Intelsat has filed suggested modifications to the draft order issued by the FCC
Shares of Intelsat (I) are on the rise after the satellite operator reported better than expected revenue for the quarter as well as losses that were not as steep as forecast. The stock was in the spotlight earlier this week after David Tepper's Appaloosa reported a 7.4% stake in the company and made public a letter to Intelsat's board to express its "dissatisfaction" with the recently announced proposed order issued by the FCC with respect to an auction of C-band spectrum currently licensed to the company and other satellite operators.
QUARTERLY RESULTS: Intelsat reported fourth quarter losses per share of (81c), with consensus at (94c), and fourth quarter revenue of $517M, also better than the expected $500.9M. Additionally, the company said it sees 2020 revenue between $1.93B-$1.98B, against consensus $1.98B, and 2020 adjusted EBITDA of $1.34B-$1.39B. This reflects trends relating to the lower revenue and increased direct costs of revenue, staff and marketing costs. Capital expenditure is expected to be $200M-$250M for 2020; $225M-$300M for 2021; and $225M-$325M for 2022.
During the company's earnings call, Intelsat's VP of IR and Corporate Communications Dianne VanBeber also said that, "We know that information regarding the C-band proceeding is correctly important to the investment community. The FCC issued its draft order on February 7, and we like other parties are still in the process of analyzing the impact of the draft order on the company. Yesterday, we filed suggested modifications to the draft order. We believe those proposed changes are essential to produce a final order that is implementable and has an acceptable level of business risk. […] We continue to meet with the FCC and discuss various aspects of the draft order and may make additional filings. There can be no assurance that the FCC will accept our suggested modifications. And thus, any further commentary at this time would be speculative."
Commenting on the company's results, Goldman Sachs analyst Brett Feldman noted that the key driver of upside was improved trends in Network Services revenues, which more than offset pressures on Media. While this is "encouraging," the analyst argued that 2020 revenue guidance is in line with his estimate and the company's EBITDA outlook implies a "bit more pressure" than he had expected owing to increased costs associated with growth in managed services and other lower margin revenues. This is offset from a free cash flow standpoint by an outlook for lower capex, but this may only be a near/medium-term benefit as Intelsat is not in the midst of a new satellite construction and launch phase, he added.
TEPPER'S APPALOOSA TAKES STAKE: Earlier this week, David Tepper's Appaloosa disclosed a 7.4% stake in Intelsat, which represents 10.45M shares. On February 18, Appaloosa delivered a letter to Intelsat's board to express its "dissatisfaction" with the recently announced proposed order issued by the Federal Communication Commission with respect to an auction of C-band spectrum currently licensed to the company and other satellite operators. Appaloosa advised that, as currently constructed, the FCC's proposal would impose an "undue negative impact" on Intelsat. The hedge fund urged the company to withhold acceptance pending negotiation of an agreement with the FCC on "fair commercial terms."
C-BAND AUCTION PLANS: In a notice posted to the site of the Federal Communications Commission back on February 7, the regulator reported that Chairman Ajit Pai announced the items on the tentative agenda for the February Open Commission Meeting scheduled for Friday, February 28. Along with that announcement, the FCC included a C-Band Rules document that included the accelerated relocation payments that the FCC would make available for each of the five eligible operators under Pai's proposal.
"These payments reflect a variety of inputs, including content-distribution revenues, population coverage in the contiguous United States, and traffic. The Clearinghouse will distribute the accelerated relocation payments to each eligible space station operator," the document states. For Intelsat, the "Phase I Payment" proposed is $1,194,498,000 and the "Phase II Payment" proposed is $3,657,286,800.
PRICE ACTION: In late morning trading, shares of Intelsat have gained about 8% to $4.33.