Intelsat S.A. operator of the world’s first Globalized Network and leader in integrated satellite communications, today announced financial results for the three months ended June 30, 2017.
Intelsat reported total revenue of $533.2 million and a net loss attributable to Intelsat S.A. of $23.8 million for the three months ended June 30, 2017.
Intelsat reported EBITDA, or earnings before net interest, loss/(gain) on early extinguishment of debt, taxes and depreciation and amortization, of $407.3 million and Adjusted EBITDA of $417.9 million, or 78 percent of revenue, for the three months ended June 30, 2017.
Intelsat’s Chief Executive Officer, Stephen Spengler, said, “Our second quarter 2017 revenue of $533 million, and Adjusted EBITDA of $418 million, are in line with our June guidance update. We are making progress on sales of Intelsat EpicNG services with several new contracts on Intelsat 33e now completed, demonstrating that our new satellites are delivering superior performance for our service provider customers. The introduction of new Intelsat EpicNG enabled services, such as our operationally-efficient wireless solutions for 2G and 3G network extensions, expands our market opportunities as we continue to deploy the Intelsat EpicNG network. Progress on these optimized managed services, plus continued development of distributor relationships, support our return to growth as we complete our network deployment.”
Mr. Spengler continued, “The Intelsat 35e satellite mission is successfully progressing, with in-orbit testing now underway. The third quarter launch of Intelsat 37e, the fifth satellite in the Intelsat EpicNG fleet, is our last launch planned for 2017. By the end of this year, we expect to achieve in-orbit resilience across a substantial portion of the Intelsat EpicNG fleet, creating an infrastructure that will unlock new applications for satellite-based solutions, connecting people and devices everywhere.”
Second Quarter 2017 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. For additional details regarding the performance of our customer sets, see our Quarterly Commentary.
Network services revenue was $214.9 million (or 40 percent of Intelsat’s total revenue) for the three months ended June 30, 2017; a decrease of 6 percent compared to the three months ended June 30, 2016.
Media revenue was $222.2 million (or 42 percent of Intelsat’s total revenue) for the three months ended June 30, 2017; an increase of 5 percent compared to the three months ended June 30, 2016.
Government revenue was $86.0 million (or 16 percent of Intelsat’s total revenue) for the three months ended June 30, 2017; a decline of 8 percent compared to the three months ended June 30, 2016.
Average Fill Rate
Intelsat’s average fill rate on our approximately 2,100 station-kept wide-beam 36 MHz equivalent transponders was 78 percent at June 30, 2017, consistent with 78 percent as of March 31, 2017. Separately, our fleet includes approximately 675 36 MHz equivalent units of high-throughput Intelsat EpicNG capacity.
Intelsat 35e, the fourth of our Intelsat EpicNG next generation high-throughput satellites, was successfully launched on July 5, 2017. In-orbit testing has begun, and the satellite is expected to enter service at 325.5°W in the third quarter of 2017.
The Company’s last anticipated satellite launch for 2017 is Intelsat 37e. This satellite, which will replace Intelsat 901 in the Atlantic Ocean region, is planned for launch in the third quarter of 2017 on an Arianespace, Ariane 5 rocket.
At June 30, 2017, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $8.2 billion, as compared to $8.5 billion at March 31, 2017.
Corporate Development and Capital Structure Activities
On June 1, 2017, Intelsat S.A. announced that (i) the offers to exchange certain outstanding senior unsecured notes of its indirect wholly-owned subsidiaries, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), Intelsat Connect Finance S.A., and Intelsat (Luxembourg) S.A., and (ii) solicitations of consents to amend the indentures governing such notes expired pursuant to their terms on May 31, 2017. Following the termination of the exchange offers and consent solicitations, on June 2, 2017, Intelsat received termination notices from WorldVu Satellites Limited (“OneWeb”) and SoftBank Group Corp. (“SoftBank”), terminating the Combination Agreement, dated as of February 28, 2017, between Intelsat and OneWeb, and the Share Purchase Agreement, dated as of the same date, between Intelsat and SoftBank.
Separately, on July 5, 2017, Intelsat Jackson completed an offering of $1.5 billion aggregate principal amount of 9.75% Senior Notes due 2025, and used the net proceeds from the sale of the notes, along with other available cash, to satisfy and discharge all $1.5 billion aggregate principal amount of Intelsat Jackson’s senior notes due in 2019, and to pay related fees and expenses.
Financial Results for the Three Months Ended June 30, 2017
On-Network revenues generally include revenue from any services delivered via our satellite or ground network. On-Network services also include revenues from our channel services product, which are not detailed here as they are immaterial in size and we no longer actively market these services. Off-Network and Other Revenues generally include 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 Revenues also include revenue from consulting and other services and sales of customer premises equipment.
Total On-Network Revenues reported a decline of $7.9 million to $485.9 million, as compared to the three months ended June 30, 2016:
Transponder services reported an aggregate increase of $1.7 million, primarily due to a $15.8 million increase in revenue from media customers, partially offset by a $15.6 million decrease in revenue from network services customers. The increase in media revenue resulted primarily from growth in direct-to-home (“DTH”) television services in Latin America and Africa, partially offset by non-renewals related to the end of life of certain satellites. The network services decline was due to non-renewals of services for point-to-point and other services in Europe, Africa, the Middle East and Latin America, some related to the challenging economic environment in Russia. The network services decline was also due to lower pricing on renewing wide-beam services for enterprise and wireless infrastructure related to activity from customers in Africa.
Managed services reported an aggregate decrease of $8.2 million, largely due to a net decrease of $4.3 million in revenue from managed services for government applications, primarily related to the previously announced termination of a contract; a $2.7 million decline from network services customers for point-to-point trunking applications, which are switching to fiber alternatives; and a decrease of $6.6 million from media customers for managed video solutions. The decreases were partially offset by an increase of $5.6 million in revenue from network services customers for broadband services, primarily for air and maritime mobility applications.
Total Off-Network and Other Revenues reported an aggregate decline of $0.9 million, or a decrease of 2 percent, to $47.4 million, as compared to the three months ended June 30, 2016:
Transponder, MSS and other Off-Network services reported an aggregate decrease of $1.8 million, primarily resulting from the previously announced termination of a government contract.
Satellite-related services reported a slight aggregate increase of $1.0 million, primarily due to increased revenue from support for third-party satellites.
For the three months ended June 30, 2017, changes in operating expenses, interest expense, net, and other significant income statement items are described below.
Direct costs of revenue (excluding depreciation and amortization) increased by $1.0 million, or 1 percent, to $79.4 million, as compared to the three months ended June 30, 2016. This reflects an increase of $4.9 million largely due to higher direct costs associated with our satellite-related services business and costs associated with a third-party payload, and an increase of $1.9 million in expenses primarily related to ground network enhancements for our media business. These increases were partially offset by a decrease of $4.1 million related to lower third-party costs for off-network services sold by our government business and a $2.9 million decrease in staff-related expenses.
Selling, general and administrative expenses declined by $12.0 million, or 20 percent, to $47.2 million, as compared to the three months ended June 30, 2016. The decrease was primarily due to a $17.5 million improvement in bad debt expense primarily related to increased collections from a delinquent account and a $2.9 million decline in staff-related expenses. The decreases were partially offset by a $9.7 million increase in professional fees primarily due to the Company’s liability management initiatives and other costs related to the now terminated SoftBank and OneWeb transactions.
Depreciation and amortization expense increased slightly by $0.4 million, or 0.2 percent, to $177.5 million, as compared to the three months ended June 30, 2016.
Interest expense, net consists of the interest expense we incur offset by interest income earned and the amount of interest we capitalize related to assets under construction. Interest expense, net increased by $13.1 million, or 5.6 percent, to $248.1 million for the three months ended June 30, 2017, as compared to $235.0 million in the three months ended June 30, 2016. This increase was principally due to a net increase of $13.4 million from lower capitalized interest for the three months ended June 30, 2017, primarily resulting from a decreased number of satellites and related assets under construction.
The non-cash portion of total interest expense, net was $12.1 million for the three months ended June 30, 2017, due to the amortization of deferred financing fees and the accretion and amortization of discounts and premiums.
Other income/(expense), net was $0.7 million for the three months ended June 30, 2017, as compared to other expense, net of $0.8 million for the three months ended June 30, 2016. The increase of $1.5 million was primarily due to a $1.0 million increase in income related to our business conducted in Brazilian reais.
Provision for income taxes was $4.4 million for the three months ended June 30, 2017, as compared to $5.5 million for the three months ended June 30, 2016. The decrease was principally due to lower income for the three months ended June 30, 2017. Cash paid for income taxes, net of refunds, totaled $2.5 million for the three months ended June 30, 2017, as compared to $2.5 million for the three months ended June 30, 2016.
Net Income, Net Income per Diluted Common Share attributable to Intelsat S.A., EBITDA and Adjusted EBITDA
Net loss attributable to Intelsat S.A. was $23.8 million for the three months ended June 30, 2017, compared to net income attributable to Intelsat S.A. of $116.4 million for the same period in 2016.
Net loss per diluted common share attributable to Intelsat S.A. was $0.20 for the three months ended June 30, 2017, compared to net income per diluted common share of $0.98 for the same period in 2016.
EBITDA was $407.3 million for the three months ended June 30, 2017, compared to $403.6 million for the same period in 2016.
Adjusted EBITDA increased 2 percent to $417.9 million for the three months ended June 30, 2017, or 78 percent of revenue, compared to $410.7 million, or 76 percent of revenue, for the same period in 2016.
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.
Free Cash Flow (Used in) Operations
Net cash provided by operating activities was $50.8 million for the three months ended June 30, 2017, and free cash flow (used in) operations1 was $76.0 million for the same period. 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, 2017 was $126.8 million.
Financial Outlook 2017
Today, Intelsat reaffirmed the 2017 revenue and Adjusted EBITDA guidance issued on June 16, 2017, in which the Company expects the following:
Revenue: Intelsat forecasts full-year 2017 revenue to be in a range of $2.150 billion to $2.180 billion.
Adjusted EBITDA: Intelsat forecasts Adjusted EBITDA performance for the full-year 2017 to be in a range of $1.640 billion to $1.670 billion.
Capital Expenditures: On June 16, 2017, Intelsat issued its 2017 capital expenditure guidance ranges for the three calendar years 2017 through 2019 (the “Guidance Period”):
2017: $500 million to $550 million;
2018: $400 million to $475 million; and
2019: $400 million to $500 million.
Our capital expenditure guidance includes capitalized interest. The net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of 10 percent as a result of the net new capacity entering service between January 1, 2017 and December 31, 2019. This reflects the incremental capacity related to the launches of the Intelsat EpicNG high-throughput satellites, five of which are expected to enter service during the Guidance Period, net of satellites de-orbited or moved to inclined service. Capital expenditure incurrence is subject to timing of achievement of contract, satellite manufacturing, launch and other milestones.