Intelsat S.A. (NYSE: I), the worlds leading provider of satellite services, today reported total revenue of $642.8 million and net income attributable to Intelsat S.A. of $72.6 million, or $0.62 per share on a diluted basis, for the three months ended December 31, 2013. The company reported adjusted diluted net income per common share1 of $0.84 for the three months ended December 31, 2013.
– Fourth quarter revenue of $642.8 million; fiscal year 2013 revenue of $2,603.6 million
– Fourth quarter net income attributable to Intelsat S.A. of $72.6 million; 2013 fiscal year net loss of $255.7 million
– Debt prepayment of $100 million in the fourth quarter of 2013; total 2013 debt decline of $617 million
– $10.1 billion contracted backlog provides visibility for future revenue and cash flow
Intelsat S.A. reported EBITDA1, or earnings before net interest, taxes and depreciation and amortization, of $506.4 million, and Adjusted EBITDA1 of $509.8 million, or 79 percent of revenue, for the three months ended December 31, 2013.
For the year ended December 31, 2013, Intelsat reported total revenue of $2,603.6 million and a net loss attributable to Intelsat S.A. of $255.7 million, or $2.70 per share on a diluted basis. The company reported adjusted diluted net income per common share of $2.44 for the year ended December 31, 2013. Intelsat also reported EBITDA of $1,936.0 million, and Adjusted EBITDA of $2,033.4 million, or 78 percent of revenue, for the year ended December 31, 2013.
Intelsat CEO, Dave McGlade said, Intelsats fourth quarter was in line with our expectations and capped a year of key accomplishments for the company as we position Intelsat to deliver on its long-term value creation strategy. The completion of our IPO, combined with successful refinancing activity, has enabled us to initiate our de-levering plan, improve our maturity profile and significantly reduce our debt service. On the operational side, in 2013, we have charted a solid course for steady longer-term growth expected upon the entry into service of our innovative Intelsat EpicNG satellites beginning in 2016.
During the 2013 fourth quarter, we saw solid bookings and renewals in our media and network services businesses, and we also furthered our presence in the broadband mobility sector. Backlog at year-end 2013 was $10.1 billion, which provides visibility into revenue and cash flow.
Performance overall continued to reflect two trends affecting our revenue growth, including the on-going effects of reduced U.S. government spending and the oversupply environment in Africa, which affects pricing within network services applications in that region. At present, we believe these factors will persist in 2014, resulting in overall reduced revenues for the full year compared to 2013, while our mix of business and strong financial discipline should enable us to deliver Adjusted EBITDA margins consistent with 2013 results.
We also expect solid cash flows as we manage costs carefully, harvest efficiencies in our capital spending plans, and benefit from reduced interest expense. This anticipated performance will leave us in a good position to continue to de-lever our balance sheet as we position for longer-term organic growth.
Fourth Quarter 2013 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
Network Services comprised 47 percent of Intelsats total fourth quarter 2013 revenue, and at $300.0 million, decreased 1 percent as compared to the fourth quarter of 2012. For the year ended December 31, 2013, Network Services comprised 46 percent of Intelsats total revenue, and at $1,201.9 million, increased slightly compared to the year ended December 31, 2012.
Media
Media comprised 34 percent of the companys revenue for the quarter ended December 31, 2013, and at $218.4 million, declined 3 percent as compared to the fourth quarter of 2012. For the year ended December 31, 2013, Media comprised 34 percent of Intelsats total revenue, and at $884.0 million, increased 3 percent compared to the year ended December 31, 2012.
Government
Government comprised 18 percent of our revenue for the quarter ended December 31, 2013, and at $116.2 million, decreased 14 percent as compared to fourth quarter 2012 results. For the year ended December 31, 2013, Government comprised 19 percent of Intelsats total revenue, and at $486.1 million decreased 7 percent compared to the year ended December 31, 2012.
Average Fill Rate
Intelsats average fill rate on our approximately 2,175 station-kept transponders was 77 percent at December 31, 2013. No significant fleet changes occurred during the fourth quarter of 2013.
Satellite Launches
Intelsat does not have any satellite launches planned for the first half of 2014. Our next launch, planned for the second half of 2014 is Intelsat 30, the first of two satellites providing services primarily for DTH service provider, DIRECTV® Latin America .
Contracted Backlog
At December 31, 2013, Intelsats contracted backlog, representing expected future revenue under existing contracts with customers, was $10.1 billion, as compared to $10.3 billion at September 30, 2013. The mix of backlog reflects lower overall net new contracts, particularly with respect to our government business.
Debt Prepayment and Other Financing Activities
As previously disclosed, in October 2013, Intelsat prepaid $100 million of debt under our Intelsat Jackson Holdings S.A. (Intelsat Jackson) secured term loan facility for a 2013 total reduction of debt of $617 million.
On November 27, 2013, Intelsat Jackson further amended its Intelsat Jackson senior secured credit agreement. The amendment reduced the applicable LIBOR and ABR margins by 25 basis points for borrowings under the term loan facility, reduced the LIBOR floor by 25 basis points and extended the maturity of the term loan facilities by 14 to 18 months. In addition, it also reduced the applicable margins and LIBOR floor by a similar amount for $450 million of the $500 million total revolving credit facility and extended the maturity of that portion of the facility as well.
Financial Results for the Three Months ended December 31, 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.
Total On-Network Revenue decreased by $12.4 million, or 2 percent, to $584.9 million:
Transponder services decreased by $8.3 million, primarily due to a $4.9 million decrease in revenue from capacity sold for government applications in the North America region and a $3.5 million decrease in revenue from capacity sold to media customers largely in the North America and Africa and Middle East regions.
Managed services increased by $0.8 million, largely due to a $2.1 million net increase in revenue from network services customers for new broadband services for mobility applications, primarily in the North America and Europe regions. This increase was partially offset by a $1.4 million decrease in revenue from media customers due to lower demand for occasional use services.
Total Off-Network and Other Revenue decreased by $17.1 million, or 23 percent, to $57.9 million:
– Transponder, MSS and other off-network services reported an aggregate decrease of $9.6 million, primarily due to a decline in sales of off-network transponder services and sales of customer premises equipment, both of which are primarily related to government applications.
– Satellite-related services reported an aggregate decline of $7.5 million, primarily due to decreased revenue from government professional services and flight operations support for third party satellites.
– For the three month period ended December 31, 2013, changes in operating expenses, interest expense, net, and other significant income-statement items are described below.
Direct costs of revenue decreased by $24.5 million, or 23 percent, to $84.1 million, as compared to the three months ended December 31, 2012. The decline was largely due to a $8.7 million decrease in costs attributable to the purchase of off-network fixed satellite services capacity and other third party services primarily related to our government customer set; a $6.1 million reduction in staff related expenses; a $3.0 million adjustment to certain vendor payments; a decrease of $2.9 million in costs related to a joint venture and a decrease of $1.8 million in costs of sales for customer equipment.
Selling, general and administrative expenses decreased by $3.6 million, or 7 percent, to $48.8 million, as compared to the three months ended December 31, 2012. This was due to a $5.4 million reduction in professional fees and a $2.9 million reduction in staff related expenses, partially offset by a $5.4 million increase in bad debt expense related to collection challenges with a limited number of customers in Africa and the Middle East.
Depreciation and amortization expense decreased by $20.9 million, or 11 percent, to $176.5 million, as compared to the three months ended December 31, 2012. This decrease primarily resulted from the timing of certain satellites becoming fully depreciated and variation from year to year in the expected pattern of consumption of amortizable intangible assets, partially offset by depreciation expense associated with satellites placed into service in 2012.
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. As of December 31, 2013, we also held interest rate swaps with an aggregate notional amount of $1.6 billion to economically hedge the variability in cash flow on a portion of the floating-rate term loans under our senior secured credit facilities. The swaps have not been designated as hedges for accounting purposes. Interest expense, net decreased by $73.9 million, or 23 percent, to $244.8 million compared to $318.7 million for the three months ended December 31, 2012.
The decrease in interest expense, net was principally due to the following:
– a net decrease of $69.7 million as a result of our debt offerings, debt prepayments and redemptions in 2013 and 2012;
– a net decrease of $5.0 million as a result of the decrease in the interest rate under the Intelsat Jackson Secured Credit Agreement; and
– an increase of $2.5 million resulting from lower capitalized interest of $12.7 million compared to $15.2 million for the three months ended December 31, 2012, resulting from decreased levels of satellites and related assets under construction.
– Non-cash items in total interest expense, net were $5.8 million, due to the 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 $1.3 million for the three months ended December 31, 2013, compared to $27.1 million for the three month period ended December 31, 2012. The 2013 loss included the write-off of unamortized debt issuance costs related to the re-pricing of our secured credit facility.
Other expense, net was $0.7 million compared to other income, net of $10.9 million for the three months ended December 31, 2012. The difference of $11.5 million was primarily due to 2012 events, where we recognized a $12.8 million pre-tax gain on the sale of our U.S. administrative headquarters property.
Provision for income taxes was $10.3 million as compared to a benefit from income taxes of $18.5 million for the three months ended December 31, 2012. The difference was principally due to higher income in our U.S. subsidiaries as a result of an internal subsidiary reorganization in 2013 and the benefit we recorded in 2012 to adjust the basis of certain assets that had generated excluded extraterritorial income in prior years. These effects were partially offset by the valuation allowance we recorded on our Washington, D.C. net operating loss carry forwards in 2012 when we entered into a lease for our new U.S. administrative headquarters building in McLean, Virginia.
Cash paid for income taxes, net of refunds, totaled $9.0 million compared to $7.3 million for the three months ended December 31, 2012.
EBITDA, Adjusted EBITDA, Net Income, Net Income per Diluted Common Share and Adjusted Net Income per Diluted Common Share
EBITDA was $506.4 million for the three months ended December 31, 2013 compared to $519.9 million for the same period in 2012.
Adjusted EBITDA was $509.8 million for the three months ended December 31, 2013, or 79 percent of revenue, compared to $516.4 million, or 77 percent of revenue, for the same period in 2012.
Net income was $72.6 million for the three months ended December 31, 2013, compared to a net loss of $5.7 million for the same period in 2012.
Net income per diluted common share was $0.62 for the three months ended December 31, 2013, compared to a net loss of $0.07 per diluted common share for the same period in 2012.
Adjusted net income per diluted common share was $0.84 for the three months ended December 31, 2013, compared to $0.33 adjusted net income per diluted common share for the same period in 2012.
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.
