1 August 2012
Intelsat S.A., reported financial results for the three months ended June 30, 2012.
Intelsat S.A. reported revenue of $638.7 million and a net loss of $84.0 million for the three months ended June 30, 2012. The company also reported Intelsat S.A. EBITDA, or earnings before net interest, loss on early extinguishment of debt, taxes and depreciation and amortization, of $468.3 million, and Intelsat S.A. Adjusted EBITDA of $492.0 million, or 77 percent of revenue, for the three months ended June 30, 2012. Contracted backlog at June 30, 2012, was $10.6 billion.
Intelsat CEO Dave McGlade said, “In the second quarter, Intelsat achieved steady financial performance while embarking upon a new era in our continuing industry leadership. Near term, our 2012-2013 launch program will provide valuable growth capacity and also include the final phase of deployment of our global broadband mobility infrastructure. As these satellites enter service, our business will benefit from demand for fixed and mobile applications serving media, government and network services customers. Given the timing of this expansion capacity being added to our fleet, revenue growth in the second half of 2012 is expected to begin to accelerate modestly; total year 2012 revenue results are expected to be slightly positive as compared to 2011.”
McGlade continued, “In June, we announced the realization of our long-term vision for our global infrastructure, the Intelsat EpicNG satellite platform, our next generation satellite series. Intelsat EpicNG incorporates a high performance and high throughput design with operational features that are important to our B2B customer base, such as frequency flexibility, open architecture and backward compatibility of ground hardware. The recently announced long-term contractual commitments by blue-chip customers to the platform, as well as new commitments and renewals on the current fleet, demonstrate the enduring need for broadband infrastructure on land, sea and air.”
Financial Results for the Three Months Ended June 30, 2012
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 using 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 and sales of customer premises equipment.
Revenue for the three months ended June 30, 2012, decreased by $3.8 million, or 1 percent, to $638.7 million, as compared to $642.4 million for the three months ended June 30, 2011. By service type, revenue increased or decreased due to the following:
On-Network Revenues:
- Transponder services—an aggregate increase of $6.1 million, principally due to a $10.0 million increase in revenue from media customers primarily in the Latin America and Caribbean, the Europe and the Asia-Pacific regions, as well as a $1.3 million increase in revenue from our Intelsat General business, partially offset by a $5.2 million decrease in revenue from network services customers.
- Managed services—an aggregate decrease of $3.1 million, largely due to a decrease in revenue from network services customers for international trunking primarily in Africa, a trend that we expect will continue due to the migration of services in this region to fiber optic cable.
- Channel—an aggregate decrease of $3.3 million related to a continued decline from the migration of international point-to-point satellite traffic to fiber optic cable, a trend that we expect will continue.
Off-Network and Other Revenues:
- Transponder, MSS and other off-network services—an aggregate decrease of $1.3 million, primarily due to declines of $1.8 million decrease in MSS revenue and $2.5 million in off-network transponder services for network services and media customers. The decreases were partially offset by a $2.9 million increase in off-network transponder services related to contracts being implemented by our Intelsat General business.
- Satellite-related services—an aggregate decrease of $2.2 million, primarily due to lower professional fees earned for providing government services and flight operations support for third-party satellites as compared to the second quarter of 2011.
Changes in direct costs of revenue, selling, general and administrative expenses, depreciation and amortization, income from operations, interest expense, net, and other significant income-statement items are described below.
- Direct costs of revenue of $99.3 million for the three months ended June 30, 2012, decreased $1.8 million compared to the three months ended June 30, 2011. The decrease was primarily due to a decline in costs attributable to purchases of off-network FSS capacity services and other third party services.
- Selling, general and administrative expenses decreased by $1.7 million, or 3 percent, to $53.4 million for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease was primarily due to lower professional fees in the quarter.
- Depreciation and amortization expense decreased by $5.7 million, or 3 percent, to $188.6 million for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. This decrease primarily resulted from reduced depreciation expense due to the timing of certain assets becoming fully depreciated and changes in the estimated useful lives of certain satellites, together with variation from year to year in the expected pattern of consumption of amortizable intangible assets. Those decreases were partially offset by increases due to satellites placed into service in 2011 and the first quarter of 2012.
- Our income from operations increased by $10.2 million to $281.6 million for the three months ended June 30, 2012, as compared to $271.4 million for the three months ended June 30, 2011, due primarily to the effects described above, including lower expenses, most notably lower depreciation expense. Income from operations was further affected by:
- a $15.8 million loss recognized on our derivative financial instruments for the three months ended June 30, 2012, related to the net loss on our interest rate swaps, which reflects interest expense accrued on the interest rate swaps as well as the change in fair value. For the three months ended June 30, 2011, we recorded a loss of $20.5 million on derivative financial instruments.
- 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. As of June 30, 2012, we also held interest rate swaps with an aggregate notional amount of $2.3 billion to economically hedge the variability in cash flow on a portion of the floating-rate term loans under our senior secured and unsecured credit facilities. The swaps have not been designated as hedges for accounting purposes.
Interest expense, net, increased by $0.8 million, to $326.7 million for the three months ended June 30, 2012, as compared to $325.9 million for the three months ended June 30, 2011. The increase in interest expense, net, was principally due to the following:
- a net increase of $9.7 million in interest expense, principally reflecting $11.3 million of higher interest expense resulting from the period during which the newly issued notes were outstanding but the old notes had not yet been fully redeemed or repurchased in our 2012 notes refinancing; partially offset by
- a decrease of $5.1 million in interest expense resulting from our refinancing transactions, redemptions and offerings in 2011; and
- a decrease of $4.9 million from higher capitalized interest resulting from increased levels of satellites and related assets under construction.
The non-cash portion of total interest expense, net, was $18.6 million for the three months ended June 30, 2012, and included $4.0 million of payment-in-kind interest expense and $14.6 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 $43.4 million for the three months ended June 30, 2012, as compared to $158.0 million for the three months ended June 30, 2011.
- Other expense, net, was $1.9 million for the three months ended June 30, 2012, as compared to income of $3.3 million for the three months ended June 30, 2011. The decrease was primarily due to a $3.3 million exchange rate loss during the three months ended June 30, 2012, as compared to a $2.0 million exchange rate gain for the three months ended June 30, 2011, primarily related to our business conducted in Brazilian reais and euros in 2012.
- Benefit from income taxes was $6.8 million for the three months ended June 30, 2012, as compared to a provision of $0.7 million for the three months ended June 30, 2011. The difference was principally due to higher pre-tax losses in certain taxable jurisdictions.
EBITDA, Intelsat S.A. Adjusted EBITDA and Other Financial Metrics
Intelsat S.A. EBITDA of $468.3 million for the three months ended June 30, 2012, reflected an increase of $3.9 million from $464.4 million for the same period in 2011. Intelsat S.A. Adjusted EBITDA decreased by $8.8 million, or 2 percent, to $492.0 million, or 77 percent of revenue, for the three months ended June 30, 2012, from $500.8 million, or 78 percent of revenue, for the same period in 2011.
At June 30, 2012, Intelsat’s contracted backlog, representing expected future revenue under contracts with customers, was $10.6 billion, compared to $10.5 billion at March 31, 2012.
Intelsat management has reviewed the data pertaining to the use of the Intelsat network and is providing revenue information with respect to that use by customer set and service type in the following tables. Intelsat management believes this provides a useful perspective on the changes in revenue and customer trends over time.
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Revenue Comparison by Customer Set and Service Type |
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($ in thousands) |
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| By Customer Set | ||||||||||
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Three Months |
Three Months |
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Ended June 30, |
Ended June 30, |
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| 2011 | 2012 | |||||||||
| Network Services | $ | 306,335 | 48% | $ | 292,453 | 46% | ||||
| Media | 201,844 | 31% | 212,136 | 33% | ||||||
| Government | 125,791 | 20% | 124,961 | 20% | ||||||
| Other | 8,476 | 1% | 9,118 | 1% | ||||||
| $ | 642,446 | 100% | $ | 638,668 | 100% | |||||
| By Service Type | ||||||||||
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Three Months |
Three Months |
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Ended June 30, |
Ended June 30, |
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| 2011 | 2012 | |||||||||
| On-Network Revenues | ||||||||||
| Transponder services | $ | 474,722 | 74% | $ | 480,803 | 75% | ||||
| Managed services | 70,350 | 11% | 67,205 | 11% | ||||||
| Channel | 26,723 | 4% | 23,461 | 4% | ||||||
| Total on-network revenues | 571,795 | 89% | 571,469 | 90% | ||||||
| Off-Network and Other Revenues | ||||||||||
| Transponder, MSS and other off-network services | 56,679 | 9% | 55,388 | 9% | ||||||
| Satellite-related services | 13,972 | 2% | 11,811 | 2% | ||||||
| Total off-network and other revenues | 70,651 | 11% | 67,199 | 11% | ||||||
| Total | $ | 642,446 | 100% | $ | 638,668 | 100% | ||||
Free Cash Flow From (Used in) Operations and Capital Expenditures
Free cash flow from operations i was $44.7 million during the three months ended June 30, 2012. 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 June 30, 2012, totaled $215.9 million.
Our capital expenditure guidance for the periods 2012 through 2014 (the Guidance Period) forecasts capital expenditures during those periods for 10 satellites. This is comprised of two satellites recently launched, six satellites currently in development and two satellites expected to be ordered during the Guidance Period. These satellites are expected to be launched from 2012 to 2016. Consistent with prior guidance, we expect our 2012 total capital expenditures to range from approximately $775 million to $850 million. Capital expenditures for fiscal years 2013 and 2014 are expected to range from $550 million to $625 million and $525 million to $600 million, respectively. The annual classification of capital expenditure payments could be affected by the timing of achievement of satellite manufacturing and launch contract milestones.
During the three years ending December 31, 2014, we also expect to receive significant customer prepayments under our existing customer contracts and under customer contracts to be signed in the future. Significant prepayments received in the second quarter of 2012 totaled $78.5 million. Prepayments are currently expected to range from $150 million to $200 million in 2012, all under existing contracts. Prepayments are currently expected to range from $150 million to $200 million in 2013 and $100 million to $150 million in 2014, with the majority of these prepayments coming from existing customer contracts.