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Intelsat Reports Second Quarter 2013 Results

Stocks in this article: I

Intelsat S.A. (NYSE: I), the world’s leading provider of satellite services, today reported revenue of $653.8 million and a net loss attributable to Intelsat S.A. of $408.3 million, or $4.19 per share, for the three months ended June 30, 2013. The net loss includes $366.8 million for pre-tax charges related to early extinguishment of debt resulting from debt paydowns resulting from the company’s April 2013 initial public offering and debt refinancing activity in the second quarter. The company also reported EBITDA 1, or earnings before net interest, taxes and depreciation and amortization, of $439.2 million, and Adjusted EBITDA 1 of $509.4 million, or 78 percent of revenue, for the three months ended June 30, 2013.

Intelsat CEO Dave McGlade said, “With the completion of our April IPO and successful debt refinancing initiatives in the first half of 2013, we’re driving a positive cycle of delevering our balance sheet. Lower interest costs and reduced capital expenditures will enable increased cash flow, which in turn should allow us to further reduce debt. I’m confident Intelsat is well-positioned to create value for all of its stakeholders.

“The Intelsat team is executing against our operational priorities for 2013. New business on video neighborhood satellites and on our broadband mobility infrastructure is driving on-network revenue growth in our network services and media businesses. Declines in our government business, due to the U.S. government budget sequestration and troop drawdowns, were reflected primarily in off-network revenues. Overall, revenue and Adjusted EBITDA grew at two percent and four percent, respectively, as compared to the second quarter of 2012.”

McGlade continued, “During the quarter, we furthered our commitment to our next-generation fleet design, announcing manufacturing commitments for four additional satellites to be deployed over the coming years as we replace existing satellites with the innovative, high-throughput and cost-efficient Intelsat Epic NG platform. Leading up to the launch of those satellites, we are working with strategic customers to create portfolios of services on the current fleet that satisfy today's requirements while providing a bridge to our customers’ future growth needs on Epic NG. Progress on this front is demonstrated in our strong backlog of $10.4 billion, providing visibility into revenue and cash flow, and stability to our business.”

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.

  • Intelsat’s network services business, which provides broadband infrastructure for fixed and wireless telecommunications and enterprise and mobility applications, accounted for 46 percent of Intelsat’s total second quarter 2013 revenue, and at $303.7 million was up four percent as compared to the second quarter 2012. In the second quarter 2013, growth in transponder and managed services revenue for wireless telecommunications, mobility and enterprise applications was offset by reduced revenue from channel services, which has been declining due to migration to fiber .
    • Enterprise data networks use Intelsat satellites to deliver broadband connectivity across multiple regions or to remote locations. In the second quarter, Harris CapRock Communications, the leading global provider of managed communications solutions for remote and harsh environments, extended its portfolio with Intelsat under a long-term agreement covering new and renewed capacity of over 600 MHz on up to five satellites. The agreement will allow Harris CapRock to provide broadband services to its energy customers in the Americas, Africa and the Asia-Pacific region while driving increased control and efficiency in its operations, with the potential for migration to next generation satellites.
    • In the Middle East, Saudi Telecommunication Company (STC), a provider of integrated mobile, fixed and broadband communications services, recently renewed its agreement with Intelsat. STC plans to provide VSAT services to its oil and gas customers in the Middle East on Intelsat 10-02 as part of a multi-year, multi-transponder agreement.
    • Separately, Riyadh-based Saudi Inteltec Skyband renewed its contract for advanced VSAT services on Intelsat 15 to customers in Saudi Arabia.
    Mobility applications are a major source of new growth, particularly for Ku-band spectrum. This business includes broadband connectivity for maritime and commercial aeronautical consumer networks. In the second quarter, new activity included:
    • A global leader in broadband services recently contracted for new, multi-transponder services on Intelsat 905 to provide commercial aeronautical services over Europe.
    • Astrium Services, Europe’s leading space technology company, recently renewed its contract with Intelsat for the delivery of advanced broadband services to maritime customers on the North Sea. As part of the agreement, Astrium will use multiple transponders on the Intelsat 907 satellite, delivering seamless connectivity to its shipping customers.
    Intelsat’s large and diversified infrastructure is used by leading fixed and wireless telecommunications providers to extend their service regions and enhance backbone networks. Demand is especially strong in emerging regions, with subscriber growth, expanding service territories, and data connectivity requirements creating need for expanded 2G and 3G infrastructure. In the second quarter of 2013, contract signings included:
    • Santiago-based Entel Chile, a leading telecommunications provider in Chile, recently signed a new agreement on Intelsat 23. Entel Chile will provide mobile broadband and telephony services to customers in remote areas of Chile, including Easter Island, off the coast of South America.
  • Intelsat’s media business, which provides satellite capacity for the transmission of entertainment, news, sports and educational programming for approximately 300 broadcasters, content providers and direct-to-home (“DTH”) platform operators worldwide, accounted for 34 percent of our revenue for the quarter ended June 30, 2013. Second quarter revenue of $220.5 million increased four percent as compared to the second quarter of 2012, as service volume increased for DTH and cable and broadcast program distribution applications.Contracts with media customers in the second quarter included:
    • A major South African broadcaster recently renewed and expanded its multi-transponder agreement on Intelsat 20 to support media applications in Africa.
    • Separately, Moscow-based Orion Express, a major satellite television provider in Russia, recently expanded its relationship with Intelsat, signing multi-year commitments for several transponders on Horizons 2 at 85º East. Orion Express will use the capacity to expand its delivery of DTH services to customers across Russia, as well as to offer television content delivery services for broadcasters.
    • DIRECTV Sports recently renewed its contract for services via Galaxy 17. The programmer uses the satellite’s premier video neighborhood to deliver its suite of regional sports programming to customers in North America.
  • Intelsat’s government business, which provides highly customized, secure commercial satellite-based solutions to civilian agencies and the U.S. military defense sector, accounted for 19 percent of our revenue for the quarter ended June 30, 2013. Second quarter revenue of $122.4 million decreased two percent as compared to second quarter 2012 results, as declines in lower-margin off-network revenue more than offset increases in on-network transponder services revenue from the second quarter 2012 entry into service of a payload hosted for the Australia Defence Force and increased sales of managed services in support of aeronautical applications in Asia.
    • Intelsat General was awarded a new agreement to provide services on Galaxy 18. The multi-year agreement will support a ground network for the U.S. government.

    With respect to the effects of sequestration, the pace of RFP issuance and awards remains slower than usual and customers continue to renew and fund contracts on shorter terms than typical and consolidate services where possible. Visibility remains limited for the government business for the balance of the 2013 fiscal year and into 2014.

  • In the second quarter of 2013, Intelsat completed a number of capital markets activities.
    • In April 2013, our subsidiary Intelsat (Luxembourg) S.A. (“Intelsat Luxembourg”) issued $500.0 million aggregate principal amount of 6¾% senior notes due 2018, $2.0 billion aggregate principal amount of 7¾% senior notes due 2021 and $1.0 billion aggregate principal amount of 8 1/ 8% senior notes due 2023 (collectively, the “Intelsat Luxembourg Offerings”).
    • Also in April 2013, we used the proceeds from the April Intelsat Luxembourg Offerings to redeem all $2.5 billion aggregate principal amount of Intelsat Luxembourg’s outstanding 11½%/12½% senior PIK election notes and $754.8 million aggregate principal amount of the Intelsat Luxembourg 11¼% senior notes due 2017 (the “2017 Senior Notes”).
    • On April 23, 2013, we completed our initial public offering of 22.2 million common shares and a concurrent offering of 3.5 million Series A mandatory convertible junior non-voting preferred shares (collectively, the “IPO”). The shares trade on the New York Stock Exchange; the common shares under the ticker symbol “I” and the preferred shares under the ticker symbol “I PR A.” Net proceeds received, after underwriting discounts and commissions, were approximately $550 million following exercise of the underwriters’ overallotment options in both offerings.We used a portion of the proceeds from the stock offerings to prepay $138.2 million of indebtedness outstanding under our Intelsat Jackson Holdings S.A. (“Intelsat Jackson”) $810.9 million senior unsecured credit agreement. In May, we used a portion of the remaining proceeds to fully redeem our Intelsat Investments S.A. (formerly Intelsat S.A.) 6½% senior notes due 2013.We incurred $77.7 million of one-time, pre-tax expenses related to the IPO (the “Total IPO Charge”), of which $21.3 million related to share-based and other compensation expense incurred upon consummation of the IPO (the “IPO-related Compensation Charges”).
    • In June 2013, Intelsat Jackson issued $2.0 billion aggregate principal amount of 5½% senior notes due 2023 and $635.0 million aggregate principal amount of 6 5/ 8% senior notes due 2022 (the “2022 Jackson Notes” and collectively, the “June Intelsat Jackson Offerings”). The 2022 Jackson Notes were priced at 106.25 for an effective yield of 5.76%.
    • Also in June, we used the net proceeds of the June Intelsat Jackson Offerings, together with other available cash, to redeem the remaining $1.7 billion aggregate principal amount of the Intelsat Luxembourg 2017 Senior Notes, and to prepay all amounts outstanding (approximately $868 million principal amount) under Intelsat Jackson’s two senior unsecured credit agreements.
    • In total, our debt retirement activities resulted in a pre-tax early-extinguishment charge of $366.8 million in the quarter ended June 30, 2013.
  • Intelsat’s average fill rate on our approximately 2,175 station-kept transponders was 78 percent at June 30, 2013. No significant fleet changes were conducted during the period.
  • Intelsat has no satellite launches planned for the balance of 2013. We have contracted with Arianespace to launch Intelsat 30, the next satellite in our fleet program, in the second half of 2014.

Financial Results for the Three Months ended June 30, 2013

On-Network revenue generally includes revenue from any 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.

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