Executive Summary / Key Takeaways

• Telesat is undergoing a transformative shift, pivoting from its mature Geostationary (GEO) business to the high-growth Lightspeed Low Earth Orbit (LEO) constellation, which is now fully funded.
• The Lightspeed program is gaining significant commercial traction, with a backlog exceeding CAD 1 billion by Q2 2025 and strong interest from enterprise and government sectors, driven by its advanced technology and differentiated B2B focus.
• While the GEO segment faces ongoing revenue declines from contract renewals and competition, it remains cash flow positive and strategically supports Lightspeed's development.
• Telesat has reiterated its 2025 guidance, projecting revenues between $405 million and $425 million and adjusted EBITDA of $170 million to $190 million, with substantial capital expenditures of CAD 900 million to CAD 1.1 billion almost entirely for Lightspeed.
• Key factors to watch include the successful execution of Lightspeed's deployment (first launch late 2026, commercial service end of 2027), the refinancing of restricted group debt, and continued customer adoption in a highly competitive LEO market.

Setting the Scene: A Strategic Pivot in the Satellite Landscape

Telesat Corporation (NASDAQ:TSAT), a venerable satellite operator founded in 1969, stands at a pivotal juncture, strategically reorienting its decades-long legacy in mission-critical communications. The Ottawa-headquartered company, historically a provider of geostationary (GEO) satellite services for broadcast, enterprise, and government clients, is now executing a bold pivot towards its advanced Low Earth Orbit (LEO) constellation, Lightspeed. This strategic shift, initiated around 2015 with a halt in new GEO satellite orders, reflects a proactive response to evolving industry dynamics and the burgeoning demand for high-throughput, low-latency connectivity.

The satellite communications industry is undergoing a profound transformation, with LEO constellations rapidly ascending as the preferred architecture for a growing array of applications. This trend is driven by the inherent advantages of LEO, such as significantly lower latency and higher throughput, which are increasingly critical for modern data-intensive services. Geopolitical shifts are further accelerating this transition, creating a robust tailwind for sovereign national security requirements as governments globally prioritize resilient and diversified space-based communication networks. This broader industry movement underpins Telesat's conviction that LEO is not just a complementary technology but the future of satellite connectivity.

Technological Edge: Lightspeed's Differentiated Architecture

At the heart of Telesat's future lies Lightspeed, an advanced LEO constellation meticulously designed to deliver "ubiquitous, affordable, high capacity, secure and resilient links with fibre-like speeds." This core technology represents a significant leap from traditional GEO capabilities, offering tangible benefits that directly address the demands of high-value enterprise and government users. The Lightspeed satellites are "absolutely optimized" for enterprise broadband connectivity, with every ounce of power and mass dedicated to this core mission, distinguishing Telesat from competitors that also pursue direct-to-consumer markets.

Lightspeed's design prioritizes features critical for its target segments. Its low-latency and high-throughput capabilities are particularly attractive to maritime users, who also benefit from the smaller antenna requirements. For government and defense applications, Lightspeed is engineered for interoperability, utilizing common optical terminal providers like TSAT (Airbus (EADSY)) and software platforms like Aalyria, which are also employed by initiatives such as the U.S. military's Proliferated Warfighter Space Architecture (PWSA). This intentional design choice enhances network resilience and flexibility, crucial for national security objectives. Furthermore, Lightspeed is set to offer enterprise-grade features such as Service Level Agreements (SLAs), Committed Information Rates (CIRs), and customer autonomy over bandwidth management, providing a level of service quality and control often lacking in more commoditized LEO offerings. These technological differentiators are expected to form a strong competitive moat, enabling Telesat to command higher average selling prices (ASPs) and foster deeper customer loyalty within its chosen high-value market segments.

The development roadmap for Lightspeed is progressing rapidly. A critical design review with MDA is slated for late 2025, and the company is actively developing user terminals, including flat-panel antennas for the aero market with partners like QEST, and gateway antennas with Intellian, covering 27 gateways in the current order. These user terminals are expected to be available in advance of commercial service. Additionally, a new facility near Telesat's headquarters in Quebec, housing satellite flight operations, a Network Operations Center (NOC), a data center, and a cyber facility, is anticipated to come online by the end of 2025. The first Lightspeed satellites are scheduled for launch in late 2026, with commercial service expected to commence by the end of 2027.

Competitive Landscape: A Battle for the New Space Frontier

Telesat operates within an intensely competitive satellite communications market, facing both established GEO operators and aggressive new LEO entrants. Direct competitors include global players like SES (SESG), Intelsat (INTE), Eutelsat Communications (EUTLF), and ViaSat , each with their own strengths and strategic focuses. While these rivals offer similar services, Telesat's specialized focus on government and niche enterprise markets, particularly in North America and the Arctic, provides a distinct operational edge. For instance, Telesat's established fleet and operational history can offer superior reliability in remote or challenging environments, differentiating its service from broader, less tailored offerings.

The emergence of LEO constellations has dramatically reshaped the competitive dynamics. SpaceX's Starlink has already demonstrated significant market impact, particularly in the maritime and, to a lesser extent, aeronautical sectors, where its low-latency and high-throughput value proposition has "cannibalized" traditional GEO business. Amazon's Kuiper is another formidable entrant, targeting similar enterprise verticals as Lightspeed, in addition to consumer broadband, and is expected to leverage Amazon's vast ecosystem, including AWS, for competitive advantage.

Telesat acknowledges the formidable capabilities of Starlink and Kuiper, recognizing that Starlink "is a great service today and it will be getting better." However, Telesat's strategy is not to compete directly in the B2C market but to differentiate Lightspeed through its B2B focus, offering enterprise-specific features and a commitment to high-quality customer service. The company believes the market is large enough for multiple players, and enterprise customers often seek diversified providers for resilience. This positioning, coupled with Lightspeed's intentional design for interoperability with allied government networks, provides a strategic advantage in securing high-value contracts where security, reliability, and specific service level guarantees are paramount.

Financial Performance and Outlook: Managing Transition, Fueling Growth

Telesat's recent financial performance reflects a company in transition, balancing the decline of its legacy GEO business with substantial investments in Lightspeed. For the second quarter of 2025, consolidated revenues decreased by $46 million year-over-year to $106 million, primarily due to a lower rate on the Nimiq 5 renewal with DISH (DISH) and reductions in certain enterprise services. Adjusted EBITDA for Q2 2025 was $59 million, down $45 million from the prior year, resulting in an adjusted EBITDA margin of 55%. Despite these headwinds, the GEO segment maintained a robust EBITDA margin of approximately 70% in Q2 2025, demonstrating efficient management of its mature assets. Cash inflows from operating activities for the first half of 2025 were $108 million, while cash flows used by investing activities, almost entirely for Lightspeed, totaled $413 million.

Looking ahead, Telesat has reiterated its 2025 guidance, assuming a Canadian dollar to U.S. dollar exchange rate of CAD 1.42. The company expects full-year revenues to be between $405 million and $425 million. Consolidated adjusted EBITDA is projected to be between $170 million and $190 million. The Lightspeed program will continue to drive significant investment, with operating expenses (excluding share-based compensation) expected to rise to $110 million to $120 million in 2025, up from $74 million in 2024, largely due to increased headcount in engineering and commercial teams. Capital expenditures for 2025 are anticipated to be in the range of CAD 900 million to CAD 1.1 billion, nearly all dedicated to Lightspeed.

Telesat's liquidity position remains sound to support these investments. The company ended Q2 2025 with CAD 547 million in cash and short-term investments. Crucially, it has $2.2 billion available under its funding agreements with the governments of Canada and Quebec, in addition to the CAD 340 million already drawn in the first half of 2025. The company has also strategically reduced its debt burden through cumulative repurchases of USD 857 million at an average price of just under $0.53, resulting in annual interest savings of approximately USD 53 million and an overall debt reduction of about 36%. While the total leverage ratio stood at 7.51x at the end of Q2 2025, Telesat remains in compliance with all credit covenants.

Commercially, Lightspeed is building strong momentum. Its committed backlog was above CAD 1 billion at the end of Q2 2025, a slight increase from Q1 2025 after adjusting for FX. Management is "more bullish than ever" on Lightspeed's commercial prospects, noting a "robust pipeline of opportunities," particularly in the aero and government sectors. The significant multi-year agreement with ViaSat (VSAT), announced in April 2025, for commercial aero, defense, maritime, and rural broadband services, serves as a "powerful and concrete testimony" to Lightspeed's capabilities. Telesat anticipates Lightspeed's backlog to eclipse the GEO backlog of $1.1 billion (as of year-end 2024) by the close of 2025.

Risks and Challenges

Despite the promising outlook for Lightspeed, Telesat faces several key risks. The GEO business will continue to experience headwinds, including the expected non-renewal of the Nimiq 4 contract with Bell (BCE) in October, further impacting revenue. A significant financial priority is the refinancing of the restricted group debt, which begins to mature in December 2026. While management expects to engage lenders "in the near term" and believes it's "conceivable" to conclude by year-end 2025, the timing remains uncertain. The search for a new CFO following Andrew Martin Browne's planned retirement also represents a management transition.

Furthermore, the Lightspeed program itself carries inherent execution risks. As one analyst noted, the "backlog is meaningless until launches begin in late 2026," and Telesat must "front massive capex while leaning on rival SpaceX for rides." The intense competition from well-capitalized LEO operators like Starlink and Amazon (AMZN) Kuiper, who are rapidly expanding their constellations and service offerings, presents a continuous challenge to market share and pricing power. While Telesat's B2B focus and differentiated features aim to mitigate this, the dynamic nature of the LEO market demands flawless execution and continuous innovation.

Conclusion

Telesat is in the midst of a profound strategic transformation, shifting its core identity from a traditional GEO operator to a leader in advanced LEO connectivity. The Lightspeed constellation, now fully funded and progressing rapidly towards its late 2026 launch, represents the company's primary growth engine and the cornerstone of its investment thesis. While the legacy GEO business faces predictable declines, its continued cash generation provides crucial support for Lightspeed's substantial capital requirements.

The company's technological differentiation, particularly its focus on enterprise-grade features, interoperability with government networks, and optimized design for high-value B2B applications, positions it uniquely within a competitive LEO landscape dominated by broader consumer-focused offerings. Successful execution of the Lightspeed deployment, continued conversion of its robust commercial pipeline into committed backlog, and the timely refinancing of its debt will be paramount in unlocking the significant value creation potential embedded in this ambitious undertaking. Investors should closely monitor these operational and financial milestones as Telesat endeavors to establish Lightspeed as a critical infrastructure provider for the next generation of global connectivity.