Satellite News
Intelsat Announces Fourth Quarter And Full-Year 2018 Results
Intelsat S.A., operator of the world’s first Globalized Network and leader in integrated satellite solutions, announced financial results for the three months and full-year ended December 31, 2018.
Intelsat reported total revenue of $542.8 million and net loss attributable to Intelsat S.A. of $111.3 million for the three months ended December 31, 2018. For the year ended December 31, 2018, Intelsat reported total revenue of $2,161.2 million and net loss attributable to Intelsat S.A. of $599.6 million.
In the first quarter of 2018, we adopted the provisions of the Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). As a result of the adoption of ASC 606, total revenue reflects $28.0 million and $103.2 million in the three months and year ended December 31, 2018, respectively, primarily related to the significant financing component identified in our customer contracts.
Total revenue excluding the effects of ASC 606 was $514.8 million for the three months ended December 31, 2018, and $2,058.0 million for the year-ended December 31, 2018.
Intelsat reported EBITDA1, or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, of $408.6 million and Adjusted EBITDA1 of $417.9 million, or 77 percent of revenue, for the three months ended December 31, 2018. For the year-ended December 31, 2018 Intelsat reported EBITDA of $1,634.0 million and Adjusted EBITDA of $1,668.5 million, or 77 percent of revenue.
Excluding the effects of ASC 606, Adjusted EBITDA was $392.2 million, or 76 percent of revenue, for the three months ended December 31, 2018 and $1,565.0 million, or 76 percent of revenue for the year-ended December 31, 2018. Free cash flow from operations1 was $107.2 million.
“Our fourth quarter financial performance contributes to an in-line result with our 2018 annual guidance,” said Stephen Spengler, Chief Executive Officer, Intelsat. “Each of our businesses demonstrated achievements in 2018 that will support our plans for 2019 and beyond. Network services is taking share in mobility applications, government maintains its outstanding renewal rates, and our media business continues to obtain long-term renewals well into the next decade. In delivering a 2018 Adjusted EBITDA margin of 76%, we demonstrated our commitment to disciplined cost controls and cash flow. This, combined with our achievement of our capital structure goals, allows us to enter 2019 with our focus on new and existing commercial opportunities.”
Spengler continued, “Our operating priorities for 2019 effectuate the next phase of our high-throughput satellite Intelsat EpicNG strategy. With our global HTS footprint in place, and our managed services platforms fully operational, we are bringing new capabilities to existing and new markets. Further, in 2019 our support of market innovations and use of more flexible software and standards-based technologies will progress our goals of lowering the capital intensity of our business and enabling a seamless interface with the telecom sector. This will broaden our market opportunity over time.
“Finally, we continue to promote our FCC proposal to clear a portion of our U.S. spectrum to accelerate the deployment of 5G in the U.S. The C-Band Alliance proposal is the only path that protects the services essential to our customers’ businesses, while at the same time enabling the U.S. to win the race for 5G. We expect 2019 will be an important year for Intelsat and we are energized by the opportunities presented in the year ahead.”
Fourth Quarter and Full-Year 2018 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
Network services revenue was $202.0 million (or 37 percent of Intelsat’s total revenue) for the three months ended December 31, 2018. Excluding the effects of ASC 606, network services revenue was $199.0 million, (or 39 percent of Intelsat’s total revenue) for the three months ended December 31, 2018, a decrease of 6 percent compared to the three months ended December 31, 2017.
Network Services revenue for the year-ended December 31, 2018 was $798.1 million (or 37 percent of Intelsat’s total revenue). Excluding the effects of ASC 606, network services revenue was $794.9 million (or 39 percent of Intelsat’s total revenue) for the year ended 2018, a decrease of 7 percent compared to the year ended December 31, 2017.
Media
Media revenue was $231.1 million (or 43 percent of Intelsat’s total revenue) for the three months ended December 31, 2018. Excluding the effects of ASC 606, media revenue was $214.4 million (or 42 percent of Intelsat’s total revenue) for the three months ended December 31, 2018, a decrease of 5 percent compared to the three months ended December 31, 2017.
Media revenue was $937.4 million (or 43 percent of Intelsat’s total revenue) for the year ended December 31, 2018. Excluding the effects of ASC 606, media revenue for the full-year 2018 was $870.8 million (or 42 percent of Intelsat’s total revenue), a decrease of 4 percent compared to the year ended December 31, 2017.
Government
Government revenue was $97.7 million (or 18 percent of Intelsat’s total revenue) for the three months ended December 31, 2018. Excluding the effects of ASC 606, government revenue was $89.5 million (or 17 percent of Intelsat’s total revenue) for the three months ended December 31, 2018, a decrease of 1 percent compared to the three months ended December 31, 2017.
Government revenue was $392.0 million (or 18 percent of Intelsat’s total revenue) for the year ended December 31, 2018. Excluding the effects of ASC 606, government revenue for the full-year 2018 was $359.0 million (or 17 percent of Intelsat’s total revenue), an increase of 2 percent compared to the year ended December 31, 2017.
Average Fill Rate
Intelsat’s average fill rate at December 31, 2018 on our approximately 1,775 36 MHz station-kept wide-beam transponders was 78 percent, as compared to an average fill rate at September 30, 2018 of 79 percent on 1,825 transponders. High-throughput satellite Intelsat EpicNG capacity was unchanged from the third quarter of 2018 at approximately 1,150 units.
Satellite Launches
Intelsat conducted no satellite launches in the fourth quarter of 2018. The Intelsat 38 and Horizons 3e satellites launched in September of 2018 entered service in January 2019. For additional details regarding our satellite investment program and 2019 planned satellite launches, see our Quarterly Commentary.
Contracted Backlog
At December 31, 2018, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $8.1 billion, including approximately $1.1 billion attributable to ASC 606. Excluding the effects of ASC 606, contracted backlog was $7.1 billion, as compared to $7.3 billion at September 30, 2018. On a program-to-date basis, the Intelsat EpicNG satellites have booked $1.4 billion in backlog.
Capital Market Transactions
In October 2018, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”) completed an add-on offering of $700 million aggregate principal amount of its 8.5% Senior Notes due 2024. The net proceeds from the add-on offering, together with cash on hand, were used to repurchase and redeem all the remaining approximately $709 million aggregate principal amount outstanding of Intelsat Jackson’s 7.5% Senior Notes due 2021, and to pay related fees and expenses.
In December 2018, funds affiliated with BC Partners and Silver Lake sold approximately 8.2 million and 1.8 million of our common shares, respectively, in a public offering which was priced at $25.75 per share. No proceeds from the sale were received by the Company.
Financial Results for the Three Months Ended December 31, 2018
Total revenue for the three months ended December 31, 2018 increased by $4.6 million as compared to the three months ended December 31, 2017. Excluding the impact of ASC 606 adjustments, total revenue for the three months ended December 31, 2018 decreased by $23.3 million, or 4 percent, as compared to the three months ended December 31, 2017. By service type, our revenues increased or decreased due to the following:
Total On-Network Revenues increased by $0.6 million to $487.7 million as compared to the three months ended December 31, 2017. Excluding the $25.4 million attributable to ASC 606, total on-network revenues declined by $24.8 million, or 5 percent, to $462.3 million due to the following:
- Transponder services reported an aggregate increase of $5.3 million, of which $23.8 million is attributable to ASC 606 adjustments. Excluding the impact of ASC 606 adjustments, the resulting decrease of $18.5 million is primarily due to an $7.3 million net decrease in revenue from network services customers and a $9.4 million decrease in revenue from media customers and a $1.8 million reduction in revenue from government customers. The decrease in network services revenue was mainly related to declines for wide-beam wireless infrastructure and enterprise services due to pricing pressure, non-renewals, service contractions and end of service, and reduced collection experience in the three months ended December 31, 2018 as compared to the prior year period. These declines were partially offset by increases for maritime and aeronautical mobility applications. The decrease in media revenue was primarily related to non-renewals and volume reductions from certain customers in the North America and Latin America regions, lower collections and price reductions related to currency fluctuations, as well as transfers of services to off-network capacity. The decrease in revenue from government customers was related to the net effect of price reductions from renewed contracts.
- Managed services revenue of $96.5 million, which includes $1.7 million attributable to ASC 606 adjustments, reflects an aggregate decrease of $4.3 million as compared to the three months ended December 31, 2017. Excluding the effects of ASC 606, managed services revenue of $94.8 million declined by $6.0 million, primarily due to a decrease of $2.7 million in revenue from government customers resulting from non-renewals and lower pricing. Managed services for media applications declined by $2.4 million due primarily to expiring services and lower occasional use. Declines in point-to-point trunking services for network services customers were offset by $1.8 million in increased revenue from managed mobility services.
Total Off-Network and Other Revenues reported an aggregate increase of $4.0 million, or an increase of 8 percent, to $55.0 million, as compared to the three months ended December 31, 2017. This includes $2.5 million in adjustments attributable to ASC 606.
- Transponder, MSS and other Off-Network services revenues increased $2.1 million to $40.9 million, inclusive of $2.5 million in adjustments attributable to ASC 606.
- Satellite-related services reported an increase of $1.8 million, or 15 percent, to $14.1 million.
For the three months ended December 31, 2018, 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 $7.8 million, or 10 percent, to $88.5 million for the three months ended December 31, 2018, as compared to the three months ended December 31, 2017. The increase was primarily due to $6.1 million in higher third-party costs for off-network services related to commercial services and an increase of $3.5 million in staff-related expenses.
Selling, general and administrative expenses decreased by $4.2 million, or 8 percent, to $47.8 million for the three months ended December 31, 2018, as compared to the three months ended December 31, 2017. This was primarily due to a decrease of $2.7 million in bad debt expense, and a decrease of $2.4 million in professional fees largely due to higher fees associated with our liability management initiatives pursued in 2017.
Depreciation and amortization expense increased by $1.6 million, or 1 percent, to $174.1 million, as compared to the three months ended December 31, 2017.
Interest expense, net consists of the gross interest expense we incur, together with gains and losses on interest rate cap contracts (which reflect the change in their fair value), offset by interest income earned and the amount of interest we capitalize related to assets under construction. As of December 31, 2018, we held interest rate cap contracts with an aggregate notional amount of $2.4 billion to mitigate the risk of interest rate expense increase on the floating-rate term loans under our senior secured credit facilities. The caps have not been designated as hedges for accounting purposes.
Interest expense, net increased by $62.4 million, or 24 percent, to $327.0 million for the three months ended December 31, 2018, as compared to $264.6 million in the three months ended December 31, 2017. The increase was principally due to:
- a net increase of $29.0 million primarily related to the significant financing component identified in customer contracts in accordance with ASC 606;
- an increase of $18.4 million corresponding to the decrease in fair value of the interest rate cap contracts;
- an increase of $11.1 million in interest expense primarily driven by our new debt issuances, refinancings and amendments with higher interest rates, which was partially offset by certain debt repurchases and exchanges in 2018; and
- a net increase of $4.9 million resulting from lower capitalized interest of $9.2 million for the three months ended December 31, 2018, as compared to $14.1 million for the three months ended December 31, 2017, primarily resulting from a decreased number of satellites and related assets under construction.
The non-cash portion of total interest expense, net was $58.2 million for the three months ended December 31, 2018, due to the amortization of deferred financing fees and the accretion and amortization of discounts and premiums and interest expense related to the significant financing component identified in customer contracts, as well as the loss from the decrease in fair value of the interest rate cap contracts we hold.
Loss on early extinguishment of debt was $17.8 million for the three months ended December 31, 2018, as compared to no activity on early extinguishment of debt for the three months ended December 31, 2017. The loss of $17.8 million consisted of the difference between the carrying value of debt repurchased and the total cash amount paid (including related fees and expenses), together with a write-off of unamortized debt issuance costs.
Other income, net was $2.2 million for the three months ended December 31, 2018, as compared to other income, net of $3.7 million for the three months ended December 31, 2017. The decrease of $1.5 million was primarily related to lower other miscellaneous income related to activities that are not associated with our core operations, partially offset by foreign exchange fluctuation mainly related to our business conducted in Brazilian reais.
Provision for income taxes was immaterial for the three months ended December 31, 2018, as compared to $61.0 million for the three months ended December 31, 2017. The decrease in tax expense was principally due to valuation allowances recorded on certain deferred tax assets, partially offset by tax benefits related to the tax rate change for our U.S. subsidiaries as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017, recorded during the three months ended December 31, 2017. No significant activity occurred for the three months ended December 31, 2018.
Cash paid for income taxes, net of refunds, totaled $3.4 million and $3.3 million for the three months ended December 31, 2018 and 2017, respectively.
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 $111.3 million for the three months ended December 31, 2018, compared to a net loss of $90.0 million for the same period in 2017, primarily due to lower revenue as described above.
Net loss per diluted common share attributable to Intelsat S.A. was $0.81 for the three months ended December 31, 2018, compared to net loss of $0.75 per diluted common share for the same period in 2017.
EBITDA was $408.6 million for the three months ended December 31, 2018, compared to $409.1 million for the same period in 2017.
Adjusted EBITDA was $417.9 million for the three months ended December 31, 2018, or 77 percent of revenue, compared to $416.4 million, or 77 percent of revenue, for the same period in 2017. Excluding the effects of ASC 606, Adjusted EBITDA was $392.2 million, or 76 percent of revenue, for the three months ended December 31, 2018.
Free Cash Flow From Operations
Free cash flow from operations was $101.5 million for the three months ended December 31, 2018. Free cash flow from (used in) operations is defined as net cash provided by operating activities and other proceeds from satellites from investing activities,
Financial Outlook 2019
Today, Intelsat issued its 2019 financial outlook. The revenue and Adjusted EBITDA guidance detailed below includes the expected financial statement impact of ASC 606, and is thus fully comparable to our 2018 results as reported under U.S. Generally Accepted Accounting Principles. For more information on Intelsat’s Financial Outlook 2019, including factors upon which the outlook is based, see Intelsat’s Quarterly Commentary issued today.
Revenue Guidance: We expect full-year 2019 revenue in a range of $2.060 billion to $2.120 billion. Our full-year 2019 customer set revenue expectations are as follows:
- Growth of 2 percent to a decline of 1 percent in our government business;
- A decline of 3 percent to 6 percent in our media business; and
- A decline of 3 percent to 6 percent in our network services business.
Adjusted EBITDA Guidance: Intelsat forecasts Adjusted EBITDA performance for the full-year 2019 to be in a range of $1.530 billion to $1.580 billion. This reflects the lower revenue and increased direct costs of revenue, staff and marketing costs outlined above.
Capital Expenditure Guidance: Intelsat issued its 2019 capital expenditure guidance for the three calendar years 2019-2021 (the “Guidance Period”). Over the next several years we are in a cycle of lower required investment, due to timing of replacement satellites and smaller satellites being built.
We expect the following capital expenditure ranges:
- 2019: $250 million to $300 million;
- 2020: $275 million to $350 million; and
- 2021: $250 million to $350 million.
Our capital expenditure guidance includes capitalized interest. Capitalized interest is expected to average approximately $30 million annually during the Guidance Period.
Intelsat currently has five satellites covered by our 2019 to 2021 capital expenditure plan, two of which are in the design and manufacturing phase. For the remaining three satellites, no manufacturing contracts have yet been signed. During the guidance period, we plan for an increased proportion of our capital expenditures to be invested in ground infrastructure and tools needed to enhance our delivery of managed services.
Our capital expenditure plan excludes up to four satellites which we may be required to build should our C-band proposal to the FCC be adopted in all material respects. For more information on our C-band proposal, see our Quarterly Commentary “Our 2019 Operating Priorities,” issued today.
By the conclusion of the Guidance Period at the end of 2021, the net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of approximately 2 percent, reflecting the net activity of satellites entering and leaving service during the Guidance Period. Capital expenditure incurrence is subject to the timing of achievement of contract, satellite manufacturing, launch
| 1 |
4
You must be logged in to post a comment Login