TSAT - Telesat Corporation (TSAT) CEO Dan Goldberg on Q2 2022 Results - Earnings Call Transcript
Telesat Corporation (TSAT)
Q2 2022 Earnings Conference Call
August 05, 2022, 10:30 AM ET
Company Participants
Michael Bolitho - Director of Treasury and Risk Management
Dan Goldberg - President, CEO and Director
Andrew Browne - CFO
Conference Call Participants
Walter Piecyk - LightShed
Mike Pace - JPMorgan
Arun Seshadri - Credit Suisse
Jason Kim - Goldman Sachs
Presentation
Operator
Good morning, ladies and gentlemen. Welcome to the conference call to report the Second Quarter 2022 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.
Michael Bolitho
Thank you and good morning. This morning we filed our quarterly report on form 6-K with the SEC and on SEDAR. 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 a discussion of known risks, see Telesat's annual and quarterly reports filed with the SEC and SEDAR. 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.
Dan Goldberg
Okay. Thanks, Michael. This morning, I'll share some thoughts on our results and give an update on the business. I'll then hand over to Andrew who will speak to the numbers in detail, and then we'll open the call up to questions.
As noted in the earnings release, we're off to a good start for the year and as a result, we're able to raise our full year guidance for both revenue and adjusted EBITDA. Our confidence around this comes from securing the partial DISH renewal, reselling the portion of capacity that DISH didn't renew.
The rebound we've seen in traffic for mobility services over the course of the year, and a number of other contributors on both the revenue and expense side of the business. Pricing environment remains largely stable, and we continue to maintain relatively high utilization across the fleet.
On our last earnings call, we noted that we purchased in the open market Telesat unsecured notes with an aggregate face value of USD 60 million and that our board had authorized us to purchase up to an incremental USD100 million face value of Telesat debt which we did in Q2 last quarter. And at our board meeting yesterday we received the authority to purchase up to an additional USD100 million face value in Telesat debt. Suffice to say we think our debt is trading below fair value and that this isn't a creative way for us to use our cash.
I want to flag this morning an issue with our Anik F2 Satellite that we called out in the 6-K we filed. In previous filings we've noted that Anik F2 suffered anomalies on two of its thrusters and that as a result, we had to implement a workaround mode to maintain its orbital position and provide service to customers. We expected this approach would allow us to provide station kept service until 2025. But it now appears that we can only maintain station kept service until the end of this year, at which point the satellite will be put in inclined orbit.
When that happens services currently supported on the satellite will be adversely impacted. Some as early as next February, while other services will degrade over time depending on the size of the antennas receiving signals from the satellite. As a result beginning next year, we expect Anik F2 revenues will decline if we can't find alternative ways to support the services.
But in an effort to provide continuity of service and preserve revenue, we're developing a range of potential mitigation strategies for Anik F2 including adding tracking antennas at certain of our sites, which would extend the service life for many of our customers and exploring repointing customer antennas to alternate Telesat satellites or to third party capacity. We're working closely with our Anik F2 customers and with government officials here in Canada on this effort, as most of the services on the satellite are provided in Canada.
To give you a sense of the potential financial impact Anik F2 in related ground services represent around 8% of our revenue, so a little bit more than CAD 50 million. We don't anticipate any adverse revenue impact for this year 2022.
For next year and assuming a given service ends when it can no longer be supported on the satellite, we estimate we lose around one third of Anik F2's revenue next year in 2023, which likely would be somewhat offset by resale of the freed up capacity for mobility services, which Anik F2 can support when it's in inclined operations.
But to be clear, we'll be seeking to use our own and third party capacity to find solutions for our Anik F2 customers in order to provide continuity of service and preserve the revenue on Anik F2 to the maximum extent possible. We will however incur incremental expense for any third party capacity or other investments we make to extend the impacted service.
So turning to Telesat Lightspeed, we received a few weeks ago a final proposal from Thales which we shared with the ECA lenders earlier this week. It took us longer than anticipated to get the Thales proposal. On our last earnings call, I indicated we hope to have a good sense of where we stood with the ECAs by the end of June, but given the delay in getting Thales' final proposal that's now slipped out a few months.
We also believe that we're going to need to secure some additional financing, above and beyond the ECA borrowings as inflation and the delay in the schedule for Telesat Lightspeed has led to an increase in the cost of the program. To that end, we're in discussions with potential financing sources at this time.
The contemplated financing this incremental financing would be at the Lightspeed unrestricted subsidiary level and would be subordinate to the ECA lenders and the governments of Canada and government of Quebec investments. Lightspeed represents a compelling investment opportunity, that there's no assurance that these discussions will come to a successful conclusion.
Although we've been disappointed with the supply chain challenges and inflationary pressures that we've encountered, we remain extremely bullish about the opportunity Telesat Lightspeed gives us to grow our business.
We have a highly disruptive and robust constellation design, over USD750 million in contractual backlog, and over USD4 billion in financing arrangements. And the strong support of government partners at the Federal and Provincial levels here in Canada. Our overwhelming focus is on completing the financing, and commencing the full-scale construction of the program.
So with that, I'll hand over to Andrew and then look forward to addressing any questions.
Andrew Browne
Thank you, Dan, and good morning, everyone. I would now like to focus on highlights from this morning's press release and filings. In the second quarter of 2022, Telesat reported revenues of $187 million, adjusted EBITDA $146 million and generated cash from operations of $26 million with $1.5 billion of cash on the balance sheet at quarter end.
For the second quarter of 2022 compared to the same period of 2021, revenues decreased by $1 million to $187 million, operating expenses decreased by $6 million to $59 million, and adjusted EBITDA decreased by $2 million to $146 million. The adjusted EBITDA margin was 78.4% compared to 78.7% in 2021.
Between 2021 and 2022, changes in the U.S. dollar exchange rate had a negative impact of $4 million on revenues, and minimal impact on operating expenses and a negative impact of $4 million on adjusted EBITDA. When adjusted for the changes in foreign exchange rates, revenues decreased by $6 million for 2022 compared to 2021, operating expenses decreased by $7 million and adjusted EBITDA decreased by $5 million.
The revenue decrease was primarily due to reduction on renewal of a long term agreement with a North American direct-to-home customer partially offset by an increase in services provided to customers in the mobility market as it continues to recover from the impacts of COVID-19. The decrease in operating expenses was primarily due to lower non-cash share-based compensation and lower professional fees.
Interest expense increased by $3 million in the second quarter when compared to the same period of 2021. The increase in interest expense was primarily due to interest on the 2026 senior secured notes, which were issued in April 2021, combined with its higher interest on our U.S. Term Loan B facility. This was partially offset by the impact of the repurchase of our senior unsecured notes, combined with the impact of maturity of one of our interest rate swaps in September 2021.
During the 6 months ended June 30, 2022, we reported senior unsecured notes with a principal amount of CAD22.1 million away evolving market purchases in exchange for $97.2 million. These repurchases resulted in a gain in the second quarter of $86 million and for the sixth month period, a total gain of $107 million. These notes have been retired. And also to point out, it represents an annual interest savings of approximately $10.4 million per year.
As Dan has mentioned, we have also authorization to purchase up to a for USD 100 million sales value of debt. In 2022, we recorded a loss on foreign exchange of $99 million during the second quarter compared to a gain of $41 million in the second quarter of 2021. The loss for the 3 months ended June 30 was mainly the result of the stronger U.S. dollar to Canadian dollar with the resulting unfavorable impact on the translation of our U.S. denominated debt.
Our net loss for the second quarter of 2022 was $4.4 million compared to net income of $63 million in the prior year. The variation of $57.4 million was principally due to non-cash foreign exchange losses for the 3 months ended June 30, 2022, compared to the same period in the prior year. This loss was partially offset by the gain on extinguishment of debt.
For the first half of 2022, the cash inflows from operating activities were $69 million and the cash flows generated from investing activities were $31 million, included was $65 million by way of receipt of the remaining Phase 1 U.S. C-band clearing process and virtually all of the capital expenditures related to a lower orbit constellation, Telesat Lightseep.
Looking to guidance. As you would have noted in our earnings release this morning and as Dan has elaborated in his remarks, we are updating our previously stated 2022 guidance. For 2022, Telesat now expects its full year revenues to be between $740 million and $750 million and an increase from $720 million to $740 million.
Also as stated when we provided the preliminary 2022 guidance on March 18, included in our revenue expectation is the recognition of a significant hardware sales with the provision of related services to DARPA later this year was part of an $18.3 million contract.
In terms of adjusted EBITDA, Telesat now is expected to be between $45 million to $560 million and an increase from $525 million to $545 million. Our guidance still reflects a Canadian dollar to U.S. dollar exchange rate of 1.3%.
With respect to expected capital expenditures, we still expect our 2022 cash flows used in investing activities to be in the range of $100 million to $120 million, including capital expenditures to further advance our Lightspeed program. Once we have greater visibility around the construction and financing of our Telesat Lightspeed program, we'll provide a further update on our anticipated capital expenditures for the year, which could increase substantially.
To meet our expected cash requirements for the next 12 months, including interest payments and capital expenditures, we have approximately $1.5 billion of cash into short-term investments at the end of June as well as approximately USD 200 million of borrowings available under our revolving credit facility.
Approximately $1 billion in cash was held in our own restricted subsidiaries. In addition, we continue to generate a significant amount of cash from our ongoing operating activities. At the end of the second quarter, leverage as calculated on the terms of the amended senior secured credit facilities was 5.56x to 1. Telesat has complied with all the covenants in our credit agreement and indentures.
A reconciliation between our financial statements and financial covenant calculations is provided in the report and filed this morning. Our 6-K provides the unaudited interim condensed financial information in the NDA. The non-guarantor subsidiaries shown are essentially unrestricted subsidiaries of minor businesses.
So that concludes our prepared remarks for this call, and now we'll be happy to answer any questions you may have. With that, I will turn back to the operator.
Question-and-Answer Session
Operator
[Operator Instruction] First question is from Walter Piecyk from LightShed.
Walter Piecyk
Dan, can you give us a little bit more specific time line on when you expect to finalize things with the ECA. I know that you just -- you stated in your prepared remarks, finished up with Thales very recently contracted ECAs. When is that going to be finalized? And then what is the approximate amount of the incremental financing that you think that you're going to need to secure?
Dan Goldberg
So let's see. As far as timing and when things will be finalized. So what we said before, as I mentioned this morning about the ECA time line is, we had expected sort of by now to have a good sense of where we stood with the ECA.
So in the process with the ECA is you engage with them, you sign a term sheet and then it takes some months to kind of close your financing and sign definitive documents. I understand from our advisers that once you have a term sheet, you've got a pretty high degree of certainty around your financing.
So if I sort of do apples-to-apples, what I thought we would know by now, I now think we'll know in a couple of months. So call it, sometime in Q4. And by that, have a good sense for where we are with the ECAs is this thing coming together or not. So that's our sense around timing with ECAs and then to follow on what I said --
Walter Piecyk
For that event though that you're saying is in Q4, is the term sheet? Or is that the finalization of the term sheet that was previously signed?
Dan Goldberg
Yes. It's going to [indiscernible], by the end of Q4, I think, yes, we've got a good sense of where we are and maybe the full-term sheet is signed by that point, too. So part of me to say --
Walter Piecyk
And then it would take another. So basically into Q1 to finalize a term sheet that would hopefully be?
Dan Goldberg
No, look, I've never done one of the ECA things, and they've got all sorts of procedures above and beyond what commercial lenders have. But no, it would be our expectation that, yes, we'd have a good sense of where we stood with them in the next few months. The term sheet will, I don't know, take a little bit longer thereafter. But I don't think it's unreasonable to believe that by the end of this year, that term sheet should be in place.
And from our perspective, based on all the advice that we've got -- once we have that term sheet in hand, we're going to feel comfortable about making meaningful expenditures and moving forward with the program. So the launch of the program doesn't have to await having -- going through the entire definitive document process based on the advice that we've been getting. And then -- and maybe I'll pause there. Did you have any other questions about that? And then I'll talk about the…
Walter Piecyk
No, just on the incremental.
Dan Goldberg
Yes. So then on the incremental financing, a couple of things. As we've said, because of this inflationary environment that we're in because the schedule got elongated, which we talked about before. The program costs have gone up. We've talked about Lightspeed as like a $5 billion CapEx kind of project. And when we kind of look at the current costs and the inflationary pressures and whatnot, it's up probably the CapEx sub-10%. But it's up, it's up some hundreds of millions of dollars.
The biggest unknown for us right now, too, I mean and I think we've now got a good sense for where the capital costs are coming. I mentioned, it took us longer than we would have liked, but we now have a final proposal from Thales.
But another unknown is with the ECA lenders, for those of you -- they often require contingent capital to deal with different cost contingencies that can arise over the course of a multiyear program. And that stuff like schedule delays, cost overruns, all that sort of stuff. And so, we don't know at this point in time, the magnitude of the -- what's referred to as contingent equity, DISH contingent capital.
And so when we think about what that incremental -- and I should also say what we've said in the past is the ECA financing should cover most of the remaining financing that we needed, but it was never all of it. We always knew that we were going to need to raise a little bit of extra money. So when we think about this incremental financing, I'd say it's going to be at least kind of 10% of our overall capital cost. And it could be more depending on where we end up with the ECA lenders on this contingent capital. So that --
Walter Piecyk
I think that's Dan, commentary from the ECAs in terms of them saying look we need you to do this incremental $500 million to $1 billion in order for us to get to our term sheet. And do they require that to specifically be equity? Or is it something that could be layered on as subordinate debt?
Dan Goldberg
That's a good question. I mean what they're most focused on, obviously, is that it's subordinate to them and that it kind of funds certain. Yes, but beyond that, I think I'm looking at our general concepts closer to the stuff than I am. But yes, I think that's what would satisfy them. And for sure, I mean, we've been engaging with the ECA lenders for some amount of time.
So we've got kind of a decent sense for the -- we're not done yet, as I mentioned, but we got a sense already for what the overall kind of financing package that we're going to need to have lined up is going to be. And as I mentioned, now that we've got a better sense for -- now that we've got this final Thales proposal, a better sense for what the total CapEx is.
Yes, it's apparent to us. We always knew we needed to raise some incremental financing. Now we know that it's going to need to be a little bit bigger because of the cost increases and the sense that we're getting around the contingent capital. And so yes, we've been out engaging looking to secure this financing. And so yes, I just wanted to…
Walter Piecyk
Again, is it tied to the ECA meaning that are you going to have to do this before they reach their finalized term sheet in the fourth quarter?
Dan Goldberg
I don't think so. I don't think so. But they're going to need to have visibility that we're going to have all of our -- again, all of our financing in place so that they can go forward.
Walter Piecyk
Given the Thales, it seems like you're kind of locked in on one at this point and prices go up, that doesn't seem like a favorable situation. What's their appetite for costing up some vendor financing given that they're partly responsible for not managing their own supply chain better?
Dan Goldberg
Look, first off, we think that Thales is a top vendor for advanced satellite constellations #1. Look, the reality is we are operating in an inflationary environment. We are operating in an environment where supply chains are stretched. And I mean just look across the industry, kind of everybody is getting delayed in their program right now. But we're not locked into Thales. I mean I think they're a good prime contractor. I think they've got a great track record, but we're not locked into Thales.
Walter Piecyk
And just like the time keeps pushing out a bit and then now the price creeps up to centralize on Thales, I mean at some point, right?
Dan Goldberg
I'm sorry, Walter, one more time.
Walter Piecyk
Should maybe send a message at some point that maybe they need [indiscernible]?
Dan Goldberg
Look, suffice to say, they've been sent the message. I'm comfortable where we are now. Our huge focus right now is getting this thing financed right now. Our objective is to get that done and to get going on the construction of the program by the end of the year. That's what we're trying to execute on right now. Has it been frustrating that we've encountered these delays, what?
Yes. It hasn't been what we wanted. But since you're teed up right now, and they're going to be teed up with the ECAs and whatnot, and we're going to know a whole lot more in a few months' time. That's my expectation.
Walter Piecyk
I'm sorry, for the other --
Dan Goldberg
Hey, Walter, I got to say I love talking to you. But you can't fill us to run the call here. So maybe one more for you.
Walter Piecyk
Okay. I'll re-register. Okay, one more on then. Just on the equity versus debt, meaning that you said you've already been having conversations. Can you give us a sense on where that is in the cap structure on the initial conversation you had? That is my final question.
Dan Goldberg
That's a great question. I'm glad we let you ask one more. So look, just like we think our debt has been trading below fair value, we don't think our current share price is a fair representation of the value of Telesat and the value of our future prospects with Lightspeed and whatnot. That's how management feels, our Board strongly feels that way, our 2 largest shareholders feel that way.
So suffice to say, when we think about raising this incremental financing, we're all really focused on raising it in a way that's not dilutive to the equity at a minimum, but rather that's accretive to the equity. So that's what our focus has been.
Operator
Next question is from Mike Pace from JPMorgan.
Mike Pace
Just a follow-up on the incremental financing. I guess, does that -- let's call it the 10% of the budget or so. Does that include or contemplate any more money coming from the restricted group? I believe there's still maybe a couple of hundred million dollars of basket ability? Or is that excluding any additional money?
Dan Goldberg
Andrew, do you want to take that?
Andrew Browne
Yes. No, it does not. What Dan is talking about is indeed like looking at other sources of financing, and that is not part of what we're speaking about, Mike.
Mike Pace
Okay. And then the follow-up to that, I guess. You've been buying back a lot of debt in the open market, I guess. How do you think about balancing bond buybacks with the potential need for GEO to help continue to support LEO in the context of the GEO free cash flow?
Dan Goldberg
I mean, Andrew, can I take the first --
Andrew Browne
Yes.
Dan Goldberg
Look, we're totally committed to our GEO business and are totally prepared to make incremental investments in Geo so long as we've got a good business case. And so I think that what we've been doing with some of our cash to repurchase this debt, it's been a smart thing for us to do. And we shared this morning that the Board just authorized us to buy up to an incremental USD 100 million of debt. But like we said before, we're not committing to do that. We don't have to do that.
So yes, our business is generating a lot of cash. A lot of that cash gets built up in the restricted group. And we're focused on putting it to use in good ways to support the overall business where our debt is trading where it is. I don't know. I mean it just strikes us that we can spend the money that we've been spending to be accretive to the overall business, but still leave us with sufficient cash to make the investments that we need to make to continue to support the GEO business.
And I don't know, it sounds like a long answer, but that's exactly how we think about it. And we look at new GEO programs on a regular basis. I'm looking around the room because there are some things that we're thinking about now. So as long as it's a good business case for us to put money to work to invest in the GEO business, and there might be some opportunities out there, we're going to do that.
Andrew Browne
That's right. Yes.
Mike Pace
Okay. And then Dan or Andre, I don't know want to take this one. But I guess with the guidance raise, is that a function of Q2 outperforming for you guys, maybe that, I guess, termination fee from a LatAm customer? And if you can quantify that latter point, that would be really helpful. And if it wasn't a Q2 beat, what changed in the second half of the year for you guys to get to plus $15 million or so midpoint to midpoint?
Dan Goldberg
I'll start. I think it's all the things that I hit in our script. If you remember when we originally gave guidance we were clear that the big uncertainty for the year was where we were going to land with DISH on the renewals. So when we gave guidance at the outset of the year, we're real clear that the guidance embraced kind of all possible outcomes.
We get no renewal, we get a partial renewal. And then obviously, we got the partial renewal, and I think we already said on our last call, that gave us the confidence to start making noises that we're going to be kind of higher up in the guidance range.
And then beyond that, the environment has just been pretty good. We've been signing a good amount of business on the mobility side. You see the utilization of the fleet growing, on the expense side. Frankly, with some of the delays in LEO, we put off some of the OpEx that we had thought that we might incur earlier in the year. So I don't know, it's kind of been all of those things that led us to do it.
And then no, it really wasn't that termination charge really at all. And so everyone knows, I mean, they try to be transparent about this stuff, which is why we called it out in the release. That was order of magnitude about CAD5 million. And but it really on the year, it really didn't have any impact on the year.
It probably put more money revenue in Q2 than it otherwise would have, but that's revenue that we would have captured over the course of the year anyway. So in terms of how we have thought about our guidance at the outset of the year, it's not, that wouldn't have been impactful.
Andrew Browne
I'll just add on the operating side of the house, we're pretty laser on controlling our expenses. So we're all over that. So that's contributed as well.
Dan Goldberg
Yes. And I'm sorry, Mike, just while we're on the topic of guidance and whatnot. We've shared with everyone that we got this, I think, very positive contract with DARPA to build 2 satellites in LEO that we'll be using to demonstrate. It's mostly about demonstrating inter-satellite optical links. And we said there's really not a whole lot of margin for us in that opportunity. And I think we gave the dollar value contribution. Andrew, what did we say?
Andrew Browne
Yes. In fact, just part of the opening remarks, we actually said that. In fact, we called it out and said that. I'll just read, also a state has been provided in the preliminary 2022 guidance on March 18, included in our revenue expectations, the recognition of a significant hardware sale with the provision of related services to DARPA later this year, and that was part of a USD 18.3 million.
Dan Goldberg
Yes. So for us, we're assuming that we recognize that revenue this year. There's a chance that it gets pushed to next year. If it does, that will be revenue impacting. But because as we said, there's really not a lot of margin there, it won't be adjusted EBITDA impacting, we think. So anyway, just to call that out again for everyone --
Mike Pace
That was actually my next question. So if you don't mind, just how much DARPA money was in the second quarter, if anything? And can you just give us a rough kind of cadence of how that might flow through the rest of the year and maybe leak into early next?
Dan Goldberg
I don't think I'm looking around the table, there really wasn't anything material in the first half of this year, really. The big swinger is kind of probably Q4 of this year, I think, is what we're expecting.
Andrew Browne
It will be Q4 is when we're expecting the DARPA sort of monies to come in. And as we said -- as Dan had said, so that that's the equation for the revenues, but on the adjusted EBITDA side, we're pretty good. So we don't see any changes to that. Because as we outlined when we talked about the DARPA contract, it's very important year for our business with the U.S. government. So therefore, there's very little margin coming from because it's about future growth and development. So hence, it won't impact our adjusted EBITDA.
Operator
The next question is from Arun Seshadri form Credit Suisse.
Arun Seshadri
First for me is just if you could provide, Dan, there's a more realistic view, I guess, on Lightspeed in the context of smaller constellation, Amazon timing, I guess, coinciding with the new launch dates, possibly in that 25, 26 time line?
And then obviously, Eutelsat OneWeb. Are you in your revised or if you've revised your plans on Lightspeed, any context you can give in terms of, I guess, for fixed income investors, a little bit more of a cadence of what those kind of year 1, 2, 5 look like under the new kind of Lightspeed configuration?
Dan Goldberg
Apologies. I'm not sure I totally follow it. I mean here's how we think about the timing. And one thing I want to note is when we get our financing commitment and we start the program, we're going to update everyone on what our schedule expectations are and whatnot. So just to note that.
And look, we're out in the market every day talking to customers, everyone would like Lightspeed to be coming sooner than later. There's no doubt about that. And it's been frustrating for them and frustrating for us that schedule has moved to the right. But we continue to have just total conviction that what we're going to be bringing to the market.
And you're right, we're starting with it's 188 satellites and intense fares that will be a very capable, very disruptive constellation. It's probably also going to be the case. I expect that we're going to be very successful with it. I expect we're going to grow it over time, just like I think other LEO folks think about their constellations. But look, it's focused on the enterprise segment, including government. It has features kind of enterprise-grade features that we don't believe some of these other constellations are going to have.
And we think it's going to really resonate in the market, whether it's aero connectivity, maritime connectivity, providing enterprise-grade services for corporates, telcos, ISPs. Those are the folks that we're engaged with in the market now. Those are the folks that are excited about Lightspeed coming. We've mentioned we've already got CAD 750 million of backlog right now. As you know, we haven't even finished securing our backlog.
So our expectation is we kept this thing financed and going. Our focus is on late this year. And that once that's done, and we're rolling and the customers see that Telesat and Thales building and can see hardware and we're doing more in-orbit demonstrations that we'll be signing up more customers and creating more backlog, which we'll be reporting on every quarter. That's our expectation. That's what we think.
And I don't think we're going to own this market. It's a huge market. We've estimated the TAM at $420 billion-ish I'm looking around the room in the like 2030 kind of time frame or something like that. We envision getting a very small percentage of that. No doubt, Amazon will take a share of that market, so the SpaceX, so OneWeb. So will the Viasat, Inmarsat, SES, all of them. It's a big market.
Now we strongly believe you need to bring the right value proposition to that market to be successful. We think that Telesat Lightspeed is that it's going to be a great value proposition, but that's how we think about it. And that's reinforced with -- by all the conversations we're having with the customer community. So I hope that's responsive.
Arun Seshadri
No, it's helpful from a high-level context, so I appreciate that. Then I just wanted to understand the mechanics around the ECA discussion. Our prior sort of expectation was that the inflation in the overall program was effectively addressed by shrinking the satellite constellation -- by shrinking the constellation by the significant number of satellites, roughly 1/3. Are we talking about inflation being an additional sort of 10% on top of that sort of the -- that shrinkage accounting for the inflation? I guess that's question 1.
And question 2 is, in terms of -- are we talking structurally with additional funding being required junior to the ECA, was that just purely a function of the additional inflation? Or are we talking about a portion of the original funding now required, the ECA saying, listen, it's a smaller constellation, therefore, here's what we're going to give you on an ECA level and the rest has to be raised in a junior fashion? Or is it more in terms of structure change, I guess? So those are the two 2 questions.
Dan Goldberg
Yes. Okay. Those are good questions. So on the increase in the cost of the capital program, I tried to hit it in my script. It's two things. It is inflation. Thales went back out and before making their final proposal and round it up again with their suppliers. So part of it's Thales and we've got other suppliers too. So part of it is inflation. And part of it is, as we said before, our schedule is longer. And with a longer schedule, it just means you got to carry everything longer. Those were the 2 main contributing factors, that's #1.
And then your second question was about what kind of drove this incremental debt and whatnot. Well, it's 2 things I would say and I tried to hit this a little bit. But 1, the cost of the program went up. So we need to raise more money, number one. number two, we had always said we need to raise some incremental financing.
At one point, we thought some of that might make sense to do through equity, but with our shares trading where they are and our strong belief that, again, doesn't represent fair value, less interested in raising that incremental financing by issuing equity.
And then what I said about just this unknown right now, about the magnitude of the contingent capital requirements that the ECAs are going to require. We've always known -- I mean, they've acquired that, I think, for almost every program they lend under. We knew have engaged with them for a while that they were going to be looking for that from us as well.
I don't think there's anything about us going from 298 to 188 with the ECAs that really changes that so much. But it's really those other things that I mentioned. It's the inflation, it's the impact of just having a longer schedule. It's the fact that we always needed to raise some incremental financing.
And at this point in time, issuing equity is just a whole lot less effective to us than it might have been with the shares trading at a much higher level. And then yes, just being prepared for at the end of the day, where we land with the lenders on the magnitude of the contingent capital.
Arun Seshadri
Has there been any change to the French ECA's poster on participating post one Eutelsat?
Dan Goldberg
Not that we can see and certainly not anything that we've heard from Thales. But in truth, BPI, which is the export credit agency in France that we've been engaged with. BPI has always been a large, if not the largest, Eutelsat shareholder. So for us, kind of nothing's really changed, if you know what I mean, they're a big Eutelsat shareholder now.
They have been for I'm sure as long as we've been engaged with them on this project, and assuming that the OneWeb transaction goes through, it looks like there'll continue to be a big Eutelsat shareholders. So I don't think it's really changed the complexion.
Arun Seshadri
Okay. And then the only reason I asked the question is this whole context of creating a LEO sort of European LEO champion and if the Eutelsat LEO kind of Eutelsat, OneWeb combination kind of de facto becomes that and does that change the dynamic? Was the sort of the thought, but it sounds like it's not really impacting you?
Dan Goldberg
Well, I think that I know savant on BPI's mandate. But I believe fundamentally, these export credit agencies are there to support their domestic exporters to help create jobs and develop technologies and whatnot. And Thales obviously, will be a big beneficiary of the Lightspeed contract and intends to hire a lot of people and will be developing state-of-the-art technologies. And so I think that fits quite nicely within BPI's mandate.
Arun Seshadri
One last thing if I could sneak in. On 2023, you've mentioned the Anik F2 issue and sort of quantify that. Thank you for that. And can you give us some sense of how DISH looks in 2023 at a high level. But directionally, X-DISH and X-Anik F2 impact, how do you see the -- at a high level, how do you see the backlog, et cetera? And how do you see the trend line for 2023 versus 2022 on the restricted group set?
Dan Goldberg
So on DISH, we got a 2-year renewal from DISH that came, I think, kind of at the end of April of this year. And we had said that DISH has an additional option year to extend for another year beyond those -- the 2-year renewal. So DISH should be -- our expectation is to be stable throughout 2023, 2024, yes, it comes up, so no impact there.
And then as far as what 2023 looks like, it's too early. We'll give guidance on when we give guidance for 2023. But anyway, but we wanted to let everyone know about this anomaly on F2 and to be as clear as we could be about how we're seeing it, what F2 contributes today, what the potential financial impact for 2023 could be, and we'll update on that. Because as we said, there are a lot of things that we can do -- that we think we can do to mitigate the impact of that F2 anomaly. We're working on that now with our customers and whatnot. So I think we'll be able to say more about that later.
Andrew Browne
We will look at it as we go along for sure.
Operator
The next question is from Jason Kim from Goldman Sachs.
Jason Kim
I'm going to add the Lightspeed cadence question in a different way. You're obviously focused on finalizing the financing for the project. But given the delays your expected revenue ramp will also going to happen later than you probably initially planned for.
So at this point, in the context of your debt coming due in 2026, how do you envision the refinancing to take place for your existing debt? Are you assuming that there will be enough of a revenue backlog and visibility into the LEO business such that you can refinance the cap structure before the debt becomes current, the balance sheet?
Dan Goldberg
Yes. I'll take a crack at this. Yes, look, by the time we get out to when our debt is in the main kind of maturing, everyone's going to know a whole lot about tell us at light speed and the traction that we're getting in the market. We'll have been reporting our backlog all along the way.
So I think the market will have massive visibility into how we're doing, how our competitors are doing, what portion of this TAM or are we getting where exactly we are in terms of cadence of, just everything. So I think yes, I think the market will have great visibility, and we'll be able to assess Telesat future prospects based on where Lightspeed is at that time. Anyway, Jason, that's how we think about it. And we're going to be very transparent with everyone around how we're doing on Lightspeed.
Jason Kim
And then have you launched schedules pushed out as well?
Dan Goldberg
Has the launch scheduled? Look, the last update we gave on schedule, we said we'd be launching in 2025. And when we finalize our financing and get the program going, we'll update all the schedules, when launches occur, when the Board constellations in service, when global coverage. So we'll provide an update then.
Jason Kim
And then I'll end with the big picture question for Dan. And that is for years, we've been talking about M&A in the space, but not much has happened. But just over the past year, we've seen 2 deals announced one with Viasat and Inmarsat, and then another one, obviously, with between Eutalsat and OneWeb and we saw some press supports involving a few of your other satellite peers just in the past week.
So how are you thinking about all of these M&A activities and what that means for Telesat?
Dan Goldberg
Yes. No, we've definitely all been talking about the potential for industry consolidation for quite some time. And I think on the record saying we expect it to happen. We expect that -- I don't know, given technology changes, give new entrants, given the synergies that can be achieved when you bring these companies together, the things that we're seeing in the market and the things that we're hearing in the market. Yes, fully consistent with our expectations.
And the 2 deals that you referenced, in many ways, there are 2 different deals, 2 different types of things. There's Inmarsat Viasat. And then there's Eutelsat, OneWeb. And for me, they say, I don't know a couple of things. The market is changing. We are seeing in some ways a transition in our industry where probably the biggest, most promising growth opportunities in the future, it's all around broadband connectivity, high throughput, low cost, highly reliable secure global broadband connectivity. I think that's a big driver of the combination between Inmarsat and Viasat.
And what you're seeing with Eutelsat, I actually think it's the same thing. How does an existing satellite operator best position themselves to capture what all of us believe is going to be a huge market and explosive demand? And I don't know, I wasn't surprised at all with what Eutelsat announced -- what was it?
A couple of weeks ago. The reality is, and you've seen how we're orienting our business. We think LEO is the right answer. We think LEO is the future. We think it's the best architecture to bring the best value proposition to that global broadband connectivity market, particularly for enterprise applications.
And so I don't know, Jason, what -- so what we're seeing today I don't kind of fully reinforces our own thesis and whatnot about where the market is going, what the best technology is to capture this demand. And I got to say, I think it's a good thing for the industry. I think for years, we had too many operators launching too much duplicative capacity in some ways, seeing some of this consolidation will invariably result in some rationalization of the supply side of the industry, which I think will be good for the sector.
And I think with Eutelsat making this OneWeb move and with what we're doing with Lightspeed. These are the technologies that need to get developed if satellite is going to be relevant in a world where the users -- the enterprise users are demanding high throughput, low latency, affordable broadband connectivity. So anyway, long-winded answer, but that's how we think about it. And that's why we're excited about the path that we're on.
Operator
Okay. We are out of time for questions. Dan?
End of Q&A
Dan Goldberg
Yes. Okay. Michael, thank you. Thank you, everyone, for participating. Thank you, operator, and we look forward to chatting with everyone when we issue our Q3 results. So thank you very much.
Andrew Browne
Yes. Thank you.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.
For further details see:
Telesat Corporation (TSAT) CEO Dan Goldberg on Q2 2022 Results - Earnings Call Transcript