Intelsat Posts US$120.6 Million Loss on Revenues of US$528.4 Million in First Quarter 2019

Tysons Corner, Va., May 1, 2019 — Intelsat S.A. (NYSE: I) reported today total revenues of US$ 528.4 million and net loss of US$ 120.6 million for the three months ended March 31, 2019.

Intelsat said EBITDA, or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, ofUS $ 372.8 million and Adjusted EBITDA of US$ 380.3 million, or 72 percent of revenue, for the quarter. Free cash flow from operations was US$ 24 million.

Intelsat’s CEO Stephen Spengler, said, “In the first quarter of 2019, we built momentum on our managed services strategy, which addresses new requirements in the markets we serve. We accelerated our deployment of managed services for enterprise, aeronautical and maritime applications. In the past weeks, we introduced new hybrid services for our media customers that seamlessly integrate satellite services with cloud- based solutions. Each of these managed solutions leverages the global reach of our fleet and addresses our customers’ needs for efficient and flexible connectivity.”

Spengler concluded, “In the past month we increased the transparency and provided more details of the C-Band Alliance proposal under the U.S. Federal Communications Commission C-band proceeding. We are collaborating with a number of the stakeholders in the proceeding, gaining consensus so that we can deliver to the FCC a market-based approach which is clearly recognized as the best path to protecting incumbents, while repurposing spectrum that will accelerate 5G deployment and innovation in the U.S.”

First Quarter 2019 Business Highlights

Network Services
Network services revenue was $204.3 million (or 39 percent of Intelsat’s total revenue) for the first quarter, an increase of 3 percent compared to the three months ended March 31, 2018. This increase reflects $14.3 million in accelerated revenue associated with hardware supplied and third-party services under a long-term contract subject to Accounting Standards Codification 842, Leases.

Media

Media revenue was $226 million (or 43 percent of Intelsat’s total revenue) for the quarter, a decrease of 6 percent compared to the three months ended March 31, 2018.

Government

Government revenue was $93.2 million (or 17 percent of Intelsat’s total revenue) for the first quarter 2019, a decrease of 4 percent compared to the three months ended March 31, 2018.

Average Fill Rate

Intelsat’s average fill rate at March 31, 2019 on approximately 1,750 36 MHz station-kept wide-beam transponders was 78 percent, compared to an average fill rate at December 31, 2018 of 78 percent on 1,775 transponders. In addition, at March 31, 2019 our fleet included approximately 1,475 36 MHz units of high-throughput Intelsat EpicNG capacity, compared to 1,150 units at December 31, 2018, reflecting the entry into service of Horizons 3e.

Satellite Launches

Intelsat conducted no satellite launches in the first quarter of 2019. The Horizons 3e satellite, Intelsat’s joint venture satellite with Japan’s leading satellite operator, SKY Perfect JSAT Corporation, entered service in January 2019. Horizons 3e provides over 30 Gbps of incremental throughput to Intelsat’s fleet, completing the initial buildout of the Intelsat EpicNG global high-throughput network with service coverage in the Asia-Pacific region.

Intelsat 38, a satellite carrying replacement capacity for direct-to-home platforms serving Central and Eastern Europe as well as the Asia-Pacific region, also entered service in January 2019.

Contracted Backlog

At March 31, 2019, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $7.9 billion, compared to $8.1 billion in December 2018. C-band Proceeding at the U.S. Federal Communications Commission The C-Band Alliance, of which Intelsat is a founding member, submitted two significant filings in response to the Notice of Proposed Rule Making issued by the FCC. On April 3, 2019, Intelsat and CBA partner SES filed a customer commitment letter, detailing customer transition commitments from the CBA, including costs to be funded by the CBA, should its proposal for spectrum clearing be adopted by the FCC. On April 9, 2019, the CBA filed its Transition Implementation Plan for safely migrating all current services into a reduced spectrum allocation.

Recent Events: Intelsat 29e Satellite Failure

On April 7, 2019, the Intelsat 29e satellite propulsion system experienced damage that caused a leak of the propellant on board the satellite, resulting in a service disruption to customers on the satellite. Efforts to recover the satellite were unsuccessful. Intelsat provided migration paths for the majority of the services on the satellite, with traffic being transitioned to other Intelsat capacity as well as third-party services.

As a result of the loss of the satellite, in the second quarter of 2019 Intelsat expects to record an impairment to asset charge of approximately $400 million.

Financial Results for the Three Months Ended March 31, 2019

Total revenue for the three months ended March 31, 2019 decreased by $15.3 million to $528.4 million, or a decrease of 3 percent compared to the three months ended March 31, 2018. By service type, revenues increased or decreased due to the following:

Total On-Network Revenues decreased by $26.4 million, or 5 percent, to $471.2 million as compared to the three months ended March 31, 2018 due to the following:

• Transponder services reported an aggregate decrease of $18.4 million, primarily due to a $12.7 million decrease in revenue from media customers and a $6.0 million decrease in revenue from network services customers. The decrease in media revenue was primarily related to non-renewals and volume reductions from certain customers in the North America, Latin America and Africa regions for distribution applications. The decrease in network services revenue was mainly related to declines for wide-beam wireless infrastructure and enterprise services due to non-renewals and service contractions in the Latin America region and for Europe to Africa connectivity. These declines were partially offset by increases for maritime and aeronautical mobility applications and revenue from new service starts for wireless customers in the Asia-Pacific region.
• Managed services reported an aggregate decrease of $7.5 million, primarily due to a decrease of $3.8 million in revenue from government customers resulting from non-renewals and lower pricing related to 2018 contract renewals, and a $2.9 million decrease in revenue from network services customers driven by declines for mobility broadband solutions and point-to-point trunking applications, which were partially offset by $1.8 million in net increases in revenue from managed mobility services.

Total Off-Network and Other Revenues increased by $11.1 million, or 24 percent, to $57.3 million, as compared to the three months ended March 31, 2018 due to the following:

• Transponder, MSS and other Off-Network services revenues increased by an aggregate of $14.9 million to $49.9 million, inclusive of $14.3 million in revenue recognized in the first quarter of 2019 from a network services customer as a result of the adoption of ASC 842, with no comparable amount in the first quarter of 2018.
• Satellite-related services reported a decrease of $3.8 million, to $7.4 million, due to the completion of a contract for professional services supporting third-party satellite operations in the first quarter of 2018 with no similar contracts completed in the first quarter of 2019.

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

Direct costs of revenue (excluding depreciation and amortization) increased by $22.8 million, or 28 percent, to $105.4 million for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. The increase was primarily due to $16.1 million in equipment and third-party service costs recognized in the first quarter of 2019 under ASC 842 and $6.8 million in costs related to the entry into service of two non-capex satellites in January 2019, with no comparable amounts in the first quarter of 2018.

Selling, general and administrative expenses decreased by $8.6 million, or 14 percent, to $51.7 million for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. The decrease was primarily due to a $10.3 million decline in professional fees, largely due to costs incurred in the first quarter of 2018 relating to liability management activities with no comparable amounts in 2019, partially offset by an increase of $2.8 million in staff-related expenses.

Depreciation and amortization expense increased by $4.6 million, or 3 percent, to $171.1 million for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018.

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

Interest expense, net increased by $34.1 million, or 12 percent, to $316.6 million for the three months ended March 31, 2019, as compared to $282.5 million in the three months ended March 31, 2018. The increase was principally due to:

• an increase of $30.1 million corresponding to the decrease in fair value of the interest rate cap contracts;
• an increase of $3.9 million from lower capitalized interest primarily resulting from decreased levels of satellites and related assets under construction; and
• a net increase of $2.0 million in interest expense primarily resulting from our refinancing activities in 2018.

The non-cash portion of total interest expense, net was $47.4 million for the three months ended March 31, 2019, primarily consisting of interest expense related to the significant financing component identified in our customer contracts, amortization and accretion of discounts and premiums, the loss resulting from the decrease in fair value of the interest rate cap contracts we hold and amortization of deferred financing fees.

Other income, net was $1.4 million for the three months ended March 31, 2019, as compared to other income, net of $4.4 million for the three months ended March 31, 2018. The decrease of $3 million was primarily due to $3.1 million of other lease income recognized in the three months ended March 31, 2018 with no comparable amount in 2019.

Provision for income taxes was $5.1 million for the three months ended March 31, 2019, as compared to $22.4 million for the three months ended March 31, 2018. The decrease was principally attributable to the implementation in 2018 of a series of internal transactions and related steps that reorganized the ownership of certain of our assets among our subsidiaries.

Cash paid for income taxes, net of refunds, totaled $1.9 million and $2.2 million for the three months ended March 31, 2019 and 2018, respectively.

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

Net loss attributable to Intelsat S.A. was $120.6 million for the three months ended March 31, 2019, compared to a net loss of $66.8 million for the same period in 2018, primarily due to lower revenue and higher direct cost of revenue.

Net loss per diluted common share attributable to Intelsat S.A. was $0.87 for the three months ended March 31, 2019, compared to net loss of $0.56 per diluted common share for the same period in 2018.

EBITDA was $372.8 million for the three months ended March 31, 2019, compared to $405.4 million for the same period in 2018, primarily due to lower revenue and higher direct cost of revenue.

Adjusted EBITDA was $380.3 million for the three months ended March 31, 2019, or 72 percent of revenue, compared to $418.6 million, or 77 percent of revenue, for the same period in 2018, primarily due to lower revenue and higher direct cost of revenue.

Financial Outlook 2019

Intelsat also updated its financial guidance for two other business changes that will affect the company's financial performance in 2019. These include lowered revenue expectations in media and government businesses, and higher cost of goods sold related to accounting changes creating incremental impact to Adjusted EBITDA.

Intelsat said it expects full-year 2019 revenue in a range of $2.000 billion to $2.060 billion.

Intelsat said it continues to expect the following capital expenditure ranges:

2019: $250 million to $300 million;
2020: $275 million to $350 million; and
2021: $250 million to $350 million.

It said its capital expenditure guidance includes capitalized interest. Capitalized interest is expected to average approximately $30 million annually during the Guidance Period.

Intelsat currently has five satellites covered by its 2019 to 2021 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 expect that an increased proportion of our capital expenditures will be invested in ground infrastructure and tools needed to enhance our delivery of managed services.

Its capital expenditure plan excludes up to four satellites which we may be required to build should its C-band proposal to the FCC be adopted in all material respects.

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