Intelsat S.A. (I)

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Intelsat SA (I)

Q4 2013 Earnings Conference Call

February 20, 2014, 11:00 AM ET

Executives

Dianne VanBeber - Vice President, Investor Relations and Communications

David McGlade - Chairman and Chief Executive Officer

Michael McDonnell - Executive Vice President and Chief Financial Officer

Analysts

Michael Funk - Bank of America Merrill Lynch

Simon Flannery - Morgan Stanley

Batya Levi - UBS

Brian Russo - Deutsche Bank

Jason Kim - Goldman Sachs

Joseph Mastrogiovanni - Credit Suisse

Anthony Klarman - Deutsche Bank

Kannan Venkateshwar - Barclays

Chris Qulity - Raymond James

Amy Stepnowski - Hartford Investment Management

Adam Spielman - PPM America

Preeti Doshi - Evercore

Romeo Reyes - Jefferies Company

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the fourth quarter 2013 Intelsat earnings conference call. My name is Dave, I'll be your operator for today. (Operator Instructions) I'd now like to turn the call over to 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 fourth quarter 2013 earnings conference call. Earlier this morning, we issued our earnings release and published a quarterly commentary, both of which are available at intelsat.com. This is the first time we issued a quarterly commentary, we hope that by publishing the commentary ahead of the call we will provide the investment community with the information in context that you need to analyze our results well in advance of our discussion.

We made this change to make you time with us more efficient and to allow more time for discussion in Q&A with our management team. This is our first quarter to introduce this concept and we welcome your feedback, so that we can make it as useful as possible going forward.

Now, just some housekeeping matters. 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, adjusted net income per share 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 Annual Report of Intelsat SA on Form 20-F with the SEC. You can find the link to the filing on our website.

Additionally, our conversation today will include forward-looking statements reflecting our current expectations for future industry conditions as well as our business strategy, market trends and positioning and expected future financial performance. These 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.

With that, I'd like to turn the call over to Dave McGlade, our Chairman and CEO; and Executive Vice President and CFO, Michael McDonnell, who are here to offer you additional detail on Intelsat's business and financial performance. Following brief opening remarks by, Dave, they'll be happy to take your questions.

David McGlade

Thanks, Dianne. At $643 million and $2.6 billion, our fourth quarter and full year 2013 revenues are in line with the guidance we provided during the third quarter call. Our adjusted EBITDA performance is strong at $510 million or 79% of fourth quarter revenue.

Adjusted EBITDA for full year 2013 was over $2 billion or 78% of revenue. Backlog, which provides visibility for future revenues ended the year at $10.1 billion. We entered 2014 with current year backlog of $2.1 billion.

The fourth quarter kept the year with many business and financial accomplishments. The completion of our IPO combined with successful refinancing activities has enabled us to significantly reduce our bad debt, improve our maturity profile and initiate our delevering plans to create equity value.

With respect to our operations in 2013, we charted a solid course for a steady longer-term growth. This includes continuing to invest in our video neighborhoods, for instance, at 304.5 degrees East, certainly Latin America. We are also building the operational enhancements needed to fully realize the benefits of the Intelsat Epic satellites, as they begin to enter service in 2016.

Earlier in 2013, our near-to-mid term outlook was based on a flattish growth scenario, tending the launch of our next series of satellites. However, as we've communicated over the last several months, two trends have emerged that are affecting our revenue performance.

First, our government business is challenged by the effects of reduced U.S. government spending. We believe that this will result in a reduction of 15% to 20% for our government business as compared to 2013 results.

Second, an oversupply environment, including terrestrial, microwave and traditional satellite capacity is disrupting the Africa market. This has pressured our service provider customers and has resulted in price reductions, as we renew business on a network services applications in that region.

We believe this will result in a modest decline in year-on-year overall performance for our network services business. At present, we believe these two factors will persist in 2014, and as a result we are guiding to a total company annual revenue for 2014 of $2.45 billion to $2.5 billion, roughly a 4.5% decline from 2013.

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