Intelsat S.A. (I)

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Intelsat SA (I)

Q2 2013 Earnings Call

August 01, 2013 11:00 AM ET


Dianne VanBeber - VP, IR and Communications

David McGlade - Chairman and CEO

Michael McDonnell - EVP and CFO


Jason Armstrong - Goldman Sachs

Batya Levi - UBS

Anthony Klarman - Deutsche Bank

Phil Cusick - JPMorgan

Chris Quilty - Raymond James

Simon Flannery - Morgan Stanley

Brian Russo - Deutsche Bank

Michael Fork - Bank of America Merrill Lynch

Bryan Kraft - Evercore Partners

Keith Hanauer - Barclays

Jonathan Atkin - RBC Capital Market



Good day, ladies and gentlemen and welcome to the Intelsat Q2 2013 Financial Results Conference Call. My name is Glenn and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, Ms. Dianne VanBeber, Vice President, Investor Relations and Communications. Please proceed, ma’am.

Dianne VanBeber

Welcome and thank you for joining Intelsat second quarter 2013 earnings conference call. We issued our press release this morning with our key financial tables and this is available on our website. David McGlade, our Chairman and CEO and Executive Vice President and Chief Financial Officer, Michael McDonnell, are here to offer you additional detail on Intelsat’s business and financial performance. Following their opening remarks, they’ll happy to take your questions.

During today’s call we will discuss adjusted EBITDA and other financial metrics not prepared in accordance with U.S. Generally Accepted Accounting Principles including EBITDA related margins and free cash flow from operations. We provide reconciliations of these metrics to the most directly comparable GAAP measures in the earnings release and on our website. Later today we’ll be filing the results of these Intelsat SA on Form 6-K with the SEC. the 6-K has all the information typically available in the 10-Q. You can find the filing on our website.

Additionally, our conversation today will include forward-looking statements reflected in our current expectations for future industry condition as well as our business strategy, market trends and positioning and expected future financial performance. Those forward-looking statements are subject to risk and uncertainty many of which are outside of our control.

Please refer to the Safe Harbor statement included in our registration statement on Form F1 for information regarding some of the factors that could cause our actual results to differ materially from our expectations. Finally, please be aware of conference call today is opened to the investment community and media, with the media invited to participate in listen-only mode. Members of the media are not authorized to quote, either directly or in substance any participant in the call who is not a representative of Intelsat.

Thank you again for joining us today. Now, I’m pleased now to introduce David McGlade, Intelsat’s, Chairman and Chief Executive Officer.

David McGlade

Thanks Dianne. Good morning everyone. Our second quarter results reflect business trends consistent with those of recent quarters. Total company revenue in the second quarter grew over 2%, $654 million as compared to the second quarter of 2012.

Our network services and media businesses posted solid growth. This performance is a reflection of our three investment activities in 2011 and 2012, which created our broadband mobility infrastructure and refreshed the capacity at our video neighborhoods.

Government revenues declined in the quarter due to impacts from the U.S. budget environment and sequestration. However, the adjusted EBITDA impact was mitigated as off-network revenues which earned lower margins were the primary contributor to the decline.

Total company adjusted EBITDA in the second quarter of 2014 was $509 million, nearly 78% of revenue and growing 3.5% over the second quarter of 2012. While it is uncertain that this mix trend will continue, we do believe that careful management of operating expenses will help mitigate the effects of sequestration at the adjusted EBITDA level.

Our contracted backlog ended the quarter at $10.4 billion. At four time trailing revenue, our healthy backlog provides our business with predictability and visibility into future cash flow.

During the second quarter, we made excellent progress on initiatives designed to create increased equity value for our investors. We successfully executed on our two part investment thesis. We apply the proceeds of our stock offerings and insurance claims to debt repayment, reducing total debt by $497 million since December 31, 2012.

We’ve also engaged in significant refinancing activity. On a going forward basis, the combined benefits of the debt repayments and lower interest provides $245 million in annual interest savings. Our reduced interest obligations as well as lower expected CapEx in 2013 and 2014 sets into motion a positive cycle that will allow us to continue to de-lever our balance sheet.

The second part of our plan is to generate revenue and earnings growth, which will catalyzed by new satellites. This includes Intelsat 30, benefiting the media business as it comes in the service in 2015 and Intelsat 29e benefiting network services starting 2016. Last quarter I indicated that our key business initiatives include marketing our new and redeployed capacity and bridging our customer requirements to the higher throughput Epic fleets. We’ll report our progress as we discuss the performance of our three customer sets.

In the second quarter, network services posted revenue of $304 million, a 4% increase to the year ago quarter. Transponder service growth came from sell back haul and enterprise applications. Managed services growth came from new service activations from maritime and aeronautical broadband service providers.

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