Market Overview

Intelsat Announces Second Quarter 2018 Results

Share:
  • Second quarter revenue of $537.7 million; $512.5 million excluding
    effects of revenue recognition rules (ASC 606)
  • Second quarter net loss attributable to Intelsat S.A. of $46.8
    million
  • Second quarter Adjusted EBITDA of $415.6 million or 77 percent of
    revenue; $390.5 million or 76 percent of revenue excluding effects of
    ASC 606
  • $8.7 billion contracted backlog, or $7.5 billion excluding the
    effects of ASC 606

Intelsat S.A. (NYSE:I), operator of the world's first Globalized
Network and leader in integrated satellite communications, today
announced financial results for the three months ended June 30, 2018.

Intelsat reported total revenue of $537.7 million and net loss
attributable to Intelsat S.A. of $46.8 million for the three months
ended June 30, 2018.

In the first quarter of 2018, we adopted the provisions of the Financial
Accounting Standards Board Accounting Standards Codification Topic 606,
Revenue from Contracts with Customers ("ASC 606"). As a result of the
adoption of ASC 606, total revenue for the three months ended June 30,
2018 reflects $25.2 million primarily related to the significant
financing component identified in our customer contracts.

Total revenue excluding the effects of ASC 606 was $512.5 million for
the three months ended June 30, 2018.

Intelsat reported EBITDA1, or earnings before net interest,
gain on early extinguishment of debt, taxes and depreciation and
amortization, of $408.5 million and Adjusted EBITDA1 of
$415.6 million, or 77 percent of revenue for the three months ended June
30, 2018. Total Adjusted EBITDA excluding the effects of ASC 606 was
$390.5 million, or 76 percent of revenue, for the three months ended
June 30, 2018. Free cash flow from operations1 was $4.9
million.

Intelsat's Chief Executive Officer, Stephen Spengler, said, "This is a
time of great opportunity for Intelsat. We are on the cusp of completing
the global deployment of our next generation Intelsat EpicNG
fleet, we are introducing more managed services to address high growth
mobility applications, and we are increasingly recognized for the value
of our global network of satellites and terrestrial infrastructure that
connects billions of people around the globe.

"Our overall financial and operational performance year-to-date is
tracking to our expectations against a global landscape of increasing
mobility connectivity requirements. With our highly successful capital
raise of approximately $633 million completed in the second quarter, we
have taken significant strides in the management of our capital
structure. This allows us to focus our energy on maximizing the
commercial opportunities before us, not the least of which is the
sizeable opportunity for satellite communications within the global race
to deploy 5G.

"We are encouraged by the thoughtful reception that the Federal
Communications Commission has given to the innovative proposal that we
developed in conjunction with Intel. We'll continue to promote our
market-based proposal, joining with SES and more recently, Eutelsat. Our
proposal will speed wireless access to spectrum in the 3.7-4.2 GHz band
known as C-band, crucial for the development of the American economy,
while not compromising on the protection of the quality and reliability
of television and other critical services that currently rely on this
spectrum."

Second Quarter 2018 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. For additional details regarding the
performance of our customer sets, see our Quarterly Commentary.

Network Services

Network services revenue was $198.5 million (or 37 percent of Intelsat's
total revenue) for the three months ended June 30, 2018, a decrease of 8
percent compared to the three months ended June 30, 2017. There was an
immaterial effect from ASC 606 on our network services revenue.

Media

Media revenue was $234.2 million (or 44 percent of Intelsat's total
revenue) for the three months ended June 30, 2018, an increase of 5
percent compared to the three months ended June 30, 2017. Excluding the
effects of ASC 606, media revenue was $217.5 million for the three
months ended June 30, 2018, a decrease of 2 percent compared to the
three months ended June 30, 2017.

Government

Government revenue was $98.5 million (or 18 percent of Intelsat's total
revenue) for the three months ended June 30, 2018, an increase of 15
percent compared to the three months ended June 30, 2017. Excluding the
effects of ASC 606, government revenue was $90.3 million for the three
months ended June 30, 2018, an increase of 5 percent compared to the
three months ended June 30, 2017.

Average Fill Rate

Intelsat's average fill rate on our approximately 1,850 36 MHz
station-kept wide-beam transponders was 79 percent at June 30, 2018,
compared to 80 percent as of March 31, 2018. In addition, at June 30,
2018 our fleet includes approximately 1,150 36 MHz units of
high-throughput Intelsat EpicNG capacity, stable as compared
to March 31, 2018.

Satellite Launches

Intelsat has two satellite launches planned for September 2018 on a
single Arianespace Ariane 5 launcher. Intelsat 38, a satellite jointly
built with Azerbaijan's commercial satellite operator, Azercosmos OJSC,
will provide media and broadband services in Central and Eastern Europe,
Africa, and Asia. The Horizons 3e satellite, Intelsat's joint venture
satellite with Japan's leading satellite operator, SKY Perfect JSAT
Corporation, completes the initial buildout of the Intelsat EpicNG
high-throughput global network, providing service coverage in the
Asia-Pacific region.

Contracted Backlog

At June 30, 2018, Intelsat's contracted backlog, representing expected
future revenue under existing contracts with customers, was $8.7
billion, including approximately $1.1 billion attributable to ASC 606.
Excluding the effects of ASC 606, contracted backlog was $7.5 billion,
as compared to $7.6 billion at March 31, 2018.

Capital Markets Activities

On May 2, 2018, pursuant to a previously issued notice of redemption,
our subsidiary, Intelsat (Luxembourg) S.A. ("Intelsat Luxembourg")
redeemed $46.0 million aggregate principal amount of its 6 ¾% Senior
Notes due 2018, and in June 2018 repaid the remaining outstanding
principal at maturity, retiring this issue in its entirety.

On June 14, 2018, Intelsat S.A. completed an offering of 15,498,652
common shares, nominal value $0.01 per share (the "Common Shares"), at a
public offering price of $14.84 per common share, with total gross
proceeds of approximately $230 million. In addition, on June 18, 2018,
Intelsat S.A. completed an offering of approximately $403 million
aggregate principal amount of its newly issued 4.5% Convertible Senior
Notes due 2025 (the "2025 Convertible Notes"). These notes are
guaranteed by a direct subsidiary of Intelsat Luxembourg, Intelsat
Envision Holdings LLC. The net proceeds from the Common Shares offering
and 2025 Convertible Notes offering were used to repurchase
approximately $600 million principal amount of Intelsat Luxembourg's
7.75% Senior Notes due 2021 in privately negotiated transactions with
individual holders in June 2018. We intend to use any remaining proceeds
for further debt repurchases and general corporate purposes.

Internal Tax Reorganization

On July 2, 2018, we implemented a series of internal transactions and
related steps that reorganized the ownership of certain of our assets
among our subsidiaries in order to enhance our ability to efficiently
transact business. These transactions will be accounted for in the
quarter ending September 30, 2018.

Financial Results for the Three Months Ended June 30, 2018

On-Network revenues generally include revenue from any services
delivered via our satellite and ground network. Off-Network and Other
Revenues generally include revenue from transponder services, mobile
satellite services ("MSS") and other satellite-based transmission
services using capacity procured from other operators, often in
frequencies not available on our network. Off-Network and Other revenues
also include revenue from consulting and other services and sales of
customer premises equipment.

Total revenue for the three months ended June 30, 2018 increased
by $4.5 million, or 1 percent, as compared to the three months ended
June 30, 2017. Excluding the impact of ASC 606 adjustments, total
revenue for the three months ended June 30, 2018 decreased by $20.7
million, or 4 percent, as compared to the three months ended June 30,
2017. By service type, our revenues increased or decreased due to the
following:

Total On-Network Revenues increased by $6.2 million to $492.0
million as compared to the three months ended June 30, 2017. Excluding
the $25.5 million attributable to ASC 606, total on-network revenues
declined by $19.3 million, or 4 percent, to $466.6 million due to the
following:

  • Transponder services revenue of $392.3 million reflects an
    aggregate increase of $6.2 million, of which $23.8 million is
    attributable to ASC 606, comprised of $15.4 million and $8.2 million
    from the media and government businesses, respectively. Exclusive of
    revenues attributable to ASC 606, transponder services declined by an
    aggregate amount of $17.6 million, due primarily to a net decrease in
    revenue from network services applications of $8.5 million, reflecting
    non-renewals and renewal pricing at lower rates for wide-beam services
    in the Latin America, Europe and Asia-Pacific regions, partially
    offset by growth in maritime and aeronautical mobility services on
    Intelsat EpicNG. In addition, transponder services for
    media applications declined by $7.8 million, due to non-renewals and
    lower termination fees from certain customers in North America and
    lower collections from cash basis customers as compared to the second
    quarter of 2017.
  • Managed services revenue of $98.5 million, which includes $1.7
    million attributable to ASC 606 adjustments related to the media
    business, reflects an aggregate decrease of $0.1 million. Excluding
    the effects of ASC 606, managed services revenue declined by $1.8
    million, related in part to a $3.2 million decline in revenue from
    network services customers for point-to-point trunking services being
    replaced by fiber alternatives, offset partially by a $4.2 million
    increase in revenue from network services customers for mobility
    applications, a $2.9 million increase in revenue from managed media
    solutions, and a $1.2 million decrease in revenue from managed
    services sold to government customers.

Total Off-Network and Other Revenues reported an aggregate
decline of $1.7 million, or a decrease of 4 percent, to $45.7 million,
as compared to the three months ended June 30, 2017. There were no
significant adjustments attributable to ASC 606.

  • Transponder, MSS and other Off-Network services reported an
    aggregate increase of $2.6 million, due primarily to an increase in
    third-party managed services sold to government customers.
  • Satellite-related services revenue was $9.1 million, or an
    aggregate decrease of $4.3 million, primarily due to decreased revenue
    from professional services supporting third-party satellites and
    government customers in the second quarter of 2018 as compared to the
    same period in 2017.

For the three months ended June 30, 2018, changes in operating expenses,
interest expense, net, and other significant income statement items are
described below.

  • Direct costs of revenue (excluding depreciation and amortization)
    decreased by $3.5 million, or 4 percent, to $76.5 million for the
    three months ended June 30, 2018, as compared to the three months
    ended June 30, 2017. The decrease was primarily due to lower costs of
    third-party capacity for off-network services and lower costs related
    to ground network enhancements for our media business.
  • Selling, general and administrative expenses increased by $2.3
    million, or 5 percent, to $49.9 million for the three months ended
    June 30, 2018, as compared to the three months ended June 30, 2017.
    The increase was primarily due to an increase of $8.4 million in bad
    debt expense as compared to a credit in the second quarter of 2017,
    partially offset by a decrease of $4.5 million in professional fees as
    compared to the same period in 2017 and $1.9 million in decreased
    staff-related expenses, primarily associated with lower share-based
    compensation.

Depreciation and amortization expense decreased by $3.9 million,
or 2 percent, to $173.6 million, as compared to the three months ended
June 30, 2017. The decrease was primarily related to a number of
satellites becoming fully depreciated during the period, offset
partially by new satellite and ground segment assets placed into service.

Interest expense, net consists of the interest expense we incur,
together with gains and losses on interest rate cap contracts (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 increased by $55.1 million, or 22
percent, to $303.2 million for the three months ended June 30, 2018, as
compared to the three months ended June 30, 2017. The increase in
interest expense, net was principally due to an increase of $28.9
million related to the significant financing component identified in
customer contracts in accordance with ASC 606. In addition, interest
expense, net increased by $23.9 million, primarily driven by our new
debt issuances and amendments to our senior secured credit facility with
higher interest rates (partially offset by certain debt repurchases in
2017 and 2018), and an increase of $9.3 million from lower capitalized
interest primarily resulting from decreased levels of satellites and
related assets under construction. The increases were also partially
offset by a decrease of $6.9 million corresponding to the increase in
fair value of the interest rate cap contracts we entered into in 2017
and hold.

The non-cash portion of total interest expense, net was $35.0 million
for the three months ended June 30, 2018, due to the amortization of
deferred financing fees, amortization and accretion of discounts and
premiums, and interest expense related to the significant financing
component identified in customer contracts in accordance with ASC 606,
as well as the gain offset from the increase in the fair value of
interest rate cap contracts we hold.

Gain on early extinguishment of debt was $22.1 million for the
three months ended June 30, 2018, as compared to a nominal loss for the
three months ended June 30, 2017. The gain of $22.1 million consisted of
the difference between the carrying value of debt repurchased and the
total cash amount paid (including related fees and expenses), together
with a write-off of unamortized debt discount and unamortized debt
issuance costs.

Other expense, net was $2.8 million for the three months ended
June 30, 2018, as compared to other income, net of $1.5 million for the
three months ended June 30, 2017. The decline of $4.4 million was
primarily related to a $4.5 million increase in foreign currency loss
related to our business conducted in Brazilian reais.

Provision for income taxes decreased by $4.7 million to an income
tax benefit of $0.3 million for the three months ended June 30, 2018, as
compared to the three months ended June 30, 2017. The decrease was
principally due to lower income in the three months ended June 30, 2018.

Net Income (Loss), Net Income (Loss) per Diluted Common Share
attributable to Intelsat S.A., EBITDA and Adjusted EBITDA

Net loss attributable to Intelsat S.A. was $46.8 million for the
three months ended June 30, 2018, compared to net loss attributable to
Intelsat S.A. of $23.8 million for the same period in 2017.

Net loss per diluted common share attributable to Intelsat S.A.
was $0.38 for the three months ended June 30, 2018, compared to net loss
per diluted common share of $0.20 for the same period in 2017.

EBITDA was $408.5 million for the three months ended June 30,
2018, compared to $407.3 million for the same period in 2017.

Adjusted EBITDA was $415.6 million for the three months ended
June 30, 2018, or 77 percent of revenue, compared to $417.9 million, or
78 percent of revenue, for the same period in 2017. Excluding the
effects of ASC 606, Adjusted EBITDA declined by 7 percent to $390.5
million, or 76 percent of revenue in the second quarter of 2018 as
compared to the same period in 2017. Please see the table below for
further detail of the impacts on Adjusted EBITDA as a result of ASC 606.

Free Cash Flow From (Used In) Operations

Net cash provided by operating activities was $57.2 million for the
three months ended June 30, 2018, and free cash flow from operations
was $4.9 million for the same period. Free cash flow from (used
in) operations is defined as net cash provided by (used in) operating
activities, less payments for satellites and other property and
equipment (including capitalized interest) and other payments for
satellites from financing activities. Payments for satellites and other
property and equipment from investing activities during the three months
ended June 30, 2018 was $52.4 million.

Financial Outlook 2018

  • Intelsat reaffirmed its 2018 revenue and Adjusted EBITDA guidance
    issued on February 26, 2018.
  • Intelsat reaffirmed the capital expenditure guidance updated on June
    11, 2018.
  • Intelsat introduced cash tax guidance for 2018 and a modeling
    assumption range for future periods.

Revenue: Intelsat forecasts full-year 2018 revenue to be in a
range of $2.060 billion to $2.110 billion.

Adjusted EBITDA: Intelsat forecasts Adjusted EBITDA performance
for the full-year 2018 to be in a range of $1.560 billion to $1.605
billion.

Capital Expenditures: On June 11, 2018, the Company updated its
capital expenditure expectation for 2018-2020 (the "Guidance Period").

We expect the following capital expenditure ranges:

  • 2018: $300 million to $350 million;
  • 2019: $325 million to $400 million; and
  • 2020: $300 million to $400 million.

In adjusting downward our capital expenditure guidance as compared to
our previous guidance, Intelsat incorporated two primary changes: the
deferral of a new satellite order from 2018 to 2019, and a reduction in
assumed launch costs related to operational and supply improvements in
the launcher sector.

We are committed to our 2018 operating priority to incorporate new
innovations in our fleet development program. The new initiatives are
planned to allow us to achieve a lower cost-per-bit for our global fleet
while also attaining lower overall capital intensity to support
operations. Innovations will contribute to commercial flexibility and
strong competitive positioning and include:

  • driving development of commercially-scaled software-definable
    satellites;
  • leveraging new manufacturing practices;
  • use of mission extension vehicles; and
  • increased use of reusable rocket launchers.

By the conclusion of the Guidance Period at the end of 2020, the net
number of transponder equivalents is expected to increase by a compound
annual growth rate ("CAGR") of approximately 5 percent, reflecting the
net activity of satellites entering and leaving service during the
Guidance Period. Capital expenditure incurrence is subject to the timing
of achievement of contract, satellite manufacturing, launch and other
milestones.

Our capital expenditure guidance includes capitalized interest, which is
expected to average approximately $40 million annually over the Guidance
Period.

Cash Taxes: We expect cash taxes in 2018 to be approximately $55
million to $65 million. In periods for the foreseeable future, we expect
cash taxes to range from $30 million to $40 million annually.

 

1 In this release, financial measures are presented
both in accordance with U.S. GAAP and also on a non-U.S. GAAP
basis. EBITDA, Adjusted EBITDA (or "AEBITDA"), free cash flow from
(used in) operations and related margins included in this release
are non-U.S. GAAP financial measures. Please see the consolidated
financial information below for information reconciling non-U.S.
GAAP financial measures to comparable U.S. GAAP financial measures.

 

Q2 2018 Quarterly Commentary

Intelsat provides a detailed quarterly commentary on the Company's
business trends and performance. Please visit www.intelsat.com/investors
for management's commentary on the Company's progress against its
operational priorities and financial outlook.

Conference Call Information

Intelsat management will hold a public conference call at 8:30 a.m. ET
on Tuesday, July 31, 2018 to discuss the Company's second quarter
financial results for the period ended June 30, 2018. Access to the live
conference call will also be available via the Internet at www.intelsat.com/investors.
To participate on the live call, participants should dial +1
844-834-1428 from North America, and +1 920-663-6274 from all other
locations. The participant pass code is 2778516.

Participants will have access to a replay of the conference call through
August 7, 2018. The replay number for North America is +1 855-859-2056,
and for all other locations is +1 404-537-3406. The participant pass
code for the replay is 2778516.

About Intelsat

Intelsat S.A. (NYSE:I) operates the world's first Globalized Network,
delivering high-quality, cost-effective video and broadband services
anywhere in the world. Intelsat's Globalized Network combines the
world's largest satellite backbone with terrestrial infrastructure,
managed services and an open, interoperable architecture to enable
customers to drive revenue and reach through a new generation of network
services. Thousands of organizations serving billions of people
worldwide rely on Intelsat to provide ubiquitous broadband connectivity,
multi-format video broadcasting, secure satellite communications and
seamless mobility services. The end result is an entirely new world, one
that allows us to envision the impossible, connect without boundaries
and transform the ways in which we live. For more information, visit www.intelsat.com.

Intelsat Safe Harbor Statement:

Some of the information and statements contained in this earnings
release and certain oral statements made from time to time by
representatives of Intelsat constitute "forward-looking statements" that
do not directly or exclusively relate to historical facts. When used in
this earnings release, the words "may," "will," "might," "should,"
"expect," "plan," "anticipate," "project," "believe," "estimate,"
"predict," "intend," "potential," "outlook," and "continue," and the
negative of these terms, and other similar expressions are intended to
identify forward-looking statements and information. Forward-looking
statements include: statements regarding our expectation that the
launches of our satellites in the future will position us for growth;
our plans for satellite launches in the near to mid-term; our guidance
regarding our intention to maximize the value of our spectrum rights,
including the pursuit of partnerships to optimize new satellite business
cases and the exploration of joint use of certain spectrum with the
wireless sector in certain geographies; our expectations as to the
potential timing of a final U.S. Federal Communications Commission
ruling with respect to our C-band Joint Use Proposal; guidance regarding
our expectations for our revenue performance and Adjusted EBITDA
performance; our capital expenditure guidance over the next several
years; our belief that the scale of our fleet can reduce the financial
impact of satellite or launch failures and protect against service
interruptions; our belief that the diversity of our revenue and customer
base allows us to recognize trends across regions and capture new growth
opportunities; our expectation that developing differentiated services
and investing in new technology will allow us to unlock essential
opportunities; our expectations as to the increased number of
transponder equivalents on our fleet over the next several years; and
our expectations as to the level of our cash tax payments in the future.

The forward-looking statements reflect Intelsat's intentions, plans,
expectations, anticipations, projections, estimations, predictions,
outlook, assumptions and beliefs about future events and are subject to
risks, uncertainties and other factors, many of which are outside of
Intelsat's control. Important factors that could cause actual results to
differ materially from the expectations expressed or implied in the
forward-looking statements include known and unknown risks. Some of the
factors that could cause actual results to differ from historical
results or those anticipated or predicted by these forward-looking
statements include: risks associated with operating our in-orbit
satellites; satellite anomalies, launch failures, satellite launch and
construction delays and in-orbit failures or reduced performance;
potential changes in the number of companies offering commercial
satellite launch services and the number of commercial satellite launch
opportunities available in any given time period that could impact our
ability to timely schedule future launches and the prices we pay for
such launches; our ability to obtain new satellite insurance policies
with financially viable insurance carriers on commercially reasonable
terms or at all, as well as the ability of our insurance carriers to
fulfill their obligations; possible future losses on satellites that are
not adequately covered by insurance; U.S. and other government
regulation; changes in our contracted backlog or expected contracted
backlog for future services; pricing pressure and overcapacity in the
markets in which we compete; our ability to access capital markets for
debt or equity; the competitive environment in which we operate;
customer defaults on their obligations to us; our international
operations and other uncertainties associated with doing business
internationally; and litigation. Known risks include, among others, the
risks described in Intelsat's Annual Report on Form 20-F for the year
ended December 31, 2017, and its other filings with the U.S. Securities
and Exchange Commission, the political, economic and legal conditions in
the markets we are targeting for communications services or in which we
operate and other risks and uncertainties inherent in the
telecommunications business in general and the satellite communications
business in particular.

Because actual results could differ materially from Intelsat's
intentions, plans, expectations, anticipations, projections,
estimations, predictions, outlook, assumptions and beliefs about the
future, you are urged to view all forward-looking statements with
caution. Intelsat does not undertake any obligation to update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise.

 
INTELSAT S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
($ in thousands, except per share amounts)
   
 

Three Months

Ended
June 30, 2017

Three Months
Ended
June 30, 2018

Revenue $ 533,229 $ 537,714
Operating expenses:
Direct costs of revenue (excluding depreciation and amortization) 79,933 76,479
Selling, general and administrative 47,541 49,865
Depreciation and amortization   177,510     173,615  
Total operating expenses   304,984     299,959  
Income from operations 228,245 237,755
Interest expense, net 248,100 303,150
Gain (loss) on early extinguishment of debt (48 ) 22,085
Other income (expense), net   1,542     (2,836 )
Loss before income taxes (18,361 ) (46,146 )
Provision for (benefit from) income taxes   4,439     (306 )
Net loss (22,800 ) (45,840 )
Net income attributable to noncontrolling interest   (995 )   (988 )
Net loss attributable to Intelsat S.A. $ (23,795 ) $ (46,828 )
Net loss per common share attributable to Intelsat S.A.:
Basic $ (0.20 ) $ (0.38 )
Diluted $ (0.20 ) $ (0.38 )
 
 
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET INCOME/(LOSS) TO EBITDA
($ in thousands)
   

Three Months
Ended
June 30, 2017

Three Months
Ended
June 30, 2018

Net loss $ (22,800 ) $ (45,840 )
Add (Subtract):
Interest expense, net 248,100 303,150
Loss (gain) on early extinguishment of debt 48 (22,085 )
Provision for (benefit from) income taxes 4,439 (306 )
Depreciation and amortization   177,510     173,615  
EBITDA   407,297     408,534  
Effect of ASC 606 adoption   -     (25,097 )
EBITDA excluding ASC 606 adoption effect   407,297     383,437  
 
EBITDA Margin 76 % 76 %
EBITDA Margin excluding ASC 606 adoption effect 76 % 75 %
 
Note:
 
Intelsat calculates a measure called EBITDA to assess the operating
performance of Intelsat S.A. EBITDA consists of earnings before net
interest, gain on early extinguishment of debt, taxes and
depreciation and amortization. Given our high level of leverage,
refinancing activities are a frequent part of our efforts to manage
our costs of borrowing. Accordingly, we consider gain on early
extinguishment of debt an element of interest expense. EBITDA is a
measure commonly used in the Fixed Satellite Services ("FSS")
sector, and we present EBITDA to enhance the understanding of our
operating performance. We use EBITDA as one criterion for evaluating
our performance relative to that of our peers. We believe that
EBITDA is an operating performance measure, and not a liquidity
measure, that provides investors and financial analysts with a
measure of operating results unaffected by differences in capital
structures, capital investment cycles and ages of related assets
among otherwise comparable companies.
 
EBITDA is not a measure of financial performance under U.S. GAAP,
and our EBITDA may not be comparable to similarly titled measures of
other companies. EBITDA should not be considered as an alternative
to operating income (loss) or net income (loss), determined in
accordance with U.S. GAAP, as an indicator of our operating
performance, or as an alternative to cash flows from operating
activities, determined in accordance with U.S. GAAP, as an indicator
of cash flows, or as a measure of liquidity.
 
 
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET INCOME/(LOSS) TO ADJUSTED EBITDA
($ in thousands)
   

Three Months
Ended
June 30, 2017

Three Months
Ended
June 30, 2018

Net loss $ (22,800 ) $ (45,840 )
Add (Subtract):
Interest expense, net 248,100 303,150
Loss (gain) on early extinguishment of debt 48 (22,085 )
Provision for (benefit from) income taxes 4,439 (306 )
Depreciation and amortization   177,510     173,615  
EBITDA   407,297     408,534  
Add:
Compensation and benefits 4,453 1,574
Non-recurring and other non-cash items   6,166     5,507  
Adjusted EBITDA   417,916     415,615  
Effect of ASC 606 adoption   -     (25,097 )
Adjusted EBITDA excluding ASC 606 adoption effect   417,916     390,518  
 
Adjusted EBITDA Margin 78 % 77 %
Adjusted EBITDA Margin excluding ASC 606 adoption effect 78 % 76 %
 
 
Note:
 
Intelsat calculates a measure called Adjusted EBITDA to assess the
operating performance of Intelsat S.A. Adjusted EBITDA consists of
EBITDA as adjusted to exclude or include certain unusual items,
certain other operating expense items and certain other adjustments
as described in the table above. Our management believes that the
presentation of Adjusted EBITDA provides useful information to
investors, lenders and financial analysts regarding our financial
condition and results of operations, because it permits clearer
comparability of our operating performance between periods. By
excluding the potential volatility related to the timing and extent
of non-operating activities, our management believes that Adjusted
EBITDA provides a useful means of evaluating the success of our
operating activities. We also use Adjusted EBITDA, together with
other appropriate metrics, to set goals for and measure the
operating performance of our business, and it is one of the
principal measures we use to evaluate our management's performance
in determining compensation under our incentive compensation plans.
Adjusted EBITDA measures have been used historically by investors,
lenders and financial analysts to estimate the value of a company,
to make informed investment decisions and to evaluate performance.
Our management believes that the inclusion of Adjusted EBITDA
facilitates comparison of our results with those of companies having
different capital structures.
 
Adjusted EBITDA is not a measure of financial performance under U.S.
GAAP, and our Adjusted EBITDA may not be comparable to similarly
titled measures of other companies. Adjusted EBITDA should not be
considered as an alternative to operating income (loss) or net
income (loss), determined in accordance with U.S. GAAP, as an
indicator of our operating performance, or as an alternative to cash
flows from operating activities, determined in accordance with U.S.
GAAP, as an indicator of cash flows, or as a measure of liquidity.
 
 
INTELSAT S.A.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)
   

As of
December 31,
2017

As of
June 30,
2018

(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 525,215 $ 444,030
Restricted cash 16,176 18,922
Receivables, net of allowances of $29,669 in 2017 and $31,807 in 2018 221,223 248,797
Contract assets - 42,729
Prepaid expenses and other current assets   56,862     28,086  
Total current assets 819,476 782,564
Satellites and other property and equipment, net 5,923,619 5,719,442
Goodwill 2,620,627 2,620,627
Non-amortizable intangible assets 2,452,900 2,452,900
Amortizable intangible assets, net 349,584 330,343
Contract assets, net of current portion 0 89,548
Other assets   443,830     411,042  
Total assets $ 12,610,036   $ 12,406,466  
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 116,396 $ 102,558
Taxes payable 12,007 25,093
Employee related liabilities 29,328 25,510
Accrued interest payable 263,207 263,379
Current portion of long-term debt 96,572 -
Contract liabilities - 152,084
Deferred satellite performance incentives 25,780 30,020
Deferred revenue 149,749 -
Other current liabilities   47,287     50,662  
Total current liabilities 740,326 649,306
Long-term debt, net of current portion 14,112,086 13,786,628
Contract liabilities, net of current portion - 1,138,618
Deferred satellite performance incentives, net of current portion 215,352 225,618
Deferred revenue, net of current portion 794,707 -
Deferred income taxes 48,434 276
Accrued retirement benefits 191,079 182,070
Other long-term liabilities 296,616 65,203
Shareholders' deficit:
Common shares; nominal value $0.01 per share 1,196 1,367
Paid-in capital 2,173,367 2,546,862
Accumulated deficit (5,894,659 ) (6,120,450 )
Accumulated other comprehensive loss   (87,774 )   (86,253 )
Total Intelsat S.A. shareholders' deficit (3,807,870 ) (3,658,474 )
Noncontrolling interest   19,306     17,221  
Total liabilities and shareholders' deficit $ 12,610,036   $ 12,406,466  
 
 
INTELSAT S.A.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
   

Three Months Ended
June 30, 2017

Three Months Ended
June 30, 2018

Cash flows from operating activities:
Net loss $ (22,800 ) $ (45,840 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 177,510 173,616
Provision for doubtful accounts (7,133 ) 1,239
Foreign currency transaction loss 1,238 6,544
Loss on disposal of assets - 17
Share-based compensation 4,452 1,574
Deferred income taxes (1,230 ) (31,724 )
Amortization of discount, premium, issuance costs and related costs 12,087 13,026
(Gain) loss on early extinguishment of debt 48

(22,084

)
Amortization of actuarial loss and prior service credits for
retirement benefits
822 1,224
Unrealized gains on derivatives and investments - (8,063 )
Other non-cash items 13 (14 )
Changes in operating assets and liabilities:
Receivables 6,950 (25,910 )
Prepaid expenses, contract and other assets 882 9,356
Accounts payable and accrued liabilities 3,671

7,903

Accrued interest payable (82,498 ) (22,454 )
Deferred revenue and contract liabilities (38,154 ) 4,550
Accrued retirement benefits (4,495 ) (5,565 )
Other long-term liabilities   (568 )   (152 )
Net cash provided by operating activities   50,795     57,243  
Cash flows from investing activities:
Payments for satellites and other property and equipment (including
capitalized interest)
(126,792 ) (52,392 )
Purchase of cost method investments - (8,500 )
Capital contributions to unconsolidated affiliates (13,173 ) (11,110 )
Proceeds from insurance settlements   1,547     -  
Net cash used in investing activities   (138,418 )   (72,002 )
Cash flows from financing activities:
Repayments of long-term debt - (637,307 )
Proceeds from issuance of long-term debt - 402,500
Debt issuance costs - (12,683 )
Principal payments on deferred satellite performance incentives (6,087 ) (6,559 )
Proceeds from stock issuance, net of stock issuance costs - 224,250
Dividends paid to noncontrolling interest (2,220 ) (1,424 )
Other financing activities   -     1,636  
Net cash used in financing activities   (8,307 )   (29,587 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
  153     (3,956 )
Net change in cash, cash equivalents and restricted cash   (95,777 )   (48,302 )
Cash, cash equivalents, and restricted cash beginning of period   622,675     511,254  
Cash, cash equivalents, and restricted cash end of period   526,898     462,952  
 
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 318,866 $ 292,133
Income taxes paid, net of refunds 2,496 37,843
Supplemental disclosure of non-cash investing activities:
Accrued capital expenditures $ (22,519 ) $ (4,197 )
Capitalization of deferred satellite performance incentives - -
 
 
INTELSAT S.A.
UNAUDITED RECONCILIATION OF NET CASH PROVIDED BY OPERATING
ACTIVITIES
TO FREE CASH FLOW FROM (USED IN) OPERATIONS
($ in thousands)
   

Three Months
Ended
June 30,

Three Months
Ended
June 30,

2017 2018
 
Net cash provided by operating activities $ 50,795 $ 57,243

Payments for satellites and other property and equipment
(including capitalized interest)

  (126,792 )   (52,392 )
Free cash flow from (used in) operations $ (75,997 ) $ 4,851  
 
 
Note:
Free cash flow from (used in) operations consists of net cash
provided by operating activities, less payments for satellites and
other property and equipment (including capitalized interest) from
investing activities and other payment for satellites from financing
activities. Free cash flow from (used in) operations is not a
measurement of cash flow under U.S. GAAP. Intelsat believes free
cash flow from (used in) operations is a useful measure of financial
performance that shows a company's ability to fund its operations.
Free cash flow from (used in) operations is used by Intelsat in
comparing its performance to that of its peers and is commonly used
by financial analysts and investors in assessing performance. Free
cash flow from (used in) operations does not give effect to cash
used for debt service requirements and thus does not reflect funds
available for investment or other discretionary uses. Free cash flow
from (used in) operations is not a measure of financial performance
under U.S. GAAP, and free cash flow from (used in) operations may
not be comparable to similarly titled measures of other companies.
You should not consider free cash flow from (used in) operations as
an alternative to operating income (loss) or net income (loss),
determined in accordance with U.S. GAAP, as an indicator of
Intelsat's operating performance, or as an alternative to cash flows
from operating activities, determined in accordance with U.S. GAAP,
as an indicator of cash flows, or as a measure of liquidity.
 
 
INTELSAT S.A.
SUPPLEMENTAL TABLE
REVENUE BY CUSTOMER SET AND SERVICE TYPE
($ in thousands)
 
Intelsat management has reviewed the data pertaining to the use of
the Intelsat network, and is providing revenue information with
respect to that use by customer set and service type in the
following tables. Intelsat management believes this provides a
useful perspective on the changes in revenue and customer trends
over time.
                     
By Customer Set
 
Three Months Ended June 30, 2018

Three Months
Ended June
30, 2017

     

Revenues
Without

the
Adoption of
ASC 606

     

ASC 606
Adjustments

 

Revenues
After the
Adoption of
ASC
606

     

Increase
(Decrease)
With
Adoption
of

ASC 606

 

Percentage
Change
With
Adoption
of

ASC 606

 

Increase
(Decrease)
Without
Adoption
of

ASC 606

 

Percentage
Change
Without
Adoption
of

ASC 606

Network Services $ 214,895 40 % $ 198,367 39 % $ 134 $ 198,501 37 % $ (16,394 ) (8 )% $ (16,528 ) (8 )%
Media 222,161 42 217,450 42 16,734 234,184 44 12,023 5 (4,711 ) (2 )
Government 86,030 16 90,290 18 8,240 98,530 18 12,500 15 4,260 5
Other   10,143 2   6,433 1   66     6,499 1   (3,644 ) (36 )   (3,710 ) (37 )
$ 533,229 100 % $ 512,540 100 % $ 25,174   $ 537,714 100 % $ 4,485   1 % $ (20,689 ) (4 )%
 
 
By Service Type
 
Three Months Ended June 30, 2018

Three Months
Ended June
30, 2017

     

Revenues
Without
the
Adoption
of

ASC 606

     

ASC 606
Adjustments

 

Revenues
After the
Adoption of
ASC
606

     

Increase
(Decrease)
With
Adoption
of

ASC 606

 

Percentage
Change
With
Adoption
of

ASC 606

 

Increase
(Decrease)
Without
Adoption
of

ASC 606

 

Percentage
Change
Without
Adoption
of

ASC 606

On-Network Revenues
Transponder services $ 386,170 72 % $ 368,563 72 % $ 23,774 $ 392,337 73 % $ 6,167 2 % $ (17,607 ) (5 )%
Managed services 98,629 19 96,855 19 1,688 98,543 18 (86 ) (0 ) (1,774 ) (2 )
Channel   1,051 0   1,132 0   -     1,132 0   81   8   81   8
Total on-network revenues 485,850 91 466,550 91 25,462 492,012 92 6,162 1 (19,300 ) (4 )
Off-Network and Other Revenues
Transponder, MSS and other off-network services 34,056 6 37,001 7 (354 ) 36,647 7 2,591 8 2,945 9
Satellite-related services   13,323 3   8,989 2   66     9,055 2   (4,268 ) (32 )   (4,334 ) (33 )
Total off-network and other revenues   47,379 9   45,990 9   (288 )   45,702 8   (1,677 ) (4 )   (1,389 ) (3 )
Total $ 533,229 100 % $ 512,540 100 % $ 25,174   $ 537,714 100 % $ 4,485   1 % $ (20,689 ) (4 )%
 
 
Expected Range of 2H2018 Quarterly Revenue Increase (Decrease) as
a Result of Adoption of ASC 606
       

Three Months Ended
September 30, 2018

 

Three Months Ended
December 31, 2018

Range   Range
Low End High End Low End High End
Network Services $ (300 ) $ 1,700 $ (300 ) $ 1,300
Media 16,600 16,800 16,600 16,800
Government 8,239 8,239 8,239 8,239
Satellite Services 0 100 0 100
Total ASC 606 Revenue Increase (net) $ 24,539     $ 26,839   $ 24,539     $ 26,439
 

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