PanAmSat Business Strategy Focused on Established Markets
PanAmSat Holding Corp. reported increased revenues and pretax profit for the first quarter of 2005 and said it expects increases for the full year on the strength of strong U.S. demand for video programming.
The Wilton, Conn.-based satellite-fleet operator reiterated its policy of keeping capital expenses down, and said agreements with its former owners on Latin American business have removed a bad-debt threat from PanAmSat’s business there.
Directly contradicting assertions made by competitor SES Global, PanAmSat Chief Executive Officer Joe Wright said the leveraged-buyout investment houses that own PanAmSat and several other satellite operators would hold the line on price wars.
Officials from Luxembourg-based SES Global have said these new owners are desperate for cash and are offering cut-rate satellite capacity, especially in soft markets such as East Asia and Latin America. In a May 16 conference call, Wright disputed this. “I would expect [the private-equity ownership of satellite companies] would bring a level of responsible behavior to the industry, which will be good for the industry.”
In a reference to SES Global, Wright said, “There’s only one operator that is still putting up large amounts of capacity” to attack new markets.
That is not the case with PanAmSat. The company’s 23-satellite fleet will remain as it is except for needed replacement spacecraft, Wright said. PanAmSat has five satellites on order, all scheduled for launch by late 2007. Three of them are on order from Orbital Sciences Corp. of Dulles, Va., which specializes in smaller telecommunications spacecraft that are less costly to purchase and to launch.
In its May 16 filing with the U.S. Securities and Exchange Commission (SEC), PanAmSat said that as of March 31 it had $180.4 million in expected future payments for satellite construction. The April 12 contract with Orbital Sciences for the PAS-11 satellite added $89.6 million to that sum, according to the SEC filing.
PanAmSat Chief Financial Officer Michael Inglese said the company expects capital spending, mainly on satellites and launches, of $155 million to $170 million in 2005, including an estimated $22 million in post-launch payments to satellite builders of spacecraft that function as expected.
For the three months ending March 31, PanAmSat reported a net loss of $31.9 million on revenues of $201.2 million. EBITDA — earnings before interest, taxes, depreciation and amortization — which Wright said is the company’s principal financial guideline, was 76 percent of revenues, up from 73 percent a year earlier.
“We’re in the best shape we’ve ever been in,” Wright said. “Our strategy is to build satellites as needed,” he said. “We don’t overbuild and we do not open up brand new markets.” In a separate statement on the call, Wright said that, unlike some companies, PanAmSat is not “a satellite operator that makes speculative investments to open up questionable markets.”
Jim Frownfelter, PanAmSat’s chief operating officer, said the company expects its capital expenditures to average less than $200 million a year for the next five to 10 years. This is equivalent to one small satellite per year.
PanAmSat, which completed a $900 million stock offering on the New York Stock Exchange in March, is paying a $1.55 annual dividend at least for one year, equivalent to a nearly 9 percent yield.
Wright said that given the low capital expenditures expected in the coming years, the dividend policy is justified and does not raise risks that PanAmSat will not be able to repay its debt, continue a high dividend payout and grow the business.
PanAmSat’s former owners, News Corp. of New York and the News Corp.-managed DirecTV Group of Los Angeles, are merging their struggling Latin American direct-to-home satellite television businesses.
Consolidations like this, which have happened in Europe and Asia, usually mean less total business for satellite operators like PanAmSat.
But Wright said News Corp. and DirecTV signed long-term commitments with PanAmSat for Latin American capacity that removes uncertainty from that business, preserving some $500 million in PanAmSat backlog and guaranteeing a stable business base for the next 10 to 15 years.
The same owners also extended PanAmSat contracts with satellite data-networks supplier Hughes Network Systems with a three- to five-year contract extension adding $200 million to PanAmSat’s backlog, Wright said.
The company’s total backlog as of March 31 was valued at $4.76 billion, down slightly from a year earlier.