how you see this, see the situation developing from here from your end, from your perspective.

Have you seen any other proposals that you think can be a viable alternative to the CBA’s plan and what are your thoughts on some of the proceeds, sort of a sharing mechanism, if you will, the U.S.

government and what do you want to call it tax on it?.

All right.

So, your question about sort of our corporate structure, you made reference to the Toronto Stock Exchange, although that that’s not necessarily an integral part of those plans, it’s been disclosed, certain Loral and looking at my General Counsel maybe by and by us as well that our shareholders have contemplated modifying their governance arrangements.

It’s kind of colloquially referred to as a roll up. All I can say is that that’s something that continues to be considered, but we can’t share anything until there’s actually something to share. So, no real update on that.

Then your next question, I think we’re about to C-band and the FCC process, as far as alternative proposals that are viable, no, I don’t think anybody else has come forward in the way the CBA has the very concrete plan that really addresses what we believe, at least I believe are sort of the key thing that the regulators are going to need to sort through.

And that is to me to make sure that the important services that are being provided today in the C-band that there’s a clear path for those important activities to continue in an interference freeway on the one hand and on the other hand to expeditiously make available to the terrestrial wireless industry meaningful spectrums [Technical Difficulty] can take a leadership role in 5G rollout.

I don’t think anybody else has come forward with anything that’s thoughtful, concrete and viable in the way that the CBA has. So, so for me, if – what guides the commission of those sort of important criteria that I just mentioned. I don’t think there’s another viable plan out there. As far as how proceeds would be distributed.

No, I don’t really have views on that or these views; I think that those drawing it up about that I want to talk about on this call. Ultimately that’ll be the decision obviously that that the government when we need to reach..

Fair enough. Thank you very much..

Okay, Jason. Thank you..

Thank you. [Operator Instructions] The next question is from Mike Pace from JPMorgan. Please go ahead..

Hi. Good morning. Thank you for taking the questions. I guess I’m looking for a little more color on maybe the real contracts that you signed in March, I believe. Are these contracts for a specific amount of capacity? Is it very open-ended? I’m just trying to understand. You haven’t launched satellites or have a network in place yet.

So, any color there would be helpful..

Yes, you say contracts, Mike, but it’s been the one contract that we’ve signed and announced so far. Yes, I’d say, it’s [Technical Difficulty] kind of very much along the lines of the contracts that we tend to sign when we’re providing megabit service. And by that, I mean there’s a definite start date. There’s a take or pay.

It’s a take or pay contract for a fixed amount of capacity over a fixed amount of time at a rate that’s committed. So, for somebody that follows our industry, if you don’t take any sort of new learning, wrap your head around – how this LEO contract works.

It’s very, I’d say, consistent with the funds to contracts that we signed, which is – and it’s really one of our longstanding customers. And so that that’s our expectations about how, this LEO business will proceed.

We’ll continue to do business with a lot of the same companies that we do business with today and that we’ve been doing this for a long time. And yes, there’ll be take or pay in nature and we need to need a delivery date. We need to meet certain technical specifications and the like. And then they have an obligation to pay us..

And I guess since you mentioned pricing, I think I know what your answer’s going to be, but any color on how you’re pricing this early on relative to your existing business on a per unit basis?.

I won’t go there. I would say that we’ve characterized the offering as – it’s a great value proposition and all sorts of ways. I mean, we can deliver huge amounts of capacity. It’s very, very low latency. It’s more distributed network.

It’s an amazingly flexible networking terms of our ability to deploy capacity and redeploy capacity in a very dynamic way. And we are pricing it in a way that I think will also be attractive for the customer community. I’d say beyond that. Yes we don’t want to provide more specifics than that at this point in time..

I figured worth a shot. So, maybe to get back a followup from Jason’s question, I guess, and then also in the queue. I thought I saw some language again, where you make fund or develop LEO and an unrestricted subsidiary, and I know you’d move some cash over there today.

I guess what I’m – in what scenario would this not to be funded or developed in an unrestricted subsidiary? Does that have to do more with partners or no partners or XIM [ph] facilities et cetera project financing over there.

I’m just wondering why it wouldn’t just be funded outside the group?.

Yes. We have just new. So, we have a different scenario that we’re working on in parallel in terms of event waiting. And of course, the financing structure, we’ll have all the financing options we have. We’ll get down and we’ll be linked to the corporate structure, but we’re looking at different options at this point.

We’re not in a position to give you more detailed, but no color on one option versus another. We mentioned the unrestricted citizenry, because for now, we have an unrestricted subsidiary that we’re using to – for the development of a LEO constellation at this point.

But the final structure, we are a month away about how to have the different final structure..

Understand. And just two quick operational questions and sorry if I missed this first one. But the short-term satellite lease or rent dollars in the first quarter of 2018, just so we can think about 1Q 2019 and then it’s always tough for us on timing of these.

Can you just talk about when we should see these reemerge quarterly in 2019?.

I think, a good question, Mike, I’m looking at my colleagues, I think we’re going to probably recognize some of the short-term satellite services revenue for Q2. And then probably another one, subject to actually being able to complete it in the second half of the year.

And I think, I think I had mentioned before on the last call that our expectation is kind of the magnitude of that activity is going to be for 2019 is going to be sort of more or less consistent with the level of activity that we saw in 2018. So, whereas in 2017, the revenues from that were kind of more elevated.

So any of that, that’s your expectation in terms of the timing for this year..

Okay.

And what was specifically that activity in the first quarter of 2018?.

No, no, no, I’m sorry. I mentioned on our full-year call that the order magnitude of revenues or 2019 from revenues from the short-term satellite services would be more equivalent to what it was in 2018 as opposed to 2017 when it was higher..

Okay. I can follow up on that. And then just one last one, just with the Intelsat 29e satellite that has gone down. I’m just wondering our some of those X-29e customers calling, asking for proposals and would you have the capacity to support that? Thank you..

Yes. I’d say most of the activity around that failure just sort of took place as you can imagine very shortly after the failure, it extends with Intelsat, wasn’t able to accommodate its customers.

They’ve looked elsewhere and even Intelsat looked elsewhere, I think Intelsat did a tremendous job in terms of restoring the services that they were able to restore. We did pick up some business.

I wouldn’t characterize it as material, but we picked up some, and – but I don’t – at this point, I think it’s – whenever we’ve captured, for the most part, we’ve more or less captured. There might be some other dribs and drabs, but here again; it’s not going to be meaningful relief..

All right, great. Thank you..

Okay. Thank you..

Thank you. There are no further questions registered. At this time, I will return the meeting back to Mr. Goldberg..

Okay. Operator, thank you very much and thank you all for joining us this morning and we look forward to speaking again when we release our second quarter numbers. So thank you very much..

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation..