Intelsat announces Q3 2020 results

Intelsat S.A. (the “Company”) announced financial results for the three months ended September 30, 2020.

Intelsat reported total revenue of $489.4 million and net loss attributable to Intelsat S.A. of $15.9 million for the three months ended September 30, 2020.

Intelsat reported EBITDA1 , or earnings before net interest, gain on early extinguishment of debt, taxes and depreciation and amortization, of $266.7 million and Adjusted EBITDA1 of $332.9 million, or 68% of revenue, for the three months ended September 30, 2020. Intelsat’s Chief Executive Officer, Stephen Spengler, said, “We delivered solid quarterly sequential operational results despite the economic headwinds impacting the entire satellite industry. Financial results were positively impacted by our government business, which generated meaningful top-line growth when compared to the same period last year as a result of new transponder and FlexGround managed services. The reported decline in the media business reflects the macro trends that have continued to impact our results over the past few quarters. Our network services business remained resilient despite the impacts of COVID-19 on the mobility segments that we serve, with new business booked for enterprise network and maritime mobility solutions.”

Spengler concluded, “During the period we announced an agreement to purchase Gogo Inc.’s commercial aviation business, which pairs the world’s largest integrated satellite and terrestrial infrastructure with the leading provider of in-flight broadband connectivity. This transaction is a cornerstone of our growth strategy to deliver end-to-end managed solutions for customers who rely on our satellite capabilities to stay connected around the world. Moving toward a vertically integratedmanaged services model is paramount because end users demand a world-class broadband experience. We believe our Company has the capability to meet these demands, and we are investing in future innovations to further enhance our service offerings.”

Third Quarter 2020 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 $169.6 million (or 35% of Intelsat’s total revenue) for the three months ended September 30, 2020, a decrease of 6% compared to the three months ended September 30, 2019.

Media
Media revenue was $203.5 million (or 42% of Intelsat’s total revenue) for the three months ended September 30, 2020, a decrease of 9% compared to the three months ended September 30, 2019.

Government
Government revenue was $108.0 million (or 22% of Intelsat’s total revenue) for the three months ended September 30, 2020, an increase of 13% compared to the three months ended September 30, 2019.

Average Fill Rate
Intelsat’s average fill rate as of September 30, 2020 on our approximately 1,675 36 MHz station-kept widebeam transponders was 74.5%, as compared to an average fill rate at June 30, 2020 of 75.1% on our approximately 1,675 transponders. In addition, as of September 30, 2020 our fleet included approximately 1,225 36 MHz equivalent transponders of high-throughput Intelsat Epic capacity, reflecting no change from the prior quarter.

Contracted Backlog
At September 30, 2020, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $6.2 billion, as compared to $6.4 billion at June 30, 2020.

Agreement to Acquire Gogo’s Commercial Aviation Business

On August 31, 2020, Intelsat entered into a purchase and sale agreement to acquire the commercial aviation business of Gogo Inc. for $400.0 million in cash, subject to customary adjustments. This transaction positions Intelsat as a leader in the in-flight connectivity (“IFC”) sector, which is one of the fastest growing segments in the broadband connectivity space. With a broadening addressable market, the IFC sector will continue to expand and we anticipate that it will become a major engine of growth for the Company in the future. The transaction is expected to close before the end of the first quarter of 2021, subject to the receipt of certain regulatory approvals and the satisfaction or waiver of certain other customary closing conditions.

C-band Proceeding at the U.S. Federal Communications Commission (“FCC”)

On August 14, 2020, the Company filed its final C-band transition plan with the FCC. As set forth in the FCC’s final order on the topic, the C-band auction is scheduled to commence on December 8, 2020.

During the period, Intelsat finalized contracts with satellite manufacturers and launch vehicle providers. On September 17, 2020 the Company announced it had signed a formal agreement with Maxar Technologies to build the final satellite for the C-band spectrum clearing program, and contracted with SpaceX and Arianespace to provide launch vehicles for all of the satellites utilized in the clearing. This announcement underscores that Intelsat is moving forward at an accelerated pace to clear portions of the C-band spectrum and help cement America’s leadership in the deployment of next generation 5G networks.

Financial Results for the Three Months Ended September 30, 2020
Total revenue for the three months ended September 30, 2020 decreased by $17.2 million to $489.4 million, or a decrease of 3 percent as compared to the three months ended September 30, 2019. By service type, our revenues increased or decreased due to the following:

Total On-Network Revenues decreased by $34.5 million, or 8 percent, to $423.5 million as compared to the three months ended September 30, 2019, comprised of:

• Transponder services reported an aggregate decrease of $10.6 million, primarily due to lower revenue from media and government customers, both driven by non-renewals and lower pricing. This was partially offset by new business in network services as a result of a renegotiated contract with a maritime mobility customer and new contracts for enterprise wireless infrastructure.
• Managed services reported an aggregate decrease of $23.6 million, primarily due to a decline in network services and media revenues. The decline in network services was driven largely by credits given to mobility customers related to COVID-19 and the transfer of managed services to transponder services, partially offset by increased revenue from Flex managed services. The decline in media was mainly driven by termination of a managed services video contract and lower occasional use video services.

Total Off-Network and Other Revenues increased by $17.3 million, or 36 percent, to $66.0 million, as compared to the three months ended September 30, 2019 primarily due to the following:

• Transponder, MSS and other Off-Network services revenues increased by an aggregate of $15.3 million to $54.5 million, largely driven by the transfer of certain services from on-network to off-network and the sale of customer premise equipment.

Direct costs of revenue (excluding depreciation and amortization) increased by $15.5 million, or 15 percent, to $120.3 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The increase was primarily due to a $13.4 million increase in equipment costs largely incurred in connection with government customers.

Selling, general and administrative expenses increased by $8.5 million, or 14 percent, to $69.2 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The increase was primarily due to a $7.2 million increase in professional fees associated with our Chapter 11 financial restructuring, and a $4.5 million increase in staff-related expenses related to our employee retention incentive plans.

Depreciation and amortization expense increased by $1.0 million, or 1 percent, to $162.6 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Significant items impacting depreciation and amortization included an increase of $4.7 million in depreciation expense resulting from a satellite placed in service. This was partially offset by a decrease of $3.1 million in depreciation expense due to the timing of a satellite becoming fully depreciated.

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.

Interest expense, net decreased by $177.9 million, or 56 percent, to $138.1 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This was primarily due to a decrease of $176.3 million in interest expense resulting from Chapter 11 restructuring activities.

The non-cash portion of total interest expense, net was $29.7 million for the three months ended September 30, 2020, primarily consisting of interest expense related to the significant financing component identified in customer contracts, amortization and accretion of discounts and premiums, and amortization of deferred financing fees.

Other income (expense), net was $3.1 million for the three months ended September 30, 2020, as compared to other expense, net of $5.1 million for the three months ended September 30, 2019. The net increase in other income primarily consisted of lower foreign currency losses of $4.1 million largely related to our business conducted in Brazilian reais, and a $3.6 million net loss due to a change in value of certain investments in third parties for the three months ended September 30, 2019 with no similar activity in 2020.

Reorganization items reflect direct costs incurred in connection with our Chapter 11 cases. Reorganization items of $36.4 million for the three months ended September 30, 2020 primarily consisted of professional fees. There were no comparable amounts for the three months ended September 30, 2019.

Provision for (Benefit from) income taxes decreased from income tax expense by $24.9 million to income tax benefit of $18.7 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The decrease was principally attributable to a net benefit recognized for the Base Erosion Anti-Abuse Tax (BEAT), additional benefit from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) with regards to the relaxed limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after 2018, and lower income from our U.S. subsidiaries for the three months ended September 30, 2020.

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 $15.9 million for the three months ended September 30, 2020, compared to a net loss of $148.3 million for the same period in 2019.

Net loss per diluted common share attributable to Intelsat S.A. was $0.11 for the three months ended September 30, 2020, compared to net loss of $1.05 per diluted common share for the same period in 2019.

EBITDA was $266.7 million for the three months ended September 30, 2020, compared to $336.1 million for the same period in 2019, reflecting lower revenue and higher operating costs, as described above.

Adjusted EBITDA was $332.9 million for the three months ended September 30, 2020, or 68 percent of revenue, compared to $356.1 million, or 70 percent of revenue, for the same period in 2019.

Free Cash Flow Used In Operations

Net cash provided by operating activities was $140.2 million for the three months ended September 30, 2020. Free cash flow used in operations was $79.8 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 September 30, 2020 were $220.1 million.CT Bureau