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Intelsat Reports First Quarter 2015 ResultsIntelsat S.A. (NYSE: I), the world's leading provider of satellite services, today reported total revenue of $602.3 million and net income attributable to Intelsat S.A. of $54.7 million, or $0.47 per common share on a diluted basis, for the three months ended March 31, 2015. The company reported adjusted net income per diluted common share1 of $0.69 for the three months ended March 31, 2015. Intelsat S.A. reported EBITDA1, or earnings before net interest, taxes and depreciation and amortization, of $460.5 million, or 76 percent of revenue, and Adjusted EBITDA1 of $470.5 million, or 78 percent of revenue, for the three months ended March 31, 2015. Intelsat CEO, Stephen Spengler, said, "Overall, with revenues of $602 million, our business is performing to our 2015 expectations, with each customer set making progress on long-term goals in the first quarter. Our network services business continues to capitalize on growth in the mobility sector, with new service starts in the period. Network services also signed a sizeable contract from an existing customer that will transition to our next generation Intelsat EpicNG platform. Our recently deployed Intelsat 30 satellite supported renewed growth in our media business. Lastly, our government business continued to earn its share of new and renewed contracts. Spengler continued, "One of our top priorities in 2015 is delivering capacity for launch. Of our satellites expected to launch over the next 12 months, our Intelsat 34, Intelsat 29e and Intelsat 31 satellite programs remain on schedule. With solid progress on our other priorities, such as ecosystem development and the introduction of new services, we are executing on our plan to create long-term growth." First Quarter 2015 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 government applications. Network Services comprised 46 percent of Intelsat's total first quarter 2015 revenue, and at $276.6 million, decreased 5 percent as compared to the first quarter of 2014. Media comprised 37 percent of the company's revenue for the quarter ended March 31, 2015, and at $224.8 million, increased 1 percent as compared to the first quarter of 2014. Government comprised 16 percent of our revenue for the quarter ended March 31, 2015, and at $94.8 million, decreased 13 percent as compared to the first quarter of 2014. Average Fill Rate Intelsat's average fill rate on our approximately 2,200 station-kept transponders was 75 percent at March 31, 2015, as compared to 77 percent at the end of the first quarter of 2014. Units under contract declined primarily due to decreases in government and Africa customer usage. Satellite Launches We have had no material change in our launch plans since our last earnings report on February 18, 2015. The next scheduled launch is Intelsat 34, which is a replacement satellite for our 304.5°E video neighborhood. We expect it to launch in the third quarter of 2015 and be in service by early 2016. Contracted Backlog At March 31, 2015, Intelsat's contracted backlog, representing expected future revenue under existing contracts with customers, was $9.7 billion, as compared to $10.0 billion at December 31, 2014. Financial Results for the Three Months ended March 31, 2015 Effective first quarter 2015, on-network services are comprised primarily of services delivered on our owned network infrastructure, as well as commitments for third-party capacity, generally long-term in nature, that we integrate and market as part of our owned infrastructure. In the case of third-party services in support of government applications, the commitments for third-party capacity are shorter and matched to the government contracting period, and thus remain classified as off-network services. Off-network services can include transponder services and other satellite-based transmission services, such as mobile satellite services ("MSS"), which are sourced from other operators, often in frequencies not available on our network. Under the category Off-Network and Other Revenues, we also include revenues from consulting and other services. In addition, effective first quarter 2015, certain revenues have been reclassified between transponder services and managed services across our customer sets in order to better reflect the nature of the underlying business. A supplemental schedule of historical revenues was prepared for the periods 2013-2014 by quarter and full year that reflects the above classification changes. The supplemental schedule is attached to our quarterly commentary issued this morning. Total On-Network Revenue decreased by $22.2 million, or 4 percent, to $552.0 million, as compared to the three months ended March 31, 2014:
Total Off-Network and Other Revenue decreased by $4.4 million, or 8 percent, to $50.3 million:
For the three month period ended March 31, 2015, changes in operating expenses, interest expense, net, and other significant income statement items are described below. Direct costs of revenue decreased by $0.3 million to $83.5 million, as compared to the three months ended March 31, 2014. The decline was mainly comprised of a decrease of $2.3 million in the cost of third-party capacity purchased related to lower sales of such services, offset by an increase of other direct costs of revenue. Selling, general and administrative expenses increased by $7.8 million, or 17 percent, to $54.7 million, as compared to the three months ended March 31, 2014. This was primarily due to a $7.6 million increase in bad debt expense. Bad debt expense was $5.1 million in the first quarter of 2015, compared to a credit of $2.6 million in the first quarter of 2014, as a result of the recovery of previously reserved balances. Depreciation and amortization expense increased by $1.8 million, or 1 percent, to $171.4 million, as compared to the three months ended March 31, 2014. This increase primarily resulted from higher depreciation due to a satellite placed in service in the fourth quarter of 2014; partially offset by certain satellites, ground equipment and other assets becoming fully depreciated and a decrease in amortization expense. Interest expense, net consists of the gross interest expense we incur together with gains and losses on interest rate swaps (which reflects net interest accrued on the interest rate swaps 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. Interest expense, net decreased by $14.8 million, or 6 percent, to $226.0 million for the three months ended March 31, 2015, as compared to $240.8 million for the three months ended March 31, 2014. The decrease in interest expense, net was principally due to the following:
The non-cash portion of interest expense, net was $5.0 million for the three months ended March 31, 2015. The non-cash interest expense consisted of the amortization of deferred financing fees incurred as a result of new or refinanced debt and the amortization and accretion of discounts and premiums. Other expense, net was $3.6 million, as compared to other income, net of $0.4 million, for the three months ended March 31, 2014. The difference of $4.0 million was primarily due to an increase in exchange rate losses mainly related to our business conducted in Brazilian reais. Provision for income taxes was $7.5 million, as compared to $5.4 million for the three months ended March 31, 2014. The difference was principally due to the recognition of certain previously unrecognized tax benefits in three months ended March 31, 2014 as a result of the conclusion of a U.S. Internal Revenue Service audit. Cash paid for income taxes, net of refunds, totaled $14.1 million for the three months ended March 31, 2015 compared to $15.5 million for the same period in 2014. EBITDA, Adjusted EBITDA, Net Income, Net Income per Diluted Common Share and Adjusted Net Income per Diluted Common Share EBITDA was $460.5 million for the three months ended March 31, 2015, as compared to $498.7 million for the same period in 2014. The decline was primarily due to lower revenue and an increase in exchange rate losses in 2015 noted above, as well as bad debt expense in 2015, compared to a credit in 2014. Adjusted EBITDA was $470.5 million for the three months ended March 31, 2015, or 78 percent of revenue, compared to $505.8 million, or 80 percent of revenue, for the same period in 2014. Net income attributable to Intelsat S.A. was $54.7 million for the three months ended March 31, 2015, compared to net income of $81.9 million for the same period in 2014, reflecting the various items discussed above. Net income per diluted common share attributable to Intelsat S.A. was $0.47 for the three months ended March 31, 2015, compared to net income per diluted common share of $0.70 for the same period in 2014. Adjusted net income per diluted common share attributable to Intelsat S.A. was $0.69 for the three months ended March 31, 2015, compared to $0.92 for the same period in 2014. 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.
Free Cash Flow from Operations Free cash flow from operations1 was $199.4 million during the three months ended March 31, 2015. Free cash flow from operations is defined as net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest). Payments for satellites and other property and equipment during the three months ended March 31, 2015, totaled $187.0 million. Cash and cash equivalents at March 31, 2015 was $258.7 million. Financial Outlook 2015 Today, Intelsat reaffirmed in all material respects its 2015 financial outlook previously provided in February 2015, in which the company expects the following: Revenue: Intelsat forecasts full year 2015 revenue of $2.330 billion to $2.380 billion. Adjusted EBITDA: Intelsat forecasts Adjusted EBITDA performance for the full year 2015 to be in a range of $1.81 billion to $1.86 billion. Capital Expenditures: We expect capital expenditures ranges of:
Capital expenditure guidance assumes investment in twelve satellites in the concept, design or manufacturing phase for the three calendar year "Guidance Period" of 2015 through 2017. In addition, two custom payloads are being built for us on third-party satellites, which will not require capital expenditure. Of the twelve satellites in our capital expenditure guidance, we expect to launch one satellite in 2015, four satellites in 2016, and one satellite in 2017, and will continue work on the six remaining satellites for which construction will extend beyond the Guidance Period. We expect to launch two of our new Intelsat EpicNG high-throughput satellites in 2016, increasing our total transmission capacity. By the conclusion of the Guidance Period in 2017, the net number of transponder equivalents will increase by a compound annual growth rate (CAGR) of 7.5 percent as a result of the satellites entering service during the Guidance Period. The growth also includes capacity from one of the customized payloads noted above which we expect will be launched in 2016. Our capital expenditures guidance includes capitalized interest. Prepayments: During the Guidance Period, we expect to receive significant customer prepayments under our existing customer service contracts. We expect prepayment ranges of:
The annual classification of capital expenditure and prepayments could be affected by the timing of achievement of contract, satellite manufacturing, launch and other milestones. Prepayments during the three months ended March 31, 2015 totaled $42.9 million. Debt Reduction: As was previously disclosed, Intelsat made a $49 million revolver repayment in early 2015. Based upon the guidance provided above, Intelsat expects no further material debt repayment in 2015. Cash Taxes: Expected to be approximately 1.5 percent of revenue for each of the next several years. - - - - - - - - - - - - - - - - - - - - - - - - - - 1In this release, financial measures are presented both in accordance with GAAP and also on a non-GAAP basis. EBITDA, Adjusted EBITDA, free cash flow from operations, Adjusted net income per diluted common share attributable to Intelsat S.A. and related margins included in this release are non-GAAP financial measures. Please see the consolidated financial information below for information reconciling non-GAAP financial measures to comparable GAAP financial measures. Q1 2015 Quarterly Commentary As previously announced, Intelsat is providing a detailed quarterly commentary on the company's business trends and financial performance prior to the live earnings call. Please visit http://investors.intelsat.com for management's commentary on the company's progress against its long-term strategic priorities and outlook for 2015. Conference Call Information Intelsat management will hold a public conference call at 11:00 a.m. EDT on Thursday, April 30, 2015 to discuss the company's financial results for the first quarter ended March 31, 2015. 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 16502249. Participants will have access to a replay of the webcast and conference call through May 7, 2015. The replay number for U.S.-based participants is +1 855-859-2056 and for non-U.S. participants is +1 404-537-3406. The participant code for the replay is 16502249. About Intelsat Intelsat S.A. (NYSE: I) is the world's leading provider of satellite services, delivering high performance connectivity solutions for media, fixed and mobile broadband infrastructure, enterprise and government and military applications. Intelsat's satellite, teleport and fiber infrastructure is unmatched in the industry, setting the standard for transmissions of video and broadband services. From the globalization of content and the proliferation of HD, to the expansion of cellular networks and mobile broadband access, Intelsat creates value for its customers through creative space-based solutions. Envision…Connect…Transform…with Intelsat. For more information, visit www.intelsat.com. Intelsat Safe Harbor Statement: Statements in this news release and certain oral statements from time to time by representatives of the company 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. Forward-looking statements include: our expectation that our media business will benefit in the near to mid-term from the launch of three satellites that serve our video neighborhoods; our plans for satellite launches in the near to mid-term; our guidance regarding our expectations for our revenue performance, including in our different customer sets, and Adjusted EBITDA performance in 2015; our capital expenditure and customer prepayment guidance for 2015 and the next several years; our expectations as to the increased number of transponder equivalents on our fleet over the next several years; our expectations as to the level of our cash tax expenses over the next several years; our debt repayment guidance for 2015; and our belief that as we execute on our initiatives, we will build the inventory and service capabilities to allow us to capture future growth, including in emerging opportunities that we believe represent larger and more sustainable markets for our services. The forward-looking statements reflect Intelsat's intentions, plans, expectations, 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 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, 2014, 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, 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.
Note: Intelsat calculates a measure called EBITDA to assess the operating performance of Intelsat S.A. EBITDA consists of earnings before net interest, 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. EBITDA is a measure commonly used in the 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 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. However, 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 or net income, 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.
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 may not be comparable to similarly titled measures of other companies. Adjusted EBITDA should not be considered as an alternative to operating income or net income, 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.
Note: Free cash flow from operations consists of net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest). Free cash flow from operations excludes proceeds resulting from settlement of insurance claims, and is not a measurement of cash flow under GAAP. Intelsat believes free cash flow from operations is a useful measure of financial performance that shows a company's ability to fund its operations. Free cash flow from operations is used by Intelsat in comparing its performance to that of its peers and is commonly used by analysts and investors in assessing performance. Free cash flow from 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 operations is not a measure of financial performance under GAAP, and may not be comparable to similarly titled measures of other companies. You should not consider free cash flow from operations as an alternative to operating or net income, determined in accordance with GAAP, as an indicator of Intelsat's operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity.
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