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Intelsat Reports Third Quarter 2013 Results

Intelsat S.A. (NYSE: I), the world’s leading provider of satellite services, today reported revenue of $651.8 million and net income attributable to Intelsat S.A. of $87.8 million, or $0.75 per share on a diluted basis, for the three months ended September 30, 2013. The company also reported EBITDA 1, or earnings before net interest, taxes and depreciation and amortization, of $493.6 million, and Adjusted EBITDA 1 of $508.4 million, or 78 percent of revenue, for the three months ended September 30, 2013.

Intelsat CEO Dave McGlade said, “Intelsat’s third quarter performance was led by growth in its media and network services customer sets. We generated free cash flow from operations of $333 million, reflecting the benefits of lower interest rates as a result of our refinancing activities and the debt retirements achieved thus far in 2013, as we furthered our progress on reducing leverage and creating equity value.

“Despite the solid performance, we are managing through two trends affecting our revenue growth and our operating expense profile. These include revenue declines due to on-going effects of the U.S. government reduced spending and budget sequestration. It also includes the impact of fiber deployments and the oversupply environment in Africa, which affects our network services business.

McGlade continued, “While these issues will continue to influence near-term results, our long-term outlook remains positive as we execute on our two-phase strategy to deliver returns to equity investors: use near-term improving cash flows to de-lever our balance sheet, while positioning the company for organic growth upon the entry into service of our new Intelsat Epic NG satellites beginning in 2016, which support the growth plans for existing and future customers. During the quarter, we announced the first customer for Intelsat 33e, the second Intelsat Epic NG satellite, launching in 2016. This contributed to our strong backlog of $10.3 billion, which provides 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 third quarter 2013 revenue, and at $299.9 million, increased one percent as compared to the third quarter 2012. In the third quarter 2013, growth in transponder and managed services revenue for mobility, enterprise, and wireless telecommunications backhaul applications was offset by reduced revenue from channel services, which has been declining due to migration to fiber .
    • 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 third quarter, Intelsat received multi-year, multi-transponder new and renewed contracts from a number of wireless operators in Latin America, including Consorcio Ecuatoriano de Telecomunicaciones S.A. and Telefónica Móviles S.A.C.
    • Subsequent to quarter end, GCI, the largest telecommunications company in Alaska, recently signed a long-term agreement for a portfolio of new and renewed C- and Ku-band services. GCI uses Intelsat’s capacity to provide telecommunications infrastructure throughout Alaska, supporting critical distance learning and telemedicine solutions.

    Mobility applications are a major source of new demand within our network services business, particularly for Ku-band spectrum. This business includes broadband connectivity for maritime and commercial aeronautical consumer networks. In the third quarter, new activity included:

    • Panasonic Avionics Corporation, a global leader in in-flight entertainment and communications, signed a long-term contract for services on the Intelsat 33e satellite, the second of Intelsat’s planned next generation Epic NG satellites expected to launch in 2016. As was announced in September 2013, Panasonic Avionics will use the capacity to extend its global network from Europe through the Middle East and North and South East Asia, complementing the North America to Europe infrastructure provided by the previously contracted capacity on Intelsat 29e.

    The business environment in Africa is increasingly competitive with respect to network services applications. This region is characterized primarily by oversupply from traditional satellite operators and fiber alternatives, both of which serve to slow our aggregate network services revenue growth. Intelsat is closely monitoring our business in the region while continuing our focus on furthering our long-term strategic relationships with the continent’s most intensive users of satellite capacity.

  • Intelsat’s media business, which provides satellite capacity and terrestrial services 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 September 30, 2013. Third quarter revenue of $221.8 million increased four percent as compared to the third quarter of 2012, as service volume increased for DTH and cable and broadcast program distribution applications.Contracts with media customers in the third quarter and October 2013 included:
    • Discovery Communications, the world’s #1 nonfiction media company, recently signed an agreement for capacity for new and renewed transponder services on the Intelsat 19 satellite, expanding the distribution of its programming. Intelsat 19 hosts the leading video neighborhood in the Pacific Ocean region, and reaches more than 37 million Pay TV subscribers.
    • Deutsche Telecom affiliate Slovak Telecom, the largest telecom company operating in Slovakia, signed a long-term agreement for multiple transponders at the Intelsat 1 West neighborhood, which is a leading hot-spot for Eastern Europe media applications. Slovak Telecom will use the capacity to provide DTH services.
    • Globecast France, signed a long-term renewal for multiple transponders on Intelsat 903 for use in providing DTH services distributed by Orange to the French Caribbean islands.
    • The European Broadcasting Union (“EBU”), signed a long-term commitment for capacity on our video distribution neighborhood at 304.5◦ East, on the Intelsat 805 satellite that will be replaced by Intelsat 34 when it launches in 2015. Intelsat 805, with its high penetration of cable headends, will provide the EBU with transmission capacity to support its coverage of various sports events scheduled to take place in Latin America from 2014 to 2016.
  • Intelsat’s government business, which provides highly customized, secure commercial satellite-based solutions to value-added service providers, government and military customers, accounted for 19 percent of our revenue for the quarter ended September 30, 2013. Third quarter revenue of $121.7 million decreased ten percent as compared to third quarter 2012 results, with the majority of the decline in lower-margin off-network revenue.
    • Two previously awarded, but protested, contracts have been resolved in the favor of our Intelsat General Corporation subsidiary and its prime contractors. The two awards under the Custom SatCom Solutions contract feature the provisioning of over 350 MHz of on-network capacity on nine Intelsat satellites providing various regional coverages, as well as use of the IntelsatOne SM ground infrastructure. Implementation of both networks will span a 4-month period with all services activated by December 2013. Intelsat’s capacity is used to provide broadband infrastructure for use in regional and global networks.

    With respect to the effects of sequestration, the pace of RFP issuance and awards remains slower than usual and customers continue to consolidate services and evaluate requirements. Visibility remains limited for the government business for the balance of 2013 and into 2014. Intelsat expects limited short-term effects directly related to the October 2013 U.S. government shutdown.

  • In October 2013, Intelsat prepaid $100 million of debt under our Intelsat Jackson secured term loan facility for a 2013 year-to-date total reduction of debt of $617 million. Intelsat’s cash balance at September 30, 2013 was $404 million.
  • Intelsat’s average fill rate on our approximately 2,175 station-kept transponders was 78 percent at September 30, 2013. No significant fleet changes occurred during the period.
  • Intelsat has no satellite launches planned for the balance of 2013. Our next launch planned for second half of 2014 is Intelsat 30, the first of two satellites providing services for DTH service provider DirecTV-Latin America.

Financial Results for the Three Months ended September 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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