It has been a big week on the financial results front with a number of the industry’s largest operators reporting on their first quarter. In particular, Intelsat’s results always act as a barometer of how the industry is doing and potentially shaping up. Here we look at what analysts said about the operator’s first quarter results and how it relates to the other major operators’.
Chris Quilty, president of Quilty Analytics, started his research note by highlighting the importance of mobility for Intelsat now. It seems important, and maybe even a little symbolic that this segment has now reached 12 percent of Intelsat’s revenues generating around $250 million. It signifies the importance of the Intelsat’s Epic fleet, which is gradually becoming more apparent.
“Although Intelsat does not disclose Epic revenues, management confirmed that mobility revenues have been growing in the ‘strong teens’ over the past year. Epic backlog climbed $100 million sequentially to $1.1 billion. Pricing remains competitive, especially for high-volume deals, but Intelsat is continuing to perform well competitively due to the scale, capacity, and flexibility of the Epic fleet,” said Quilty.
The numbers around mobility are particularly interesting as it seems all operators are seeing a strong bump in revenues around this segment. Inmarsat, which has had its struggles over the last year, saw a significant surge in its revenues from aviation, one of its main target markets. With Intelsat also seeing growing importance of mobility, it shows things are changing.
Stephen Spengler, CEO of Intelsat, told Via Satellite in a recent interview that mobility is still an area of great growth for the operator. “Even though there has been growth in recent years, there is still a long way to go when it comes to connecting aircraft, ships, etc. We are very active here. But there are new applications in mobility, and this ties in with the new work we are doing with Kymeta and the launch of their Kalo service. Their focus is on land mobility and new types of connectivity applications there.” Spengler is also a big fan of the connected car market for satellite. “If you look at the long term, connecting cars is the big market. The numbers are enormous. Connectivity to cars in our view is going to be multi-faceted. There will be a number of different connections into the car. There will be Wi-Fi when it is parked in a garage. It could be LTE/5G when it is moving around urban areas. It maybe satellite in other locations,” he added.
Government and Asia
But, it is not only mobility causing optimism for Intelsat. Government revenues could also be on the up, and this remains another important barometer for the company. “Following years of steady declines, we are forecasting government revenues to grow 4 percent in 2018, aided by more favorable contract renewals and an ASC 606 bump. Intelsat renewed one-third of 2018 contract renewals during Q1 under generally favorable terms,” said Quilty.
Interestingly, the market in Asia could also be looking good for Intelsat. Andrew Spinola, a satellite equity analyst at Wells Fargo, said in a research note, “Horizons 3e, planning to launch in H2’18, has seen demand from mobile operators in the Asia-Pacific region for cellular network extensions. Q1’18 added a second pre-launch commitment from a major Asian wireless customer. Intelsat expects that the satellite will also grow maritime and other mobility services given that it covers oceans/air routes.”
Spinola said Intelsat reported an in-line quarter on revenues and adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). But, he did point out that network services continue to be pressured due to non-renewals and pricing declines on the wide-beam businesses but are mitigated by mobility services in aero/maritime. He added that media is also being pressured by non-renewals and lower occasional use demand. He was surprised by the recent surge in Intelsat’s share price.
“It is unclear to us why the stock reacted so positively to Q2 given that the segments performed as expected with no material C-band updates. We remain cautious on the core business and bullish on the C-band initiative. We maintain our Market Perform rating but are increasing our price target from $3 to $8 due to the inclusion of the C-band in our valuation.”
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