Intelsat Reports Second Quarter 2014 Results
4 August 2014
Intelsat S.A. reported total
revenue of $615.7 million and net income attributable to
Intelsat S.A. of $66.8 million, or $0.53 per common
share on a diluted basis, for the three months ended
June 30, 2014. The company reported adjusted net income
per diluted common share1 of $0.76 for the three months
ended June 30, 2014.
Intelsat S.A. reported EBITDA1,
or earnings before net interest, taxes and depreciation
and amortization, of $485.5 million, or 79 percent of
revenue, and Adjusted EBITDA1 of $490.4 million, or 80
percent of revenue, for the three months ended June 30,
2014.
Intelsat CEO, Dave McGlade,
said, “In the second quarter, we performed in line with
our expectations, delivering strong Adjusted EBITDA
margins and making solid progress against our long-term
business strategy and equity thesis. ”
“We remain focused on working
with our blue chip customers to provide them with
satellite-based infrastructure that supports their
business growth. During the quarter we announced a new
satellite program with direct-to-home (“DTH”) operator,
MultiChoice, as the anchor customer. The 15-year
agreement expands our relationship with the leading pay
television operator in Africa, and positions us for
long-term growth. We ended the second quarter of 2014
with a contracted backlog of $10.3 billion, providing
visibility into revenue and cash flow.
McGlade continued, “Our satellite programs remain on
track, with Intelsat 30 expected to launch in the fourth
quarter. With the benefits of strong Adjusted EBITDA
margins, lower than average lifecycle capital
expenditures and reduced interest costs producing strong
cash flows, we continue to demonstrate progress on the
first phase of our two-phase investment thesis. Today,
we have raised our Adjusted EBITDA margin guidance and
increased the target to de-lever our balance sheet in
2014 to approximately $475 million.”
Second Quarter 2014 Business Highlights
Intelsat provides critical communications infrastructure
to customers in the network services, media and
government sectors. Our customers use our services for
broadband connectivity to deliver fixed and mobile
telecommunications, enterprise, video distribution and
fixed and mobile government applications.
Network Services comprised 47 percent of Intelsat’s
total second quarter 2014 revenue, and at $287.4
million, decreased 5 percent as compared to the second
quarter of 2013.
Media comprised 35 percent of
the company’s revenue for the quarter ended June 30,
2014, and at $217.0 million, declined 2 percent as
compared to the second quarter of 2013.
Government comprised 17 percent
of our revenue for the quarter ended June 30, 2014, and
at $103.6 million, decreased 15 percent as compared to
second quarter 2013 results.
Average Fill Rate
Intelsat’s average fill rate on our approximately 2,150
station-kept transponders was 76 percent at June 30,
2014, as compared to 77% at the end of the first quarter
of 2014. Units under contract declined primarily due to
decreases in government customer usage. In terms of
fleet actions, the Galaxy 26 satellite, launched in
1999, was de-orbited during the second quarter of 2014,
reducing the total station-kept transponder count.
Satellite Launches
Our next launch, planned for the fourth quarter of 2014,
is Intelsat 30, the first of two satellites providing
services primarily for DTH service provider, DIRECTV®
Latin America. We currently have 11 satellite programs
in development, one of which will not require capital
expenditure.
Contracted Backlog
At June 30, 2014, Intelsat’s contracted backlog,
representing expected future revenue under existing
contracts with customers, was $10.3 billion, as compared
to $10.1 billion at December 31, 2013. The mix of
backlog reflects an increase in net new contracts,
largely due to new backlog from media contracts for
services to be delivered in the Africa, Latin America
and North America regions.
Financial Results for
the Three Months ended June 30, 2014
On-Network revenue generally includes revenue from
services delivered via our satellite or ground network.
Off-Network and Other revenue generally includes revenue
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 Revenue also includes revenue from consulting
and other services, and sales of customer premises
equipment.
Total On-Network Revenue
decreased by $31.7 million, or 5 percent, to $560.1
million:
Transponder services reported an aggregate decrease of
$29.3 million, primarily due to a $13.3 million decrease
in revenue from network services customers, primarily in
the North America and the Africa and Middle East
regions, an $11.8 million decrease in revenue primarily
from capacity sold for government applications and a
$4.2 million decrease in revenue from media applications
due to non-renewals primarily in the North America
region.
Managed services reported an
aggregate increase of $1.1 million, largely due to a
$2.9 million net increase in revenue from North American
network services customers for broadband services for
global mobility applications, partially offset by a $1.8
million decrease in international trunking primarily in
the Africa and Middle East and the Europe regions.
Channel reported an aggregate decrease of $3.5 million
due to the continued migration of international
point-to-point satellite traffic to fiber optic cable, a
trend we expect to continue.
Total Off-Network and
Other Revenue decreased by $6.4 million, or 10 percent,
to $55.6 million:
Transponder, MSS and other off-network
services reported an aggregate decrease of $7.8 million,
primarily due to declines in services for government
applications, primarily related to reduced sales of
off-network transponder services.
Satellite-related services
reported an aggregate increase of $1.4 million,
primarily due to increased revenue from government
professional services.
For the three month period ended
June 30, 2014, changes in operating expenses, interest
expense, net, and other significant income statement
items are described below.
Direct costs of revenue
decreased by $13.2 million, or 13 percent, to $87.1
million, as compared to the three months ended June 30,
2013. Excluding $2.4 million of compensation charges
related to the 2013 initial public offering (“IPO”),
direct cost of revenue decreased by $10.8 million. The
decline was primarily due to a decrease of $5.4 million
in the cost of off-network fixed satellite services
(“FSS”) capacity purchased, primarily related to
solutions sold to our government customer set; a
decrease of $2.7 million in direct costs related to a
joint venture, and a decrease of $1.3 million in
staff-related expenses.
Selling, general and
administrative expenses decreased by $80.5 million, or
64 percent, to $44.7 million, as compared to the three
months ended June 30, 2013. Excluding $56.3 million
associated with the termination of our monitoring fee
agreement dated February 4, 2008 with affiliates of our
sponsor shareholders (the “2008 MFA”) and $18.9 million
of compensation charges related to the 2013 IPO,
selling, general and administrative expenses decreased
by $5.3 million. This was primarily due to a $3.2
million decrease in bad debt expenses, due to the
recovery of previously reserved balances principally in
the Africa and Middle East region, as well as a $1.4
million decline in professional fees, primarily due to
the 2013 expenses related to the “2008 MFA” prior to its
termination in April 2013.
Depreciation and amortization
expense decreased by $17.8 million, or 10 percent, to
$168.9 million, as compared to the three months ended
June 30, 2013. This decrease primarily resulted from a
$14.0 million decline due to the timing of certain
satellites becoming fully depreciated and a decrease of
$3.5 million in amortization expense related to changes
in the expected pattern of consumption of amortizable
intangible assets, as these assets primarily include
acquired backlog, which relates to contracts covering
varying periods that expire over time, and acquired
customer relationships, for which the value diminishes
over time.
Interest expense, net consists
of the gross interest expense we incur together with
gains and losses on interest rate swaps (which reflects
net interest accrued on the interest rate swaps as well
as the change in their fair value), offset by interest
income earned and the amount of interest we capitalize
related to assets under construction. Interest expense,
net decreased by $58.0 million, or 20%, to $239.2
million for the three months ended June 30, 2014, as
compared to $297.2 million for the three months ended
June 30, 2013.
The decrease in interest
expense, net was principally due to the following:
a net decrease of $51.1 million in interest expense as
a result of our debt offerings, prepayments and
redemptions of our unsecured debt in 2013;
a net decrease of $5.8 million in interest expense as
a result of the decrease in the interest rate for
borrowing under the Secured Credit Agreement of our
subsidiary, Intelsat Jackson Holdings S.A. (“Intelsat
Jackson”); and
a decrease of $7.9 million
resulting from higher capitalized interest of $17.6
million for the three months ended June 30, 2014, as
compared to $9.8 million for the three months ended June
30, 2013, resulting from increased levels of satellites
and related assets under construction; partially offset
by
an increase of $7.1 million
related to the interest expense accrued and the change
in fair value on the interest rate swaps.
The non-cash portion of interest
expense, net was $5.7 million for the three months ended
June 30, 2014. The non-cash interest expense consisted
of the amortization of deferred financing fees incurred
as a result of new or refinanced debt and the
amortization and accretion of discounts and premiums.
Other income, net was $1.5
million, as compared to other expense, net of $3.2
million, for the three months ended June 30, 2013. The
difference of $4.7 million was primarily due to a
decrease in exchange rate losses primarily related to
our business conducted in Brazilian reais.
Provision for income taxes was
$9.6 million, as compared to a benefit from income taxes
of $8.8 million for the three months ended June 30,
2013. The difference was principally due to the
recognition of previously unrecognized tax benefits
during the three months ended June 30, 2013 related to
the closing of the audit of the 2008 and 2009 tax years
for our subsidiary, Intelsat Holding Corporation and the
ongoing effects of an internal subsidiary reorganization
completed during 2013. Cash paid for income taxes, net
of refunds, totaled $8.2 million compared to $8.5
million for the three months ended June 30, 2013.
EBITDA, Adjusted EBITDA, Net
Income, Net Income per Diluted Common Share and Adjusted
Net Income per
Diluted Common Share
EBITDA was $485.5 million for the three months ended
June 30, 2014, compared to $434.7 million for the same
period in 2013.
Adjusted EBITDA was $490.4
million for the three months ended June 30, 2014, or 80
percent of revenue, compared to $509.4 million, or 78
percent of revenue, for the same period in 2013.
Net income attributable to
Intelsat S.A. was $66.8 million for the three months
ended June 30, 2014, compared to a net loss of $408.3
million for the same period in 2013.
Net income per diluted common
share attributable to Intelsat S.A. was $0.53 for the
three months ended June 30, 2014, compared to a net loss
of $4.19 per diluted common share for the same period in
2013.
Adjusted net income per diluted
common share was $0.76 for the three months ended June
30, 2014, compared to $0.34 for the same period in 2013.
Free cash flow from (used in) 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, 2014,
totaled $186.0 million. Cash and cash equivalents at
June 30, 2014 was $370.3 million.
Financial Outlook 2014
Today, Intelsat updated the Adjusted EBITDA margin and
debt reduction elements of its 2014 financial outlook
(previously updated in June 2014, following the
announcement of the new Intelsat 36 satellite program)
to reflect improving cost and cash flow trends. Intelsat
also updated its 2015 customer prepayment guidance due
to new contracts signed on the Intelsat 34 satellite.
All other aspects of our financial outlook remain the
same:
Revenue: Intelsat forecasts full-year 2014 revenue of
$2.45 billion to $2.50 billion.
Adjusted EBITDA Margin: Intelsat
now expects Adjusted EBITDA margin performance for the
full year 2014 to be 78-79 percent.
Capital Expenditures: We expect
capital expenditures ranges of:
2014: $625 million to $700 million;
2015: $775 million to $850 million; and
2016: $625 million to $700 million.
Capital expenditure guidance
assumes investment in ten satellites in the
manufacturing or design phase for the three year
calendar “Guidance Period” of 2014 through 2016. We
expect to launch four satellites in 2014 and 2015, two
satellites in 2016, and will continue work on five
remaining satellites for which construction will extend
beyond the Guidance Period. By the conclusion of the
Guidance Period in 2016, the number of transponder
equivalents is expected to increase by a compound annual
growth rate (CAGR) of 4.7 percent as a result of the
launch of the satellites covered by the Guidance Period.
We expect to launch two of our new Intelsat EpicNG
high-throughput satellites in the 2015 and 2016 periods,
increasing our total transmission capacity.
Our capital expenditures
guidance includes capitalized interest.
Prepayments: During the Guidance Period, we expect to
receive significant customer prepayments under our
existing customer service contracts. As stated above,
due to new contracts signed on the Intelsat 34
satellite, the company updated its prepayment guidance
for 2015.
We expect prepayment ranges of:
2014: $125 million to $150 million;
2015: $125 million to $150 million; updated from
February 2014 guidance of $75 million to $100 million;
and
2016: $0 million to $25 million.
The annual classification of
capital expenditure and prepayments could be affected by
the timing of achievement of contract, satellite
manufacturing, launch and other milestones.
Prepayments during the
three months ended June 30, 2014 totaled $22.0 million.
Debt Reduction: Based upon the above revenue, Adjusted
EBITDA, capital expenditure and prepayment guidance,
Intelsat now expects to repay approximately $475 million
in indebtedness during the year ending December 31,
2014, consistent with our investment thesis of equity
value creation through the use of organic free cash flow
for debt reduction.
