Intelsat Announces Fourth Quarter and Full-Year 2019 Results

Luxembourg, Feb. 20, 2020-- Intelsat S.A. (NYSE: I), today announced financial results for the three months and full-year ended December 31, 2019. Intelsat reported total revenue of $517.0 million and net loss attributable to Intelsat S.A. of $115.0 million for the three months ended December 31, 2019. For the year ended December 31, 2019, Intelsat reported total revenue of $2,061.5 million and net loss attributable to Intelsat S.A. of $913.6 million.

Intelsat reported EBITDA, or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, of $356.0 million and Adjusted EBITDA¹ of $371.3 million, or 72 percent of revenue, for the three months ended December 31, 2019. Free cash flow from operations¹ was $70.2 million.

For the year ended December 31, 2019, Intelsat reported EBITDA of $1,012.8 million and Adjusted EBITDA of $1,481.5 million, or 72 percent of revenue. Free cash flow from operations was $38.8 million.

Intelsat’s Chief Executive Officer, Stephen Spengler, said, “We delivered on our 2019 plan, exceeding our guidance for full-year revenue and Adjusted EBITDA. Our fourth quarter results reflect the contributions of our new satellites as well as growing revenue streams generated by our Flex managed services, benefitting our network services business. Our media business signed a significant new direct-to-home television customer contract in Asia, while the government services business achieved important renewals that will support its stability in 2020.

Spengler concluded, “The draft order issued by the Federal Communications Commission on February 7, 2020 was a major event in the C-band proceeding. Our near-term focus is on improving the draft order proposed by the FCC, obtaining changes that would allow us to quickly clear spectrum to support 5G deployments in the U.S. while protecting the video services on which nearly 120 million American homes rely.”

Fourth Quarter and Full-Year 2019 Business Highlights

Intelsat provides critical communications infrastructure to customers in the network services, media and government sectors. Our customers use our services for broadband connectivity to deliver fixed and mobile telecommunications, enterprise, video distribution and fixed and mobile government applications.

Network Services

Network services revenue was $200.2 million (or 39 percent of Intelsat’s total revenue) for the three months ended December 31, 2019, a decrease of 1 percent compared to the three months ended December 31, 2018. The network services fourth quarter 2019 result included $7.5 million in reduced revenue related to the loss of Intelsat 29e.

Network services revenue was $770.4 million (or 37 percent of Intelsat’s total revenue) for the year ended December 31, 2019, a decrease of 3 percent compared to the year ended December 31, 2018. The network services full-year result included $22.6 million in reduced revenue related to the loss of Intelsat 29e.

Media

Media revenue was $210.6 million (or 41 percent of Intelsat’s total revenue) for the three months ended December 31, 2019, a decrease of 9 percent compared to the three months ended December 31, 2018.

Media revenue was $883.0 million (or 43 percent of Intelsat’s total revenue) for the year ended December 31, 2019, a decrease of 6 percent compared to the year ended December 31, 2018.

Government

Government revenue was $96.0 million (or 19 percent of Intelsat’s total revenue) for the three months ended December 31, 2019, a decrease of 2 percent compared to the three months ended December 31, 2018.

Government revenue was $378.3 million (or 18 percent of Intelsat’s total revenue) for the year ended December 31, 2019, a decrease of 3 percent compared to the year ended December 31, 2018.

Average Fill Rate

Intelsat’s average fill rate at December 31, 2019 on our approximately 1,800 36 MHz equivalent station-kept wide-beam transponders was 78 percent, reflecting the entry into service of a new satellite, discussed below. This compares to an average fill rate at September 30, 2019 of 80 percent on 1,750 transponders. In addition, at December 31, 2019 our fleet included approximately 1,200 36 MHz equivalent transponders of high-throughput Intelsat Epic capacity, reflecting no change from the prior quarter.

Satellite Launches and Fleet Update

Intelsat had no satellite launches in the fourth quarter of 2019. The previously launched Intelsat 39 entered into service on October 14, 2019. Intelsat 39 provides connectivity services for mobile network operators, enterprises and governmental entities, as well as aeronautical and maritime mobility service providers operating in the Europe, Africa, Middle East and Asia-Pacific regions.

On October 9, 2019, Northrop Grumman’s in-space servicing vehicle, Mission Extension Vehicle 1, or MEV-1, successfully launched with a goal of becoming the world’s first instance of on-orbit satellite servicing. The inaugural mission of MEV-1 is currently underway, featuring a historic space rendezvous and docking with Intelsat 901. The MEV-1 service is expected to provide an extension of the service life of Intelsat 901 of up to five years.

Contracted Backlog

At December 31, 2019, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $7.0 billion, as compared to $7.2 billion at September 30, 2019.

C-band Proceeding at the U.S. Federal Communications Commission

On November 18, 2019, the U.S. Federal Communications Commission  (FCC) announced a decision to pursue a public auction of the C-band spectrum currently licensed to Intelsat and other satellite operators, a change from the private market solution for which Intelsat had been advocating over the past two years.

Subsequent to year-end 2019, on February 7, 2020, the FCC issued its draft order in the C-band proceeding. The draft order sets forth proposed acceleration incentive payments to certain C-band satellite operators of $9.7 billion, of which Intelsat would receive $4.85 billion, payable in two tranches. The draft order also outlines a cost reimbursement framework that would apply to the various stakeholders in the proceeding, as well as technical specifications and other elements.

Our near-term focus is on successfully improving the draft order proposed by the FCC while preserving all our rights. There can be no assurance that the FCC will accept any of our proposed changes to the order. The next major event in this proceeding is the vote of the FCC on a final order, which is currently scheduled to occur on February 28, 2020. The final order could be issued later that day.

Financial Results for the Three Months Ended December 31, 2019

Total revenue for the three months ended December 31, 2019 decreased by $25.8 million to $517.0 million, or 5 percent as compared to the three months ended December 31, 2018. By service type, our revenues increased or decreased due to the following:

Total On-Network Revenues decreased by $33.2 million, or 7 percent, to $454.5 million as compared to the three months ended December 31, 2018 due to the following:

• Transponder services reported an aggregate decrease of $32.7 million, primarily due to a $15.8 million decrease in revenue from media customers, a $12.7 million decrease in revenue from network services customers and a $4.2 million decrease in revenue from government customers. The decline from media customers was primarily due to a reduction in revenue from direct-to-home services delivered in Eastern Europe and non-renewals of distribution services in Latin America and North America. The decline in network services was primarily due to non-renewals and service contractions for enterprise and wireless infrastructure applications, primarily for services delivered in Latin America, including $8.2 million of lower revenue stemming from the loss of the Intelsat 29e satellite, a portion of which moved to off-network transponder services. These network services declines were offset in part by increased revenues in the Asia-Pacific region supporting telecommunications infrastructure applications. The decline in on-network government services was primarily due to a reclassification of a new service from on-network to off-network, described further below.

• Managed services reported an aggregate decrease of $0.1 million. Managed services for network services customers increased by $7.1 million, related to new revenues from trunking applications and mobility services. These increases were partially offset by decreases of $4.8 million for media services, primarily related to an early contract termination reported in the third quarter of 2019, and $3.9 million resulting from the Intelsat 29e satellite loss. Managed services for government customers declined by $2.4 million, primarily resulting from non-renewals earlier in 2019 and lower pricing related to 2018 contract renewals.

Total Off-Network and Other Revenues increased by $7.4 million, or 13 percent, to $62.4 million, as compared to the three months ended December 31, 2018 due to the following:

• Transponder, MSS and other Off-Network services revenues increased by an aggregate of $8.0 million to $48.9 million, primarily due to a $3.7 million aggregate increase in off-network services for government applications, inclusive of the reclassification of a service from on-network, and a net $4.3 million increase in revenue from network services customers, largely due to a $4.6 million increase in revenues from off-network services used for restoration following the loss of the Intelsat 29e satellite.

• Satellite-related services reported a decrease of $0.6 million to $13.5 million, primarily due to a decline in professional services provided in support of third-party launch missions.

Direct costs of revenue (excluding depreciation and amortization) increased by $12.0 million, or 14 percent, to $100.6 million for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018. The increase was primarily due to an increase of $14.2 million in costs incurred in connection with two uncapitalized satellites that entered into service in 2019, as well as an increase of $4.6 million in third-party capacity costs incurred as part of the Intelsat 29e customer restoration process. Direct costs of revenue also increased by $2.6 million due to staff-related expenses. These increases were partially offset by a decrease of $7.5 million in costs largely due to a reduction in revenue share payable related to one of our joint venture satellites, and an aggregate decrease of $3.4 million in third-party costs related to our satellite-related services and network services business.

Selling, general and administrative expenses increased by $10.9 million, or 23 percent, to $58.7 million for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018. The increase was primarily due to an increase of $5.0 million in staff-related expenses, an increase of $4.6 million in bad debt expense largely related to certain customers in the Europe and Africa regions, and an increase of $2.3 million in sales and marketing expenses. These increases were partially offset by a decrease of $2.3 million in professional fees largely due to higher costs incurred in 2018 relating to liability and tax management initiatives.

Depreciation and amortization expense decreased by $12.3 million, or 7 percent, to $161.8 million for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018, primarily due to a decrease of $9.2 million in depreciation expense due to the write-off of Intelsat 29e, and a decrease of $7.4 million in depreciation expense due to the timing of certain satellites becoming fully depreciated. The decreases were partially offset by an increase of $3.1 million in depreciation expense resulting from the impact of a satellite placed in service in 2019 and an increase of $2.1 million in depreciation expense resulting from the impact of certain ground segment assets placed in service.

Interest expense, net consists of the gross interest expense we incur, together with gains and losses on interest rate cap contracts we hold (which reflect the change in their fair value), offset by interest income earned and the amount of interest we capitalize related to assets under construction. As of December 31, 2019, we held interest rate cap contracts with an aggregate notional amount of $2.4 billion to mitigate the risk of interest rate increases on the floating-rate term loans under our senior secured credit facilities. The interest rate cap contracts have not been designated as hedges for accounting purposes.

Interest expense, net decreased by $7.1 million, or 2 percent, to $319.9 million for the three months ended December 31, 2019, as compared to $327.0 million for the three months ended December 31, 2018. The decrease was principally due to:

• a decrease of $17.6 million corresponding to a lower relative decrease in fair value of the interest rate cap contracts in the fourth quarter of 2019; and
• a decrease of $2.8 million resulting from increased interest income largely due to higher cash balances; partially offset by
• a net increase of $10.0 million primarily resulting from our refinancing activities in 2018 and incremental debt raise in 2019; and
• an increase of $4.4 million from lower capitalized interest, primarily resulting from decreased levels of satellites and related assets under construction.

The non-cash portion of total interest expense, net was $41.0 million for the three months ended December 31, 2019, primarily consisting of interest expense related to the significant financing component identified in customer contracts, amortization and accretion of discounts and premiums, amortization of deferred financing fees, and the gain resulting from the increase in fair value of the interest rate cap contracts we hold.

Loss on early extinguishment of debt. No gain or loss on early extinguishment of debt was recognized for the three months ended December 31, 2019, as compared to a loss of $17.8 million for the three months ended December 31, 2018, consisting of the difference between the carrying value of debt repurchased and the total cash amount paid (including related fees and expenses), together with a write-off of unamortized debt issuance costs and debt discount and premium.

Other income (expense), net was $1.7 million of income expense, net for the three months ended December 31, 2019, as compared to other income, net of $2.2 million for the three months ended December 31, 2018. Other expense, net for the three months ended December 31, 2019 primarily consisted of a net loss of $7.3 million related to a change in value of certain investments in third parties and loans held-for-investment in 2019 with no comparative amounts in 2018, partially offset by higher foreign exchange rate fluctuation gains of $1.6 million mainly related to our business conducted in Brazilian reais and an increase of $1.8 million in other miscellaneous income not associated with our core operations.

Benefit from income taxes was $11.3 million for the three months ended December 31, 2019, as compared to an immaterial provision for income taxes for the three months ended December 31, 2018. The increase in tax benefit was principally attributable to a decrease in valuation allowance recorded for our U.S. subsidiaries, partially offset by the application of final regulations released by the U.S. Department of Treasury and the U.S. Internal Revenue Service related to the Base Erosion and Anti-Abuse Tax (“BEAT”).

Cash paid for income taxes, net of refunds, totaled $3.4 million and $24.3 million for the three months ended December 31, 2018 and 2019, respectively.

Net Income, Net Income per Diluted Common Share attributable to Intelsat S.A., EBITDA and Adjusted EBITDA

Net loss attributable to Intelsat S.A.was $115.0 million for the three months ended December 31, 2019, compared to a net loss of $111.3 million for the same period in 2018.

Net loss per diluted common share attributable to Intelsat S.A. was $0.81 for each of the three months ended December 31, 2018 and 2019.

EBITDA was $356.0 million for the three months ended December 31, 2019, compared to $408.6 million for the same period in 2018, reflecting lower revenue and higher operating costs, as described above.

Adjusted EBITDA was $371.3 million for the three months ended December 31, 2019, or 72 percent of revenue, compared to $417.9 million, or 77 percent of revenue, for the same period in 2018, reflecting lower revenue and higher operating costs, as described above.

Free Cash Flow From Operations

Net cash provided by operating activities was $92.1 million for the three months ended December 31, 2019. Free cash flow from operations was $70.2 million for the same period. Free cash flow from (used in) operations is defined as net cash provided by operating activities and other proceeds from satellites from investing activities, less payments for satellites and other property and equipment (including capitalized interest). Payments for satellites and other property and equipment from investing activities, net during the three months ended December 31, 2019 were $27.6 million, and other proceeds from satellites were $5.6 million.

Financial Outlook 2020

Revenue Guidance: We expect full-year 2020 revenue in a range of $1.930 billion to $1.980 billion.

Adjusted EBITDA Guidance: Intelsat forecasts Adjusted EBITDA performance for the full-year 2020 to be in a range of $1.340 billion to $1.390 billion. This reflects trends relating to the lower revenue and increased direct costs of revenue, staff and marketing costs outlined above.

Capital Expenditure Guidance: Intelsat issued its 2020 capital expenditure guidance for the three calendar years 2020-2022 (the “Guidance Period”). Over the next several years we are in a cycle of lower required investment, due to timing of replacement satellites and increased capital efficiency of satellites being built.

The company expect the following capital expenditure ranges:

• 2020: $200 million to $250 million;
• 2021: $225 million to $300 million; and
• 2022: $225 million to $325 million.

Capital expenditure guidance includes capitalized interest. Capitalized interest is expected to average approximately $20 million annually during the Guidance Period.

Intelsat currently has five satellites covered by our 2020 to 2022 capital expenditure plan, two of which are in the design and manufacturing phase. For the remaining three satellites, no manufacturing contracts have yet been signed. During the Guidance Period, we plan for an increased proportion of our capital expenditures to be invested in ground infrastructure and tools needed to enhance our delivery of managed services.

Intelsat's capital expenditure plan excludes satellites which we may be required to build should certain aspects of our C-band proposal to the FCC be adopted.

By the conclusion of the Guidance Period at the end of 2022, the net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of approximately 1 percent, reflecting the net activity of satellites entering and leaving service during the Guidance Period. Capital expenditure incurrence is subject to the timing of achievement of contract, satellite manufacturing, launch and other milestones.