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Hughes Communications Announces Third Quarter 2010 Results

Nov. 3, 2010

 

 

Hughes Communications, Inc. announced financial results for the third quarter ended September 30, 2010. Hughes' consolidated operations are classified into five reportable segments: North America Broadband, International Broadband, Telecom Systems, HTS Satellite and Corporate, and Other. The North America Broadband, International Broadband, Telecom Systems, and HTS Satellite segments represent all the operations of Hughes Network Systems, LLC ("HNS"), Hughes' principal operating subsidiary.

 

Third Quarter 2010 Financial Highlights:

  • Consolidated revenues of $266 million for a 6% growth over the third quarter of 2009; growth of 10% if revenues from the discontinued contract with Telematics are excluded.
  • Consolidated services revenues of $202 million for a growth of 15% over the third quarter of 2009; 18% growth excluding revenues from the discontinued contract with Telematics.
  • Record Adjusted EBITDA of $61 million, an increase of 38% over the third quarter of 2009.
  • Operating income of $26 million for a 64% growth over the third quarter of 2009; Net Income attributable to stockholders of $10.1 million compared to a loss of $2.6 million in the third quarter of 2009; earnings per share (fully diluted) of $0.45 in the third quarter of 2010 compared to a loss per share (fully diluted) of ($0.12) in the third quarter of 2009.
  • Positive net cash from operating activities of $69 million.
  • New orders of $549 million for a growth of 164% over the third quarter of 2009, with major orders from Barrett Xplore, Rite Aid, Social Security Administration, Dillards, TJ Maxx, Buckeye Pipeline, GETN, and ConocoPhillips in our North America Broadband business; JSC Iskra, GTECH Colombia, Camelot, PrimeNet, VIVO, SEDUC, SREI and Allahabad Bank in our International Broadband business; and Glocom and Harris in our Mobile Satellite business.
  • Consumer business continues impressive growth trajectory:
    • Total revenue increased by 14% and services revenue by 19% over the third quarter of 2009.
    • Strong third quarter subscriber gross adds of 49,000 and net adds of 13,000.  
    • Consumer ARPU increased to $75 from $71 in the third quarter of 2009.
    • Churn improved to 2.2% from 2.3% in the third quarter of 2009.
  • Enterprise business growth resumes both domestically and internationally.

Nine Months Ended September 30, 2010 Financial Highlights;

  • Consolidated total revenues of $762 million for a 2% growth over the nine months ended September 30, 2009; 5% growth excluding revenues from the discontinued contract with Telematics.
  • Consolidated services revenues of $583 million for a growth of 14% over the nine months ended September 30, 2009; 18% growth excluding revenues from the discontinued contract with Telematics.  
  • Adjusted EBITDA of $156 million for a growth of 33% over the nine months ended September 30, 2009.
  • Strong liquidity with cash, cash equivalents, and marketable securities of $222 million as of September 30, 2010.
  • New orders of $989 million for a growth of 32% over the nine months ended September 30, 2009, resulting in a record non-consumer backlog of $1,038 million, a 26% growth over the backlog at September 30, 2009.
  • Strong growth in consumer business over the nine months ended September 30, 2009:
    • Total revenue up 14%; service revenue up 20%.
    • Subscriber gross adds of 154,000 and net adds of 54,000.
    • Total subscriber base of 558,000 as of September 30, 2010, for a growth of 14% over the subscriber base as of September 30, 2009.

Set forth below are tables highlighting certain of Hughes' and HNS' results for the three and nine months ended September 30, 2010 and 2009.

Hughes Communications, Inc.


Three Months


Nine Months


Ended September 30,


Ended September 30,

(Dollars in thousands)

2010


2009


2010


2009









Revenue








    North America Broadband

$190,544


$174,123


$542,563


$514,973

    International Broadband

51,778


47,521


143,087


142,925

    Telecom Systems

22,393


28,825


72,541


87,431

    HTS Satellite

-


-


-


-

    Corporate and Other

1,567


948


3,652


2,130

    Total

$266,282


$251,417


$761,843


$747,459









Operating income (loss)








    North America Broadband

$21,100


$10,629


$43,537


($24,391)

    International Broadband

2,658


3,616


4,051


9,952

    Telecom Systems

3,663


2,642


12,034


10,742

    HTS Satellite

(991)


-


(2,777)


-

    Corporate and Other

(834)


(1,266)


(2,727)


(3,580)

    Total

$25,596


$15,621


$54,118


($7,277)









Net income (loss) attributable to HCI stockholders

$10,137


($2,622)


$5,907


($55,060)









Adjusted EBITDA*

$61,156


$44,306


$155,993


$117,447









New Orders

$549,445


$207,830


$989,143


$751,452



Hughes Network Systems, LLC


Three Months


Nine Months


Ended September 30,


Ended September 30,

(Dollars in thousands)

2010


2009


2010


2009









Revenue








    North America Broadband

$190,544


$174,123


$542,563


$514,973

    International Broadband

51,778


47,521


143,087


142,925

    Telecom Systems

22,393


28,825


72,541


87,431

    HTS Satellite

-


-


-


-

    Total

$264,715


$250,469


$758,191


$745,329









Operating income (loss)








    North America Broadband

$21,100


$10,629


$43,537


($24,391)

    International Broadband

2,658


3,616


4,051


9,952

    Telecom Systems

3,663


2,642


12,034


10,742

    HTS Satellite

(991)


-


(2,777)


-

    Total

$26,430


$16,887


$56,845


($3,697)









Net income (loss) attributable to HNS

$10,800


($1,570)


$8,032


($52,134)









Adjusted EBITDA*

$61,634


$45,147


$157,550


$118,725









New Orders

$548,402


$207,394


$985,415


$749,582


*  For the definition of Adjusted EBITDA, see "Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures" below.

 

Recent Highlights:

  • HNS was awarded $58.7 million as the only national provider of high-speed satellite Internet service under The American Recovery and Reinvestment Act of 2009 administered by the Department of Agriculture's Rural Utilities Service (RUS). This award is part of the government's investments in broadband projects to bring jobs and economic opportunity to communities nationwide.

  • Hughes was recognized by Euroconsult as the Broadband Satellite Operator of the Year for its outstanding performance in 2009 and strong prospects for the future. Pradman Kaul, president and CEO of Hughes, accepted the award at a ceremony during the 14th World Summit for Satellite Financing held in Paris.

  • Following the agreement signed previously between HNS and Barrett Xplore, Canada's largest rural broadband service provider, for acquiring capacity on Jupiter™, HNS' next generation high-throughput satellite to be launched in the first half of 2012, Barrett Xplore confirmed their intention to lease the capacity for 15 years. HNS recorded an order for $245 million representing the lease amount and a reservation fee.  

  • HNS signed a contract with one of the top three drugstore chains in the US for a high-availability managed broadband network to deliver advanced applications to more than 4,700 retail locations. The 60-month contract is valued at $60 million. The new managed network will integrate a variety of high-speed wireline technologies (T1, cable, DSL) with Hughes' broadband satellite to support critical store systems and provide reliable, redundant backup protection.

  • HNS signed a multi-year, managed services contract valued at $9 million with one of the nation's largest broadline retailers. Under the new award, Hughes will add terrestrial broadband connectivity to approximately 1,000 store locations and configure the existing satellite sites to serve in a backup mode, providing high availability to support the real-time ordering needs and other business-critical communications functions of the stores. The contract also extends existing Hughes-provided high-speed satellite multicast service for in-store music, video and data to approximately 1,400 store locations at a subsidiary for an additional three years.

  • HNS signed a contract valued at approximately $4 million, with one of the US's largest fashion apparel and home furnishing retailers. The contract calls for the provision of broadband satellite services based on HN7700 technology to serve as backup to the customer's primary terrestrial network at approximately 300 locations. In addition, the contract provides for MediaGate router-based services to be used to provide digital media services.

  • HNS' Indian subsidiary signed an agreement with Allahabad Bank for $7.5 million to extend connectivity service to its remaining 1,400 branches through MPLS and VSAT as part of its Core Banking Solutions (CBS) Phase II project. The bank has already implemented connectivity for over 900 branches thus far as part of the CBS project.

  • Hughes do Brazil signed an agreement with Primenet, one of Brazil's largest value-added resellers whereby Primenet will resell Internet access services provided by Hughes in Brazil. The 60 month contract is valued at over $13 million for a minimum of 1,000 VSAT sites by the end of the first quarter of 2011.

  • Vivo, one of Brazil's largest cellular operators, signed an amendment valued at $7 million to its existing contract with Hughes do Brazil. The scope of this amendment is to increase the bandwidth of cellular backhaul circuits currently provided by Hughes Brazil to Vivo as a result of an increase in cellular service usage in the cities served by these circuits.

  • HNS signed a $115 million loan agreement with BNP Paribas and Societe Generale for financing the launch of Jupiter, its next generation, high throughput Ka-band satellite which is scheduled to be launched in the first half of 2012. The loan will be guaranteed by COFACE, the French Export Credit Agency, and has a fixed interest rate of 5.13 percent per annum and a repayment period of 8.5 years after the launch.  

 

To summarize, Pradman Kaul, president and CEO, said, "The highlight in the third quarter was the stand-out performance by our enterprise businesses. We booked substantial new orders from leading enterprises, as a result of which, our non-consumer backlog crossed $1 billion for an all-time high. Our consumer business continued its growth trajectory with solid gross and net adds and increased ARPU. Our strategy of focusing new consumer activations on SPACEWAY® 3 continues; we had approximately 357,000 subscribers on SPACEWAY 3 as of September 30, 2010. I am also delighted to inform you that we are making excellent progress on the development work on our Jupiter satellite. The critical design review for the satellite was completed and subsystem deliveries to Space Systems/Loral have begun. The communications panels were delivered, and their integration is progressing well. Delivery of the bus subsystem assembly and high power amplifiers also started in September as planned. Overall, the satellite and launch vehicle build are on schedule for launch in the first half of 2012. Finally, I am especially pleased with the resurgence of our enterprise business which strengthens our position for the rest of 2010 and beyond."

 

Commenting on Hughes' financial performance, Grant Barber, executive vice president and CFO said, "An important event was the signing of a COFACE-backed facility for financing with attractive terms. We delivered strong growth in all of our profitability metrics in the third quarter of 2010, of special note being that Hughes' trailing twelve month Adjusted EBITDA was $212 million through September 2010, a growth of 31% over the trailing twelve month period ended September 30, 2009. This profitability expansion coupled with effective working capital management resulted once again in delivering an impressive $112 million of cash from operating activities during the nine months ended September 30, 2010. We ended the quarter with strong consolidated cash, cash equivalents, and marketable securities of $222 million."

 

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

The following table reconciles the differences between Hughes' Net Income (Loss), as determined under United States of America Generally Accepted Accounting Principles (GAAP), and Adjusted EBITDA.

 

 

Hughes Communications, Inc.


Three Months


Nine Months


Twelve Months


Ended September 30,


Ended September 30,


Ended September 30,

(Dollars in thousands)

2010


2009


2010


2009


2010


2009













Net income (loss) attributable to HCI stockholders

$10,137


($2,622)


$5,907


($55,060)


$8,274


($51,709)

Add:












   Equity incentive plan compensation

1,890


1,849


5,679


5,473


7,577


7,206

   Interest expense

14,499


17,735


46,129


47,125


63,123


61,147

   Income tax expense (benefit)

1,552


966


4,336


790


5,992


4,253

   Depreciation and amortization

33,501


26,879


95,612


73,209


125,134


93,238

   Long-term incentive/retention cash plan

-


-


-


1,538


-


4,817

   Sea Launch impairment

-


-


-


44,400


-


44,400

   HTI investment impairment

-


-


-


-


5,239


-

   Data Synapse impairment

-


-


-


1,000


-


1,000

Less:












   Interest income

(423)


(501)


(1,670)


(1,028)


(2,864)


(1,741)

Adjusted EBITDA

$61,156


$44,306


$155,993


$117,447


$212,475


$162,611














The following table reconciles the differences between HNS' Net Income (Loss), as determined under GAAP, and Adjusted EBITDA.

Hughes Network Systems, LLC


Three Months


Nine Months


Twelve Months


Ended September 30,


Ended September 30,


Ended September 30,

(Dollars in thousands)

2010


2009


2010


2009


2010


2009













Net income (loss) attributable to HNS

$10,800


($1,570)


$8,032


($52,134)


$15,261


($47,715)

Add:












   Equity incentive plan compensation

1,806


1,768


5,433


5,117


7,249


6,728

   Interest expense

14,493


17,727


46,113


47,106


63,101


61,128

   Income tax expense (benefit)

1,551


981


4,331


775


5,992


4,262

   Depreciation and amortization

33,343


26,709


95,127


72,788


124,478


92,817

   Long-term incentive/retention cash plan

-


-


-


1,538


-


4,817

   Sea Launch impairment

-


-


-


44,400


-


44,400

Less:












   Interest income

(359)


(468)


(1,486)


(865)


(2,609)


(1,274)

Adjusted EBITDA

$61,634


$45,147


$157,550


$118,725


$213,472


$165,163















The condensed consolidated financial statements of Hughes and HNS for the periods ended September 30, 2010 and 2009 are attached to this press release.

 

Note on Use of Non-GAAP Financial Measures

Hughes provides non-GAAP financial data in addition to providing financial results in accordance with GAAP. This press release includes Adjusted EBITDA as a supplemental non-GAAP financial measure. Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, amortization, equity incentive plan compensation, long-term incentive/retention cash plan, and other adjustments permitted by the debt instruments of HNS. We believe this non-GAAP financial measure provides useful information to both management and investors by excluding specific expenses that we believe are not indicative of our core operating results. Internally, we use this non-GAAP measure in our review of the performance of management and in the performance of our business and operations. Management also uses Adjusted EBITDA of HNS for purposes of determining the payments to be made in connection with the long-term cash incentive retention program. Externally, we believe that investors may find this non-GAAP financial information useful in their assessment of our operating performance. In addition, we believe that this non-GAAP financial measure provides information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Adjusted EBITDA of HNS is also used in calculating covenant compliance under HNS' credit agreements and the indenture governing HNS' 9 1/2% Senior Notes due 2014, issued in 2006 and 2009.

 

Adjusted EBITDA is not a recognized term under GAAP. This nonGAAP measure does not represent net income or cash flows from operations, as these terms are defined under GAAP and should not be considered as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Additionally, this non-GAAP measure is not intended to be a measure of cash flow available to management for discretionary use, as such measure does not consider certain cash requirements, such as capital expenditures (including expenditures on VSAT operating lease hardware and capitalized software development costs), tax payments, debt service requirements (including VSAT operating lease hardware), and payments under the long-term cash incentive retention program. Adjusted EBITDA, as presented herein, is not necessarily comparable to similarly titled measures reported by other companies. Any analysis of nonGAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

The amounts reflected in the reconciliation table above for the twelve months ended September 30, 2010 represent consolidated financial data for the year ended December 31, 2009, minus consolidated financial data for the nine months ended September 30, 2009 plus consolidated financial data for the nine months ended September 30, 2010.  The amounts reflected in the reconciliation table above for the twelve months ended September 30, 2009 represent consolidated financial data for the year ended December 31, 2008, minus consolidated financial data for nine months ended September 30, 2008 plus consolidated financial data for the nine months ended September 30, 2009.