Intelsat S.A.,
reported financial results for the three months ended September
30, 2012.
Intelsat S.A. reported revenue of $654.9 million and a net loss
of $34.5 million for the three months ended September 30, 2012.
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 $471.1 million, and
Intelsat S.A.
Adjusted EBITDAi of $511.3 million, or 78 percent of revenue,
for the three months
ended September 30, 2012. Contracted backlog at September 30,
2012, was
$10.8 billion.
Intelsat CEO Dave McGlade said, “In the third quarter, Intelsat
achieved steady
financial performance and further executed on our initiatives to
serve media, broadband, mobility and government applications.
Sequential revenue growth increased as expected, as expansion
capacity and a hosted payload entered service.
Overall, we continue to expect that full year 2012 revenue
results will be slightly
positive as compared to 2011.”
McGlade continued, “Our launch campaign progressed with
successful launches of
Intelsat 20 and Intelsat 21 in the third quarter; both
satellites are now in service. On
October 14, we completed our fifth and final launch for this
year, Intelsat 23, which
is now completing in-orbit testing. Demand for broadband
connectivity for mobility
applications, such as maritime and aeronautical, is opening new
growth avenues for
our satellite infrastructure. As our global Ku-band broadband
mobility platform
nears completion, Intelsat is positioned for an early lead in
serving these important
growth segments.”
Financial Results for the Three Months Ended September
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.
Total revenue for the three months ended September 30, 2012,
increased by $2.1 million, to $654.9 million, as compared to the
three months ended September 30, 2011. By service type, our
revenues increased or decreased due to the following:
On-Network Revenues:
• Transponder services—an aggregate increase of $6.9 million,
principally due to an $8.8 million increase in revenue from
growth in services sold to media customers largely in the
Europe, the Latin America and Caribbean and the Asia-Pacific
regions, partially offset by an aggregate $2.7 million decrease
in revenue from network services customers, reflecting a decline
in demand from Europe-based customers for services provided in
Africa, and an increase in the Latin America and Caribbean
region.
• Managed services—an aggregate decrease of $1.4 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, partially offset by increases in revenue from
broadband services for mobility
applications.
• Channel—an aggregate decrease of $3.6 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 $2.0 million, primarily due to declines in
off-network transponder services for network services and media
customers.
• Satellite-related services—an aggregate increase of $2.1
million, primarily due to higher
professional fees earned for providing government professional
services and flight
operations support for third-party satellites as compared to the
third 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 decreased by $7.8 million, or 7%, to
$102.9 million for the three months ended September 30, 2012, as
compared to the three months ended September 30, 2011. The
decrease was primarily due to $4.4 million of higher service
costs in 2011 associated with the accounting for our revenue and
cost-sharing arrangements with JSAT International, Inc. related
to the consolidation of the Horizons Satellite Holdings, LLC
(“Horizons Holdings”) joint venture on September 30, 2011.
Further, in 2012 there was a $2.2 million decline in costs
attributable to purchases of off-network fixed satellite
services (“FSS”) capacity and other third-party services, as
well as a $1.2 million decrease in office and operational
expenses.
• Selling, general and administrative expenses decreased by $3.9
million, or 8%, to $46.9 million for the three months ended
September 30, 2012, as compared to the three months ended
September 30, 2011. The decrease was primarily due to a $2.6
million decrease in bad debt expense and $1.7 million of lower
professional fees, partially offset by a net $1.2 million
increase in staff related expenses largely due to non-cash stock
compensation costs associated with the amended and restated
Intelsat Global, Ltd. 2008 Share Incentive Plan (the “2008 Share
Plan”).
• Depreciation and amortization expense decreased by $1.9
million, or 1%, to $192.0 million for the three months ended
September 30, 2012, as compared to the three months ended
September 30, 2011. This decrease primarily resulted from lower
depreciation expense due to the timing of certain satellites
becoming fully depreciated, together with variation from year to
year in the expected pattern of consumption of amortizable
intangible assets. Those decreases were partially offset by
increases from the impact of satellites placed into service
during 2011 and 2012.
• Our income from operations increased by $8.9 million, to
$301.1 million, for the three months ended September 30, 2012,
compared to $292.2 million for the three months ended September
30, 2011, due primarily to the effects described above,
including lower expenses, most notably lower direct costs of
revenue. Income from operations was further affected by:
o a $12.0 million loss recognized on our derivative financial
instruments for the three months ended September 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
September 30, 2011, we recorded a loss of $5.4 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.
Interest expense, net decreased by $5.4 million, or 2%, to
$312.0 million for the three months ended September 30, 2012, as
compared to $317.4 million for the three months ended September
30, 2011. The decrease in interest expense, net was principally
due to the following:
o a net decrease of $7.7 million in interest expense as a result
of Intelsat Jackson’s notes offering, repurchases and
redemptions in the first half of 2012, partially offset by
o an increase of $3.0 million from lower capitalized interest
resulting from decreased levels of satellites and related assets
under construction.
Non-cash items in total interest expense, net were $13.7 million
for the three months endedSeptember 30, 2012, primarily for
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 $3.1 million for the
three months ended September 30, 2012, with no similar charge
for the three months ended September 30, 2011. The 2012 loss was
comprised of the write-off of unamortized debt issuance costs in
connection with the prepayment of $112.2 million of New Dawn
debt with proceeds received from an insurance claim.
• Loss from previously unconsolidated affiliates was $20.2
million for the three months ended September 30, 2011, with no
comparable amount for the three months ended September 30, 2012,
due to the consolidation of the Horizons Holdings joint venture
in September 2011.
• Other expense, net was $22.0 million for the three months
ended September 30, 2012, as compared to other income, net of
$0.6 million for the three months ended September 30, 2011.
The difference of $22.6 million was primarily due to a $21.0
million charge related to fees and expenses in connection with
the expiration of an unconsummated third-party investment
commitment and a $1.4 million increase in exchange rate losses,
primarily related to our business conducted in Brazilian reais
and euros.
• Our benefit from income taxes was $1.5 million for the three
months ended September 30, 2012, as compared to a benefit of
$42.7 million for the three months ended September 30, 2011. The
difference was principally due to the tax benefit associated
with the 2011 Horizons remeasurement charge and the release of
certain valuation allowances on our U.S. subsidiary’s deferred
state tax assets relating to internal subsidiary mergers during
the three months ended September 30, 2011.
EBITDA, Intelsat S.A. Adjusted EBITDA and Other
Financial Metrics
Intelsat S.A. EBITDA of $471.1 million for the three months
ended September 30, 2012, reflected an increase of $4.6 million
from $466.5 million for the same period in 2011. Intelsat S.A.
Adjusted EBITDA increased by $9.2 million, or 2 percent, to
$511.3 million, or 78 percent of revenue, for the three months
ended September 30, 2012, from $502.1 million, or 77 percent of
revenue, for the same period in 2011.
At September 30, 2012, Intelsat’s contracted backlog,
representing expected future revenue under contracts with
customers, was $10.8 billion, compared to $10.6 billion at June
30, 2012.
Free Cash Flow From (Used in) Operations and Capital
Expenditures
Free cash flow from operations i was negative $61.4 million
during the three months ended September 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 September 30, 2012, totaled $238.3 million.
Our capital expenditure guidance for the periods 2012 through
2014 (the “Guidance Period”) forecasts capital expenditures
during those periods for ten satellites. This is comprised of
five satellites launched in 2012, four satellites currently in
development and one satellite expected to be ordered during the
Guidance Period. The satellites in development and yet to be
ordered are expected to be launched from 2013 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 Guidance Period, 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 third quarter of 2012
totaled $22.0 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.