Intelsat S.A. (I)

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Intelsat SA (I)

Q1 2014 Earnings Conference Call

May 01, 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

Simon Flannery - Morgan Stanley

Phil Cusick - JPMorgan

Batya Levi - UBS

Anthony Klarman - Deutsche Bank

Michael Funk - Merrill Lynch

Chris Quilty - Raymond James

Joe Mastrogiovanni - Credit Suisse

Adam Spielman - PPM

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2014 Intelsat earnings conference call. My name is Sarah, and I'll be your operator for today. (Operator Instructions) I'd now like to turn the conference over to Dianne VanBeber, Vice President of Investor Relations and Corporate Communications. Please proceed.

Dianne VanBeber

Welcome, everyone, and thank you for joining Intelsat's first quarter 2014 earnings conference call. Earlier this morning, we issued our earnings release and we published our quarterly commentary, both of which are available at intelsat.com.

The quarterly commentary provides the investment community with the information and context that you need to analyze our results well in advance of our discussion. We use the quarterly commentary to make your time with us more efficient and to maximize the time on this for Q&A with management.

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 diluted common 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 quarterly report at Intelsat S.A. on Form 6-K 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 annual report on Form 20-F 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 open 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. Not much time has passed since we last reported, but we have made good progress in the first quarter. At $629 million, our first quarter revenues are in line with our view and consistent with the full year 2014 guidance we initially provided during our call in February.

Adjusted EBITDA at $506 million is flat compared to the first quarter of 2013, despite the lower revenue base. The 80% adjusted EBITDA margin reflects nearly 2% of cost improvements related primarily to better collections experienced in Africa and the Middle East, and some other cost benefit specific to the first quarter as well as strong expense controls.

Our margin result is still strong, even after adjusting for these elements, demonstrating the resilience of our business model. The adjusted EBITDA performance and lower seasonal interest payments in the first quarter contributed to free cash flow from operations of over $200 million.

Getting new inventory into service is our top operational priority. Our satellite investment programs remain on schedule and on budget. We have one satellite planned for 2014 and is tracking to launch in the late third quarter. This satellite Intelsat 30 will provide services supporting direct TVs, direct-to-home platform in Latin America under a 15-year contract.

In recent quarters, the effect on our business of over supply in Africa has figured prominently in our discussions and results. We are making progress, but we cannot expect a complete recovery in the short-term. We've recently announced two projects in the quarter that are representative of our strategy in that region.

Vodacom, the South African affiliate of wireless giant Vodafone, is seeking new growth by creating a satellite-based broadband service for small and medium enterprises. The contract reflects our strategy of using flexible business models to support new applications, once that we would expect to bridge from our current network onto our next generation epic platform over time.

We also signed a new contract with MultiChoice, the premier paid television provider on the continent, supporting its expanding digital terrestrial television business. Media services continue to be a bright spot in Africa. This project is a good example of our growth strategy in the region, being the platform of choice to the power users of satellite-based solutions.

Performance in our other customer sets and regions is in keeping with our expectations. As a result, we are reaffirming the financial guidance we provided in February. Keep in mind that even as we are actively addressing the headwinds in our business, the full impact may expand several quarters. For this region, we don't consider the first quarter a run rate proxy for the full year.

Read the rest of this transcript for free on seekingalpha.com