Stock to Track: Intelsat S.A. (NYSE: I)

CHICAGO, June 21, 2019 – Intelsat SA (I) recently reported a loss of $120.60M in its first quarter.

Intelsat reported EBITDA or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, of $372.80M and Adjusted EBITDA of $380.30M, or 72 percent of revenue, for the three months ended March 31, 2019. Free cash flow from operations was $24.00M.

First Quarter 2019 Business Highlights:

Network Services:

Network services revenue was $204.30M (or 39 percent of Intelsat’s total revenue) for the three months ended March 31, 2019, a boost of 3 percent contrast to the three months ended March 31, 2018. This increase reflects $14.30M in accelerated revenue associated with hardware supplied and third-party services under a long-term contract subject to Accounting Standards Codification 842, Leases (“ASC 842”).

Media:

Media revenue was $226.00M (or 43 percent of Intelsat’s total revenue) for the three months ended March 31, 2019, a decrease of 6 percent contrast to the three months ended March 31, 2018.

Government:

Government revenue was $93.20M (or 17 percent of Intelsat’s total revenue) for the three months ended March 31, 2019, a decrease of 4 percent contrast to the three months ended March 31, 2018.

Financial Results for the Three Months Ended March 31, 2019:

Total revenue for the three months ended March 31, 2019 reduced by $15.30M to $528.40M, or a decrease of 3 percent as contrast to the three months ended March 31, 2018. By service type, our revenues increased or reduced because of the following:

Total On-Network Revenues reduced by $26.40M, or 5 percent, to $471.20M as contrast to the three months ended March 31, 2018 because of the following:

  • Transponder services reported an aggregate decrease of $18.40M, mainly because of a $12.70M decrease in revenue from media customers and a $6.00M decrease in revenue from network services customers. The decrease in media revenue was mainly related to non-renewals and volume reductions from certain customers in the North America, Latin America and Africa regions for distribution applications. The decrease in network services revenue was mainly related to declines for wide-beam wireless infrastructure and enterprise services because of non-renewals and service contractions in the Latin America region and for Europe to Africa connectivity. These declines were partially offset by increases for maritime and aeronautical mobility applications and revenue from new service starts for wireless customers in the Asia-Pacific region.
  • Managed services reported an aggregate decrease of $7.50M, mainly because of a decrease of
    $3.80M in revenue from government customers resulting from non-renewals and lower pricing related to 2018 contract renewals, and a $2.90M decrease in revenue from network services customers driven by declines for mobility broadband solutions and point-to-point trunking applications, which were partially offset by $1.80M in net increases in revenue from managed mobility services.

Total Off-Network and Other Revenues increased by $11.10M, or 24 percent, to $57.30M, as contrast to the three months ended March 31, 2018 because of the following:

  • Transponder, MSS and other Off-Network services revenues increased by an aggregate of $14.90M to $49.90M, inclusive of $14.30M in revenue recognized in the first quarter of 2019 from a network services customer as a result of the adoption of ASC 842, with no comparable amount in the first quarter of 2018.
  • Satellite-related services reported a decrease of $3.80M, to $7.40M, because of the completion of a contract for professional services supporting third-party satellite operations in the first quarter of 2018 with no similar contracts accomplished in the first quarter of 2019.

For the three months ended March 31, 2019, changes in operating expenses, interest expense, net, and other noteworthy income statement items are described below.

Direct costs of revenue (excluding depreciation and amortization) increased by $22.80M, or 28 percent, to $105.40M for the three months ended March 31, 2019, as contrast to the three months ended March 31, 2018. The increase was mainly because of $16.10M in equipment and third-party service costs recognized in the first quarter of 2019 under ASC 842 and $6.80M in costs related to the entry into service of two non-capex satellites in January 2019, with no comparable amounts in the first quarter of 2018.

Selling, general and administrative expenses reduced by $8.60M, or 14 percent, to $51.70M for the three months ended March 31, 2019, as contrast to the three months ended March 31, 2018. The decrease was mainly because of a $10.30M decline in professional fees, mostly because of costs incurred in the first quarter of 2018 regarding liability management activities with no comparable amounts in 2019, partially offset by a boost of $2.80M in staff-related expenses.

Depreciation and amortization expense increased by $4.60M, or 3 percent, to $171.10M for the three months ended March 31, 2019, as contrast to the three months ended March 31, 2018.

Interest expense, net increased by $34.10M, or 12 percent, to $316.60M for the three months ended March 31, 2019, as contrast to $282.50M in the three months ended March 31, 2018. The increase was principally because of:

  • a boost of $30.10M corresponding to the decrease in fair value of the interest rate cap contracts;
  • a boost of $3.90M from lower capitalized interest mainly resulting from reduced levels of satellites and related assets under construction; and
  • a net increase of $2.00M in interest expense mainly resulting from our refinancing activities in 2018.

The non-cash portion of total interest expense, net was $47.40M for the three months ended March 31, 2019, mainly consisting of interest expense related to the noteworthy financing component identified in our customer contracts, amortization and accretion of discounts and premiums, the loss resulting from the decrease in fair value of the interest rate cap contracts we hold and amortization of deferred financing fees.

Other income, net was $1.40M for the three months ended March 31, 2019, as contrast to other income, net of $4.40M for the three months ended March 31, 2018. The decrease of $3.00M was mainly because of $3.10M of other lease income recognized in the three months ended March 31, 2018 with no comparable amount in 2019.

Provision for income taxes was $5.10M for the three months ended March 31, 2019, as contrast to $22.40M for the three months ended March 31, 2018. The decrease was principally attributable to the implementation in 2018 of a series of internal transactions and related steps that reorganized the ownership of certain of our assets among our auxiliaries.

Cash paid for income taxes, net of refunds, totaled $1.90M and $2.20M for the three months ended March 31, 2019 and 2018, 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 $120.60M for the three months ended March 31, 2019, contrast to a net loss of $66.80M for the same period in 2018, mainly because of lower revenue and higher direct cost of revenue. Net loss per diluted common share attributable to Intelsat S.A. was $0.87 for the three months ended March 31, 2019, contrast to net loss of $0.56 per diluted common share for the same period in 2018.

EBITDA was $372.80M for the three months ended March 31, 2019, contrast to $405.40M for the same period in 2018, mainly because of lower revenue and higher direct cost of revenue, as described above.

Adjusted EBITDA was $380.30M for the three months ended March 31, 2019, or 72 percent of revenue, contrast to $418.60M, or 77 percent of revenue, for the same period in 2018, mainly because of lower revenue and higher direct cost of revenue, as described above.

Free Cash Flow From Operations:

Net cash offered by operating activities was $117.30M for the three months ended March 31, 2019. Free cash flow from operations was $24.00M for the same period. Free cash flow from (used in) operations is defined as net cash offered by operating activities and other proceeds from satellites from investing activities, less payments for satellites and other property and equipment (counting capitalized interest). Payments for satellites and other property and equipment from investing activities, net during the three months ended March 31, 2019 was $93.30M.

Ameena Dalia

Finance and Entertainment Reporter

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