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Intelsat Reports First Quarter 2011 Results
  

10 May 2011


Intelsat S.A., the world’s leading provider of fixed satellite services, today reported results for the three months ended March 31, 2011.

Intelsat S.A. reported revenue of $640.2 million and a net loss of $215.6 million for the three months ended March 31, 2011.  Included in the quarterly results was a $168.2 million non-cash charge for loss on early extinguishment of debt resulting from refinancing activity.  The company also reported Intelsat S.A. EBITDAi, or earnings before net interest, loss on early extinguishment of debt, taxes and depreciation and amortization, of $489.3 million, and Intelsat S.A. Adjusted EBITDAi of $499.7 million, or 78 percent of revenue, for the three months ended March 31, 2011.

“Intelsat delivered solid 3 percent revenue growth in the first quarter of 2011 and also progressed on initiatives that position the company for long-term profitable growth,” said Intelsat CEO David McGlade.  “The quarter featured the addition of leading programmers to our regional video neighborhoods, new strategic agreements with large African and Latin American communications providers, and increased orders under large government programs at our Intelsat General Corporation business.  We ended the quarter with $9.9 billion in contracted services backlog, underscoring the stability and visibility inherent in our business.”
 
McGlade continued, “We have launched two satellites over the past six months and plan to launch another seven through the end of 2012.  The new and refreshed capacity these launches offer at key orbital locations is supporting our future growth by attracting strong contract activity from blue-chip customers who rely on the geographic coverage, flexibility, stability and resilience of our global fleet, all of which differentiate us from other operators in the sector.”


Financial Results for the Three Months Ended March 31, 2011
On-Network revenues generally include revenues from any services delivered via our satellite or ground network.  Off-Network and Other revenues generally include revenues from transponder services, mobile satellite services ”MSS”,  and other satellite-based transmission services utilizing capacity procured from other operators, often in frequencies not available on our network. Off-Network and Other revenues also include revenues from consulting and other services.

Revenue for the three months ended March 31, 2011 increased by $19.0 million, or 3 percent, to $640.2 million as compared to $621.1 million for the three months ended March 31, 2010. By service type, revenue increased or decreased due to the following:

On-Network Revenues:
  • Transponder services - an aggregate increase of $16.6 million, due primarily to a $6.4 million increase resulting from growth in capacity sold by our Intelsat General business, a $5.9 million increase in revenue resulting from favorable terms, new business and renewals from network services customers primarily in the Latin America and Caribbean and the Africa and Middle East regions, and a $4.3 million increase from media customers primarily in the Europe and the Latin America and Caribbean regions.
  • Managed services - an aggregate decrease of $2.6 million, primarily due to a decrease in revenue from network services customers for trunking and private line solutions largely in the Africa and Middle East and the Asia-Pacific regions, partially offset by an increase in services sold by our Intelsat General subsidiary and an increase in occasional use video services sold to media customers in the Latin America and Caribbean region.
  • Channel - an aggregate decrease of $4.0 million related to a continued decline from the migration of point-to-point satellite traffic to fiber optic cables, a trend which we expect will continue.
Off-Network and Other Revenues:
  • Transponder, MSS and other Off-Network services - an aggregate increase of $4.1 million, primarily due to an $11.0 million increase in transponder services largely related to customers of our Intelsat General business, partially offset by a $6.9 million decline in usage-based MSS revenue.
  • Satellite-related services- an aggregate increase of $4.9 million, due primarily to an increase in professional fees earned for providing flight operations for third-party satellites and government professional services.
Changes in direct costs of revenue, selling, general and administrative expenses, depreciation and amortization and interest expense, net are described below.

Direct costs of revenue increased by $7.7 million, or 8 percent, to $105.0 million, for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. The increase was primarily due to $8.2 million of higher costs attributable to purchases of off-network FSS capacity services and hardware, primarily related to solutions sold by our Intelsat General business, together with an increase of $2.1 million in staff expenses primarily due to higher salary and share-based compensation expenses. These increases were partially offset by a decrease of $2.1 million in other expenses due to a reduction in satellite insurance costs in 2011 resulting from the expiration of in-orbit insurance coverage.
  • Selling, general and administrative expenses increased by $6.5 million, or 14 percent, to $51.6 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. The increase primarily was due to $7.8 million in higher non-cash compensation costs associated with the Intelsat Global, Ltd. 2008 Share Incentive Plan, partially offset by a decrease of $2.6 million in bad debt expense due to favorable cash collections in the first quarter of 2011 as compared to the prior year period.
  • Depreciation and amortization expense decreased by $1.8 million, or 1 percent, to $195.0 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. This decrease was primarily due to the net effect of certain assets becoming fully depreciated and the 2010 impairments of the IS-4 and Galaxy 15 satellites due to anomalies, offset by increases due to satellites placed into service in 2010 and 2011.
  • Our income from operations increased by $44.8 million to $290.3 million for the three months ended March 31, 2011 as compared to $245.5 million for the three months ended March 31, 2010. In addition to the impacts described above, our financial results were affected by certain material pre-tax charges incurred during the three months ended March 31, 2010 and March 31, 2011, as discussed below:
    • a $6.5 million non-cash impairment charge recorded in the first quarter of 2010 to write off our IS-4 satellite, which was deemed unrecoverable after an anomaly occurred in February 2010; and
    • a $29.9 million loss recognized on our derivative financial instruments for the three months ended March 31, 2010 due to cash settlements for interest, representing the difference between the amount of floating rate interest we receive and the amount of fixed rate interest we pay, together with the impact of marking the instruments to fair value, as compared to a gain on derivative financial instruments of $1.7 million for the three months ended March 31, 2011.
  • Interest expense, net consists of the gross interest expense we incur less the amount of interest we capitalize related to capital assets under construction and less interest income earned. Interest expense, net increased by $9.0 million, or 3 percent, to $348.8 million for the three months ended March 31, 2011 as compared to $339.8 million for the three months ended March 31, 2010. The increase in interest expense was principally due to the following:
    • a net increase of $11.7 million in interest expense associated with our entry into the Intelsat Jackson Senior Secured Credit Agreement, a portion of the proceeds of which was used to repay indebtedness at Intelsat Corp and Intelsat Sub Holdco; and
    • an increase of $3.1 million in interest expense associated with interest paid-in-kind that was accreted into the principal of Intelsat Luxembourg S.A. 11 1/2%/12 1/2% Senior PIK Election Notes due 2017; partially offset by
    • a decrease of $7.2 million resulting from higher capitalized interest due to an increase in capitalized satellite related costs.
Non-cash items in interest expense, net included $20.7 million of payment-in-kind (“PIK”) interest expense and $23.4 million primarily associated with the amortization of deferred financing fees incurred as a result of new or refinanced debt and the amortization and accretion of discounts and premiums.
  • Loss on early extinguishment of debt was $168.2 million for the three months ended March 31, 2011 with no similar charge during the three months ended March 31, 2010. The 2011 loss was recognized in connection with the first quarter refinancing activity described earlier in this news release.  The loss was primarily driven by the difference between the carrying value of the debt repurchased or redeemed and the total cash amount paid for the purchase, including related fees and a write-off of unamortized debt discounts and debt issuance costs.
  • Other income, net was $4.0 million for the three months ended March 31, 2011 as compared to $2.8 million for the three months ended March 31, 2010. The increase of $1.2 million was primarily due to a $2.1 million increase in exchange rate gains, related to our business conducted in Brazilian reais and euros in 2010, offset by a $1.3 million gain recorded related to our sale of Viasat, Inc. common stock during the first quarter of 2010 with no similar gain recorded in the first quarter of 2011.
EBITDA, Intelsat S.A. Adjusted EBITDA and Other Financial Metrics
Intelsat S.A. EBITDA of $489.3 million for the three months ended March 31, 2011 reflected an increase of $44.2 million from $445.0 million for the same period in 2010. Intelsat S.A. Adjusted EBITDA increased by $16.7 million, or 3 percent, to $499.7 million, or 78 percent of revenue, for the three months ended March 31, 2011 from $483.1 million, or 78 percent of revenue, for the same period in 2010. 

At March 31, 2011, Intelsat’s backlog, representing expected future revenue under contracts with customers, was $9.9 billion. 

Intelsat management has reviewed the data pertaining to the use of the Intelsat network and is providing revenue information with respect to that use by customer set and service type in the following tables.  Intelsat management believes this provides a useful perspective on the changes in revenue and customer trends over time.  

Revenue Comparison by Customer Set and Service Type

    Three Months Ended March 31, 2010   Three Months Ended March 31, 2011
         
           
Network Services    $   308,092   50%    $  307,105 48%
Media         194,343   31%        198,968 31%
Government         113,353   18%        125,208 20%
Other             5,352   1%           8,907 1%
     $   621,140   100%   $  640,188 100%
           
           
By Service Type          
    Three Months Ended March 31,   Three Months Ended March 31,
    2010   2011
On-Network Revenues          
   Transponder Services    $   450,641   73%    $  467,283 73%
   Managed Services           79,374   13%         76,742 12%
   Channel           31,284   5%         27,296 4%
      Total on-network revenues         561,299   91%        571,321 89%
Off-Network and Other Revenues          
   Transponder, MSS and off-network services           49,572   8%         53,674 8%
   Satellite-related services           10,269   1%         15,193 2%
      Total off-network and other revenues           59,841   9%         68,867 11%
Total    $   621,140   100%    $  640,188 100%

Free Cash Flow from Operations and Capital Expenditures
Free cash flow from operations i was $30.5 million during the three months ended March 31, 2011. Free cash flow from operations is defined as net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest).  Payments for satellites and other property and equipment during the three months ended March 31, 2011 totaled $175.8 million, including $9.5 million in consolidated capital expenditures incurred for the Intelsat New Dawn satellite.

Intelsat is in the process of procuring and building seven satellites that are expected to be launched from 2011 to 2013. In addition to these announced programs, the company expects to procure one additional replacement satellite during the guidance period ending in 2013.  By the conclusion of 2013, our total station-kept transponder count is expected to increase modestly from current levels.  Our capital expenditure guidance includes capitalized interest but excludes capital expenditures associated with the Intelsat New Dawn satellite that launched in April of 2011.  Intelsat expects 2011 total capital expenditures to range from $725 million to $800 million.  Expected annual capital expenditure ranges for fiscal years 2012 and 2013 are $575 million to $650 million, and $175 million to $250 million, respectively.