Form 6-K Intelsat S.A. For: Feb 22

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 or 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February, 2016

001-35878

(Commission File Number)

 

 

Intelsat S.A.

(Translation of registrant’s name into English)

 

 

4 rue Albert Borschette

Luxembourg

Grand-Duchy of Luxembourg

L-1246

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form20-F  x             Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

 

 

---

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				INTELSAT S.A.
Date: February 22, 2016				By:		/s/Jacques Kerrest
				Name:		Jacques Kerrest
				Title:		Executive Vice President and Chief Financial Officer

---

EXHIBIT INDEX

 

Exhibit Number		Description
99.1		Press Release dated February 22, 2016 entitled “Intelsat Announces Preliminary Fourth Quarter and Full Year 2015 Results”
99.2		Quarterly Commentary by Stephen Spengler, Chief Executive Officer, made available on Intelsat’s public website on February 22, 2016

---

Intelsat S.A. reported preliminary EBITDA¹, or earnings before net interest, gains on early extinguishment of debt, taxes and depreciation and amortization, of $443.5 million, prior to the effect of any impairments, and preliminary Adjusted EBITDA¹, of $452.6 million, or 79 percent of revenue, prior to the effect of any impairments, for the three months ended December 31, 2015.

For the year ended December 31, 2015, Intelsat reported preliminary total revenue of $2,352.5 million and preliminary net income attributable to Intelsat S.A of $242.0 million, or $2.06 per share on a diluted basis, prior to the effect of any impairments. The company reported preliminary adjusted net income per diluted common share to be $2.80, prior to the effect of any impairments, for the year ended December 31, 2015. Intelsat also reported preliminary EBITDA of $1,818.4 million, and Adjusted EBITDA of $1,854.5 million, or 79 percent of revenue, prior to the effect of any impairments, for the year ended December 31, 2015.

Intelsat Chief Executive Officer, Stephen Spengler said, “With Intelsat 29e successfully launched and now completing in-orbit testing, a new era for Intelsat has begun. The higher performance, improved economics and simple access of Intelsat Epic^NG is unlocking new sources of demand for our global network. Our top priorities include placing the Intelsat Epic^NG and other satellites in our launch program into service and introducing data networking services that leverage our scale and global reach. We are also advancing further innovations in new antenna and networking hardware that will open new applications for Intelsat, such as the connected car. These three initiatives will propel us into attractive new markets and expand our leadership in large and fast-growing applications, such as mobility. Over time, these opportunities should eclipse the challenging environment we are seeing today.”

“With $2.35 billion in revenue and $1.85 billion in Adjusted EBITDA, prior to the effect of any impairments, in 2015 we delivered on plan for the year,” continued Mr. Spengler. “Performance by customer set was generally as expected, with network services meeting guidance, the government sector outperforming and our media business falling slightly short of our plan. While ongoing headwinds will continue to impact our business in 2016, the launches of Intelsat 29e, Intelsat 31, Intelsat 36, and Intelsat 33e during this period will position us for a return to growth.”

Mr. Spengler added, “Our backlog continues to provide the visibility into future revenue and cash flows that allows us to invest in our fleet and pursue our long-term business strategy. Year-end 2015 backlog of $9.4 billion was four times annual revenue.”

Preliminary Fourth Quarter and Full Year 2015 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.

Network Services

Preliminary Network Services total revenue for the three months ended December 31, 2015 is $245.4 million (or 43 percent of Intelsat’s total revenue), a decrease of 14 percent compared to the three months ended December 31, 2014. For the year ended December 31, 2015, preliminary Network Services total revenue is $1,055.8 million (or 45 percent of Intelsat’s total revenue) a decrease of 8 percent compared to the year ended December 31, 2014.

 

2

---

Media

Preliminary Media total revenue is $219.0 million (or 38 percent of Intelsat’s total revenue) for the three months ended December 31, 2015, a decrease of 3 percent as compared to the three months ended December 31, 2014. For the year ended December 31, 2015, preliminary Media total revenue is $882.4 million (or 38 percent of Intelsat’s total revenue), a marginal increase compared to the year ended December 31, 2014.

Government

Preliminary Government total revenue is $100.2 million (or 18 percent of Intelsat’s total revenue) for the three months ended December 31, 2015, an increase of 1 percent compared to fourth quarter 2014. For the year ended December 31, 2015, preliminary Government total revenue is $385.1 million (or 16 percent of Intelsat’s total revenue), a decrease of 6 percent compared to the year ended December 31, 2014.

Average Fill Rate

Intelsat’s average fill rate on our approximately 2,150 station-kept transponders was 76 percent at December 31, 2015, a 1 percent increase compared to the average fill rate as of September 30, 2015. The transponder count reflects the entry into service of Intelsat 34 in the fourth quarter of 2015.

Satellite Launches

Intelsat 29e, the first of our next generation Intelsat Epic^NG satellite fleet, was successfully launched and is scheduled to enter service in the second quarter of 2016. We have three other satellites launching in 2016: one in the second quarter of 2016 and two in the third quarter of 2016. Excluding Intelsat 29e, we currently have seven satellite programs in the development and design phase. In addition, we have two custom payloads being built on third party-owned satellites to be known as Intelsat 32e and Intelsat 38, which will not require capital expenditure, and we have started work on our joint venture satellite, Horizons 3e, which was announced in the fourth quarter of 2015. Intelsat 32e is currently scheduled to launch in the first quarter of 2017, and a launch date for Intelsat 38 will be forthcoming.

Contracted Backlog

At December 31, 2015, Intelsat’s contracted backlog, representing expected future revenue under existing contracts with customers, was $9.4 billion, as compared to $9.5 billion at September 30, 2015. The mix of backlog reflects lower overall net new contracts. At 4.0 times trailing 12 months revenue (from January 1, 2015 to December 31, 2015), our backlog remains sizeable and a foundation for predictable cash flow and investment in our business.

Corporate Appointments

On January 29, 2016, we announced the appointment of Jacques Kerrest, formerly President of DPC Data Inc., to the role of Executive Vice President and Chief Financial Officer. Mr. Kerrest has extensive financial executive experience in the telecom, media and technology sectors, including serving as Chief Financial Officer at a number of companies, including ActivIdentity Corporation, Virgin Media plc, and Equant Inc.

Capital Markets and Debt Transactions

During the three months ended December 31, 2015, we repurchased $25.0 million in aggregate principal amount of the Intelsat (Luxembourg) S.A. 6 3/4% Senior Notes due 2018 (the “2018 Luxembourg Notes”). In connection with these repurchases, we recognized a gain on early extinguishment of debt of $7.1 million in the three months ended December 31, 2015, consisting of the difference between the carrying value of the debt purchased and the total cash amount paid, and a write-off of unamortized debt issuance costs.

 

3

---

Intelsat has recently retained Guggenheim Securities, LLC to assist the Company in connection with various financing and balance sheet initiatives, including, among other things, evaluating the level of secured debt and balance sheet management opportunities. There can be no assurance that our retention of Guggenheim Securities, LLC will result in our pursuing or completing any specific transaction.

Preliminary Financial Results for the Three Months Ended December 31, 2015

On-Network revenue generally includes revenue from any services delivered via our satellite or ground network. Off-Network and Other revenue generally includes 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 Revenue also includes revenue from consulting and other services and sales of customer premises equipment.

Total On-Network Revenue reported a decline of $43.7 million, or 8 percent, to $518.3 million as compared to the three months ended December 31, 2014:

 

•

Transponder services reported a decline of $36.1 million, primarily due to a $30.5 million decrease in revenue from network services customers and a $6.9 million decrease in revenue from media customers. The network services decline was mainly due to reduced volumes resulting from previously described non-renewals of certain point-to-point services, as well as lower prices on renewals of wireless infrastructure services and enterprise networks resulting from the competitive environment and the strengthening dollar in Brazil and Russia. The media decrease resulted in part from lower volumes due to certain North American customers migrating to new compression standards and single format distribution, in the second quarter of 2015 partially offset by higher volumes of Direct-to-Home (“DTH”) services delivered in Latin America.

 

•

Managed services reported an increase of $2.0 million, primarily due to a $1.7 million increase in revenue from network services customers for broadband solutions.

 

•

Channel reported a decline of $9.6 million as a result of the continued migration of international point-to-point satellite traffic to fiber optic cable, a trend which we expect will continue.

Total Off-Network and Other Revenue reported an aggregate decrease of $4.2 million, or 7 percent, to $52.9 million as compared to the three months ended December 31, 2014:

 

•

Transponder, MSS and other off-network services reported a decline of $0.4 million, primarily due to declines in services for government applications, largely related to reduced sales of off-network transponder services.

 

•

Satellite-related services reported a decline of $3.8 million, primarily due to decreased revenue from support for third-party satellites and other services.

For the three month period ended December 31, 2015, anticipated preliminary changes in operating expenses, interest expense, net, and other significant income-statement items are described below.

 

4

---

Direct costs of revenue is expected to decrease by $8.0 million, or 9 percent, to $85.2 million, as compared to the three months ended December 31, 2014. The decline reflects a decrease of $6.1 million in staff and related expenses as compared to the three months ended December 31, 2014 and a decline of $3.2 million, reflecting reductions in the cost of off-network Fixed Satellite Services (“FSS”) capacity purchased and direct costs related to a joint venture.

Selling, general and administrative expenses is expected to decrease by $17.7 million, or 29 percent, to $44.2 million, as compared to the three months ended December 31, 2014, primarily due to a $8.8 million reduction in staff-related expenses, as compared to the three months ended December 31, 2014, and a decline of $10.1 million in bad debt expense, primarily due to $5.2 million in improved collections during the three months ended December 31, 2015 as compared to an expense of $4.1 million in the prior year quarter. A decrease of $1.9 million in development expense related to our antenna innovation initiatives was somewhat offset by an increase of $3.3 million in professional fees.

Depreciation and amortization expense is expected to increase by $2.4 million, or 1 percent, to $173.7 million, as compared to the three months ended December 31, 2014, primarily related to an increase of $6.3 million in depreciation expense resulting from the impact of satellites placed into service in late 2014 and 2015. We expect the increase to be offset by a decrease of $2.0 million in amortization expense largely due to changes in the expected pattern of consumption of amortizable intangible assets, as these assets primarily include acquired backlog, which relates to contracts covering periods that expire over time, and acquired customer relationships, for which the value diminishes over time, and a net decrease of $2.1 million in depreciation expense primarily due to the timing of ground assets becoming fully depreciated.

Interest expense, net consists of the interest expense we incur together with gains and losses on interest rate swaps, which will reflect net interest accrued on the interest rate swaps as well as the change in their fair value, offset by interest income earned and the amount of interest we capitalize related to assets under construction. As of December 31, 2015, we also held interest rate swaps with an aggregate notional amount of $1.6 billion to economically hedge the variability in cash flow on a portion of the floating-rate term loans under our senior secured credit facilities. The swaps were not designated as hedges for accounting purposes, and have expired subsequent to year-end. Interest expense, net is expected to decrease by $9.5 million, or 4 percent, to $220.8 million compared to $230.2 million for the three months ended December 31, 2014.

The decrease in interest expense, net is principally due to the following:

 

•

a decrease of $4.0 million in interest expense primarily as a result of our debt redemption in 2014; and

 

•

a decrease of $3.8 million resulting from higher capitalized interest of $22.7 million for the three months ended December 31, 2015 as compared to $18.9 million for the three month ended December 31, 2014, resulting from increased levels of satellites and related assets under construction.

We expect the non-cash portion of total interest expense, net to be $5.1 million for the three months ended December 31, 2015, due to the amortization of deferred financing fees incurred as a result of new or refinanced debt and the amortization and accretion of discounts and premiums.

Gain (loss) on early extinguishment of debt is expected to be a $7.1 million gain for the three months ended December 31, 2015 as compared to a loss of $40.4 million for the three months ended December 31, 2014. In the three months ended December 31, 2015, we repurchased $25.0 million of

 

5

---

aggregate principal amount of the 2018 Luxembourg Notes. The anticipated gain of $7.1 million will consist of the difference between the carrying value of the debt purchased and the total cash amount paid together with a write-off of unamortized debt issuance costs. In November 2014, Intelsat Jackson Holdings S.A. redeemed all $500.0 million aggregate principal amount of its 8 1/2% Senior Notes due 2019. The loss of $40.4 million consisted of the difference between the carrying value of the debt redeemed and the total cash amount paid (including related fees), together with a write-off of unamortized debt discount and debt issuance costs.

Provision for income taxes is expected to be $6.1 million for the three months ended December 31, 2015 as compared to an expense of $2.9 million for the three months ended December 31, 2014. The expected difference was principally due to increase in earnings in our foreign subsidiaries for the three months ended December 31, 2015.

Cash paid for income taxes, net of refunds, is expected to total $3.8 million for the three months ended December 31, 2015, compared to $7.2 million for the three months ended December 31, 2014.

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

EBITDA is expected to be $443.5 million, prior to the effect of any impairments, for the three months ended December 31, 2015, compared to $462.0 million for the same period in 2014.

Adjusted EBITDA is expected to be $452.6 million, prior to the effect of any impairments, for the three months ended December 31, 2015, or 79 percent of revenue, compared to $477.1 million, or 77 percent of revenue, for the same period in 2014.

Net income attributable to Intelsat S.A. is expected to be $49.1 million, prior to the effect of any impairments, for the three months ended December 31, 2015, compared to $16.2 million for the same period in 2014.

Net income per diluted common share attributable to Intelsat S.A. is expected to be $0.42, prior to the effect of any impairments, for the three months ended December 31, 2015, compared to $0.14 per diluted common share for the same period in 2014.

Adjusted net income per diluted common share attributable to Intelsat S.A. is expected to be $0.55, prior to the effect of any impairments, for the three months ended December 31, 2015, compared to $0.79 adjusted net income per diluted common share for the same period in 2014.

 

6

---

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.

Preliminary Revenue Comparison by Customer Set and Service Type

($ in thousands)

 

By Customer Set
		Three Months Ended December 31,								Three Months Ended December 31,
		2014								2015
Network Services		$	284,056				46	%		$	245,441				43	%
Media			226,020				37	%			219,013				38	%
Government			99,733				16	%			100,226				18	%
Other			9,313				2	%			6,579				1	%
		$	619,122				100	%		$	571,259				100	%

 

By Service Type
		Three Months Ended December 31,								Three Months Ended December 31,
		2014								2015
On-Network Revenues
Transponder services		$	447,161				72	%		$	411,026				72	%
Managed services			101,680				16	%			103,699				18	%
Channel services			13,146				2	%			3,585				1	%
Total on-network revenues			561,987				91	%			518,310				91	%
Off-Network and Other Revenues
Transponder, MSS and other off-network services			43,271				7	%			42,901				8	%
Satellite-related services			13,864				2	%			10,048				2	%
Total off-network and other revenues			57,135				9	%			52,949				9	%
Total		$	619,122				100	%		$	571,259				100	%

Free Cash Flow from (used in) Operations

Preliminary free cash flow used in operations¹ is $126.0 million, prior to the effect of any impairments, during the three months ended December 31, 2015. Free cash flow from operations is $193.9 million, prior to the effect of any impairments, for the year ended December 31, 2015. Free cash flow from (used in) operations is defined as net cash provided by operating activities, less payments for satellites and other property and equipment (including capitalized interest).

Payments for satellites and other property and equipment during the three months ended December 31, 2015 is $172.6 million. Payments for satellites and other property and equipment during the year ended December 31, 2015 is $724.4 million.

 

7

---

Financial Outlook 2016

Today, Intelsat issued its 2016 financial outlook, in which the company expects the following:

Revenue: Intelsat forecasts full year 2016 revenue of $2.14 billion to $2.20 billion. Revenue performance reflects:

 

•

stable to a slight decline of 2 percent in our media business. Our media business will benefit from new capacity scheduled to enter service in the second and fourth quarters of 2016. This will be offset by the annualization of declines experienced in the second half of 2015 due to migration to new compression technologies, in addition to continuing currency pressures related to our business in Brazil and Russia;

 

•

a decline in our network services business of 15 to 17 percent, reflecting pricing pressure primarily in the Latin America, Europe and Africa and Middle East regions, continuing erosion of certain point-to-point services, and also continuing currency pressures related to our business in Brazil and Russia; and

 

•

a decline in our government business of 4 to 7 percent, noting that revenue would be stable if not for the loss of the CSSC contract, the procurement process for which is currently under formal protest.

Adjusted EBITDA: Intelsat forecasts Adjusted EBITDA performance for the full year 2016 to be in a range of $1.625 billion to $1.675 billion.

Capital Expenditures: Intelsat issued its 2016 capital expenditure guidance for the three calendar years 2016 through 2018 (the “Guidance Period”).

We expect capital expenditures ranges of:

 

•

2016: $725 million to $800 million, consistent with prior guidance;

 

•

2017: $625 million to $700 million, a decrease of $125 million compared to prior guidance; and

 

•

2018: $425 million to $525 million, introduced today.

Capital expenditure guidance for 2016 through 2018 assumes investment in ten satellites in the manufacturing and design phase, or recently launched, during the Guidance Period. In addition, we have capacity on three other satellites in development, including custom payloads being built for us on two third-party satellites, which will not require capital expenditure, as well as our Horizons 3e joint venture, which is building a satellite for the Asia-Pacific region. Following the successful January 2016 launch of Intelsat 29e, we plan to launch three more satellites in 2016, two satellites in 2017 and one satellite in 2018, and will continue work on three remaining satellites for which construction will extend beyond the Guidance Period.

We are scheduled to launch three of our new Intelsat Epic^NG high throughput satellites during the 2016 through 2018 Guidance Period, increasing our total transmission capacity. By the conclusion of the Guidance Period at the end of 2018, the net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of approximately 10 percent as a result of the satellites entering service during the Guidance Period.

Our capital expenditures guidance includes capitalized interest.

 

8

---

Prepayments: We do not expect further significant prepayments, and as a result will no longer provide guidance on this financial metric.

The annual classification of capital expenditure and prepayments could be affected by the timing of achievement of contract, satellite manufacturing, launch and other milestones.

There were no prepayments during the three months ended December 31, 2015. Prepayments for the year ended December 31, 2015 totaled $122.1 million.

Cash Taxes: Annual 2016 cash taxes are expected to total approximately $30 million to $35 million.

 

1

In this release, financial measures are presented both in accordance with GAAP and also on a non-GAAP basis. Prior to the effect of any impairments, EBITDA, Adjusted EBITDA (or “AEBITDA”), free cash flow from (used in) operations, Adjusted net income per diluted common share and related margins included in this release are non-GAAP financial measures. Please see the consolidated financial information below for information reconciling non-GAAP financial measures to comparable GAAP financial measures.

Q4 2015 Quarterly Commentary

As previously announced, Intelsat is providing 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 strategic priorities and financial outlook.

Conference Call Information

Intelsat management will hold a public conference call at 11:00 a.m. EST on Monday, February 22, 2016 to discuss the company’s financial results for the fourth quarter and full year ended December 31, 2015. 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 22633709. Participants will have access to a replay of the conference call through February 29, 2016. The replay number for North America is +1 855-859-2056, and for all other locations it is +1 404-537-3406. The participant pass code for the replay is 22633709.

 

9

---

About Intelsat

Intelsat S.A. (NYSE: I) is the world’s leading provider of satellite services, delivering high performance connectivity solutions for media, fixed and mobile broadband infrastructure, enterprise and government and military applications. Intelsat’s satellite, teleport and fiber infrastructure is unmatched in the industry, setting the standard for transmissions of video and broadband services. From the globalization of content and the proliferation of HD, to the expansion of cellular networks and mobile broadband access, Intelsat creates value for its customers through creative space-based solutions.

Envision…Connect…Transform…with Intelsat. For more information, visit www.intelsat.com.

Special Note Regarding Expected Financial Results:

We have not yet filed our Annual Report on Form 20-F for the year ended December 31, 2015, which we intend to file on a timely basis with the SEC in March 2016. The preliminary financial information and other data set forth above has been prepared by, and is the responsibility of, our management. The preliminary financial information represents the most current information available to us. The foregoing preliminary financial information has not been audited, compiled or examined by our independent registered public accounting firm nor have our independent registered public accounting firm performed any procedures with respect to this information or expressed any opinion or any form of assurance on such information. In addition, the foregoing preliminary financial information is subject to revision as we prepare our combined consolidated financial statements and other disclosures as of and for the year ended December 31, 2015, including all disclosures required by GAAP. Because we have not completed our normal annual closing and review procedures for the year ended December 31, 2015, and subsequent events may occur that require material adjustments to these results, the final results and other disclosures for the year ended December 31, 2015 may differ materially from these estimates. These estimates should not be viewed as a substitute for full financial statements prepared in accordance with GAAP or as a measure of performance. In addition, these estimated results of operations for the year ended December 31, 2015 are not necessarily indicative of the results to be achieved for any future period. See “Intelsat Safe Harbor Statement.”

Intelsat Safe Harbor Statement:

Statements in this news release and certain oral statements from time to time by representatives of the company 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: our expectation that we will incur an impairment charge that will result in a substantial reduction of our goodwill and other intangible assets; 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 expectations for our revenue performance and Adjusted EBITDA performance; our capital expenditure and customer prepayment guidance over the next several years; 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.

 

10

---

The forward-looking statements reflect Intelsat’s intentions, plans, expectations, 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 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 years ended December 31, 2014 and 2015, 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, 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.

 

11

---

INTELSAT S.A.

UNAUDITED PRELIMINARY CONSOLIDATED STATEMENTS of OPERATIONS

($ in thousands, except per share amounts)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015
Revenue		$	619,122			$	571,259
Operating expenses:
Direct costs of revenue (excluding depreciation and amortization)			93,212				85,163
Selling, general and administrative			61,896				44,152
Depreciation and amortization			171,307				173,667
Total operating expenses, prior to the effect of any impairments			326,415				302,982
Income from operations, prior to the effect of any impairments			292,707				268,277
Interest expense, net			230,216				220,751
Gain (loss) on early extinguishment of debt			(40,423	)			7,061
Other income (expense), net			(1,971	)			1,592
Income before income taxes, prior to the effect of any impairments			20,097				56,179
Provision for income taxes			2,877				6,100
Net income, prior to the effect of any impairments			17,220				50,079
Net income attributable to noncontrolling interest, prior to the effect of any impairments			(1,026	)			(985	)
Net income attributable to Intelsat S.A., prior to the effect of any impairments		$	16,194			$	49,094
Cumulative preferred dividends			—				—
Net income attributable to common shareholders, prior to the effect of any impairments		$	16,194			$	49,094
Net income per common share attributable to Intelsat S.A., prior to the effect of any impairments:
Basic		$	0.15			$	0.46
Diluted		$	0.14			$	0.42

 

12

---

INTELSAT S.A.

CONSOLIDATED PRELIMINARY STATEMENTS of OPERATIONS

($ in thousands, except per share amounts)

 

		Year Ended December 31, 2014				Year Ended December 31, 2015
						(unaudited)
Revenue		$	2,472,386			$	2,352,521
Operating expenses:
Direct costs of revenue (excluding depreciation and amortization)			348,348				328,501
Selling, general and administrative			197,407				199,412
Depreciation and amortization			679,351				687,729
Total operating expenses, prior to the effect of any impairments			1,225,106				1,215,642
Income from operations, prior to the effect of any impairments			1,247,280				1,136,879
Interest expense, net			944,787				890,279
Gain (loss) on early extinguishment of debt			(40,423	)			7,061
Other income (expense), net			(2,593	)			(6,201	)
Income before income taxes, prior to the effect of any impairments			259,477				247,460
Provision for income taxes			22,971				1,513
Net income, prior to the effect of any impairments			236,506				245,947
Net income attributable to noncontrolling interest, prior to the effect of any impairments			(3,974	)			(3,934	)
Net income attributable to Intelsat S.A., prior to the effect of any impairments		$	232,532			$	242,013
Cumulative preferred dividends			(9,917	)			(9,919	)
Net income attributable to common shareholders, prior to the effect of any impairments		$	222,615			$	232,094
Net income per common share attributable to Intelsat S.A., prior to the effect of any impairments:
Basic		$	2.09			$	2.16
Diluted		$	1.99			$	2.06

 

13

---

INTELSAT S.A.

UNAUDITED PRELIMINARY RECONCILIATION OF NET INCOME TO EBITDA

($ in thousands)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015				Year Ended December 31, 2014				Year Ended December 31, 2015
Net income, prior to the effect of any impairments		$	17,220			$	50,079			$	236,506			$	245,947
Add (Subtract):
Interest expense, net			230,216				220,751				944,787				890,279
Loss (gain) on early extinguishment of debt			40,423				(7,061	)			40,423				(7,061	)
Provision for income taxes			2,877				6,100				22,971				1,513
Depreciation and amortization			171,307				173,667				679,351				687,729
EBITDA, prior to the effect of any impairments		$	462,043			$	443,536			$	1,924,038			$	1,818,407
EBITDA Margin, prior to the effect of any impairments			75	%			78	%			78	%			77	%

Note:

Intelsat calculates a measure called EBITDA to assess the operating performance of Intelsat S.A. EBITDA consists of earnings before net interest, loss (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. 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 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.

The EBITDA and margin information presented above, with respect to the 2015 periods, is prior to the effect of any impairments.

 

14

---

INTELSAT S.A.

UNAUDITED PRELIMINARY RECONCILIATION OF NET INCOME TO

ADJUSTED EBITDA

($ in thousands)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015				Year Ended December 31, 2014				Year Ended December 31, 2015
Net income, prior to the effect of any impairments		$	17,220			$	50,079			$	236,506			$	245,947
Add (Subtract):
Interest expense, net			230,216				220,751				944,787				890,279
Loss (gain) on early extinguishment of debt			40,423				(7,061	)			40,423				(7,061	)
Provision for (benefit from) income taxes			2,877				6,100				22,971				1,513
Depreciation and amortization			171,307				173,667				679,351				687,729
EBITDA, prior to the effect of any impairments			462,043				443,536				1,924,038				1,818,407
Add:
Compensation and benefits			8,786				4,827				22,921				26,235
Non-recurring and other non-cash items			6,295				4,258				11,723				9,877
Adjusted EBITDA, prior to the effect of any impairments		$	477,124			$	452,621			$	1,958,682			$	1,854,519
Adjusted EBITDA Margin, prior to the effect of any impairments			77	%			79	%			79	%			79	%

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 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.

The Adjusted EBITDA and margin information presented above, with respect to the 2015 periods, is prior to the effect of any impairments.

 

15

---

INTELSAT S.A.

UNAUDITED PRELIMINARY ADJUSTED NET INCOME per DILUTED COMMON SHARE

($ in thousands, except per share amounts)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015				Year Ended December 31, 2014				Year Ended December 31, 2015
Numerator (in thousands):
Net income attributable to Intelsat S.A., prior to the effect of any impairments		$	16,194			$	49,094			$	232,532			$	242,013
Add (Subtract):
Compensation and benefits (1)			8,786				4,827				22,921				26,235
Losses on derivative financial instruments (2)			1,709				32				5,649				3,483
(Gain) loss on early extinguishment of debt			40,423				(7,061	)			40,423				(7,061	)
Amortization (3)			17,058				15,054				68,231				60,215
Non-recurring and other non-cash items (4)			6,295				4,258				11,723				9,877
Income tax effect of adjustments above & other discrete tax items (5)			1,864				(1,823	)			3,126				(6,597	)
Adjusted net income attributable to Intelsat S.A., prior to the effect of any impairments			92,329				64,381				384,605				328,165
Less: Preferred share dividends declared			—				—				(9,917	)			(9,919	)
Adjusted net income attributable to common shareholders, prior to the effect of any impairments		$	92,329			$	64,381			$	374,688			$	318,246
Denominator (in millions):
Basic weighted average shares outstanding			106.7				107.5				106.5				107.2
Weighted average dilutive shares outstanding:
Preferred shares			9.6				9.6				9.6				9.6
Employee compensation related shares including options and restricted share units			0.8				0.6				0.5				0.4
Adjusted diluted weighted average shares outstanding			117.1				117.7				116.6				117.2
Adjusted net income per diluted common share attributable to common shareholders, prior to the effect of any impairments		$	0.79			$	0.55			$	3.30			$	2.80

Note:

Management evaluates financial performance in part based on adjusted net income per diluted common share attributable to common shareholders, prior to the effect of any impairments. This measure consists of net income per diluted common share attributable to common shareholders as reported, which is prior to the effect of any impairments, as adjusted to exclude or include certain unusual items, certain other operating expense items and certain other adjustments as described in the table and footnotes below. In addition, in calculating this measure we adjusted our common shares outstanding to reflect dilution when the calculation of the numerator moved from a net loss to net income, prior to the effect of any impairments. We believe investors’ understanding of our operating performance is enhanced by the disclosure of this measure. Adjusted net income per diluted common share attributable to common shareholders, prior to the effect of any impairments, is not a recognized financial measure in accordance with U.S. GAAP and should not be considered a substitute for earnings per share or other financial measures as computed in accordance with U.S. GAAP and may not be comparable to similarly titled measures of other companies.

The information presented above, with respect to 2015 periods, is prior to the effect of any impairments.

 

(1)	Reflects non-cash expenses incurred relating to our equity compensation plans and a portion of the expenses related to our defined benefit retirement plan and other postretirement benefits.

(2)	Represents (i) the changes in the fair value of the undesignated interest rate swaps and (ii) the difference between the amount of floating rate interest we receive and the amount of fixed rate interest we pay under such swaps, both of which are recognized in interest expense, net.

(3)	Intangible assets are amortized based on the expected pattern of consumption. We recorded amortization expense related to our backlog and other and customer intangible assets.

(4)

Reflects certain non-recurring gains and losses and non-cash items, including the following: development expenses; non-recurring litigation expenses; non-cash expense related to the recognition of expense on a straight-line basis for certain office space leases; expenses associated with the relocation of our administrative headquarters and primary satellites operations center; severance, retention and relocation payments; and other various non-recurring expenses. These costs were partially offset by non-cash income related to the recognition of deferred revenue on a straight-line basis for certain prepaid capacity service contracts.

(5)	Represents the income tax impact of the various adjustments.

 

16

---

INTELSAT S.A.

CONSOLIDATED PRELIMINARY BALANCE SHEETS

($ in thousands, except per share amounts)

 

		As of December 31, 2014				As of December 31, 2015
						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	123,147			$	171,541
Receivables, net of allowance of $35,174 in 2014 and $37,178 in 2015			220,458				232,775
Deferred income taxes			76,315				—
Prepaid expenses and other current assets			35,945				35,784
Total current assets			455,865				440,100
Satellites and other property and equipment, net			5,880,264				5,988,317
Goodwill			6,780,827				6,780,827
Non-amortizable intangible assets			2,458,100				2,458,100
Amortizable intangible assets, net			500,545				440,330
Other assets			250,833				311,316
Total assets		$	16,326,434			$	16,418,990
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	151,793			$	164,381
Taxes payable			8,974				11,742
Employee related liabilities			44,815				35,361
Accrued interest payable			161,495				161,493
Current portion of long-term debt			49,000				—
Deferred satellite performance incentives			20,957				19,411
Deferred revenue			117,401				108,779
Other current liabilities			72,629				63,275
Total current liabilities			627,064				564,442
Long-term debt, net of current portion			14,619,221				14,611,379
Deferred satellite performance incentives, net of current portion			163,360				162,177
Deferred revenue, net of current portion			967,318				1,010,242
Deferred income taxes			211,680				160,802
Accrued retirement benefits			262,906				195,385
Other long-term liabilities			217,452				169,516
Commitments and contingencies
Shareholders’ deficit:
Common shares; nominal value $0.01 per share			1,067				1,076
5.75% Series A mandatory convertible junior non-voting preferred shares; nominal value $0.01 per share; aggregate liquidation preference of $172,500 ($50 per share)			35				35
Paid-in capital			2,117,898				2,133,891
Accumulated deficit, prior to the effect of any impairments			(2,782,741	)			(2,540,728	)
Accumulated other comprehensive loss			(112,527	)			(78,439	)
Total Intelsat S.A. shareholders’ deficit, prior to the effect of any impairments			(776,268	)			(484,165	)
Noncontrolling interest			33,701				29,212
Total liabilities and shareholders’ deficit, prior to the effect of any impairments		$	16,326,434			$	16,418,990

 

17

---

INTELSAT S.A.

UNAUDITED PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015				Year Ended December 31, 2014				Year Ended December 31, 2015
Cash flows from operating activities:
Net income, prior to the effect of any impairments		$	17,220			$	50,079			$	236,506			$	245,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			171,307				173,668				679,351				687,729
Provision for doubtful accounts			5,151				(4,901	)			2,306				7,432
Foreign currency transaction (gain) loss			3,139				(593	)			6,560				11,374
Loss on disposal of assets			535				16				927				16
Share-based compensation			8,680				4,710				22,494				25,768
Deferred income taxes			(10,165	)			(2,676	)			(12,646	)			(9,348	)
Amortization of discount, premium, issuance costs and related costs			5,250				5,071				22,256				20,119
(Gain) loss on early extinguishment of debt			40,423				(7,060	)			40,423				(7,060	)
Unrealized gains on derivative financial instruments			(5,459	)			(6,649	)			(22,790	)			(24,024	)
Amortization of actuarial loss and prior service credits for retirement benefits			2,537				1,286				10,147				7,899
Other non-cash items			39				124				166				74
Changes in operating assets and liabilities:
Receivables			(14,907	)			(162	)			1,382				(31,442	)
Prepaid expenses and other assets			(6,461	)			(13,992	)			(22,331	)			(20,780	)
Accounts payable and accrued liabilities			7,364				10,714				7,598				1,542
Accrued interest payable			(167,230	)			(149,906	)			(24,997	)			(2	)
Deferred revenue			38,017				(11,189	)			108,545				51,805
Accrued retirement benefits			(4,131	)			(956	)			(26,019	)			(20,707	)
Other long-term liabilities			3,572				(938	)			16,292				(28,111	)
Net cash provided by operating activities, prior to the effect of any impairments			94,881				46,646				1,046,170				918,231
Cash flows from investing activities:
Payments for satellites and other property and equipment (including capitalized interest)			(142,437	)			(172,638	)			(645,424	)			(724,362	)
Purchase of cost method investment			—				—				—				(25,000	)
Other investing activities			—				(5,000	)			174				(4,992	)
Net cash used in investing activities			(142,437	)			(177,638	)			(645,250	)			(754,354	)
Cash flows from financing activities:
Repayments of long-term debt			(586,000	)			(17,829	)			(610,418	)			(496,829	)
Payment of premium on early extinguishment of debt			(21,250	)			—				(21,250	)			—
Proceeds from issuance of long-term debt			135,000				—				135,000				430,000
Dividends paid to preferred shareholders			(2,480	)			(2,480	)			(9,919	)			(9,919	)
Principal payments on deferred satellite performance incentives			(5,367	)			(5,902	)			(19,774	)			(19,568	)
Capital contribution from noncontrolling interest			—				—				12,209				—
Dividends paid to noncontrolling interest			(2,087	)			(1,700	)			(8,744	)			(8,423	)
Other financing activities			(7	)			—				3,893				(1,447	)
Net cash used in financing activities			(482,191	)			(27,911	)			(519,003	)			(106,186	)
Effect of exchange rate changes on cash and cash equivalents			(3,139	)			2,670				(6,560	)			(9,297	)
Net change in cash and cash equivalents, prior to the effect of any impairments			(532,886	)			(156,233	)			(124,643	)			48,394
Cash and cash equivalents, beginning of period			656,033				327,774				247,790				123,147
Cash and cash equivalents, end of period		$	123,147			$	171,541			$	123,147			$	171,541
Supplemental cash flow information:
Interest paid, net of amounts capitalized		$	397,627			$	372,395			$	970,345			$	894,465
Income taxes paid, net of refunds			7,209				3,790				37,805				26,324
Supplemental disclosure of non-cash investing activities:
Capitalization of deferred satellite performance incentives		$	27,681			$	16,800			$	27,681			$	16,800
Accrued capital expenditures			21,690				66,228				80,621				82,208

 

18

---

INTELSAT S.A.

UNAUDITED PRELIMINARY RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW FROM (USED IN) OPERATIONS

($ in thousands)

 

		Three Months Ended December 31, 2014				Three Months Ended December 31, 2015				Year Ended         December  31, 2014				Year Ended         December  31, 2015
Net cash provided by operating activities, prior to the effect of any impairments		$	94,881			$	46,646			$	1,046,170			$	918,231
Payments for satellites and other property and equipment (including capitalized interest)			(142,437	)			(172,638	)			(645,424	)			(724,362	)
Free cash flow from (used in) operations, prior to the effect of any impairments		$	(47,556	)		$	(125,992	)		$	400,746			$	193,869

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). Free cash flow from (used in) operations excludes proceeds resulting from settlement of insurance claims, and is not a measurement of cash flow under 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 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 GAAP, and 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 or net income, determined in accordance with GAAP, as an indicator of Intelsat’s operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity.

The free cash flow from (used in) operations information presented above, with respect to the 2015 periods, is prior to the effect of any impairments.

 

19

Exhibit 99.2

 

Quarterly Commentary

Preliminary Fourth Quarter and Full Year Ended

December 31, 2015

February 22, 2016

Preliminary Fourth Quarter & Full Year 2015 Performance Summary

Our performance in the fourth quarter of 2015 was in line with our expectations as we advanced our operating priorities. Our first high throughput satellite, Intelsat 29e, was successfully launched in January 2016. It is scheduled to enter into service in the second quarter, to deliver carrier-grade services to fixed and mobile network operators, and support broadband applications for enterprise, aeronautical and maritime mobility service providers and government customers operating throughout the Americas and the North Atlantic region.

In the course of completing an annual valuation of goodwill and other intangible assets that we are required to perform under U.S. Generally Accepted Accounting Principles, the company expects to incur a non-cash impairment charge resulting in a substantial reduction of our $6.8 billion goodwill and other intangible assets. The charges primarily reflect a reduction to the goodwill value established as a result of the acquisition of Intelsat in 2008.

At present, we believe this process will be completed in the next two weeks after which we would expect to file our Annual Report on Form 20-F for the year ended December 31, 2015.

All fourth quarter and full year 2015 financial information provided in this Quarterly Commentary is preliminary (indicated as “P”) and presented prior to giving effect to any impairment charges we ultimately incur.

 

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Full year 2015 financial performance is expected to meet our established 2015 guidance. Preliminary total revenue for full year 2015 is expected to be $2.353 billion, prior to the effect of any impairments, a decline of 5 percent as compared to full year 2014. Preliminary Adjusted EBITDA¹ for the full year 2015 is $1,855 million, or 79 percent of revenue, prior to the effect of any impairments, also a declining 5 percent as compared to full year 2014.

Overall, our performance reflects the trends we experienced from the start of 2015, including pricing pressure for certain regions and applications and reduced U.S. government spending, compounded with continued currency challenges in certain countries and services reaching end of lifecycle.

Contracted backlog at December 31, 2015 was $9.4 billion, representing expected future revenue under existing contracts with customers, compared to $9.5 billion at September 30, 2015. At 4.0 times trailing 12 months revenue (from January 1, 2015 to December 31, 2015), our backlog remains sizable and a foundation for predictable cash flow and investment in our business.

 

2

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

2016 Operational Priorities: Increasing Our Emphasis on Services to Drive Differentiation

In early 2015, we identified five operational priorities that set the path for us as we position for growth. As we continue to execute on these priorities in 2016, we are building the inventory and service capabilities in the regions and applications that represent our most attractive growth prospects. Our strategy is centered on continuing to provide infrastructure to our current sectors, such as media, network services and government, but with an emphasis on services and innovative technologies that will position us to compete for $3 billion in incremental revenue opportunity through 2020 for applications that are sustainable and feature attractive growth rates. The applications comprising this growth opportunity include broadband for enterprise, wireless infrastructure, Internet of Things (“IoT”), aeronautical and maritime mobility and government.

Fourth Quarter 2015 and Ongoing Progress on our Operational Priorities:

 

•

Maintain our design, manufacturing and launch schedule for the next generation Intelsat EpicNG fleet, and other satellites in our plan, to ensure availability of new, differentiated inventory to drive revenue growth;

 

•

Our 2016 launch program remains unchanged, with all in-service dates maintained or improved (see table below for our complete launch plan). In addition to the Intelsat 29e and Intelsat 33e satellites, our 2016 launch program also includes two satellites supporting growth in our media business.

 

•

Subsequent to the year-end, we successfully launched the Intelsat 29e satellite; and it is currently undergoing in orbit testing. It is scheduled to fully enter service in the second quarter. The satellite is the first in our next generation fleet, bringing higher performance, economics and simple access for the growth applications outlined above.

 

•

Drive innovation to create next generation solutions, including collaborating with ground technology manufacturers and other partners to ensure optimized performance, economics and simplified access for Intelsat EpicNG, for applications including broadband infrastructure, mobility, government, media and enterprise solutions;

 

•

In early January, we joined Kymeta Corporation, a flat panel antenna developer, at its presentation with automotive leader, Toyota, at the North American International Auto show in Detroit, Michigan. The presentation highlighted a seamless installation of Kymeta’s metamaterial antenna, and satellite’s role in providing highly secure and efficient data connectivity to automobiles. Separately, our Ku-band Kymeta-developed maritime antenna, for which we have exclusive rights, is expected to begin commercial production as early as 2017.

 

3

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

•

Develop application-specific capacity and new service offerings that support the growth objectives of our customers across our business in the media, network services and government sectors, including mobility applications, and invest in our video neighborhood orbital locations to support long-term growth goals;

 

•

Since October 30, 2015, Intelsat has signed nine additional Intelsat EpicNG agreements with customers, spanning applications including enterprise and fixed and wireless infrastructure. The majority of these agreements reflect existing customers transitioning from existing satellites to the Intelsat EpicNG platform. Most customers in this period contracted for at least the same amount of bandwidth, with two providing incremental commitments. In addition, contract terms on the Intelsat EpicNG satellites continued to be favorable, with the average contract length approximately six years, longer than that of the average fleet-wide network services contract.

 

•

Maintain our leadership in government services, focusing on government projects that require end-to-end network responsibilities and complex network support, improving our value proposition to government customers seeking affordable solutions from trusted commercial providers;

 

•

Our subsidiary, Intelsat General Corporation (“Intelsat General”), continues to position for growth. Improving stability in this sector is demonstrated by Intelsat General’s renewal rates on the provision of commercial satellite services to the U.S. government. For the full year 2015, Intelsat General improved its on-network renewal rate by 15 percentage points as compared to 2014, returning to an experience level nearer to that of pre-sequestration/troop withdrawal periods.

 

•

Optimize use of our spectrum rights and global presence to maximize market access and continuity, particularly in attractive regions, while maintaining investment discipline.

 

•

In the fourth quarter, Intelsat and JSAT announced a joint venture that will launch a new satellite with high throughput Ku-band capacity to satisfy growing mobility and broadband connectivity demands in the Asia-Pacific region, as well as optimized C-band. To be known as Horizons 3e, the satellite is based on the Intelsat EpicNG high throughput design and, upon launch, will complete the global footprint of the Intelsat EpicNG next generation platform. The satellite will be stationed at the 169°E orbital location, with a launch expected in the second half of 2018.

 

4

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Preliminary Q4 2015 Business Highlights and Customer Set Performance

All 2015 comparisons are to 2014 unless specifically noted otherwise

 

Network Services
Preliminary network services revenue was $245 million in the fourth quarter of 2015, a $39 million, or 14 percent, decrease to the prior year quarter. The decline reflects the expected, and previously disclosed, conclusion of the channel service type. Other sources of decline included lower renewals of other point-to-point trunking services and pricing pressure on renewing business, primarily in Africa and Latin America, and price reductions related to currency fluctuations in Russia and Brazil. New business was modest, reflecting relatively limited availability of growth capacity appropriate for high demand applications such as mobility and wireless infrastructure.

Fourth Quarter Network Services Highlights and Business Trends:

Commitments for our next generation Intelsat Epic^NG fleet continue to build, in addition to new and renewing contracts on our traditional fleet, including the following:

 

•

Intelsat signed its first Intelsat EpicNG deal for the Southwest Asia region with a leading network services provider. The long-term agreement will provide broadband connectivity for wireless infrastructure on Intelsat 33e and is fully incremental service.

 

•

BT Latam Argentina S.A. signed multi-year commitments for C- and Ku-band capacity providing broadband connectivity for enterprise network applications across Latin America on Intelsat 23 and Intelsat 29e.

Leading fixed and wireless telecommunications providers are foundational to our network services business. As we position for a return to growth, an important strategy element is ensuring that we defend our customer base of the world’s largest satellite users, winning renewals and maintaining volume on our fleet. Large customers in the Africa region continue to build out wireless, enterprise and mobility broadband services using our infrastructure, as reflected in the following portfolio renewals:

 

•

Orange S.A. renewed and expanded their services with Intelsat via a multi-year, multiple satellite deal to deliver broadband connectivity to remote regions as well as corporate enterprises.

 

•

Telkom SA SOC Ltd. (“Telkom”), the leading wireline and wireless telecommunications provider in South Africa, signed a multi-year renewal on Intelsat 12 and expanded its agreement across two additional satellites, Galaxy 11 and Intelsat 38. Telkom is using our services to provide VSAT services for enterprise applications, including ATM networks for financial institutions and point of sales services for retail companies within South Africa.

 

•

Bharti Airtel signed a multi-year renewal for C-band satellite solutions for wireless infrastructure across five Intelsat satellites serving Africa.

 

5

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

On a global basis, growth opportunities for our network services business include increased demand for aeronautical mobility, IoT and maritime mobility applications, and high throughput capacity for fixed and mobile broadband applications for telecommunications providers and enterprise networks. On a combined basis, these applications are expected to grow from a $4 billion opportunity in 2015 to a $7 billion opportunity in 2020. The launches of Intelsat 29e and Intelsat 33e, expected to enter service in the second quarter of 2016 and year-end 2016, respectively, are designed to provide necessary growth capacity to address these applications. In addition, we have a custom payload being built on third party-owned satellite to be known as Intelsat 32e, which will not require capital expenditure and is currently expected to launch in the first quarter of 2017.

 

 

Fourth Quarter Media Highlights and Business Trends:

Business in the quarter was driven primarily by new and renewing contracts related to Intelsat’s media distribution neighborhoods in Asia, Europe and Latin America.

 

•

BBC World News has renewed a multi-year contract with Intelsat. Intelsat provides BBC World News with a global distribution network, using three Intelsat satellites, Galaxy 13, Intelsat 19 and Intelsat 20, and our teleports in Ellenwood, Georgia, Napa, California, and Fuchsstadt, Germany. Intelsat broadcasts BBC’s content in SD and HD on the most sought-after distribution neighborhoods in the North America, Asia-Pacific, South Asia and Latin America regions.

 

•

Essel Shyam Communication, a leading satellite-based telecom and IT solution service provider, signed a multi-year agreement renewing and expanding its service platform on Intelsat. Essel Shyam has the ability to expand its current presence on Intelsat 20.

Given the high fill rates on our most popular video neighborhood satellites, the next growth catalyst for our media business is the launch of Intelsat 31. This satellite, which is planned to launch and enter into service in the second quarter of 2016, has a customized Ku-band payload in support of DIRECTV^® Latin America. In the third quarter of 2016, we also plan to launch Intelsat 36, which supports growth for our South Africa DTH neighborhood at 68.5ºE. This satellite is scheduled to enter service in the fourth quarter of 2016.

 

6

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

 

Fourth Quarter Highlights and Business Trends:

 

•

Intelsat General received a contract for 432 MHz of Ku-bandwidth to support U.S. Air Force’s Central Command (“US AFCENT”). The service, which commenced in February 2016, has four, one-year renewal option periods.

 

•

Intelsat General received a contract for 288 MHz of Ku-bandwidth to support U.S. military operations in the Central Command (“CENTCOM”) Area of Responsibility (“AOR”). The service, which commenced in February 2016, has four, one-year renewal option periods.

 

•

Our pursuit of a global contract for the U.S. Navy, known as the Commercial Broadband Satellite Program (“CBSP”) Satellite Services Contract (“CSSC”), which is the replacement for a contract we currently provide, is still active. In the third quarter of 2015 we were notified that we were not the winning bidder for the replacement CSSC contract. We immediately protested the award with the General Accountability Office (“GAO”) and in December 2015, we were notified by the GAO that our protest had been sustained. In response, the procurement agency released an amended solicitation in January 2016 requesting new proposals. We responded to this solicitation with a new proposal and also filed a new protest with the GAO based on flaws we perceived with the revised process.

Our government business is now stable, with the notable exception of the CSSC contract process discussed above. This near-term view is based upon the current tempo of our end-customers’ operations. Still, visibility remains limited, with the pace of RFP issuance and subsequent awards remaining slow. Over the mid-term, our strategy to grow this business includes providing mobility services to the U.S. government for aeronautical and maritime requirements, especially as our next generation Intelsat Epic^NG services are activated. We are also positioning to provide satellite-related operations support as the government increasingly commercializes certain operational capabilities.

 

7

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Fleet and Operations Update

The station-kept 36 MHz equivalent unit count was approximately 2,150 at the end of the fourth quarter of 2015, reflecting the entry into service of Intelsat 34 during the period and the exit of Intelsat 805 from the station-kept count as it drifts to its redeployed location. Utilization was at 76 percent, reflecting incremental units under contract, primarily related to mobility applications.

Intelsat currently has eight satellites in the design and manufacturing stages, or recently launched, that are covered by our capital expenditure plan. In addition, we are working on three other satellites, including two custom payloads being built on third-party satellites and a joint venture satellite.

Our 2016 launch program started with the successful launch of Intelsat 29e in January. We currently expect to launch three additional satellites in 2016. Our next launch is Intelsat 31, the second of two satellites being used primarily by DIRECTV^® Latin America, which is scheduled to launch on a Proton launcher in the second quarter of 2016.

Our satellites currently in the design and manufacturing stages, or recently launched, are noted below.

 

Satellite

Follows

Orbital Location

Launch Provider

Estimated Launch Date

Estimated In-Service Date

Application

Intelsat 29e

IS-1R, IS-805

310°E

Arianespace Ariane 5

Launched

2Q16

Broadband & Mobility

Intelsat 31

New

95°W

Proton

2Q16

2Q16

DTH

Intelsat 36

New

68.5°E

Arianespace Ariane 5

3Q16

4Q16

DTH/Media

Intelsat 33e

IS-904

60° E

Arianespace Ariane 5

3Q16

YE 2016

Broadband Infrastructure

Intelsat 35e

IS-903

325.5°E

SpaceX Falcon 9

2017

2018

Broadband 8c Media

Intelsat 37e

9-series Replacement

TBD

Arianespace Ariane 5

2017

2018

Broadband Infrastructure

Traditional

9-series Replacement

TBD

Not Yet Assigned

2018

2019

Broadband Infrastructure

EpicNG class

10-series Replacement

TBD

Not Yet Assigned

2019

2020

Broadband & Media

In addition to these planned satellites, Intelsat 32e and Intelsat 38 are custom payloads being built on third party satellites and will not require capital expenditure. Intelsat 32e is to be located at 43.1°W and the satellite is planned for launch in the first quarter of 2017. A launch date is not yet set for Intelsat 38, which will be located at 45°E. In the fourth quarter of 2015, we announced Horizons 3e, a joint venture satellite which will be located at 169°E, and is planned for launch in 2018.

 

8

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Preliminary Fourth Quarter 2015 Financial Performance

 

Cash Flows

During the fourth quarter of 2015, preliminary net cash provided by operating activities was $47 million, prior to the effect of any impairments. Cash paid for interest in the fourth quarter was $372 million, of which $23 million was capitalized. Under existing debt agreements, Intelsat makes significantly heavier interest payments in the second and fourth quarters as compared to the first and third quarters of the year.

 

9

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Capital expenditures were $173 million, resulting in free cash flow used in operations¹ of $126 million, prior to the effect of any impairments, for the fourth quarter of 2015.

Our ending cash balance at December 31, 2015, is expected to be $172 million.

Capital Markets and Debt Transactions

During the fourth quarter of 2015, we repurchased $25.0 million in aggregate principal amount of Intelsat (Luxembourg) S.A.’s 6 3/4% Senior Notes due 2018. In connection with these repurchases, we recognized a gain on early extinguishment of debt of $7.1 million in the fourth quarter of 2015, consisting of the difference between the carrying value of the debt purchased and the total cash amount paid, and a write-off of unamortized debt issuance costs.

We have recently retained Guggenheim Securities, LLC to assist the Company in connection with various financing and balance sheet initiatives, including, among other things, evaluating the level of secured debt and balance sheet management opportunities. There can be no assurance that our retention of Guggenheim Securities, LLC will result in our pursuing or completing any specific transaction.

 

10

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

2016 Outlook & Guidance

Business Environment: Our backlog provides the foundation for our revenue assumptions. Our beginning of year backlog for 2016, $1.8 billion, declined nearly 8 percent as compared to beginning of year backlog for 2015. The erosion in this metric reflects a number of factors affecting our business in 2015. These challenges pressure our revenue, and include the following:

 

•

Increased pricing pressure, the most intensive of which is in our network services business as a result of oversupply of traditional capacity and forward-pricing of high throughput capacity; price pressure exists in many of the regions we serve, although most intense areas are Africa and to a lesser degree Latin America;

 

•

Reduced volume in network services due to certain services reaching end of lifecycle, specifically point-to-point services. Our exposure to these services is slightly more than 5 percent of total company 2015 revenue; these services can now be more economically delivered by fiber. We expect these services to exit our network at an accelerated pace over the next several years;

 

•

Continuing geoeconomic conditions and the strengthening of the U.S. dollar which is causing us to adjust prices for certain network services and media customers in Brazil and Russia, and to encounter higher foreign exchange expenses; and

 

•

The annualization of reduced volume requirements contracted by certain of our North American media customers in the second half of 2015, as they implement compression and other techniques to reduce transmission requirements for some programming. Our 2016 outlook also reflects an assumption of reduced volume in our government business, as described below.

The lower beginning of year backlog also reflects fewer new contracts as compared to past years, and lower pricing, primarily within the renewed network services backlog.

These trends are expected to continue to affect our business in 2016. The launch and entry into service of three additional satellites over the course of 2016 is expected to position us to return to growth.

Revenue Guidance: We expect full year 2016 revenue of $2.14 billion to $2.20 billion, reflecting:

 

•

stable to a slight decline of 2 percent in our media business. Our media business will benefit from new capacity expected to enter service in the second and fourth quarters of 2016. This will be offset by the annualization of declines experienced in the second half of 2015 due to migration to new compression technologies, in addition to continuing currency pressures related to our business in Brazil and Russia, as described above;

 

•

a decline in our network services business of 15 to 17 percent, reflecting pricing pressure in the Latin America, Europe and Africa and Middle East regions, continuing erosion of point-to-point international trunking services, and also continuing currency pressures related to our business in Brazil and Russia; and

 

•

a decline in our government business of 4 to 7 percent, noting that revenue would be stable if not for the loss of the CSSC contract, the procurement process for which is currently under formal protest.

Adjusted EBITDA Guidance: Performance is expected to range from $1.625 billion to $1.675 billion, reflecting lower revenue and increased operating costs as we develop our service infrastructure.

 

11

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Capital Expenditure Guidance: The table below summarizes capital expenditure and customer prepayment guidance, which was maintained for 2016, revised downwards for 2017 and which introduces guidance for 2018:

 

Guidance		FY 2016		FY 2017		FY 2018
Capital Expenditures		$725M - $800M		$625M - $700M		$425M - $525M

Our capital expenditure guidance includes capitalized interest. Given that there are no further significant customer prepayments contemplated at this time, we will no longer be providing guidance on this metric. The annual classification of capital expenditure and prepayments could be affected by the timing of achievement of contract, satellite manufacturing, launch and other milestones.

The net number of transponder equivalents is expected to increase by a compound annual growth rate (“CAGR”) of 10 percent as a result of the satellites entering service between January 1, 2016 and December 31, 2018. This aligns to the launches of the Intelsat Epic^NG high throughput satellites, the first of which is expected to enter service in the second quarter of 2016 and the second of which is planned to launch in the third quarter of 2016 and then enter service by year end 2016.

Cash Taxes: We expect annual cash taxes to be approximately $30M to $35M.

Stephen Spengler, Chief Executive Officer, Intelsat S.A.

¹ In this quarterly commentary document, financial measures are presented both in accordance with GAAP and also on a non-GAAP basis. EBITDA, Adjusted EBITDA ( “AEBITDA”), free cash flow from (used in) operations and related margins, adjusted net income and adjusted net income per diluted common share included in this commentary are non-GAAP financial measures. Please see the consolidated financial information found in our earnings release and available on our website for information reconciling non-GAAP financial measures to comparable GAAP financial measures.

Special Note Regarding Expected Financial Results

We have not yet filed our Annual Report on Form 20-F for the year ended December 31, 2015, which we intend to file on a timely basis with the SEC in March 2016. The preliminary financial information and other data set forth above has been prepared by, and is the responsibility of, our management. The preliminary financial information represents the most current information available to us. The foregoing preliminary financial information has not been audited, compiled or examined by our independent registered public accounting firm nor have our independent registered public accounting firm performed any procedures with respect to this information or expressed any opinion or any form of assurance on such information. In addition, the foregoing preliminary financial information is subject to revision as we prepare our combined consolidated financial statements and other disclosures as of and for the year ended December 31, 2015, including all disclosures required by GAAP. Because we have not completed our normal annual closing and review procedures for the year ended December 31, 2015, and subsequent events may occur that require material adjustments to these results, the final results and other disclosures for the year ended December 31, 2015 may differ materially from these estimates. These estimates should not be viewed as a substitute for full financial statements prepared in accordance with GAAP or as a measure of performance. In addition, these estimated results of operations for the year ended December 31, 2015 are not necessarily indicative of the results to be achieved for any future period. See “Safe Harbor Statement.”

 

12

---

Intelsat S.A.

Quarterly Commentary

4Q and Full Year 2015

 

Safe Harbor Statement

Statements in this quarterly commentary and certain oral statements made from time to time by our representatives constitute “forward-looking statements” that do not directly or exclusively relate to historical facts. When used in this quarterly commentary, 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: our expectation that we will incur an impairment charge that will result in a substantial reduction of our goodwill and other intangible assets; 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 expectations for our revenue performance, including in our different customer sets, and Adjusted EBITDA performance in 2016; our capital expenditure guidance for 2016 and the next several years; our expectations as to the increased number of transponder equivalents on our fleet over the next several years; our expectations as to the level of our cash tax expenses in the future; and our belief that as we execute on our initiatives, we will build the inventory and service capabilities to allow us to capture future growth, including in emerging opportunities.

Forward-looking statements reflect Intelsat’s intentions, plans, expectations, 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 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 years ended December 31, 2014 and 2015 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, 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.

Contact

Dianne VanBeber

Vice President, Investor Relations and Communications

[email protected]

+1 703-559-7406

 

13

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Apeing’s 2,400% ROI Could Turn $15K Into $375K at Listing – What Past Crypto Winners Reveal About the Next 100x Meme Coin?
• Apeing Presale Surpasses $80,000 as Stage 3 Progresses Toward Scheduled Stage 4 Launch
• PwC US and PwC India Form Joint Venture to Help Clients Grow and Compete at Greater Speed and Scale