Telesat (TSAT): Navigating Earnings Downturns and Debt Risks in the Pursuit of LEO Dominance

The satellite communications sector has long been a high-stakes arena, where technological innovation collides with capital-intensive ventures and uncertain market dynamics. Telesat Corporation (TSAT) is no stranger to this volatility. As the company transitions from its legacy geostationary orbit (GEO) infrastructure to its next-generation LEO-based Telesat Lightspeed program, it faces a critical juncture. Recent earnings and balance sheet data reveal a mix of promise and peril, raising the question: Is Telesat a speculative buy for the bold or a dangerous bet for the unwary?

Earnings: A Transition in Turbulent Waters

Telesat's Q1 2025 earnings report underscored the challenges of this transition. Consolidated revenue fell 23% year-over-year to $117 million, with an adjusted 26% decline when accounting for foreign exchange. The drop stemmed from lower rates on a North American direct-to-home TV contract renewal, reduced services for an Indonesian rural broadband initiative, and weaker equipment sales to Canadian government clients. Operating expenses rose 13% to $53 million, driven by headcount expansion for LEO development and legal costs. Adjusted EBITDA plummeted 39% to $67 million, with a margin of 57.7%, down sharply from 72.8% in 2024.

Despite these near-term pain points, the company secured multi-year contracts with Viasat Inc., Orange, and ADN Telecom, signaling growing demand for LEO-based services. A contracted LEO backlog of $1.1 billion and a 66.5% fleet utilization rate highlight the potential payoff of its long-term strategy. For 2025, Telesat projects revenue of $405–$425 million and Adjusted EBITDA of $170–$190 million, with $900–$1,100 million in capital expenditures directed toward LEO. While these figures suggest confidence in the roadmap, they also expose the company's reliance on future cash flows to fund its ambitions.

Balance Sheet: A Debt-Loaded Rocket

Telesat's balance sheet paints a stark picture of leverage. As of 2025, total debt stands at CA$3.35 billion, with a debt-to-equity ratio of 137.23%—a significant improvement from 378% in 2020 but still a red flag for risk-averse investors. Cash reserves of CA$797.4 million provide some short-term liquidity, but long-term liabilities of CA$4.5 billion dwarf these reserves. The company's interest coverage ratio of 1x EBIT (CA$185.2 million) means it has no margin of safety to absorb operational shocks or interest rate hikes.

While Telesat's asset base (CA$7.1 billion) is robust, its liquidity profile is strained by the scale of its LEO investments. Capital expenditures of $900–$1,100 million in 2025—nearly all for LEO—will further stretch its financial flexibility. The risk is clear: If LEO adoption lags expectations or costs balloon, Telesat could face liquidity crises or forced asset sales.

Governance: Stability in a Chaotic Sector

Amid these financial pressures, Telesat's corporate governance structure offers a measure of reassurance. The board, led by independent chairman Mark Rachesky, includes seasoned professionals in finance, law, and telecom. Jane Craighead, a CPA and governance expert, chairs the Human Resources & Compensation Committee, ensuring executive pay aligns with long-term performance. CEO Dan Goldberg, a veteran of SES New Skies and PanAmSat, has navigated complex satellite transitions before.

The board's focus on board diversity and shareholder engagement is notable. Committees dedicated to audit, governance, and compensation reflect a commitment to transparency. However, the absence of explicit shareholder rights details in the 2025 report leaves some questions about investor protections.

A Contrarian's Dilemma

Telesat's story is one of high-risk, high-reward. The company is pivoting to LEO at a time when demand for low-latency, high-capacity satellite services is surging—driven by 5G, IoT, and remote connectivity needs. Its commercial traction with major partners and a $1.1 billion LEO backlog suggest it is on the right side of this trend.

Yet the execution risk is formidable. The revenue decline and weak EBITDA margins highlight the costs of transitioning from a mature GEO model to a capital-intensive LEO strategy. With a debt-to-equity ratio above 100% and an interest coverage ratio at the brink, Telesat's financial flexibility is limited. For the stock to thrive, it must deliver on LEO commercialization faster than its debt grows.

Investment Advice: Speculative Buy with Caution

For investors with a high-risk tolerance and a multi-year horizon, Telesat presents a speculative opportunity. The satellite sector is poised for growth, and Telesat's technical capabilities and early LEO contracts position it to capture a slice of this market. However, the risks are acute:

1. Debt Management: Monitor the company's ability to refinance or restructure its CA$3.35 billion debt load as LEO capital expenditures ramp up.
2. Execution Hurdles: Delays in LEO deployment or underwhelming demand could widen the gap between revenue and expenses.
3. Interest Rate Sensitivity: A rise in borrowing costs could cripple Telesat's already fragile interest coverage.

Investors should consider Telesat as a small, speculative position in a diversified portfolio. Those who believe in the long-term potential of LEO and Telesat's execution capabilities may find the rewards worth the risks. For others, the debt-laden path to innovation may prove too treacherous.

In the end, Telesat is a microcosm of the satellite industry's paradox: a blend of cutting-edge technology and financial fragility. Whether it becomes a winner or a cautionary tale will depend on its ability to navigate these twin forces with precision—and a bit of luck.