Intelsat Announces Third Quarter 2019 Results

Posted by Intelsat

Intelsat S.A. , operator of the world’s first Globalized Network and leader in integrated satellite solutions, announced financial results for the three and nine months ended September 30, 2019.

Intelsat reported total revenue of $506.7 million and net loss attributable to Intelsat S.A. of $148.3 million for the
three months ended September 30, 2019.

Intelsat reported EBITDA1, or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, of $336.1 million and Adjusted EBITDA1 of $356.1 million, or 70 percent of revenue,
for the three months ended September 30, 2019. Free cash flow used in operations1 was $10.1 million.

Intelsat’s Chief Executive Officer, Stephen Spengler, said, “2019 is progressing to our expectations, expanding our
managed services strategy to the benefit of our network services, media and government businesses. Our focus on
the wireless sector continues to yield benefits, with new infrastructure service starts in the third quarter in Africa,
Oceania and Latin America. Further, with Intelsat 39 entering service this month, we expanded the essential
broadband infrastructure we provide to Myanmar under a long-term agreement, as well as increased and enhanced
our mobility infrastructure throughout the Indian Ocean and Asia regions.

Spengler concluded, “The progression of our C-Band Alliance proposal under the U.S. Federal Communications
Commission C-band proceeding is positive and productive. Our focus on an expanded spectrum clearing approach
clears maximum spectrum for 5G—300 MHz inclusive of a 20 MHz guard band—while maintaining the reliability of
the U.S. television and radio ecosystem. In summary, the CBA members have the expertise and knowledge
necessary to implement a spectrum transition solution efficiently, expeditiously and with full accountability for the
timetable and safety to the ecosystem on which nearly 120 million American homes rely. W

Third Quarter 2019 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 revenue was $180.8 million (or 36 percent of Intelsat’s total revenue) for the three months ended
September 30, 2019, a decrease of 9 percent compared to the three months ended September 30, 2018. The
network services result includes $8.1 million in reduced revenue following the April 2019 loss of the Intelsat 29e
satellite.

Media

Media revenue was $222.9 million (or 44 percent of Intelsat’s total revenue) for the three months ended
September 30, 2019, a decrease of 4 percent compared to the three months ended September 30, 2018. The
media result reflects an increase of $4.4 million in early termination fees.

Government

Government revenue was $95.7 million (or 19 percent of Intelsat’s total revenue) for the three months ended
September 30, 2019, a decrease of 3 percent compared to the three months ended September 30, 2018.

Average Fill Rate

Intelsat’s average fill rate at September 30, 2019 on our approximately 1,750 36 MHz station-kept wide-beam
transponders was 80 percent, as compared to an average fill rate at June 30, 2019 of 78 percent on 1,750
transponders. In addition, at September 30, 2019 our fleet included approximately 1,200 36 MHz units of highthroughput Intelsat EpicNG capacity, remaining unchanged from June 30, 2019.

Satellite Launches

Intelsat successfully launched Intelsat 39 on August 6, 2019. The satellite will provide connectivity services for
mobile network operators, enterprises and governmental entities, as well as aeronautical and maritime mobility
service providers operating in the Europe, Africa, Middle East and Asia-Pacific regions. Intelsat 39 entered into
service on October 14, 2019.

Subsequent to quarter end, on October 9, 2019, Northrop Grumman’s in-space servicing vehicle, Mission Extension
Vehicle 1, or MEV-1, successfully launched and is headed to a rendezvous and docking with Intelsat 901,
anticipated to occur in early 2020. The MEV-1 service is designed to extend the life of deployed satellites where the
existing technology is still viable for the applications served.

Contracted Backlog

At September 30, 2019, Intelsat’s contracted backlog, representing expected future revenue under existing
contracts with customers, was $7.2 billion, as compared to $7.5 billion at June 30, 2019.

C-band Proceeding at the U.S. Federal Communications Commission (“FCC”)

The C-Band Alliance (“CBA”), of which Intelsat is a founding member, continues to build consensus on its plan to
clear satellite operator- licensed C-band spectrum to support U.S. leadership in 5G while also protecting essential
television, radio and data services currently using C-band spectrum. On October 28, in an ex parte filing to the FCC,
the CBA updated the amount of spectrum to be cleared under its proposal to 300 MHz, inclusive of a 20 MHz guard
band. The spectrum would be cleared in two tranches, 120 MHz within 18 months from an FCC order and the
balance within 36 months of a CBA-led auction process.

Financial Results for the Three Months Ended September 30, 2019

Total revenue for the three months ended September 30, 2019 decreased by $30.3 million to $506.7 million, or a
decrease of 6 percent as compared to the three months ended September 30, 2018. By service type, our revenues
increased or decreased due to the following:

Total On-Network Revenues decreased by $32.5 million, or 7 percent, to $458.0 million as compared to the three
months ended September 30, 2018 due to the following:

Transponder services reported an aggregate decrease of $27.6 million, primarily due to a $17.1 million decrease in
revenue from network services customers and a $12.8 million decrease in revenue from media customers, partially
offset by a $2.3 million increase in revenue from government customers. The decline in network services was
primarily due to non-renewals and service contractions for enterprise and wireless infrastructure applications,
primarily for services delivered in Latin America, including $6.9 million of lower revenue stemming from the Intelsat 29e satellite failure, a portion of which moved to off-network transponder services. These network service declines were offset in part by incremental revenues in the Asia-Pacific region for telecommunications infrastructure related to one of our satellites entering service in 2019. The decline from media customers was primarily due to nonrenewals and service contractions for distribution services in Latin America, North America and Europe.

Managed services reported an aggregate decrease of $4.5 million. Managed services for network services
customers declined by $7.0 million, related to declines in trunking applications and aeronautical services, inclusive
of $4.7 million related to the Intelsat 29e failure, noting that a portion of these services were restored with offnetwork services, as discussed below. These declines were partially offset by increases of $3.2 million primarily for
maritime applications. Managed services for government customers declined by $3.3 million, primarily resulting
from non-renewals earlier in 2019 and lower pricing related to 2018 contract renewals. These declines were
partially offset by a net increase in managed services revenue from media customers of $2.6 million, inclusive of
$4.4 million related to an early contract termination.

Total Off-Network and Other Revenues increased by $2.2 million, or 5 percent, to $48.7 million, as compared to the
three months ended September 30, 2018 due to the following:

• Transponder, MSS and other Off-Network services revenues increased by an aggregate of $1.5 million to
  $39.1 million, primarily due to $3.1 million in revenue from network services customers, inclusive of $3.4
  million for off-network restoration of services following the Intelsat 29e failure.
• Satellite-related services reported an increase of $0.7 million to $9.5 million, primarily due to increased
  revenues from launch consulting services

Direct costs of revenue (excluding depreciation and amortization) increased by $21.4 million, or
26 percent, to $104.7 million for the three months ended September 30, 2019, as compared to the three months
ended September 30, 2018. The increase was primarily due to a $19.9 million increase in cost of sales largely
consisting of $16.6 million of costs incurred in connection with two uncapitalized satellites that entered into service
in 2019 and a $4.6 million increase in third-party capacity costs incurred as part of the Intelsat 29e customer
restoration process. In addition, staff-related expenses increased by $2.4 million.

Selling, general and administrative expenses increased by $17.8 million, or 42 percent, to $60.8 million for the
three months ended September 30, 2019, as compared to the three months ended September 30, 2018. The
increase was primarily due to a $9.4 million increase in bad debt expense largely relating to customers in the
Europe and Africa regions, a $4.3 million increase in staff-related expenses, a $1.6 million increase in costs for
licenses and fees, and a $1.1 million increase in costs associated with our C-band spectrum solution proposal

Depreciation and amortization expense decreased by $11.9 million, or 7 percent, to $161.5 million for the three
months ended September 30, 2019, as compared to the three months ended September 30, 2018, primarily due to
the second quarter 2019 write-off of the Intelsat 29e satellite.

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 September 30, 2019, 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 $16.2 million, or 5 percent, to $316.0 million for the three months ended
September 30, 2019, as compared to $299.8 million for the three months ended September 30, 2018. The
increase was principally due to:

• a net increase of $14.8 million in interest expense primarily resulting from our refinancing activities in 2018
  and our $400 million aggregate principal amount incremental debt raise completed in the second quarter of
  2019; and
• an increase of $7.0 million corresponding to the decrease in fair value of the interest rate cap contracts;
  partially offset by
• a decrease of $2.3 million resulting from increased interest income largely due to higher cash balances
• a decrease of $1.5 million from higher capitalized interest primarily resulting from increased levels of
  satellites and related assets under construction; and
• a decrease of $1.5 million from lower interest expense associated with our deferred satellite performance
  incentives.

The non-cash portion of total interest expense, net was $40.8 million for the three months ended September 30,
2019, primarily consisting of interest expense related to the significant financing component identified in customer
contracts, amortization of deferred financing fees, amortization and accretion of discounts and premiums and the
loss resulting from the decrease in fair value of the interest rate cap contracts we hold.

Loss on early extinguishment of debt. No gain or loss on early extinguishment of debt was recognized for the three
months ended September 30, 2019, as compared to a loss of $204.1 million for the three months ended
September 30, 2018, consisting 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 and debt discount and premium.

Other expense, net was $5.1 million for the three months ended September 30, 2019, as compared to other
income, net of $0.8 million for the three months ended September 30, 2018. Other expense, net for the three
months ended September 30, 2019 primarily consisted of a foreign currency loss of $4.5 million largely related to
our business conducted in Brazilian reais.

Provision for income taxes was $6.2 million for the three months ended September 30, 2019, as compared to
$107.9 million for the three months ended September 30, 2018. The decrease was principally attributable to the
implementation of a series of internal transactions and related steps that reorganized the ownership of certain of
our assets among our subsidiaries in 2018.

Cash paid for income taxes, net of refunds, totaled $13.7 million and $2.5 million for the three months ended
September 30, 2018 and 2019, 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 $148.3 million for the three months ended September 30, 2019, compared
to a net loss of $374.6 million for the same period in 2018.

Net loss per diluted common share attributable to Intelsat S.A. was $1.05 for the three months ended
September 30, 2019, compared to net loss of $2.74 per diluted common share for the same period in 2018

EBITDA was $336.1 million for the three months ended September 30, 2019, compared to $411.5 million for the
same period in 2018, reflecting lower revenue and higher operating costs, as described above.

Adjusted EBITDA was $356.1 million for the three months ended September 30, 2019, or 70 percent of revenue,
compared to $416.3 million, or 78 percent of revenue, for the same period in 2018, reflecting lower revenue and
higher operating costs, as described above.

Free Cash Flow From (Used In) Operations1

Net cash provided by operating activities was $29.9 million for the three months ended September 30, 2019. Free
cash flow used in operations was $10.1 million for the same period. Free cash flow from (used in) operations is
defined as net cash provided by operating activities and other proceeds from satellites from investing activities, less
payments for satellites and other property and equipment (including capitalized interest). Payments for satellites
and other property and equipment from investing activities, net during the three months ended September 30,
2019 were $43.8 million, and other proceeds from satellites were $3.8 million.

Financial Outlook 2019

Intelsat affirmed its Revenue, Adjusted EBITDA, Capital Expenditure and Cash Tax guidance.

Revenue Guidance: Intelsat expects full-year 2019 revenue in a range of $2.000 billion to $2.060 billion.

Adjusted EBITDA Guidance: Intelsat forecasts Adjusted EBITDA performance for the full-year 2019 to be in a range
of $1.430 billion to $1.480 billion. ―BCS Bureau