– Third quarter revenue of $580.8 million
– Third quarter net income attributable to Intelsat S.A. of $78.0 million
– Net income per diluted common share of $0.66; Adjusted net income per diluted common share of $0.85
– EBITDA of $452.0 million and Adjusted EBITDA of $458.1 million, or 79 percent of revenue
– $9.5 billion contracted backlog provides visibility for future revenue and cash flow
– Estimated in-service dates for Intelsat EpicNG® program and other satellites remain unchanged
– Company provides update on Intelsat EpicNG commitments
– Intelsat reaffirms its 2015 revenue and Adjusted EBITDA financial outlook
Intelsat S.A. (NYSE: I), the world’s leading provider of satellite services, today reported total revenue of $580.8 million and net income attributable to Intelsat S.A. of $78.0 million, or $0.66 per common share on a diluted basis, for the three months ended September 30, 2015. The company reported adjusted net income per diluted common share1 of $0.85 for the three months ended September 30, 2015.
Intelsat S.A. reported EBITDA1, or earnings before net interest, taxes and depreciation and amortization, of $452.0 million, or 78 percent of revenue, and Adjusted EBITDA1 of $458.1 million, or 79 percent of revenue, for the three months ended September 30, 2015.
Intelsat CEO, Stephen Spengler, said, “Intelsat continues to make meaningful progress as we position the company for long term growth, leveraging our new high throughput capacity and introducing new services to address the $3.0 billion of incremental demand for satellite solutions expected over the next five years. The first launch of our next generation fleet is just months away. Since July 1, 2015 Intelsat has signed six additional contracts on the Intelsat EpicNG platform. These contracts span applications including enterprise, fixed and wireless infrastructure, media and mobility. Of the contracts we are disclosing today, one in particular represents a significant commitment by a global provider of broadband services that focuses on markets including the energy, government and cruise industries. This contract is the largest single commitment for broadband infrastructure ever received by Intelsat.
Spengler continued, “Our results are in line with our overall expectations for 2015, with third quarter revenue of $581 million reflecting the near-term trajectories of each of our network services, media and government businesses, and Adjusted EBITDA of $458 million, or 79 percent of revenue, demonstrating our continued financial discipline. As a result, today we are reaffirming our guidance for 2015 revenue, Adjusted EBITDA and capital expenditures.
“As we execute on our operational priorities, our top focus is placing new satellites into service. Our Intelsat 34 satellite, which was launched in August 2015, entered service earlier this month, providing revenue continuity and growth for our media customers in Latin America and building our inventory for mobility applications over the North Atlantic. We have an active campaign to dramatically enhance our inventory next year as we expect to launch two media satellites, two Intelsat EpicNG satellites and an Intelsat EpicNG payload. The schedule for our launch program remains unchanged. As our next generation Intelsat EpicNG satellites begin entering service, inventory will further expand, supporting higher growth applications and service offerings that provide higher performance, better economics and accelerated market entry for our customers. A prime example of these services is IntelsatOne® Flex, which we recently introduced for the mobility sector.”
Third Quarter 2015 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 government applications.
Network Services comprised 45 percent of Intelsat’s total revenue for the quarter ended September 30, 2015, and at $263.1 million, decreased 9 percent as compared to the third quarter of 2014.
Media comprised 37 percent of the Intelsat’s total revenue for the quarter ended September 30, 2015, and at $216.6 million, increased slightly as compared to the third quarter of 2014.
Government comprised 16 percent of Intelsat’s total revenue for the quarter ended September 30, 2015, and at $94.7 million, decreased 3 percent as compared to the third quarter of 2014.
Increasing Commitments on Next Generation Intelsat EpicNG Fleet
The company is successfully marketing its next generation fleet for growing applications and expanding addressable markets. Since July 1, 2015, Intelsat has signed six agreements with customers spanning applications including mobility, enterprise, fixed and wireless infrastructure and media distribution. In terms of total committed throughput, the majority is incremental to Intelsat’s current business, with most customers contracting for either the same or increased amounts of capacity.
Average Fill Rate
Intelsat’s average fill rate on our approximately 2,150 station-kept transponders was 75 percent at September 30, 2015, as compared to approximately 2,200 station-kept transponders for the prior quarter of 2015. The decline in station-kept transponder count reflects the transition of Intelsat 10 to inclined orbit operations.
Satellite Launches
We had no material changes to our launch schedule since our last earnings report on July 30, 2015. Our launch schedule fully reflects updated commitments received from our 2016 launch providers. Near-term launches are to be provided by Arianespace and Proton, launching Intelsat 29e and Intelsat 31, respectively.
Contracted Backlog
At September 30, 2015, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $9.5 billion, in line with June 30, 2015.
Capital Structure
An important priority for the company is ensuring that we manage the fluidity of our capital structure, maintaining our flexibility to be able to manage debt maturities as we deem appropriate. During the third quarter of 2015, our subsidiary, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), declared and paid a dividend of $360 million in cash to its parent, Intelsat (Luxembourg) S.A. (“Intelsat Luxembourg”), also one of our subsidiaries. Subsequent to the payment of the dividend, a subsidiary of Intelsat Luxembourg loaned an aggregate principal amount of $360 million to Intelsat Jackson (the “Intercompany Loan”) pursuant to a promissory note. The Intercompany Loan is prepayable by Intelsat Jackson in whole or in part at any time.
Financial Results for the Three Months ended September 30, 2015
Intelsat’s revenues are generated from the provision of On-Network services, or services delivered via our satellite or ground network, and Off-Network services, derived from sales of services sourced from other operators, such as Mobile Satellite Services (“MSS”). Effective first quarter 2015, we expanded our definition of on-network services to include commitments for third-party capacity, generally long-term in nature, that we integrate and market as part of our owned infrastructure. In addition, effective first quarter 2015, certain revenues have been reclassified between transponder services and managed services across our customer sets in order to better reflect the nature of the underlying business.
Total On-Network Revenue decreased by $23.4 million, or 4 percent, to $533.5 million, as compared to the three months ended September 30, 2014:
– Transponder services reported an aggregate decrease of $19.0 million, primarily due to a $22.4 million decrease in revenue from network services customers, partially offset by a $2.8 million increase from media customers. The network services decline was mainly due to reduced volumes resulting from non-renewals of point-to-point connectivity and certain cellular backhaul services, together with non-renewals and renewal pricing at lower rates of enterprise network services. The media increase resulted primarily from higher volumes of direct-to-home (“DTH”) services delivered in Latin America, offset in part by lower volumes due to certain North American customers migrating to new compression standards and single format distribution. The aggregate decrease also reflects $7.1 million in currency-related reductions of our contracts in Brazil and Russia, across our network services and media businesses.
– Managed services reported an aggregate decrease of $1.3 million, largely due to a $2.5 million decrease in revenue from media customers for occasional use services and video solutions.
– Channel reported an aggregate decrease of $3.1 million due to the continued migration of international point-to-point satellite traffic to fiber optic cable, a trend we expect will continue.
Total Off-Network and Other Revenue decreased by $4.3 million, or 8 percent, to $47.3 million:
– Transponder, MSS and other off-network services reported an aggregate decrease of $3.3 million, primarily due to declines in services for government applications, largely related to reduced sales of third party off-network transponder services.
– Satellite-related services reported an aggregate decrease of $1.0 million, primarily due to reduced revenue from support for third-party satellites and other services.
Changes in operating expenses, interest expense, net, and other significant income statement items for the three months ended September 30, 2015 are described below.
Direct costs of revenue (excluding depreciation and amortization) decreased by $6.4 million, or 8 percent, to $77.9 million, as compared to the three months ended September 30, 2014. This decrease was primarily due to a decline of $2.7 million in the cost of off-network capacity purchased, reflecting a decrease in solutions sold to our government customer set, and a $2.0 million decline in staff-related expenses, partially offset by an increase in other direct costs of revenue.
Selling, general and administrative expenses increased by $2.5 million, or 6 percent, to $46.5 million, as compared to the three months ended September 30, 2014. This was primarily due to a $1.5 million increase in development expense related to our antenna innovation initiatives.
Depreciation and amortization expense increased by $1.9 million, or 1 percent, to $171.4 million, as compared to the three months ended September 30, 2014. This increase primarily resulted from higher depreciation due to an increase of $5.8 million resulting from the impact of a satellite placed in service during 2014. This was partially offset by a net decrease of $2.3 million in depreciation expense due to the timing of certain satellites, ground equipment and other assets becoming fully depreciated and a decrease of $2.0 million in amortization expense primarily due to changes in the pattern of consumption of amortizable intangible assets.
Interest expense, net consists of the gross interest expense we incur together with gains and losses on interest rate swaps (which reflect 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 $13.8 million, or 6 percent, to $220.8 million for the three months ended September 30, 2015, as compared to $234.5 million for the three months ended September 30, 2014.
The decrease in interest expense, net was principally due to the following:
– a net decrease of $11.3 million as a result of our debt redemption in 2014; and
– a decrease of $4.3 million resulting from higher capitalized interest of $23.6 million for the three months ended September 30, 2015, as compared to $19.3 million for the three months ended September 30, 2014, resulting from increased levels of satellites and related assets under construction.
The non-cash portion of interest expense, net was $5.1 million for the three months ended September 30, 2015. 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 expense, net increased by $1.9 million to $4.4 million, as compared to the three months ended September 30, 2014.
Provision for (benefit from) income taxes reflects a benefit from income taxes of $19.2 million, as compared to a $5.1 million provision for income taxes for the three months ended September 30, 2014. The difference was principally due to the recognition of previously unrecognized tax benefits related to our U.S. subsidiaries in the three months ended September 30, 2015. Cash paid for income taxes, net of refunds, totaled $3.1 million for the three months ended September 30, 2015 compared to $6.8 million for the same period in 2014.
EBITDA, Adjusted EBITDA, Net Income, Net Income per Diluted Common Share and Adjusted Net Income per Diluted Common Share
EBITDA was $452.0 million for the three months ended September 30, 2015, as compared to $477.8 million for the same period in 2014. The decline was primarily due to lower revenue, as well as increased operating expenses related to our antenna innovation initiatives, as noted above.
Adjusted EBITDA was $458.1 million for the three months ended September 30, 2015, or 79 percent of revenue, compared to $485.3 million, or 80 percent of revenue, for the same period in 2014.
Net income attributable to Intelsat S.A. was $78.0 million for the three months ended September 30, 2015, compared to net income of $67.6 million for the same period in 2014, reflecting the various items discussed above.
Net income per diluted common share attributable to Intelsat S.A. was $0.66 for the three months ended September 30, 2015, compared to net income per diluted common share of $0.58 for the same period in 2014.
Adjusted net income per diluted common share attributable to Intelsat S.A. was $0.85 for the three months ended September 30, 2015, compared to $0.79 for the same period in 2014.
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.
