Profile | Pierre-Jean Beylier
Chief Executive, SpeedCast
Maritime satellite services provider SpeedCast International Ltd. must be wondering: Can things get any better than this?
At a time when other maritime satcom providers are lamenting the decline in offshore energy markets and tighter purse strings among the big government customers — especially the U.S. government — SpeedCast is predicting a spurt of growth among energy customers based on its recent acquisitions.
Hong Kong-based SpeedCast already this year has completed four acquisitions, including one — of SAIT Communications — that will quadruple the company’s maritime customer fleet.
Icing on the cake: Nearly all the newly acquired SAIT customers have yet to move from narrowband L-band communications to broadband.
SpeedCast stands ready to sell them Inmarsat’s Global Xpress Ka-band service, or very small aperture terminal connections from one of the 15 satellite fleet owners already leasing capacity to SpeedCast.
And because good fortune seems to follow the already fortunate: SpeedCast just happened to be there when bankrupt would-be satellite operator NewSat was forced to sell its heritage teleport operations at auction.
SpeedCast picked up two modern teleports in Australia and the technical and sales teams whose business was doing fine despite NewSat’s fatal attempt to enter the satellite fleet ownership business.
SpeedCast was introduced onto the Australian Stock Exchange a year ago; the stock, recently trading near 12-month highs, has doubled since then.
SpeedCast Chief Executive Pierre-Jean Beylier talked about the company’s business — including whether SpeedCast could become a target in the acquisition-ripe maritime satcom market — with SpaceNews staff writer Peter B. de Selding.
Your SAIT Communications acquisition about quadrupled your maritime customer set, to more than 3,000 ships?
Yes. SAIT provides services to 2,500 ships, including search and rescue and Inmarsat services — L-band for data communications. Most don’t have broadband. VSAT installations are very few.
How many are equipped with VSAT terminals for high-speed communications?
Only a few dozen. This reflects the fact that southern Europe has not moved as quickly with VSAT adoption. We expect that will accelerate over the next few years, and that’s what is interesting about this acquisition. We are getting a strong position in the Greek market and in Cyprus as well.
Greece is the largest maritime market in Europe, together with Germany. So the purchase of SAIT positions us well to capture growth coming from the migration of L-band service, with a limited amount of revenue, to higher-revenue VSAT.
When you say VSAT do you mean Ku-band only or also Ka-band?
Both Ku- and Ka-band. We are technology agnostic. Some customers are interested in Inmarsat’s Global Xpress. We are a Tier-1 Global Xpress distributor; so is SAIT. But we also have our own Ku-band global VSAT network, and a global C-band maritime service in addition to Global Xpress, so we have a choice.
We want to offer a large suite of services, a complete sales approach, as we figure out what the best solution is for each customer.
Is your Global Xpress agreement with Inmarsat a take-or-pay contract that commits you to purchase a certain volume?
I can’t comment on the specifics of our contract with Inmarsat beyond saying there is definitely a place in the market for Global Xpress. It will suit the needs of some of our customers.
Would it be an advantage to consolidate your new, larger customer set around Ku- or Ka-band to get better pricing from the satellite bandwidth providers?
We are one of the largest buyers of global-beam satellite capacity in the VSAT sector. If you look at our results you will see we have been improving our EBITDA [earnings before interest, taxes, depreciation and amortization] margins continuously for the past three or four years. A key element in the improving margins relates to economies of scale. I expect that to continue.
But would consolidating your customers around one or another broadband solution result in per-megabit cost reductions?
We think we should maintain both options for our customers. When it comes to capacity, we buy from around 15 satellite operators today. Our total purchase is around 2,000 megahertz. So even if some consolidation results, we’ll remain a sizable customer for the largest satellite fleet operators, for AsiaSat and others. We’re happy with this.
With a larger fleet will your satellite bandwidth purchases be made through longer-term contracts to save money?
It’s a mix now. We are buying satellite capacity back-to-back with customer contracts, some long-term and some short-term. We renew capacity contracts every quarter and buy new capacity for them. The customer requirements determine the length of the satellite bandwidth leases.
Aren’t longer-term contracts less costly than short-term contracts?
Yes, but there is a risk associated with long-term contracts. If you buy long-term satellite bandwidth contracts to serve short-term customer contracts, you expose yourself to the risk of having idle capacity. It’s always a balance between long-term and short-term procurement. This is a key element in maximizing the profit of the business.
The satellite industry is debating whether a supply glut is on the horizon with new high-throughput satellites (HTS) and numerous conventional satellites about to enter service. What is your view?
We are definitely looking at cost per bits more than cost per hertz and we expect the cost to come down. High-throughput satellites certainly will generate savings in some areas but that’s less obvious in other areas. We need to study closely where it makes sense to use HTS and where it may not make sense.
But there will be a large amount of new supply, whether it’s HTS or conventional capacity, in the next three years. Lots of launches are planned, and the supply-demand dynamics likely will result in downward pressure on price. And don’t forget ground technologies, which are improving and becoming more efficient in terms of the links, allowing a lower cost per bit.
Will the downward pressure on prices be global or limited to certain regions? You are active in most regions, although less in Latin America.
I am talking globally. Of course we understand the capacity situation best in the Asia-Pacific region and less in Latin America, but overall there is a lot of capacity coming. The situation will vary from one region to another, but in general supply will be plentiful.
Your natural resources customers account for 27 percent of your revenue so far this year. Is that business suffering from the drop in crude oil prices?
That business has been stable for the first half of this year and we expect growth in the second half as we implement some of our recent contract wins we’ve announced in the past three or four months. As we install those new networks we expect some revenue growth, which will be stronger in 2016.
The drop in crude oil prices will impact the market, but we are a small service provider overall in the oil and gas sector and we have established a global reach, with a strong presence in Houston led by Keith Johnson, who used to be president of the energy division of Harris CapRock. And we acquired Hermes Datacomms earlier this year. All this was done with a view to becoming a major provider in the oil and gas sector.
But we’re still small today and we’re working on gaining market share.
It’s different in maritime. The maritime satcom sector is growing, and we are growing with it — and even faster than the market. I don’t think the satcom market in the oil and gas sector is growing. We’re growing by taking market share. Our most recent deal was one where we took the place of an incumbent supplier, for example.
And there are pockets of growth. Some companies are still investing in exploration. We see opportunities to get business from the competition given the capabilities we have built and our reputation in the market.
Is most of your natural resources business backlog in oil and gas?
Yes, especially with the addition of Hermes.
Your government and NGO division is also growing, despite the drop in Afghan demand that everyone else is reporting too. Where is your growth coming from?
We don’t have much exposure to the U.S. government. The bulk of our government business is in Australia, where we are the largest satellite services provider for enterprise- and government-grade services. This business is in fact growing.
Plus with the addition of the NewSat assets we are getting a bit more government business, including from the U.S., with the Adelaide teleport. At a time when the Pacific is a big priority for the U.S. government, this is an opportunity for us. This is not a bad time to have teleports in Australia.
Was the NewSat teleport purchase in July the result of an auction of NewSat assets as part of its bankruptcy proceedings?
Yes, it was. We acquired two teleports, in Adeliade and Perth, and we acquired most of the operations and engineering staff and most of the customer contracts. We could pick and choose what we wanted to acquire. It was very accretive for our shareholders.
Your business in EMEA — Europe, the Middle East and Africa — has nearly tripled in a year. How did that happen?
The key reason is our acquisitions. Hermes is a sizable part of our Africa and Middle East business, with some in the North Sea. Also the acquisition of Geolink, a Paris-based company focused on Africa, is helping us there.
Those two companies have contributed to our EMEA growth. When you look at geographic presence, you have the key reason why SpeedCast has been growing at double-digit rates for several years. It’s the diversity of our business.
We have a number of growth engines — a country, a region, an industry — and they don’t all grow at the same time. But a sufficient number of them are firing so that we can continue to grow. Some of our competitors are very focused on one geography, or one or two industries.
Did you make a forecast for 2015 revenue?
No, we gave no guidance. We now have six analysts covering us and they are all very close on full-year 2015 revenue forecasts. We’re comfortable with what is out there.
Do you need an aeronautics play? Panasonic Avionics made a move to maritime with a recent acquisition.
No, I don’t think we need an aero play. We are busy and successful with growing our maritime business. Having said that, if there is an opportunity we would look at it. We are providing services to Panasonic Avionics.
Do you agree that the maritime satcom service business remains scattered and that there remains lots of room for consolidation?
Yes, the M&A activity is not over in maritime. It’s a fragmented market, with lots of small services providers. So the consolidation is going to continue. In aviation, my impression is that it’s more consolidated.
Are you a potential target given your shareholder structure?
No, 64 percent of our equity is floated, with a large number of institutional investors, including a few big ones, and a limited number of retail investors. Management has 11 percent.