Intelsat S.A. (I)

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Intelsat SA (I)

Q3 2013 Earnings Call

October 31, 2013 11:00 AM ET

Executives

Dianne VanBeber – VP, IR and Corporate Communications

David McGlade – Chairman and CEO

Michael McDonnell – EVP and CFO

Analysts

Phil Cusick – JPMorgan

Batya Levi – UBS

Simon Flannery – Morgan Stanley

Brian Russo – Deutsche Bank

Jason Kim – Goldman Sachs

Bryan Kraft – Evercore Partners

Henrik Nyblom – Nomura

Andrew Spinola – Wells Fargo

Keith Hanauer – Barclays

Andrea Lobo Prabhu – Goldman Sachs

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Intelsat Q3, 2013 Financial Results Conference Call. My name is Lisa 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 conference over to your host for today, Ms. Dianne VanBeber, Vice President, Investor Relations and Corporate Communications. Please proceed, ma’am.

Dianne VanBeber

Welcome everyone and thank you for joining Intelsat’s third quarter 2013 earnings conference call. We issued a press release this morning with our key financial tables which is available on our website. David McGlade, our Chairman and CEO and Executive Vice President and CFO, Michael McDonnell, are here to offer you additional detail on Intelsat’s business and financial performance. Following their prepared 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. Later today we’ll be filing the results of 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 conditions as well as our business strategy, market trends and positioning and expected future financial performance. Those forward-looking statements are subject to risks and uncertainties many of which are outside of our control.

Please refer to the Safe Harbor statement included in our IPO perspectives of April 2013 for information regarding some of the factors that could cause our actual results to differ materially from our expectations. Finally, please be aware that our 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.

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

David McGlade

Thank you, Dianne. Good morning everyone. Intelsat’s results in the third quarter demonstrate the ability of our diversified business to deliver stable and strong cash flows. At $652 million total company revenue in the third quarter was essentially unchanged as compared to the third quarter of 2012. Our business is performing well although pressures from the U.S. government budget sequestration and to a lesser extent the effects of increased competition in the Africa region are impacting our growth rates.

Our media business delivered solid growth with continuing lift from the new satellites that entered service during 2011 and 2012. Our network services business results reflect a positive contribution of broadband mobility applications. Growth in mobility is being largely offset however by the environment in Africa. Our government business declined worse in the quarter. While the performance in the year ago quarter was quite strong this is also clear that the impacts from the U.S. budget environment and sequestration have to come more pronounced.

The impact of adjusted EBITDA was not as significant because the primary contributor to decline was off network government revenues which earns lower margins. Total company adjusted EBITDA in the third quarter of 2013 was $508 million also essentially unchanged as compared to the third quarter of 2012. The adjusted EBITDA margin remains steady at 78% of revenue. Our contracted backlog ended the quarter at $10.3 billion on par with the prior quarter. At four times trailing revenue, our healthy backlog provides our business with predictability and visibility into future cash flow.

Overall we are reporting a solid quarter that generated strong cash flows, a key element of our two phase investment thesis, which initially features the use of our increasing cash flow to delever our business and create equity value. The third quarter results provide further evidence of our ability to deliver on this strategy as our business generated $333 million in free cash flow from operations. Subsequent to quarter end we made pre-payments of $100 million on our outstanding debt for a total of over $600 million in debt reduction since the beginning of 2013. In the quarter we also made excellent progress on supporting the second phase of our investment thesis, building towards strong organic growth by marketing the capacity of our current suite and our next generation satellites Intelsat Epic. We report on this progress as we discuss the performance of our three customer sets.

Network services posted revenue of $300 million in the third quarter, a 1% increase to the year ago quarter. Transponder service growth was driven by cell backhaul applications in Latin America and enterprise broadband applications. Managed services growth came from new service activations for maritime and aeronautical broadband service providers in the U.S. and Europe and ell backhaul services in Asia. Revenue in these growing applications and regions was largely offset by declines in some of the network services we provide in Africa. Two trends dominated in Africa expecting the competitive environment.

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