UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February, 2018
001-35878
(Commission
File Number)
Intelsat S.A.
(Translation of registrant’s name into English)
4 rue Albert Borschette
Luxembourg
Grand-Duchy of Luxembourg
L-1246
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INTELSAT S.A. | ||||||
| Date: February 26, 2018 | By: | /s/ Jacques Kerrest | ||||
| Name: | Jacques Kerrest | |||||
| Title: | Executive Vice President and Chief Financial Officer | |||||
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press Release, dated February 26, 2018, entitled “Intelsat Announces Fourth Quarter and Full-Year 2017 Results” | |
| 99.2 | Quarterly Commentary by Stephen Spengler, Chief Executive Officer, and Jacques Kerrest, Executive Vice President and Chief Financial Officer, made available on Intelsat’s public website on February 26, 2018 | |
Exhibit 99.1
News Release
2018-04
Contact:
Dianne VanBeber
Vice President, Investor Relations
dianne.vanbeber@intelsat.com
+1 703-559-7406
Intelsat Announces Fourth Quarter and Full-Year 2017 Results
| • | Fourth quarter revenue of $538 million; full-year 2017 revenue of $2,149 million |
| • | Fourth quarter net loss attributable to Intelsat S.A. of $90 million; 2017 full-year net loss attributable to Intelsat S.A. of $179 million |
| • | Fourth quarter Adjusted EBITDA of $416 million or 77 percent of revenue; full-year 2017 Adjusted EBITDA of $1,665 million or 77 percent of revenue |
| • | $7.8 billion contracted backlog, inclusive of approximately $1.0 billion in Intelsat EpicNG backlog, provides visibility for future revenue and cash flow |
| • | Intelsat issues 2018 Guidance |
Luxembourg, 26 February 2018
Intelsat S.A. (NYSE: I), operator of the world’s first Globalized Network and leader in integrated satellite solutions, today announced financial results for the three months and full-year ended December 31, 2017.
Intelsat reported total revenue of $538.1 million and net loss attributable to Intelsat S.A. of $90.0 million for the three months ended December 31, 2017.
Intelsat reported EBITDA1, or earnings before net interest, taxes and depreciation and amortization, of $409.1 million and Adjusted EBITDA1 of $416.4 million, or 77 percent of revenue, for the three months ended December 31, 2017.
For the year ended December 31, 2017, Intelsat reported total revenue of $2,148.6 million and net loss attributable to Intelsat S.A. of $178.7 million.
Intelsat reported EBITDA of $1,629.0 million and Adjusted EBITDA of $1,664.6 million, or 77 percent of revenue, for the year ended December 31, 2017.
“Our fourth quarter financial results, $538 million in revenue and $416 million in Adjusted EBITDA, are in-line with our 2017 annual guidance,” said Stephen Spengler, Chief Executive Officer, Intelsat. “In delivering on our expectation for Adjusted EBITDA for the year, we demonstrated our discipline with respect to expenses and managing cash flows. Our business results, combined with the successful extension of our $3.1 billion secured term loan maturity to 2023 and 2024, provide a solid foundation as we implement our 2018 business plan.”
Mr. Spengler continued, “Our goals in 2018 capitalize upon the better performance and economics associated with the services delivered by our high-throughput satellite Intelsat EpicNG fleet. Our position will be further enhanced by completion of the Intelsat EpicNG global deployment, which is planned to occur later this year with the launch of the Asia Pacific-oriented Horizons 3e satellite. We developed our 2018 initiatives to drive stability in our business sectors while accelerating the introduction of new end-to-end service capabilities. As we continue to innovate in technologies that support entry to new segments, we will expand the opportunity set for our Company and create new revenue streams to support growth.”
Fourth Quarter and Full-Year 2017 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.
Total Company revenue for the three months ended December 31, 2017 was $538.1 million, a decrease of 2 percent, as compared to the three months ended December 31, 2016. Total Company revenue for the year ended December 31, 2017 was $2,148.6 million, a decrease of 2 percent, as compared to the year ended December 31, 2016.
Network Services
Network services revenue was $212.2 million (or 39 percent of Intelsat’s total revenue) for the three months ended December 31, 2017, a decrease of 4 percent compared to the three months ended December 31, 2016. For the year ended December 31, 2017, the Company reported total network services revenue of $851.6 million (or 40 percent of Intelsat’s total revenue), a decrease of 5 percent compared to the year ended December 31, 2016.
Media
Media revenue was $226.2 million (or 42 percent of Intelsat’s total revenue) for the three months ended December 31, 2017, a decrease of 1 percent compared to the three months ended December 31, 2016. For the year ended December 31, 2017, the Company reported total media revenue of $910.1 million (or 42 percent of Intelsat’s total revenue), an increase of 5 percent compared to the year ended December 31, 2016.
Government
Government revenue was $90.1 million (or 17 percent of Intelsat’s total revenue) for the three months ended December 31, 2017, a decrease of 3 percent compared to the three months ended December 31, 2016. For the year ended December 31, 2017, total government revenue was $352.6 million (or 16 percent of Intelsat’s total revenue), a decline of 9 percent compared to the year ended December 31, 2016.
Average Fill Rate
Intelsat’s average fill rate at December 31, 2017 on our approximately 1,950 station-kept wide-beam transponders was 79 percent, as compared to an average fill rate at September 30, 2017 of 78 percent on 2,025 transponders, reflecting the reclassification of two satellites into inclined orbit operations. High-throughput satellite Intelsat EpicNG capacity was unchanged from the third quarter of 2017 at approximately 825 units. Intelsat 37e, launched in September 2017, is planned for entry into service in the first quarter of 2018.
2
Satellite Launches
Intelsat has two satellite launches scheduled for 2018. Intelsat 38 is planned to launch in the second quarter of 2018, and Horizons 3e is planned to launch in the third to fourth quarters of 2018. For additional details regarding our satellite investment program, see our Quarterly Commentary.
Contracted Backlog
At December 31, 2017, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $7.8 billion, as compared to $7.9 billion at September 30, 2017.
Capital Structure Updates and Debt Transactions
On November 27, 2017, our subsidiary, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), entered into an amendment and joinder agreement, which further amended the Intelsat Jackson Secured Credit Agreement. The amendment extended the maturity date of $2.0 billion of the existing floating rate B-2 Tranche of Term Loans (the “B-3 Tranche Term Loans”), to November 27, 2023.
On January 2, 2018, Intelsat Jackson entered into an amendment and joinder agreement, which further amended the Intelsat Jackson Secured Credit Agreement, extending the maturity date of the remaining $1.095 billion B-2 Tranche Term Loans, through the creation of (i) a new incremental floating rate tranche of term loans with a principal amount of $395.0 million (the “B-4 Tranche Term Loans”), and (ii) a new incremental fixed rate tranche of term loans with a principal amount of $700.0 million (the “B-5 Tranche Term Loans”). The maturity date of the B-4 Tranche Term Loans and the B-5 Tranche Term Loans is January 2, 2024.
The B-3 Tranche Term Loans have an applicable interest rate margin of 3.75% for LIBOR loans and 2.75% for base rate loans, among other terms. The B-4 Tranche Term Loans have an applicable interest rate margin of 4.50% per annum for LIBOR loans and 3.50% per annum for base rate loans, and the B-5 Tranche Term Loans have an interest rate of 6.625% per annum.
Expected Impact of Accounting Standards Codification Topic 606
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which will supersede the revenue recognition requirements in FASB ASC Topic 605 – Revenue Recognition. Based on our assessment, the adoption of the new standard will impact the total consideration for prepayment contracts, accounting of incremental costs for obtaining a contract, allocation of the transaction price to performance obligations in multiple element arrangements, our accounting for contract modifications, and will require additional disclosures.
We will adopt the new revenue standard effective January 1, 2018, using the modified retrospective transition method applied to contracts which were still in service at that date. The most significant adjustments to our reported results will be related to contracts with a significant financing component, typically with respect to our long-term contracts for which a prepayment was received, which will result in an increase in revenue and an increase in interest expense, both of which are non-cash. We expect the change to our revenue and interest expense in 2018 as a result to be an increase of approximately $100 million to $105 million in revenue and approximately $110 million to $115 million in interest expense.
3
A complete discussion, including adjustments related to other revenue, expense and balance sheet accounts for the expected impacts of ASC 606, will be provided in our Annual Report on Form 20-F for the year ended December 31, 2017, and in our Quarterly Commentary, both expected to be available today. We expect to identify the effects of ASC 606 in our upcoming 2018 quarterly financial discussions to accommodate same basis period-over-period comparisons.
Implications of U.S. Tax Code Changes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.
We accounted for the tax effects of the Act in our 2017 financial statements by re-measuring the deferred taxes of our U.S. subsidiaries to reflect the lower tax rate. This resulted in a $28 million non-cash income tax benefit.
The Act introduced some additional changes to the U.S. tax rules which we are currently evaluating. As we are a Luxembourg-domiciled company, any impact of these new rules should be limited to our U.S. operations.
Financial Results for the Three Months Ended December 31, 2017
On-Network revenues generally include revenue from any services delivered via our satellite or ground network. Off-Network and Other revenues generally include revenue from transponder services, mobile satellite services (“MSS”) and other satellite-based transmission services using capacity procured from other operators, often in frequencies not available on our network. Off-Network and Other revenues also include revenue from consulting and other services and sales of customer premises equipment.
Total On-Network Revenues reported a decline of $17.1 million, or 3 percent, to $487.1 million as compared to the three months ended December 31, 2016:
| • | Transponder services reported an aggregate decrease of $12.9 million, primarily due to a $9.3 million decrease in revenue from network services customers and a $4.9 million decrease in revenue from media customers, partially offset by a $1.3 million increase from revenues for government applications. The network services decline was mainly due to non-renewals with wireless operators terminating services on wide-beam assets, in some cases for point-to-point connectivity as has been previously discussed. These were offset somewhat by increases in mobility services on new assets for aeronautical and maritime customers, of which $3.1 million represented delayed billings. The media decrease resulted primarily from reduced revenue from non-renewals for direct-to-home (“DTH”) services in Latin America, due to the relocation of a satellite asset, and lower revenue from distribution services in Europe, partially offset by DTH growth in the Asia-Pacific region and distribution growth in the North America region. |
| • | Managed services reported an aggregate decrease of $3.5 million, primarily due to a decrease of $5.0 million from network services customers largely for point-to-point trunking applications switching to fiber alternatives, and a $3.4 million decrease in revenue related to the previously announced end of a government maritime contract, partially offset by an increase of $4.6 million in revenue from network services managed broadband solutions for mobility applications and managed services for video applications. |
4
Total Off-Network and Other Revenues reported an aggregate increase of $4.5 million, or an increase of 10 percent, to $51.0 million as compared to the three months ended December 31, 2016:
| • | Transponder, MSS and other Off-Network services reported an aggregate increase of $3.0 million, primarily due to recurring service fees related to media and network services customers and increased sales of MSS. |
| • | Satellite-related services reported an aggregate increase of $1.5 million, primarily due to approximately $2.4 million in revenues earned for the completion of a third-party satellite orbit-raising project and other professional services, offset somewhat by lower revenue from government-related professional services. |
For the three months ended December 31, 2017, changes in operating expenses, interest expense, net, and other significant income statement items are described below.
Direct costs of revenue (excluding depreciation and amortization) decreased by $6.6 million, or 8 percent, to $80.2 million for the three months ended December 31, 2017, as compared to the three months ended December 31, 2016. The decrease was primarily due to a decline of $5.6 million in staff-related expenses, as well as a decrease of $1.3 million in satellite-related insurance costs. Lower costs of off-network satellite capacity were largely offset by increased cost of goods sold related to customer premises equipment, both of which are related to our government business.
Selling, general and administrative expenses decreased by $4.5 million, or 8 percent, to $51.7 million for the three months ended December 31, 2017 as compared to the three months ended December 31, 2016. This was primarily due to a decrease of $8.8 million in staff-related expenses, partially offset by an increase of $4.1 million in professional fees largely due to our liability management initiatives.
Depreciation and amortization expense decreased by $1.6 million, or 1 percent, to $172.4 million, as compared to the three months ended December 31, 2016.
Interest expense, net consists of the interest expense we incur together with gains and losses on interest rate caps (which reflect net interest accrued on the interest rate caps as well as 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, 2017, we held interest rate caps 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 $21.0 million, or 9 percent, to $264.6 million for the three months ended December 31, 2017, as compared to $243.6 million in the three months ended December 31, 2016. The increase was principally due to a net increase of $14.8 million in interest expense largely resulting from refinancings at higher interest rates, which was partially offset by certain debt repurchases and exchanges in 2016 and 2017, and a net increase of $5.2 million resulting from lower capitalized interest of $14.1 million for the three months ended December 31, 2017, as compared to $19.3 million for the three months ended December 31, 2016, primarily resulting from a decreased number of satellites and related assets under construction.
5
The non-cash portion of total interest expense, net was $12.5 million for the three months ended December 31, 2017, due to the amortization of deferred financing fees and the accretion and amortization of discounts and premiums.
Gain on early extinguishment of debt did not exist in the three months ended December 31, 2017, as compared to a gain of $679.1 million for the three months ended December 31, 2016. The gains were related to certain debt transactions that occurred during 2016. The gains on early extinguishment of debt consisted of the difference between the carrying value of the debt exchanged and the fair value of the debt issued, if applicable, 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 $2.8 million for the three months ended December 31, 2017, as compared to other expense, net of $1.0 million for the three months ended December 31, 2016. The variance of $3.8 million was primarily driven by $1.1 million in foreign exchange fluctuation related to our business conducted in Brazilian reais and Euros, and a $2.7 million increase in other miscellaneous income related to activities that are not associated with our core operations.
Provision for income taxes was $61.0 million for the three months ended December 31, 2017, as compared to $4.4 million for the three months ended December 31, 2016. The increase in expense was principally due to valuation allowances recorded in the three months ended December 31, 2017 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 Act enacted on December 22, 2017.
Cash paid for income taxes, net of refunds, totaled $3.3 million and $4.7 million for the three months ended December 31, 2017 and 2016, 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 $90.0 million for the three months ended December 31, 2017, compared to net income of $662.8 million for the same period in 2016, during which we recognized a $679.1 million gain on extinguishment of debt.
Net loss per diluted common share attributable to Intelsat S.A. was $0.75 for the three months ended December 31, 2017, compared to net income of $5.56 per diluted common share for the same period in 2016.
EBITDA was $409.1 million for the three months ended December 31, 2017, compared to $406.7 million for the same period in 2016.
Adjusted EBITDA was $416.4 million for the three months ended December 31, 2017, or 77 percent of revenue, compared to $417.4 million, or 76 percent of revenue, for the same period in 2016.
6
Intelsat management has reviewed the data pertaining to the use of the Intelsat network, and is providing revenue information with respect to that use by customer set and service type in the following tables. Intelsat management believes this provides a useful perspective on the changes in revenue and customer trends over time.
By Customer Set
($ in thousands)
| Three Months Ended December 31, |
Three Months Ended December 31, |
|||||||||||||||
| 2016 | 2017 | |||||||||||||||
| Network Services |
$ | 221,947 | 40 | % | $ | 212,238 | 39 | % | ||||||||
| Media |
228,353 | 42 | % | 226,218 | 42 | % | ||||||||||
| Government |
93,211 | 17 | % | 90,117 | 17 | % | ||||||||||
| Other |
7,183 | 1 | % | 9,567 | 2 | % | ||||||||||
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| $ | 550,694 | 100 | % | $ | 538,140 | 100 | % | |||||||||
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By Service Type
| Three Months Ended December 31, |
Three Months Ended December 31, |
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| 2016 | 2017 | |||||||||||||||
| On-Network Revenues |
||||||||||||||||
| Transponder services |
$ | 397,924 | 72 | % | $ | 385,020 | 72 | % | ||||||||
| Managed services |
104,288 | 19 | % | 100,766 | 19 | % | ||||||||||
| Channel services |
1,934 | 0 | % | 1,306 | 0 | % | ||||||||||
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| Total on-network revenues |
504,146 | 92 | % | 487,092 | 91 | % | ||||||||||
| Off-Network and Other Revenues |
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| Transponder, MSS and other off-network services |
35,770 | 6 | % | 38,757 | 7 | % | ||||||||||
| Satellite-related services |
10,778 | 2 | % | 12,291 | 2 | % | ||||||||||
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| Total off-network and other revenues |
46,548 | 8 | % | 51,048 | 9 | % | ||||||||||
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| Total |
$ | 550,694 | 100 | % | $ | 538,140 | 100 | % | ||||||||
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7
Free Cash Flow Used in Operations
Free cash flow used in operations1 was $35.4 million for the three months ended December 31, 2017. Free cash flow from (used in) operations is defined as net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest) from investing activities and payments for satellites from financing activities. Payments for satellites and other property and equipment from investing activities during the three months ended December 31, 2017 was $57.5 million.
Financial Outlook 2018
Today, Intelsat issued its 2018 financial outlook. The guidance detailed below excludes the expected financial statement impact of ASC 606 summarized above. As we implement ASC 606, we will provide supplementary disclosure on a quarterly basis to allow for same basis period-over-period comparisons. For more information on Intelsat’s plan to implement ASC 606, please see Expected Impact of Accounting Standards Codification Topic 606, above, and in our Quarterly Commentary issued today.
Revenue: We expect full-year 2018 revenue in a range of $2.060 billion to $2.110 billion. In addition, in 2018 we intend to reclassify $16 million in expected revenue from network services to our government customer set due to clarification of end-use applications. This change is reflected in our full-year 2018 customer set revenue expectations, as follows:
| • | Stable to a decline of 3 percent in revenue from our media business; |
| • | A decline of 5 percent to 8 percent in revenue from our network services business; and |
| • | An increase of 2 percent to a decline of 1 percent in revenue from our government business. |
Adjusted EBITDA: Intelsat forecasts Adjusted EBITDA performance for the full-year 2018 to be in a range of $1.560 billion to $1.605 billion.
Cash Taxes: We are currently evaluating the impact of the recently enacted U.S. tax reform. We expect to provide cash tax guidance later this year. Please see the section above “Implications of U.S. Tax Code Changes.”
Capital Expenditures: Intelsat issued its 2018 capital expenditure guidance for the three calendar years 2018 through 2020 (the “Guidance Period”). Over the next three years we are in a cycle of lower than average required investment due to timing of replacement satellites and smaller satellites being built.
We expect the following capital expenditure ranges:
| • | 2018: $375 million to $425 million; |
| • | 2019: $425 million to $500 million; and |
| • | 2020: $375 million to $475 million. |
Capital expenditure guidance for 2018 through 2020 assumes investment in seven satellites, three of which are in the design and manufacturing phase, or recently launched. The remaining four satellites are replacement satellites for which manufacturing contracts have not yet been signed. In addition to our satellites funded through capital expenditures, we plan to launch two partnership satellites in 2018.
8
By early 2019, we plan to have completed the investment program in the current series of Intelsat EpicNG high-throughput satellites and payloads, thereby increasing our total transmission capacity. By the conclusion of the Guidance Period at the end of 2020, the net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of approximately 5 percent, reflecting the net activity of satellites entering and leaving service during the Guidance Period.
Our capital expenditure guidance includes capitalized interest, which is expected to average approximately $40 million annually over the Guidance Period.
| 1 | In this release, financial measures are presented both in accordance with U.S. GAAP and also on a non-U.S. GAAP basis. EBITDA, Adjusted EBITDA (or “AEBITDA”), free cash flow from (used in) operations and related margins included in this release are non-U.S. GAAP financial measures. Please see the consolidated financial information below for information reconciling non-U.S. GAAP financial measures to comparable U.S. GAAP financial measures. |
Q4 and Full-Year 2017 Quarterly Commentary
Intelsat provides a detailed Quarterly Commentary on the Company’s business trends and performance. Please visit www.intelsat.com/investors for management’s commentary on the Company’s progress against its operational priorities and financial outlook.
Conference Call Information
Intelsat management will hold a public conference call at 8:30 a.m. ET on Monday, February 26, 2018 to discuss the Company’s financial results for the quarter and full-year ended December 31, 2017. Access to the live conference call will also be available via the Internet at www.intelsat.com/investors. To participate on the live call, participants should dial +1 (844) 834-1428 from North America, and +1 (920) 663-6274 from all other locations. The participant pass code is 5496327.
Participants will have access to a replay of the conference call through March 5, 2018. The replay number for North America is +1 855-859-2056, and for all other locations is +1 404-537-3406. The participant pass code for the replay is 5496327.
About Intelsat
Intelsat S.A. (NYSE: I) operates the world’s first Globalized Network, delivering high-quality, cost-effective video and broadband services anywhere in the world. Intelsat’s Globalized Network combines the world’s largest satellite backbone with terrestrial infrastructure, managed services and an open, interoperable architecture to enable customers to drive revenue and reach through a new generation of network services. Thousands of organizations serving billions of people worldwide rely on Intelsat to provide ubiquitous broadband connectivity, multi-format video broadcasting, secure satellite communications and seamless mobility services. The end result is an entirely new world, one that allows us to envision the impossible, connect without boundaries and transform the ways in which we live. For more information, visit www.intelsat.com.
9
Intelsat Safe Harbor Statement:
Some of the information and statements contained in this earnings release and certain oral statements made from time to time by representatives of Intelsat constitute “forward-looking statements” that do not directly or exclusively relate to historical facts. When used in this earnings release, the words “may,” “will,” “might,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “intend,” “potential,” “outlook,” and “continue,” and the negative of these terms, and other similar expressions are intended to identify forward-looking statements and information. Examples of these forward-looking statements include, but are not limited to, statements regarding the following: our expectation that the launches of our satellites in the future will position us for growth; our plans for satellite launches in the near to mid-term; our intention to maximize the value of our spectrum rights, including the pursuit of partnerships to optimize new satellite business cases and the exploration of joint-use of certain spectrum with the wireless sector in certain geographies; our guidance regarding our expectations for our revenue performance and Adjusted EBITDA performance; our capital expenditure guidance over the next several years; our belief that the scale of our fleet can reduce the financial impact of satellite or launch failures and protect against service interruptions; our belief that the diversity of our revenue and customer base allows us to recognize trends across regions and capture new growth opportunities; our expectation that developing differentiated services and investing in new technology will allow us to unlock essential opportunities; our expectations as to the increased number of transponder equivalents on our fleet over the next several years; and our expectations as to the level of our cash tax payments in the future. The forward-looking statements reflect Intelsat’s intentions, plans, expectations, anticipations, projections, estimations, predictions, outlook, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside of Intelsat’s control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Some of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements include: risks associated with operating our in-orbit satellites; satellite anomalies, launch failures, satellite launch and construction delays and in-orbit failures or reduced performance; potential changes in the number of companies offering commercial satellite launch services and the number of commercial satellite launch opportunities available in any given time period that could impact our ability to timely schedule future launches and the prices we pay for such launches; our ability to obtain new satellite insurance policies with financially viable insurance carriers on commercially reasonable terms or at all, as well as the ability of our insurance carriers to fulfill their obligations; possible future losses on satellites that are not adequately covered by insurance; U.S. and other government regulation; changes in our contracted backlog or expected contracted backlog for future services; pricing pressure and overcapacity in the markets in which we compete; our ability to access capital markets for debt or equity; the competitive environment in which we operate; customer defaults on their obligations to us; our international operations and other uncertainties associated with doing business internationally; and litigation. Known risks include, among others: the risks described in Intelsat’s Annual Report on Form 20-F for the year ended December 31, 2017 and its other filings with the U.S. Securities and Exchange Commission; the political, economic and legal conditions in the markets we are targeting for communications services or in which we operate; and other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular. Because actual results could differ materially from Intelsat’s intentions, plans, expectations, anticipations, projections, estimations, predictions, outlook, assumptions and beliefs about the future, you are urged to view all forward-looking statements with caution. Intelsat does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
10
INTELSAT S.A.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
| Three Months Ended December 31, 2016 |
Three Months Ended December 31, 2017 |
|||||||
| Revenue |
$ | 550,694 | $ | 538,140 | ||||
| Operating expenses: |
||||||||
| Direct costs of revenue (excluding depreciation and amortization) |
86,813 | 80,213 | ||||||
| Selling, general and administrative |
56,153 | 51,672 | ||||||
| Depreciation and amortization |
174,023 | 172,440 | ||||||
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| Total operating expenses |
316,989 | 304,325 | ||||||
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|
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| Income from operations |
233,705 | 233,815 | ||||||
| Interest expense, net |
243,565 | 264,590 | ||||||
| Gain on early extinguishment of debt |
679,130 | — | ||||||
| Other income (expense), net |
(1,018 | ) | 2,824 | |||||
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| Income (loss) before income taxes |
668,252 | (27,951 | ) | |||||
| Provision for income taxes |
4,449 | 61,005 | ||||||
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| Net income (loss) |
663,803 | (88,956 | ) | |||||
| Net income attributable to noncontrolling interest |
(983 | ) | (995 | ) | ||||
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| Net income (loss) attributable to Intelsat S.A. |
$ | 662,820 | $ | (89,951 | ) | |||
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|
|||||
| Net income (loss) per common share attributable to Intelsat S.A.: |
||||||||
| Basic |
$ | 5.62 | $ | (0.75 | ) | |||
| Diluted |
$ | 5.56 | $ | (0.75 | ) | |||
11
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
| Year Ended December 31, 2016 |
Year Ended December 31, 2017 |
|||||||
| (unaudited) | ||||||||
| Revenue |
$ | 2,188,047 | $ | 2,148,612 | ||||
| Operating expenses: |
||||||||
| Direct costs of revenue (excluding depreciation and amortization) |
341,147 | 322,216 | ||||||
| Selling, general and administrative |
231,397 | 204,015 | ||||||
| Depreciation and amortization |
694,891 | 707,824 | ||||||
|
|
|
|
|
|||||
| Total operating expenses |
1,267,435 | 1,234,055 | ||||||
|
|
|
|
|
|||||
| Income from operations |
920,612 | 914,557 | ||||||
| Interest expense, net |
938,501 | 1,020,770 | ||||||
| Gain (loss) on early extinguishment of debt |
1,030,092 | (4,109 | ) | |||||
| Other income (expense), net |
(2,105 | ) | 6,638 | |||||
|
|
|
|
|
|||||
| Income (loss) before income taxes |
1,010,098 | (103,684 | ) | |||||
| Provision for income taxes |
15,986 | 71,130 | ||||||
|
|
|
|
|
|||||
| Net income (loss) |
994,112 | (174,814 | ) | |||||
| Net income attributable to noncontrolling interest |
(3,915 | ) | (3,914 | ) | ||||
|
|
|
|
|
|||||
| Net income (loss) attributable to Intelsat S.A. |
$ | 990,197 | $ | (178,728 | ) | |||
|
|
|
|
|
|||||
| Net income (loss) per common share attributable to Intelsat S.A.: |
||||||||
| Basic |
$ | 8.65 | $ | (1.50 | ) | |||
| Diluted |
$ | 8.36 | $ | (1.50 | ) | |||
12
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
($ in thousands)
| Three Months Ended December 31, 2016 |
Three Months Ended December 31, 2017 |
Year Ended December 31, 2016 |
Year Ended December 31, 2017 |
|||||||||||||
| Net income (loss) |
$ | 663,803 | $ | (88,956 | ) | $ | 994,112 | $ | (174,814 | ) | ||||||
| Add (Subtract): |
||||||||||||||||
| Interest expense, net |
243,565 | 264,590 | 938,501 | 1,020,770 | ||||||||||||
| Loss (gain) on early extinguishment of debt |
(679,130 | ) | — | (1,030,092 | ) | 4,109 | ||||||||||
| Provision for income taxes |
4,449 | 61,005 | 15,986 | 71,130 | ||||||||||||
| Depreciation and amortization |
174,023 | 172,440 | 694,891 | 707,824 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
$ | 406,710 | $ | 409,079 | $ | 1,613,398 | $ | 1,629,019 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA Margin |
74% | 76% | 74% | 76% | ||||||||||||
Note:
Intelsat calculates a measure called EBITDA to assess the operating performance of Intelsat S.A. EBITDA consists of earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization. Given our high level of leverage, refinancing activities are a frequent part of our efforts to manage our costs of borrowing. Accordingly, we consider gain on early extinguishment of debt an element of interest expense. EBITDA is a measure commonly used in the Fixed Satellite Services (“FSS”) sector, and we present EBITDA to enhance the understanding of our operating performance. We use EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and financial analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.
EBITDA is not a measure of financial performance under U.S. GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. EBITDA should not be considered as an alternative to operating income (loss) or net income (loss), determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
13
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
($ in thousands)
| Three Months Ended December 31, 2016 |
Three Months Ended December 31, 2017 |
Year Ended December 31, 2016 |
Year Ended December 31, 2017 |
|||||||||||||
| Net income (loss) |
$ | 663,803 | $ | (88,956 | ) | $ | 994,112 | $ | (174,814 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Add (Subtract): |
||||||||||||||||
| Interest expense, net |
243,565 | 264,590 | 938,501 | 1,020,770 | ||||||||||||
| Loss (gain) on early extinguishment of debt |
(679,130 | ) | — | (1,030,092 | ) | 4,109 | ||||||||||
| Provision for income taxes |
4,449 | 61,005 | 15,986 | 71,130 | ||||||||||||
| Depreciation and amortization |
174,023 | 172,440 | 694,891 | 707,824 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| EBITDA |
406,710 | 409,079 | 1,613,398 | 1,629,019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Add: |
||||||||||||||||
| Compensation and benefits |
5,194 | 2,147 | 23,222 | 15,995 | ||||||||||||
| Unrealized (gain) on derivatives |
— | (732 | ) | — | (732 | ) | ||||||||||
| Non-recurring and other non-cash items |
5,486 | 5,904 | 14,050 | 20,321 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA |
$ | 417,390 | $ | 416,398 | $ | 1,650,670 | $ | 1,664,603 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted EBITDA Margin |
76% | 77% | 75% | 77% | ||||||||||||
Note:
Intelsat calculates a measure called Adjusted EBITDA to assess the operating performance of Intelsat S.A. Adjusted EBITDA consists of EBITDA as adjusted to exclude or include certain unusual items, certain other operating expense items and certain other adjustments as described in the table above. Our management believes that the presentation of Adjusted EBITDA provides useful information to investors, lenders and financial analysts regarding our financial condition and results of operations, because it permits clearer comparability of our operating performance between periods. By excluding the potential volatility related to the timing and extent of non-operating activities, our management believes that Adjusted EBITDA provides a useful means of evaluating the success of our operating activities. We also use Adjusted EBITDA, together with other appropriate metrics, to set goals for and measure the operating performance of our business, and it is one of the principal measures we use to evaluate our management’s performance in determining compensation under our incentive compensation plans. Adjusted EBITDA measures have been used historically by investors, lenders and financial analysts to estimate the value of a company, to make informed investment decisions and to evaluate performance. Our management believes that the inclusion of Adjusted EBITDA facilitates comparison of our results with those of companies having different capital structures.
Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, and our Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA should not be considered as an alternative to operating income (loss) or net income (loss), determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
14
INTELSAT S.A.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)
| As of December 31, 2016 |
As of December 31, 2017 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 666,024 | $ | 525,215 | ||||
| Restricted cash |
— | 16,176 | ||||||
| Receivables, net of allowances of $54,744 in 2016 and $29,669 in 2017 |
203,036 | 221,223 | ||||||
| Prepaid expenses and other current assets |
55,908 | 56,862 | ||||||
|
|
|
|
|
|||||
| Total current assets |
924,968 | 819,476 | ||||||
| Satellites and other property and equipment, net |
6,185,842 | 5,923,619 | ||||||
| Goodwill |
2,620,627 | 2,620,627 | ||||||
| Non-amortizable intangible assets |
2,452,900 | 2,452,900 | ||||||
| Amortizable intangible assets, net |
391,838 | 349,584 | ||||||
| Other assets |
365,834 | 443,830 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 12,942,009 | $ | 12,610,036 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 215,987 | $ | 116,396 | ||||
| Taxes payable |
16,733 | 12,007 | ||||||
| Employee related liabilities |
50,178 | 29,328 | ||||||
| Accrued interest payable |
204,840 | 263,207 | ||||||
| Current portion of long-term debt |
— | 96,572 | ||||||
| Deferred satellite performance incentives |
23,455 | 25,780 | ||||||
| Deferred revenue |
157,684 | 149,749 | ||||||
| Other current liabilities |
64,786 | 47,287 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
733,663 | 740,326 | ||||||
| Long-term debt, net of current portion |
14,198,084 | 14,112,086 | ||||||
| Deferred satellite performance incentives, net of current portion |
210,706 | 215,352 | ||||||
| Deferred revenue, net of current portion |
906,744 | 794,707 | ||||||
| Deferred income taxes |
168,445 | 48,434 | ||||||
| Accrued retirement benefits |
186,284 | 191,079 | ||||||
| Other long-term liabilities |
148,081 | 296,616 | ||||||
| Shareholders’ deficit: |
||||||||
| Common shares; nominal value $0.01 per share |
1,180 | 1,196 | ||||||
| Paid-in capital |
2,156,911 | 2,173,367 | ||||||
| Accumulated deficit |
(5,715,931 | ) | (5,894,659 | ) | ||||
| Accumulated other comprehensive loss |
(76,305 | ) | (87,774 | ) | ||||
|
|
|
|
|
|||||
| Total Intelsat S.A. shareholders’ deficit |
(3,634,145 | ) | (3,807,870 | ) | ||||
| Noncontrolling interest |
24,147 | 19,306 | ||||||
|
|
|
|
|
|||||
| Total liabilities and shareholders’ deficit |
$ | 12,942,009 | $ | 12,610,036 | ||||
|
|
|
|
|
|||||
15
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
| Year Ended December 31, 2016 |
Year Ended December 31, 2017 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 994,112 | $ | (174,814 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
694,891 | 707,824 | ||||||
| Provision for doubtful accounts |
24,591 | (4,094 | ) | |||||
| Foreign currency transaction gain |
(3,300 | ) | (876 | ) | ||||
| Loss on disposal of assets |
20 | 45 | ||||||
| Share-based compensation |
23,222 | 15,995 | ||||||
| Deferred income taxes |
(9,737 | ) | 43,931 | |||||
| Amortization of discount, premium, issuance costs and related costs |
24,622 | 48,696 | ||||||
| (Gain) loss on early extinguishment of debt |
(1,030,092 | ) | 4,109 | |||||
| Unrealized (gains) losses on derivative financial instruments |
(764 | ) | 275 | |||||
| Amortization of actuarial loss and prior service credits for retirement benefits |
3,361 | 3,287 | ||||||
| Other non-cash items |
1,186 | (287 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables |
6,478 | (14,333 | ) | |||||
| Prepaid expenses and other assets |
(51,321 | ) | (24,776 | ) | ||||
| Accounts payable and accrued liabilities |
35,850 | (42,337 | ) | |||||
| Accrued interest payable |
47,065 | 58,367 | ||||||
| Deferred revenue |
(58,796 | ) | (134,577 | ) | ||||
| Accrued retirement benefits |
(9,385 | ) | (13,422 | ) | ||||
| Other long-term liabilities |
(8,497 | ) | (8,783 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
683,506 | 464,230 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Payments for satellites and other property and equipment (including capitalized interest) |
(714,570 | ) | (461,627 | ) | ||||
| Purchase of cost method investments |
(4,000 | ) | (25,744 | ) | ||||
| Capital contribution to unconsolidated affiliate |
(12,019 | ) | (30,714 | ) | ||||
| Proceeds from insurance settlements |
— | 49,788 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(730,589 | ) | (468,297 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of long-term debt |
1,250,000 | 1,500,000 | ||||||
| Repayments of long-term debt |
(328,944 | ) | (1,500,000 | ) | ||||
| Debt issuance costs |
(38,393 | ) | (41,237 | ) | ||||
| Payment of premium on early extinguishment of debt |
(32 | ) | — | |||||
| Payments on tender, debt exchange and consent |
(293,276 | ) | (14 | ) | ||||
| Dividends paid to preferred shareholders |
(4,959 | ) | — | |||||
| Other payments for satellites |
(18,333 | ) | (35,396 | ) | ||||
| Principal payments on deferred satellite performance incentives |
(17,429 | ) | (37,186 | ) | ||||
| Dividends paid to noncontrolling interest |
(8,980 | ) | (8,755 | ) | ||||
| Restricted cash for collateral |
— | (16,160 | ) | |||||
| Other financing activities |
1,942 | 890 | ||||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
541,596 | (137,858 | ) | |||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
(30 | ) | 1,116 | |||||
|
|
|
|
|
|||||
| Net change in cash and cash equivalents |
494,483 | (140,809 | ) | |||||
| Cash and cash equivalents, beginning of period |
171,541 | 666,024 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 666,024 | $ | 525,215 | ||||
|
|
|
|
|
|||||
| Supplemental cash flow information: |
||||||||
| Interest paid, net of amounts capitalized |
$ | 870,370 | $ | 915,627 | ||||
| Income taxes paid, net of refunds |
22,687 | 33,731 | ||||||
| Supplemental disclosure of non-cash investing activities: |
||||||||
| Accrued capital expenditures and payments for satellites |
$ | 127,008 | $ | 38,450 | ||||
| Capitalization of deferred satellite performance incentives |
69,909 | 44,445 | ||||||
| Supplemental disclosure of non-cash financing activities: |
||||||||
| Debt financing and restricted cash received |
$ | 480,200 | $ | — | ||||
| Restricted cash used |
(480,200 | ) | — | |||||
| Repayment of long-term debt |
1,468,401 | — | ||||||
| Issuance of long-term debt |
(731,884 | ) | — | |||||
| Discount on long-term debt |
212,660 | — | ||||||
| Write-off of debt issuance costs |
(9,253 | ) | — | |||||
| Restricted cash - letters of credit collateral |
— | 16,160 | ||||||
16
INTELSAT S.A.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
| Three Months Ended December 31, 2016 |
Three Months Ended December 31, 2017 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 663,803 | $ | (88,956 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
174,023 | 172,440 | ||||||
| Provision for doubtful accounts |
(1,562 | ) | 1,797 | |||||
| Foreign currency transaction loss |
841 | 1,487 | ||||||
| Loss on disposal of assets |
20 | 19 | ||||||
| Share-based compensation |
5,194 | 2,147 | ||||||
| Deferred income taxes |
(1,225 | ) | 54,541 | |||||
| Amortization of discount, premium, issuance costs and related costs |
6,979 | 12,505 | ||||||
| Gain on early extinguishment of debt |
(679,130 | ) | — | |||||
| Unrealized losses on derivative financial instruments |
— | 275 | ||||||
| Amortization of actuarial loss and prior service credits for retirement benefits |
840 | 750 | ||||||
| Other non-cash items |
19 | 14 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables |
11,043 | (28,944 | ) | |||||
| Prepaid expenses and other assets |
(11,491 | ) | (22,993 | ) | ||||
| Accounts payable and accrued liabilities |
39,231 | 1,110 | ||||||
| Accrued interest payable |
(95,993 | ) | (31,823 | ) | ||||
| Deferred revenue |
(21,279 | ) | (49,305 | ) | ||||
| Accrued retirement benefits |
(2,237 | ) | (2,877 | ) | ||||
| Other long-term liabilities |
(1,565 | ) | (49 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
87,511 | 22,138 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Payments for satellites and other property and equipment (including capitalized interest) |
(94,099 | ) | (57,505 | ) | ||||
| Purchase of cost method investments |
— | (9,744 | ) | |||||
| Capital contributions to unconsolidated affiliate |
(5,341 | ) | (7,359 | ) | ||||
| Proceeds from insurance settlements |
— | 21,437 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(99,440 | ) | (53,171 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Repayments of long-term debt |
(375 | ) | — | |||||
| Payment of premium on on early extinguishment of debt |
(32 | ) | — | |||||
| Debt issuance costs |
(12,584 | ) | (20,049 | ) | ||||
| Payments on tender, debt exchange, and consent |
(259,267 | ) | — | |||||
| Principal payments on deferred satellite performance incentives |
(4,695 | ) | (3,210 | ) | ||||
| Dividends paid to noncontrolling interest |
(2,215 | ) | (2,159 | ) | ||||
| Restricted cash for collateral |
— | 1,370 | ||||||
| Other financing activities |
— | 212 | ||||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(279,168 | ) | (23,836 | ) | ||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
(746 | ) | (610 | ) | ||||
|
|
|
|
|
|||||
| Net change in cash and cash equivalents |
(291,843 | ) | (55,479 | ) | ||||
| Cash and cash equivalents, beginning of period |
957,867 | 580,694 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 666,024 | $ | 525,215 | ||||
|
|
|
|
|
|||||
| Supplemental cash flow information: |
||||||||
| Interest paid, net of amounts capitalized |
$ | 333,057 | $ | 283,951 | ||||
| Income taxes paid, net of refunds |
4,707 | 3,337 | ||||||
| Supplemental disclosure of non-cash investing activities: |
||||||||
| Accrued capital expenditures and payments for satellites |
$ | 62,673 | $ | 21,156 | ||||
| Supplemental disclosure of non-cash financing activities: |
||||||||
| Repayment of long-term debt |
$ | 1,468,401 | $ | — | ||||
| Issuance of long-term debt |
(731,884 | ) | — | |||||
| Discount on long-term debt |
212,660 | — | ||||||
| Write-off of debt issuance costs |
(9,253 | ) | — | |||||
| Restricted cash - letters of credit collateral |
— | (1,370 | ) | |||||
17
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW USED IN OPERATIONS
($ in thousands)
| Three Months Ended December 31, 2016 |
Three Months Ended December 31, 2017 |
Year Ended December 31, 2016 |
Year Ended December 31, 2017 |
|||||||||||||
| Net cash provided by operating activities |
$ | 87,511 | $ | 22,138 | $ | 683,506 | $ | 464,230 | ||||||||
| Payments for satellites and other property and equipment (including capitalized interest) |
(94,099 | ) | (57,505 | ) | (714,570 | ) | (461,627 | ) | ||||||||
| Payments for satellites from financing activities |
— | — | (18,333 | ) | (35,396 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Free cash flow used in operations |
$ | (6,588 | ) | $ | (35,367 | ) | $ | (49,397 | ) | $ | (32,793 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
Note:
Free cash flow from (used in) operations consists of net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest) from investing activities and payments for satellites from financing activities. Free cash flow from (used in) operations is not a measurement of cash flow under U.S. GAAP. Intelsat believes free cash flow from (used in) operations is a useful measure of financial performance that shows a company’s ability to fund its operations. Free cash flow from (used in) operations is used by Intelsat in comparing its performance to that of its peers and is commonly used by financial analysts and investors in assessing performance. Free cash flow from (used in) operations does not give effect to cash used for debt service requirements and thus does not reflect funds available for investment or other discretionary uses. Free cash flow from (used in) operations is not a measure of financial performance under U.S. GAAP, and free cash flow from (used in) operations may not be comparable to similarly titled measures of other companies. You should not consider free cash flow from (used in) operations as an alternative to operating income (loss) or net income (loss), determined in accordance with U.S. GAAP, as an indicator of Intelsat’s operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
18
Exhibit 99.2
Quarterly Commentary
Fourth Quarter and Full-Year Ended
December 31, 2017
February 26, 2018
Fourth Quarter and Full-Year 2017 Performance Summary
Our performance in the fourth quarter of 2017 was in line with our expectations. In the fourth quarter, we advanced our operating priorities, including the orbit-raising of our fifth next-generation Intelsat EpicNG satellite, Intelsat 37e, building significant new business on our Intelsat EpicNG fleet, activating our IntelsatOne® Flex managed services platform and optimizing use of our orbital rights. We completed the amendment and refinancing of the Secured Term Loan Facility of our subsidiary Intelsat Jackson Holdings S.A., with extended maturities through 2023 and 2024, strengthening our financial foundation.
Fourth quarter 2017 revenue was $538 million, a 2 percent decline as compared to revenue of $551 million in the fourth quarter of 2016. Fourth quarter revenue included approximately $10 million in project completions and other unusual business, including certain technical services and fees related to third-party satellites, a hardware sale to government customers and delayed mobility billings. Net loss attributable to Intelsat S.A. was $90.0 million for the fourth quarter of 2017, as compared to net income attributable to Intelsat S.A. of $663 million in the fourth quarter of 2016, which included a sizeable gain on the extinguishment of debt. Adjusted EBITDA1, or earnings before interest, taxes, depreciation and amortization, of $416 million, or 77 percent of revenue, was essentially unchanged from $417 million, or 76 percent of revenue, in the fourth quarter of 2016.
Full-year 2017 revenue was $2,149 million, a 2 percent decline as compared to revenue of $2,188 million in 2016. Net loss attributable to Intelsat S.A. was $178.7 million for the full-year of 2017, reflecting higher interest expense as compared to the prior year period. Adjusted EBITDA of $1,665 million, or 77 percent of revenue, increased by 2 percent from $1,651 million, or 75 percent of revenue, for the full-year of 2016. The favorable Adjusted EBITDA and Adjusted EBITDA margin reflect unusually low bad debt expense and disciplined expense control related to staffing and other operating expenses, somewhat offsetting the lower full-year revenue.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Factors reflected in the year-over-year results include: lower pricing associated with high volume commitments on high-throughput capacity in certain regions and applications; reduced volume from non-renewing data services, inclusive of point-to-point telecommunications infrastructure services moving to fiber alternatives; and the previously reported end of a U.S. government contract. These trends were partially offset as new satellites entered service and we gained new business over the course of the year.
Contracted backlog at December 31, 2017 was $7.8 billion, representing expected future revenue under existing contracts with customers, as compared to $7.9 billion at September 30, 2017. At approximately 3.6 times trailing 12 months revenue (from January 1, 2017 to December 31, 2017), our backlog remains sizable; we believe it provides a solid foundation for predictable cash flow and investment in our business. Nearly two-thirds of our backlog is related to our longer term media contracts. Approximately $1.0 billion of our December 31, 2017 backlog is related to our contracts for our Intelsat EpicNG high-throughput fleet.
2018 Operational Priorities: Drive revenue stability and invest for growth, leveraging all assets and advancing our managed services and technology innovations to expand our market opportunities.
Our plan includes four operational priorities in 2018 which are designed to provide a stable foundation, developing new revenue sources that can provide growth in the near- to mid-term.
| 1. | Leverage all assets within the Intelsat global network for maximum return. Further our momentum on our new assets and capture pre-launch commitments. Build on our market-leading neighborhoods, expansive ground network, growing managed services platform and strong commercial and government customer relationships to capture growth. Provide sector leadership by protecting and optimizing our spectrum rights, ensuring continued reliability of our services while securing appropriate compensation for joint use and opportunity loss. |
| • | Contract momentum on the Intelsat EpicNG high-throughput satellites (“HTS”) shifted to the Asia-Pacific region in advance of the anticipated launch of our joint venture satellite, Horizons 3e, in the fourth quarter of 2018. Intelsat signed a significant, long-term agreement with a leading Asian wireless operator for a fully-managed solution for use in expanding its wireless infrastructure and enhancing disaster recovery capabilities, as detailed further below, in 4Q17 Business Highlights: Network Services. |
| • | In the fourth quarter of 2017, Intelsat signed approximately 25 additional Intelsat EpicNG agreements with commercial and government customers, spanning applications including mobility, enterprise and fixed and wireless infrastructure. Of the total megahertz contracted this quarter, the majority was incremental business, with the mobile network operator sector providing most growth. Contract terms on the entire Intelsat EpicNG fleet continue to be favorable, with the average contract length on growth services over 5 years, longer than that of the average fleet-wide network services contract. The Intelsat EpicNG backlog is comprised of approximately 190 customers at year-end 2017, with approximately $1.25 billion in total contract value signed inception-to-year-end 2017. |
2
Intelsat S.A.
Quarterly Commentary, 4Q 2017
| • | Intelsat and Intel Corporation continue to progress their C-band Joint Use Proposal presented to the United States Federal Communications Commission (“FCC”), including the announcement on February 9, 2018 that SES Global had joined the proposal. Under the proposal, portions of the C-band spectrum in the 3.7-4.2 GHz range currently assigned to fixed satellite services operators in the United States would be made available for joint use with the wireless sector through a market-based solution managed by a satellite sector-led consortium. Intelsat continues to meet with relevant parties, including mobile operators and regulators, to advocate for our commercial framework that would result in an efficient and timely process should the FCC implement the proposal. |
| 2. | Scale our IntelsatOne® Flex and other managed services across targeted commercial and government opportunities, including new services for growing applications and building strategic partnerships to amplify our marketing efforts. |
| • | Intelsat announced that maritime broadband services provider, KVH Industries, Inc. (“KVH”), tripled its commitment to the IntelsatOne® Flex platform. KVH’s mini-VSAT Broadband service is being marketed globally as a higher performance broadband maritime service for fleet services, supporting applications as diverse as voice and data, IP-MobileCast content delivery and video training. |
| 3. | Lead the industry in seamless implementation of satellite-based telecommunications solutions with the global telecommunications infrastructure. Invest in and develop innovative terminals and ground hardware, and participate in standards development, to realize Intelsat’s vision of simplified access and expanded use of satellite solutions. |
| • | In November 2017, Dejero Labs, Inc. (“Dejero”) announced a minority equity investment from Intelsat S.A. Dejero’s technology blends satellite services with wireless and other transmission media for a seamless, robust infrastructure. In August 2017, Intelsat and Dejero introduced the CellSat service, a blended cellular and Ku-band IP solution that provides newscasters the bandwidth to report live from virtually anywhere, regardless of ground network congestion. |
| 4. | Pursue continued financial discipline to maximize flexibility during a period of continued business transition. |
| • | In early January 2018, Intelsat announced it had committed for a second mission extension vehicle (“MEV”) with Orbital ATK, for a mission expected to launch in 2019, extending satellite life and providing revenue continuity, resulting in deferred capital expenditures. |
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
4Q 2017 Business Highlights and Customer Set Performance
All 2017 comparisons are to 2016 unless noted otherwise
As compared to the third quarter of 2017, network services revenue increased slightly, with growth in broadband mobility applications due to $3.1 million in delayed billings and other new business starts more than offsetting slight declines in international trunking services.
Fourth Quarter Network Services Highlights and Business Trends:
Intelsat continues to build backlog commitments for our next generation Intelsat EpicNG fleet, while also booking new business and renewals on our wide-beam assets. In the fourth quarter of 2017, we successfully expanded the Intelsat EpicNG position in wireless network infrastructure with important contracts for services in the Asia-Pacific region and Africa. Contracts in the wireless sector included:
| • | One of Asia’s leading mobile network operators signed a significant contract, with a term in excess of ten years for an Intelsat fully-managed solution to upgrade and expand infrastructure across the mobile operator’s service territory. The contract also features services leveraging satellite’s ability to provide near-instant infrastructure when re-establishing connectivity following natural disasters. Services will initially be provided with a combination of on-network and off-network services, ultimately migrating to Horizons 3e, our joint venture project and sixth Intelsat EpicNG satellite, which is planned for launch in the fourth quarter of 2018. |
| • | Orange SA signed a new contract for services on four Intelsat satellites serving the Africa region, including Intelsat 33e, to reinforce and expand its 2G and 3G wireless infrastructure in the Democratic Republic of Congo, as well as to support enterprise and mobility applications. The high performance and greater efficiencies generated by the Intelsat EpicNG satellites will ensure high service availability and help accelerate Orange’s expansion of its network into the more remote regions of the country. |
| • | Gilat Satellite Networks, a worldwide leader in satellite networking technology, solutions and services, selected Intelsat to provide broadband infrastructure services for network solutions for premier U.S. mobile network operators. Gilat integrates Intelsat’s Ku-band capacity into a solution supporting and accelerating the expansion of 4G networks into rural areas across North America. |
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Enterprise networks—large private data networks that use satellite solutions because of geographic reach, efficient broadcast transmissions and reliability—represent one of the largest applications within our network services business. Enterprise contracts signed in the fourth quarter of 2017 include:
| • | Saudi Telecom, which signed a multi-year renewal of existing services as well as a multi-transponder commitment for incremental services on two Intelsat satellites. Saudi Telecom will use the services to provide enterprise network solutions and consumer broadband services. |
Mobility services, which provide broadband connectivity to planes and ocean vessels, are fast growing applications which use our wide-beam satellites, Intelsat EpicNG satellites, and our IntelsatOne® Flex managed services. Mobility contracts signed in the fourth quarter include:
| • | KVH signed a new, multi-year contract, more than tripling its original commitment to the IntelsatOne® Flex Maritime platform. KVH is utilizing IntelsatOne® Flex across all 14 geographic regions covered by the maritime platform, which leverages the global Intelsat EpicNG infrastructure. Intelsat is also providing services via its IntelsatOne® teleport and terrestrial network, which will allow KVH to customize the delivery of its service across regions and fleet types. |
| • | Intelsat signed a multi-year renewal for satellite services to support aeronautical broadband services over Africa. The global network infrastructure for this aeronautical services provider incorporates services from 21 Intelsat satellites as well as the IntelsatOne® terrestrial platform. |
On a global basis, growth opportunities for our network services business include increased demand for aeronautical and maritime mobility applications, and high-throughput capacity for fixed and mobile broadband applications for telecommunications providers and enterprise networks.
Although high-performance capacity, such as that provided by Intelsat EpicNG, is an important element of capturing this growth, our customers also need managed services, such as our IntelsatOne® Flex services, that simplify network buildouts in the HTS environment. Customers also seek smaller, more capable, site hardware that is easier to install and operate.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Business activity was driven primarily by renewing contracts related to Intelsat’s media distribution neighborhoods in North America and Eastern Europe.
| • | Romania Cable Systems and Romania Data Systems S.A. (“RCS & RDS”), a leading direct-to-home (“DTH”) video content provider in Eastern Europe, signed a multi-year, multi-transponder renewal with Intelsat for services at 1ºW. RCS & RDS originally launched its service at the 1ºW neighborhood in 2004. It subsequently expanded its lineup via services on Intelsat 1002 and the Thor 5 and Intelsat 1W satellites, which share the 1ºW orbital slot. This neighborhood serves approximately 18 million DTH and cable homes throughout Central and Eastern Europe and the Nordic Region. |
| • | North America’s A&E and Lifetime Networks renewed contracts on Intelsat’s Galaxy fleet for distribution services into the next decade. Using Intelsat’s leading North American Galaxy cable distribution neighborhood, the A&E and Lifetime Networks began distributing content in MPEG4 several years ago. |
Our next media satellite will be Intelsat 38, currently planned for launch in the second quarter of 2018, which is primarily designed to replace capacity for an existing Intelsat satellite as well as provide growth capacity for DTH applications operating at that orbital location. In 2018, our priorities for our media business include building growth on our new media neighborhood in Latin America on Intelsat 14 and broadening our partnership with Dejero beyond CellSat to other applications.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
As compared to the third quarter of 2017, revenue increased by $6 million, or 7 percent, primarily due to a $3 million customer premises equipment sale.
On-Network revenue represented 60 percent of government services in the fourth quarter of 2017, as compared to 61 percent in the fourth quarter of 2016.
Fourth Quarter Government Highlights and Business Trends:
Revenues from our government business in 2017 were relatively stable, excluding the effects of the contract termination discussed above. The pace of RFP issuances and subsequent awards for new programs remains slow although modestly improved from 2017 levels.
We note continued reliance on LPTA (lowest price, technically acceptable) as the predominant evaluation criteria for awards of new transponder services contracts.
| • | Fourth quarter 2017 activity included contract extensions and renewals comprised of approximately 40 services representing nearly 850 MHz of on- and off-network capacity. |
| • | In early 2018, we signed a five-year strategic agreement with a government contractor to provide all of its satellite requirements for major programs, both on-network and off-network. |
Approximately 15 percent of our 2017 annual revenues will be subject to renewal and replacement in 2018, which could result in pricing pressure depending upon the solution required and region served, especially given the increasing reliance by the U.S. government on LPTA. Over the mid-term, our strategy to grow our government business includes providing mobility services to the U.S. government for aeronautical and ground mobile requirements, leveraging our next generation Intelsat EpicNG HTS services that are now activated in regions of interest to the U.S. government.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Fleet and Operations Update
Intelsat’s average fill rate on our approximately 1,950 station-kept wide-beam transponders was 79 percent at December 31, 2017, reflecting the classification of two satellites into inclined orbit operations.
As of December 31, 2017, the HTS Intelsat EpicNG unit count was approximately 825 units in service, with no new satellites entering service in the fourth quarter. Intelsat 37e is nearing the end of its drift and in-orbit testing, and is planned to enter service in the first quarter of 2018.
Intelsat currently has seven satellites covered by our 2018 to 2020 capital expenditure plan, three of which are in the design and manufacturing phase or recently launched. The remaining four satellites are replacement satellites, for which manufacturing contracts have not yet been signed. In addition, we are working on one custom payload being built on a third-party satellite and a separate joint venture satellite which do not require capital expenditures, each noted below as a “Non-Capex Satellite.”
Our fleet plan includes the use of MEVs to extend the operational life of two of our wide-beam satellites, which reduces overall capital expenditures in the near- to mid-term, but will increase operating expenses as each MEV enters service.
Our owned satellites, third-party payloads and a joint venture project currently in the design and manufacturing stages are noted below. Intelsat EpicNG-class satellites are noted with a small “e” following the satellite number.
| Estimated | Estimated | |||||||||||
| Orbital | Launch | In-Service | ||||||||||
| Satellite |
Follows | Location | Launch Provider |
Date | Date | Application | ||||||
| Intelsat 37e |
IS-901 | 342°E | Arianespace Ariane 5 | Launched Sept. 29, 2017 |
March 2018 | Broadband Infrastructure | ||||||
| Intelsat 39 |
IS-902 | 62°E | Arianespace Ariane 5 | 2019 | 2019 | Broadband Infrastructure | ||||||
| Galaxy 30 |
G-14 | 235°E | Arianespace Ariane 5 | 2020 | 2020 | Media, Broadband | ||||||
| Estimated | Estimated | |||||||||||
| Non-Capex | Orbital | Launch | In-Service | |||||||||
| Satellite |
Follows | Location | Launch Provider |
Date | Date | Application | ||||||
| Intelsat 38 |
IS-904, G-11 | 45°E | Arianespace Ariane 5 | 2Q18 | 3Q18 | Media, Broadband | ||||||
| Horizons 3e |
IS-805 | 169°E | Arianespace Ariane 5 | 4Q18 | 1Q19 | Broadband Infrastructure | ||||||
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Cash Flows
During the fourth quarter of 2017, net cash provided by operating activities was $22 million. Cash paid for interest was $284 million. Under our existing debt agreements, Intelsat makes significantly greater interest payments in the second and fourth quarters as compared to the first and third quarters of the year.
Capital expenditures were $58 million, resulting in free cash flow used in operations1 of $35 million for the fourth quarter of 2017.
Our ending cash balance at December 31, 2017 was $525 million.
Capital Markets and Debt Transactions
In the fourth quarter, Intelsat conducted a number of capital markets transactions, with the objective of enhancing liquidity, addressing maturities and capturing value for our shareholders.
On November 27, 2017, our subsidiary, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), entered into an amendment and joinder agreement, which amended the Intelsat Jackson Secured Credit Agreement. The amendment extended the maturity date of $2.0 billion of the existing floating rate B-2 Tranche Term Loans (the “B-3 Tranche Term Loans”) to November 27, 2023.
On January 2, 2018, Intelsat Jackson entered into another amendment and joinder agreement, which further amended the Intelsat Jackson Secured Credit Agreement, refinancing the remaining $1.095 billion B-2 Tranche Term Loans, through the creation of (i) a new incremental floating rate tranche of term loans with a principal amount of $395.0 million (the “B-4 Tranche Term Loans”), and (ii) a new incremental fixed rate tranche of term loans with a principal amount of $700.0 million (the “B-5 Tranche Term Loans”). The maturity date of the B-4 Tranche Term Loans and the B-5 Tranche Term Loans is January 2, 2024.
The B-3 Tranche Term Loans have an applicable interest rate margin of 3.75% for LIBOR loans and 2.75% for base rate loans, among other terms. The B-4 Tranche Term Loans have an applicable interest rate margin of 4.50% per annum for LIBOR loans and 3.50% per annum for base rate loans, and the B-5 Tranche Term Loans have an interest rate of 6.625% per annum.
As of December 31, 2017, we held interest rate caps, effective in February 2018, with an aggregate notional value of $2.4 billion to mitigate the risk of interest rate expense increase on the floating-rate term loans under our Intelsat Jackson senior secured credit facilities.
We continue to look for opportunities to enhance our capital structure through ongoing liability management initiatives.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Proposed Implementation and Expected 2018 Impact of New Revenue Recognition Rules
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which will supersede the revenue recognition requirements in FASB ASC Topic 605 – Revenue Recognition.
We will adopt the new revenue standard effective January 1, 2018, using the modified retrospective transition method applied to contracts which were still in service at that date.
The most significant adjustments to our reported results will be related to contracts with a significant financing component, typically with respect to our long-term contracts for which a pre-payment was received, which will result in an increase in revenue and an increase in interest expense, both of which are non-cash. Only a small portion of our total contracts require accounting changes as a result of implementing ASC 606.
We expect the change in 2018 to be an increase of $100 million to $105 million in revenue and $110 million to $115 million in interest expense. Should there be amendments or terminations of the relevant underlying contracts, or should we enter into additional long-term agreements with significant prepayments, we will update this assessment.
Our opening balance sheet in 2018 is currently expected to reflect the following adjustments relating to ASC 606:
| Prepayment Contracts: | a $345 million to $355 million increase in Accumulated Deficit | |
| Multiple element arrangements: | a $5 million to $15 million decrease in Accumulated Deficit | |
| Contract acquisition costs: | a $5 million to $10 million decrease in Accumulated Deficit | |
We do not intend to restate historical results. Instead, we plan to facilitate same-basis comparisons by providing supplementary material in our future earnings releases, quarterly commentaries and quarterly reports on Form 6-K.
A complete discussion of ASC 606, including adjustments related to other revenue categories and the balance sheet, is provided in our Annual Report on Form 20-F for the year-ended December 31, 2017, expected to be filed on 26 February 2018.
Implications of U.S. Tax Code Changes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.
We accounted for the tax effects of the Act in our 2017 financial statements by re-measuring the deferred taxes of our U.S. subsidiaries to reflect the lower tax rate. This resulted in a $28 million non-cash income tax benefit.
The Act introduced some additional changes to the U.S. tax rules which we are currently evaluating. As we are a Luxembourg-domiciled company, any impact of these new rules should be limited to our U.S. operations.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
2018 Outlook & Guidance
Business Environment: Our backlog provides the foundation for our revenue assumptions. Total backlog at December 31, 2017 was $7.8 billion. Our beginning of year backlog for 2018 was $1.8 billion, a decline of approximately $50 million as compared to the beginning of year backlog for 2017.
Over the course of 2017 we had three new Intelsat EpicNG satellites enter service; another satellite is expected to enter service in the first quarter of 2018. These satellites, which are designed to support lower price points, provide valuable new inventory that supports our strategic goals. In the early months of service, revenue uptake on certain of these satellites has been slower than we originally anticipated. The new revenues from our Intelsat EpicNG fleet are moderated by pressures described below that remain in our traditional wide-beam business, although we expect these pressures to lessen gradually over time:
| • | Our analyses indicate that price conditions are generally stable, with modest pricing pressures in certain regions, particularly for network services applications. High volume mobility applications remain the most price sensitive, with price declines experienced in competition over the past year. |
| • | Certain of our network services business is contracted at lower prices when renewed. We have approximately $275 million of legacy network services backlog that was last contracted prior to January 2015. Our forecast assumes that our revenues will be reduced as we renew portions of this backlog at current market rates. We continue to experience some volume reductions in network services due to certain services reaching end of lifecycle, specifically point-to-point trunking services, which can now be more economically delivered by fiber. Approximately $55 million of international trunking services remained in our backlog at the beginning of 2018. |
| • | A modest portion of our government revenue stream is expected to be renewed over the course of 2018 and could encounter lower prices in certain circumstances given the U.S. government’s trend toward more use of lowest price, technically acceptable (LPTA) procurement practices, depending upon the region being served and technical requirements. |
| • | Continuing geo-economic conditions, which require increased accruals for bad debt expense or result in portfolio renegotiations. |
| • | A small portion of our North American media contracts is expected to be renewed over the course of 2018 and 2019 with customers that are considering the use of MPEG4 compression technology. This could result in lower committed volumes of services in 2019 and beyond. In 2017, continental U.S. media distribution services represented 7 percent of total Company revenue. |
These trends should be partially offset by several factors that are expected to have a positive impact on our business in 2018:
| • | Contracted and new revenues which are expected to build over the course of 2018 related to our broadband, mobility and government businesses on our Intelsat EpicNG and other satellites. |
| • | Contracted and new revenues from our IntelsatOne® Flex data services, and managed media services. |
| • | Incremental revenue opportunities on our new media neighborhood in Latin America, Intelsat 14, and on the Intelsat 38 satellite, which is planned for launch in the second quarter of 2018 and which includes modest growth capacity. |
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
Revenue Guidance: We expect full-year 2018 revenue in a range of $2.060 billion to $2.110 billion. In addition, in 2018 we intend to reclassify $16 million in expected revenue from network services to our government customer set due to clarification of end-use applications. This change is reflected in our full-year 2018 customer set revenue expectations, as follows:
| • | Stable to a decline of 3 percent in our media business; |
| • | A decline of 5 percent to 8 percent in our network services business; and |
| • | An increase of 2 percent to a decline of 1 percent in our government business. |
Adjusted EBITDA Guidance: Intelsat forecasts Adjusted EBITDA performance for the full-year 2018 to be in a range of $1.560 billion to $1.605 billion. This reflects normalized bad debt costs, as compared to a benefit provided by bad debt recovery in 2017, as well as slightly higher staff costs as compared to 2017. We remain disciplined with respect to operating expenses and the support of cash flow.
The above guidance excludes the expected impact of ASC 606, summarized above. As we implement ASC 606, we will provide supplementary disclosure on a quarterly basis to allow for same basis period-over-period comparisons.
Cash Taxes: We are currently evaluating the impact of the recently enacted U.S. tax reform. We expect to be able to provide cash tax guidance later this year. Please see the section above “Implications of U.S. Tax Code Changes.”
Capital Expenditure Guidance:
Over the next three 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:
| • | 2018: $375 million to $425 million; |
| • | 2019: $425 million to $500 million; and |
| • | 2020: $375 million to $475 million. |
Capital expenditure guidance for 2018 through 2020 (the “Guidance Period”), assumes investment in seven satellites, including a satellite launched in 2017, during the Guidance Period. We plan to launch two satellites in 2018, both of which are partnership satellites and do not require capital expenditures. We plan to launch one fully-owned satellite in 2019, and will continue work on five remaining satellites, four of which are expected to launch during the Guidance Period.
By early 2019, we plan to have completed the investment program in the current series of Intelsat EpicNG HTS and payloads, thereby increasing our total transmission capacity. By the conclusion of the Guidance Period at the end of 2020, the net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of approximately 5 percent, reflecting the net activity of satellites entering and leaving service during the Guidance Period.
Our capital expenditure guidance includes capitalized interest. Capitalized interest is expected to average approximately $40 million annually during the Guidance Period.
Stephen Spengler, Chief Executive Officer, Intelsat S.A.
Jacques Kerrest, Executive Vice President and Chief Financial Officer, Intelsat S.A.
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Intelsat S.A.
Quarterly Commentary, 4Q 2017
| 1 | In this quarterly commentary, financial measures are presented both in accordance with U.S. GAAP and also on a non-U.S. GAAP basis. EBITDA, Adjusted EBITDA (“AEBITDA”), free cash flow from (used in) operations and related margins included in this commentary are non-U.S. GAAP financial measures. Please see the consolidated financial information found in our earnings release and available on our website for information reconciling non-U.S. GAAP financial measures to comparable U.S. GAAP financial measures. |
Safe Harbor Statement
Some of the information and statements contained in this quarterly commentary and certain oral statements made from time to time by representatives of Intelsat constitute “forward-looking statements” that do not directly or exclusively relate to historical facts. When used in this earnings release, the words “may,” “will,” “might,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “intend,” “potential,” “outlook,” and “continue,” and the negative of these terms, and other similar expressions are intended to identify forward-looking statements and information. Examples of these forward-looking statements include, but are not limited to, statements regarding the following: our expectation that the launches of our satellites in the future will position us for growth; our plans for satellite launches in the near to mid-term; our intention to maximize the value of our spectrum rights, including the pursuit of partnerships to optimize new satellite business cases and the exploration of joint-use of certain spectrum with the wireless sector in certain geographies; our guidance regarding our expectations for our revenue performance and Adjusted EBITDA performance; our capital expenditure guidance over the next several years; our belief that the scale of our fleet can reduce the financial impact of satellite or launch failures and protect against service interruptions; our belief that the diversity of our revenue and customer base allow us to recognize trends across regions and capture new growth opportunities; our expectation that developing differentiated services and investing in new technology will allow us to unlock essential opportunities; our expectations as to the increased number of transponder equivalents on our fleet over the next several years; and our expectations as to the level of our cash tax payments in the future. The forward-looking statements reflect Intelsat’s intentions, plans, expectations, anticipations, projections, estimations, predictions, outlook, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside of Intelsat’s control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Some of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements include: risks associated with operating our in-orbit satellites; satellite anomalies, launch failures, satellite launch and construction delays and in-orbit failures or reduced performance; potential changes in the number of companies offering commercial satellite launch services and the number of commercial satellite launch opportunities available in any given time period that could impact our ability to timely schedule future launches and the prices we pay for such launches; our ability to obtain new satellite insurance policies with financially viable insurance carriers on commercially reasonable terms or at all, as well as the ability of our insurance carriers to fulfill their obligations; possible future losses on satellites that are not adequately covered by insurance; U.S. and other government regulation; changes in our contracted backlog or expected contracted backlog for future services; pricing pressure and overcapacity in the markets in which we compete; our ability to access capital markets for debt or equity; the competitive environment in which we operate; customer defaults on their obligations to us; our international operations and other uncertainties associated with doing business internationally; and litigation. Known risks include, among others: the risks described in Intelsat’s Annual Report on Form 20-F for the year ended December 31, 2017 and its other filings with the U.S. Securities and Exchange Commission; the political, economic and legal conditions in the markets we are targeting for communications services or in which we operate; and other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular. Because actual results could differ materially from Intelsat’s intentions, plans, expectations, anticipations, projections, estimations, predictions, outlook, assumptions and beliefs about the future, you are urged to view all forward-looking statements with caution. Intelsat does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Contact
Dianne VanBeber
Vice President, Investor Relations
dianne.vanbeber@intelsat.com
+1 703-559-7406
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