Q4 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 entities that it's eight earnings conference call.
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I would I like 10, New conference over to your Speaker Ms. Dianne Vanbeber VP of Investor Relations. Thank you. Please go ahead.
Welcome everyone and thank you for joining Intelsats fourth quarter and year end 2019 earnings Conference call earlier. This morning, we issued our earnings release, which is available on our website. We are updating our disclosure practices and starting today will provide extended opening remarks in lieu of issuing the quarterly commentary.
Later today, we'll be filing the annual report of Intelsat Assai on form 10-K, with the FCC you can find that Mike [noise] in the filing on our website.
In our prepared remarks today, all comparisons will be to fourth quarter and full year 2019, as compared to the like periods in 2018 unless noted otherwise.
Also during today's call will discuss adjusted EBITDA and other financial metrics not prepared in accordance with U.S. generally accepted accounting principles, including EBITDA related margins and free cash flow from operations. We provide reconciliations of these metrics to the most directly comparable U.S. GAAP measures in the earnings release and on our website. Additionally, our conversation today will include forward looking.
Shipments that reflect our current expectations for future industry conditions, as well as our business strategy market trends and positioning and expected future financial performance. These forward looking statements are subject to risks and uncertainties many of which are outside of our control. Please refer to the safe Harbor statement included in our annual report on form 10-K for the year ended December 31st 29 team on spine.
And our other SEC filings for information about some of the factors that could cause our actual results to differ materially from our expectations.
C band, we know that information regarding the C band proceeding is critically important to the investment community. The FCC issued its draft order on February seven and we like other parties are still in the process of analyzing the impact of the draft order on the company.
Yesterday, we filed with the FTC suggested modifications to the draft order. We believe those reports proposed changes are essential to produce a final order that is implementable and has an acceptable level of business risk, we direct investors to our filings to understand our current views on the proceeding.
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 the US any further commentary at this time would be speculative.
As a result on today's call, we will not entertain any questions on the C band proceeding at the FCC, we will differ or comments until we are fully informed on the major elements of the final order, which is currently expected to be issued no earlier than February 28.
When we have studied the final order, we can offer definitive views on the outcome as it pertains to Intelsat.
Finally, please be aware that the conference call today is open to the investment community and media with media invited to participate in listen only mode members of the media are not authorized to quote either directly or in substance any participant in the call who is not a representative essential that.
Our call today is hosted by CEO, Stephen Spangler, and our executive Vice President and CFO, David Tali following opening remarks by both well open the call for questions Steve.
Thanks, Dan.
What do you 19 ended on a strong note with our full year revenue and adjusted EBITDA results coming in above our guidance range or performance reflected new contract starts from the telecom infrastructure and mobility sectors.
And by our new satellites that entered the fleet in 2019, Intelsat 39 and horizons three.
We also benefited from steadily increasing revenue streams from our Joe core trunking influx managed services.
Compared to 2018 or full year revenue of $2.06 billion declined about 5%.
Full year, adjusted EBITDA of $1.48 billion or 72% of revenues declined by 11%.
Fourth quarter revenue declined 5% to $517 million due primarily to challenges in our media business.
Adjusted EBITDA declined 11% to $371 million.
These results reflect the impact of the Intelsat 20, Ninee He lost which occurred in April 2019.
In addition in 29 team, we incurred increased direct cost of revenues for Horizons, three Intelsat 38, as we pursue programs that tradeoff increased opex for Laurel lower capital expenditures.
Looking briefly at each of our business units. The network services business finished strong at $200 million in revenue with nearly flat performance as compared to the year ago quarter and increasing sequentially.
Two factors fuel the improved performance in network services.
First our managed services growth strategy led to unit and revenue growth, especially for maritime mobility and broadband infrastructure applications.
In 2019, we provided our customers and more specifically our distributor network with the right products in marketing support.
Second there is renewed strength in telecommunications infrastructure, notably in Asia. This trend was supported by Intelsat 39 with incremental revenue as it entered service in early October.
The trend also reflects new starts on horizons, Threeg, and Intelsat 30, threee coming from leading wireless and broadband service providers in Japan, Indonesia in Pakistan.
Our fourth quarter media revenue declined 9% to $211 million with increasing importance of digital platforms content owners seek to reduce operating expenses for linear distribution, which is impacting our media business.
That said satellite distribution remains the essential enabler of our media customers businesses in the fourth quarter, we booked long term renewals on several services for one of our largest direct to home and distribution customers in Africa.
Further in January we contracted with a new customer in established direct to home distributor in India with services expected to begin later this year.
In addition to Nonrenewals a reduction in revenue from an eastern European direct to home customer with financial difficulties contributed to the lower results in the quarter.
Our government business declined 2% to $96 million in the fourth quarter. It's run rate is tracking to the third quarter results.
Overall, the government business achieved generally strong renewal rates.
Our government business is fully engaged in our managed services strategy in bringing new solutions to market.
Managed services offer flexibility to the customer and provide alternative contracting model such as pays you go services that are advantageous to tactical and users.
The government business rolled out a new managed service in the fourth quarter Flex ground. The services designed to provide on demand high data rate access for force for first entry forces special operations and other quick action situations.
Using terminals that are designed to set up to be set up and connected in minutes flex ground, who will offer enhance speed and improved economics as compared to MSS services.
With respect to the Intelsat fleet, we were flying 54 satellites at year end 2019, we currently have manufacturing orders on two satellites. The first is galaxy 30, which will provide CK you in K band North American services in a hosted payload for the L band.
Ill and L band hosted payload for the FDA.
It's expected to launch in the second quarter of Twentytwenty.
In early February we announced the order of Intelsat 40. The newest addition to our fleet of Intelsat epic high throughput satellites.
Intelsat 40 is purpose built to address high growth aeronautical land in maritime mobility applications, featuring us coast to coast coverage.
We're also investing to access and develop other space based technologies and higher growth markets that are adjacent to hours.
An example of this is the funding we provided the black Sky, which we announced in the fourth quarter.
Last guy as a geospatial intelligence provider with data analytics capabilities that we see as a natural extension of our government business.
We view this as the foundation of a commercial partnership that will extend our product line, while expanding blast guys go to market capabilities with our global Salesforce.
As you can see the fourth quarter capped the year were several operational accomplishments in 2020, we will continue to build on those.
Our four Twentytwenty operating priorities are designed to achieve revenue stability and ultimately a return to growth over the midterm.
We always start with our network. Our first operating priority is to ensure that we leverage our network assets. The maximum effect investing in new assets to support growth such as Intelsat 40. He has a great example, this priority also includes leading the sector with innovation on software defined satellites, which promised to improve the capital intensity of our business.
Our use of the Northrop Grumman mission extension vehicle for which the historic first mission is underway is an important example, under this priority.
Known as MVP, one the service will be used to extend the life of a low of a satellite low on fuel, but otherwise healthy by up to five years. This allows us to extend revenues increased our flexibility and defer capital expenditures.
Our second priority is to continue to scale, our managed service capabilities.
Investing to capture growth for mobility services in particular.
Earlier this week, we introduced flex move our latest managed service is designed to address the needs of businesses and first responders requiring secure broadband from locations with either no or completely disrupted infrastructure.
With so many operations moving to Internet based or cloud based applications highly reliable cost effective access is essential the hardware suite that we selected for this service supports on the move we're on the pause communications.
Our first distributor for flex move GRC specializes in communications for governments emergency responders and oil and gas exploration.
GRC already has contracted customers at the time of our service launch so we're off to a great start.
We'll also pursue the addition of value added services adjacent to the applications. We serve today are Black Sky Alliance is an example of this.
Third we will lead the sector and seamless integration with the telecom industry driving for standards based hardware through our Threeg pp fiveg initiatives in December the Threeg Pp standards body issued its list of approved topics that will be featured and release 17.
For the first time satellite in other non terrestrial network technologies were included as a result in part of the leadership role Intelsat is provided over the last 18 months.
This is a breakthrough moment for satellite and we're using this work to position Intelsat the vast fiveg opportunity.
Under our third opportunity are under our third priority will expand our cloud based access services.
Building on our partnership with Microsoft Azure Expressroute.
Our cloud direct service provides highly reliable secure connectivity for cloud access leveraging the global footprints of our network.
The fourth in most immediate operating priority is to optimize our spectrum rights. This of course is the FCC proceeding.
Is the FCC band proceeding.
The issuance of the draft order was an important event in this proceeding we are working to ensure that the final order achieves the best possible outcome for our customers our company in the American public.
In closing, we start twentytwenty with great enthusiasm.
Our results signal that our strategies are effective we have a clear line of sight to what needs to be accomplished to achieve topline growth.
With that I'll turn things over to David who will cover balance sheets commentary and walk you through our Twentytwenty financial outlook.
Thank you Steve.
We ended 2019, and an excellent liquidity position with over $800 million of unrestricted cash and no debt maturities ahead of us in 2020. Our next scheduled maturity is the $421 million of Lux notes due June of 21.
We executed no capital markets transactions in the fourth quarter of 29 team.
Today, we announced our financial guidance for 2020.
We expect full year revenue to range from $1.93 billion to $1.98 billion, representing a 5% decline from 2019 actuals to the midpoint of 2020 guidance.
As a reminder, 2019 actual results included two significant events that we do not expect to reoccur in 2020.
The first was one large customer agreement in the first quarter of 2019 that triggered accelerated revenue recognition as a sales type lease.
The second and more significant was the unexpected total loss of Intelsat 20, Ninee in April of last year, we estimate the combined effect on 2019 results of adjusting out. These two events was over $30 million.
As adjusted we expect revenues to decline in 2020 by about 3.5% year over year, which compares favorably to the trailing five year period.
This revenue declined represents a continuation, though shallowing of recent market trends as new business is still expected to be insufficient to fully replace nonrenewals and renewals at lower price points.
First we expect the bulk of the consolidated revenue declined to be driven by the media segment. The result of anticipated Nonrenewals driven by continued secular challenges in the distribution of linear programming.
Second we expect our network services business to modestly decline from 19 to 20.
Driven by expected Nonrenewals in network fixed enterprise and point to point applications and pricing pressure in certain markets offset by double digit growth in mobility.
Government business is expected to be stable year over year.
Our contracted backlog at the end of 2019 was $7 billion, helping to provide good visibility on our 2020 guidance and supporting the medium term stability of the business.
We forecast adjusted EBITDA for 2020 to be in the range of $1.34 billion to $1.39 billion, representing an 8% year on year decline and our projected 70% adjusted EBITDA margin.
We estimate the combined effect on 2019 of adjusting out the sales type lease and revenue loss and incremental restoration costs due to 20 ninee to be approximately $20 million as adjusted for these nonrecurring events in 2019. The 2020 decline in adjusted EBITDA is expected to be about six and a half per se.
Yet.
End of that decline, we estimate the de capitalization of network costs, Steve referred to earlier essentially trading capex for Opex as in the case of Intelsat 38, Horizons, three and easy one and later this year any of you too.
We will contribute to an increase in direct cost of revenue of approximately $20 million, which constitutes about 150 basis points of that 6.5% adjusted decline.
The remaining 5% percentage points of the adjusted decline is due to the negative operating leverage associated with lower revenues and increasing direct cost of revenue driven primarily by growth in managed services staffing and infrastructure.
Our new three year Capex guidance is over $100 million favorable to the three year guidance last issued in 2019.
In 2020, we expect capex to be in the range of $200 million to $250 million roughly flat year over year, we expect to launch Galaxy 30 in the second quarter of 2020.
In 2021, we expect capex of $225 million to $300 million and in 2020 to $225 million to $325 million.
Our plan includes five new satellites, two of which including Galaxy 30 are in the design and manufacturing phase and three of which are being actively competed.
Those three satellites are expected to be the foundational birds for the next generation of our epic fleet. These satellites will be software defined meaning that beam footprints power levels and even frequencies can all be created and change dynamically on orbit.
With a faster time to market and far less potential for stranded capacity, then with traditional satellites or even satellite constellations. The next generation of epic satellites has the potential to anchor the most capital efficient cost per bit sold satellite network ever deployed.
One note none of the satellites needed to implement the C band clearing contemplated by the FCC order are included in this guidance. Once a final order is available we will update our capex guidance, if and as appropriate.
In conclusion based on the guidance provided today, we expect to generate adjusted EBITDA minus capital expenditures in the range of $1.1 billion to $1.2 billion in 2020.
Thank you.
Operator, we're ready to take or questions now.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound Kane. Please stand by our we compile document a roster.
Your first question comes on line of Jason Kim with Goldman Sachs.
Hey, good morning. Thank you. So the first question I have is.
I understand that this may not be the immediate focus with the company right now.
At this moment, but the fact that matter. This you do start to have some maturities coming up in 2021, and we have the company burning some cash for the foreseeable future. So I know your Capex guidance came down a little bit over the next couple of years, but beyond that how should we think about managing liquidity profile here as we wait for the seabed procedures to come to.
A closure and realistically when can you start thinking about your capital structure. If we were to assume that the Fccs order is approved later this month.
We'll Jason first of all in terms of the Luxco maturity next year.
We think we have ample liquidity to be able to manage that in a variety of different ways too.
You know move funding around to satisfy that that maturities. So that's.
Something that we're looking at.
But that we feel comfortable in our in terms of our ability to manage.
And then second in terms of the capital structure more broadly I think we need to do as weight.
See what this final FCC order looks like see whether it's something we think we can work with and then assess what next steps might be for the capital structure if any.
Sounds good and then a long term question you had been trading Capex for Opex in recent years.
That hit your margins, but lower Capex is that a long term trend in the business in Europe in your view or is it more transitory.
Look I think it's opportunistic honestly.
In the case of MTV, one and two we're talking about slots, where we want to confident that it made sense to recapitalize them completely.
Maybe the price points work quite high enough, maybe the revenue base generally speaking wasn't big enough.
But the IR, our auto mission extension vehicle made a tremendous amount of sets.
Other places where the business at a particularly the particular slot is healthy and or we need to control the assets.
As part of a have a broader effort you would expect to see us continue to capitalize those slots. So it's opportunistic the industry has evolved.
Relative to where things were 15 years ago, we have the opportunity to trade capex for Opex.
The optimize the economics.
So we will continue to evolve, but it isn't part of one directional trend and I was just maybe add strategically it's given us the ability to work with other operators like Jay said like Telenor as our Cosmos.
To provide capacity in key regions at a much more cost effective low lower risk.
Type of investment so.
We will we will continue to look at those we have cooperation across the globe with with other operators with our.
Orbital assets.
And so we will see what transpires going forward.
Thank you guys.
You're welcome.
Your next question comes on line of James Ratcliffe with Evercore ISI.
Good morning, Thanks for taking question.
Two if I could first of all on the again on the topic of Capex versus Opex are there are you constrained by your capital structure and your ability to make those trade off just in terms of meeting leverage targets and alike and secondly, just broadly in the long term.
Do you see a path to stabilizing or even growing EBITDA from here. Thanks.
I'll take the first one.
I think I can say confidently that in every case, where we have evaluated this capex versus opex tradeoff. We've we've made that decision on an unlevered basis, meaning we've tried to optimize the risk adjusted return at every one of these slots without regard for our capital structure and I don't see that changing.
Anytime soon so we're not going to let the capital structure cause us to make the wrong decision for the business that'd be the first the first point.
Let me just talk about the trajectory of the business and what we see over the longer term right now our focus is on stabilizing our core business and driving new growth opportunities across across our.
Across the world.
We need to write assets in the right services to do that and Thats why weve invested in the Intelsat Epic fleet why we're investing in the Intelsat 48.
And why we've invested in our ground network and capabilities to deliver managed services of course, the Intelsat 20, Ninee had an impact in 2019 in that regard, let the asset base keeping that competitive and vibrant is really important.
The new managed services are focused on growth areas of mobility, whether in the air sea or on land.
It's focused on wireless networks and enterprise applications, where we see the real need for the types of service, we deliver and so thats another focus for our business we have.
Been very diligent in our yield management strategy related to all of that to ensure that we get the proper value.
In the services that we provide the right kind of pricing for everything we provide and then longer term.
We're making investments in the next generation David talked about software defined satellites.
That's really important it keeps us competitive we're going to be able to match up very well with the satellites that are coming forward in the future.
And so will allow us to be both capital efficient as well as providing competitively priced services and also for the future is the work we're doing on standards and we think that this is a great opportunity to broaden the marketplace for satellite communications to.
Develop hybrid solutions and services into the broader telecom landscape around Fiveg in development.
Modems that are open interoperable. So we do see a path. It is it is something that we're very focused on execution in the near term and then building these strategic investments for the longer term.
Great. Thank you.
Welcome.
Your next question comes from the line of Mike pace with JP Morgan.
Hi, good morning, and thank you.
I guess just to go back to the network services in the fourth quarter at least.
Respect a model loan Justine.
The sequential change in revenue up about $20 million.
I think everybody again, including myself where there.
Anything that was one time and there was there.
Contra revenues from the $20 million.
Just some color on on what drove that plus 20 quarter over quarter and then.
How that rolls into Q1 of two 2020 and beyond just some some some helpful. There would be great.
Sure. Thanks, Mike.
There were some onetimers and for Q that drove that sequential improvement it was a meaningful sequential improvement as you note.
A couple of the larger ones would have been traffic overages that a couple of our customers clocked during the year and there's typically a catch up and true up in the fourth quarter.
So a couple of those who are quite meaningful.
There were one or two chunky deals that came through that involved not the magnitude of what we experienced.
In the first quarter of.
19.
But but there were still a little bit chunky or that involve some hardware delivery.
And then the balance was some meaningful ramp.
In mobility, so I think going into next year, though as in years past, we'll see some big.
Slug of the network services business reprice itself.
So I would expect to see us be down sequentially from Fourq, you going into one Q 20.
And could I dare ask if you could quantify I guess there.
Call may be one time or not necessarily normal boost in the quarter, whether traffic for the chunky stuff of that 20 million give or take.
I don't have that off the top I had probably not something we disclose anyway, but but I would say the sequential growth in mobility was a meaningful contributor to the sequential improvement.
For the onetime or so I, probably characterize it that way.
Gotcha, and I know, you're not giving guidance by segments, but maybe and then I'll have Steve or Dave If you want to take this but just in terms of network services and media specifically can you just review for us to one or two or maybe even three kind of headwinds and tailwinds that you expect obviously mobility is would be a clear tailwind in network services, but just.
How do we think about the upcoming here in terms of the puts and takes there.
Yes, Thanks, Mike Let me just start with network services as David just mentioned.
This is one part of our business that still has.
Meaningful pricing pressure on renewals theres still a mark to market.
Type of reset of pricing however.
It is far better than it was a few years ago.
And we see the strength of our pricing strategies.
Slowing that that decline in pricing upon renewal so network the networks part, where we work with M&A knows and enterprise customers still has that kind of pressure at the same time, we do see pretty healthy demand and some of the success. We had in 2019 for networks, we see continuing.
Into 2020.
The mobility of the and of course of mobility part of network services.
Is growing.
It does have the Tailwinds as you mentioned.
And we see continued ramp up of our managed services in that sector, including some of the new managed services, we're bringing to market as well as capacity for some of the large.
Players and aeronautical and maritime.
Media.
He is more challenged and we've talked about that.
Yes.
He is going through a a sector change right now.
The good news, we believe is that we're maintaining value in our neighborhoods, where we have a specific satellites and beams that are focused on media customers for dth or cable distribution, we're maintaining our pricing and value in those places as they as they deserve because they are critical to.
The operators that deliver content in those areas.
But we do see pressure as we've been talking about.
For a number of quarters now.
Within the media sector to reduce cost.
To have less flex capacity on their books to.
Down convert from HD to SD at the edge rather than have multiple formats being sent so we're still seeing those situations that results in.
Non renewals or or renewals that are with less capacity.
So.
That that experience we've had in media in 2019, we expect to be something we'll experience in 2020.
Thanks, So just one more and technologies as a tougher within the first two I'd just ask.
And I know you're C band commentary.
Is limited, but putting aside the FCC order, putting aside the changes that you would like to take place just under the assumption that.
You and other FCC and other stakeholders can figure this out.
I guess the question that we get quite a bit is structurally.
How and where this these incentive payments flow into the company historically I believe you've said.
Jackson, because that's where the license it but.
Color here would be really helpful. And then also from an accounting perspective is this above or below the EBITDA offline. Thank you.
Mike Thanks.
A question that we get frequently as you can imagine.
I can tell you quite frankly that it's not something I'm focused on at all.
What we're focused on is maximizing the expected value of this order for the company.
And we don't know what final form of that might take we don't know what conditionality might be associated with it. We don't know what execution risk is associated with it. They are all those things we don't know.
I think we're going to know a lot more after this.
Order becomes final and at that point, we can start.
Really tightening up our analysis of of everything that goes into answering the questions that you just asked me, but today, we just don't know and frankly, we're not focused on it.
Understood. Thank you.
Yep.
Your next question comes from the line of Anthony Klarman Deutsche Bank.
Hi, Thanks, a few questions I guess, maybe starting first.
You have driven much greater efficiencies out of Capex and I think most people would have thought and I know that a prior question talked a little bit about the trade off between Capex and opex, but the the declines you're putting in the forward.
Capex guidance are far outpacing any increases in opex, which would seem to imply that absolute levels of capex are coming down.
I mentioned that you still have a launch manifest in place that's going to launch the next generation of satellites over the next few years I guess I'm just wondering what levers you are able to pull that are driving these kinds of efficiencies in the overall aggregate levels of capex.
Look it's a good question.
I would say the following and then Stephen I want to comment as well.
We are are incredibly focused on reinvesting in the business and stabilizing the topline and returning this company to growth.
In order to do that we know that our investments are going to have to be capital efficient and I think it's fair to say, we have been waiting a little bit to watch the technology evolve and to watch the satellite manufacturing and launch industry evolve.
To get comfortable that we're investing at the right point in the technology cycle and that we.
Have.
A thesis about how to end up with the lowest capital cost or operating costs frankly, the lowest cost per bit sold.
And it's really on the back of these software defined satellites.
But we think we're going to be able to do that.
The relationship between.
Capital cost per bit and pricing in the market is really complicated very hard to.
Have a crystal ball that that indicates to us what thats going to look like in the medium term, but I think this is this is more a comment about knowing that we need to invest in the next generation of satellite technology, knowing that we have to be capital cost efficient. If we want to continue to win business and believing that we're investing at the right.
Pointing the technology cycle to do that.
And then we'll all look together at what revenue flows from that in year three.
Yep.
And then if I could go back to an answer you gave David to Mikes question on network services, you pointed out the positive Onetimers and you said that.
Obviously, one Q without those onetimers would be sequentially lower.
But after one Q you're also about the lap a pretty significant headwind from a loss of 29, he and I guess as we think about the pacing of network services in the context to the fact that I think Steve and his commentary.
Mentioned that media would would generate the bulk of the EBITDA decline in the guidance could we read that to imply that as we start to think about the pacing for network services that you do start to see year over year increases in that segment given the given the scaling of some of the mobility pieces that you mentioned.
I think it'll be.
Look I think about the world there are a lot of different ways to cut this.
I think about the world as I went through in my talk about the guidance in terms of doing my level best to adjust out.
20, Ninee from last year.
And on that basis, I would say that.
Mobility isn't isn't quite going to be in a position to outgrow the networks decline during the year next year.
It could get close by Fourq, you, but it's probably not quite enough.
So I would say that and then I would say if you look at the company on a consolidated basis, because we don't provide guidance by segment. If you look at the step down that we're going to experience from Fourq you going into one Q of next year, given all over the puts and takes theres a pretty even contribution to the top line of the company across all four quarters next year.
Just the way the numbers play out.
That's helpful and then.
I was wondering if you could David just refresh us on what the assay six so six impact is in EBITDA I think that the EBITDA guide.
Doesn't adjust for that but what the noncash portion of EBITDA is that's in there.
Sure assay six so six for 2020 should be about 110 million.
Got it 110, and then final David you gave the the cash balance I don't want point, you guys used to give cash kind of various subsidiary levels I wasn't sure. If that was something you were able to tell us in terms of perhaps how much cash sits outside of Jackson at this point.
No that isn't guidance that we provide if we did it historically and at some point discontinued I apologize for that but for at least as long as I've been around thats not guidance that we've given.
Alright, thanks, very much you about thank you.
Our next question comes from last the can see with Cowen.
Hi, Good morning, this is Chris on for Lance.
To the extent you can talk about the FCC process. You did mentioned in the press release about trying to significantly improve their proposals at fair to think that.
This back weighting of the accelerated relocation payments to what they call phase two.
It's something that you'd want to see more more front loaded in the that's that's something that you would characterize has a significant improvement that youre looking for many let you can check on that thanks.
Okay.
As we said earlier, we really don't want to comment on specifics.
Of the draft order in our proceedings right now with the FCC, but I would refer you to our filing that we made yesterday.
Where a number of topics were addressed.
That we believe are important to improving.
The order once it gets finalized hopefully by the end of next week.
And then we will as David said, we will fully evaluate where we are at that time.
And I might add 'cause, there's nothing new here beyond what was in our filing that this topic was directly addressed.
By the filing and we believe if you look at the framework that the FCC has used to define how value has been created it would result in a split of 40 555 phase one phase two versus 20, 575, which was in the original order.
Alright, great. Thank you.
Our.
Your next question comes from online of Simon Flannery with Morgan Stanley.
Great. Thank you very much.
Just.
A quick point.
On the C band Alliance. So what is the status of Vanda is that being dissolve now walk through the record an order.
And then.
Okay. If you could talk a little bit about the media business and just give us a latest update on how those revenue split between.
It DTA Chen between video delivery for the who for the providers and how does the backlog look is that is that mostly media and how about splits between the surfaces. Thanks.
Okay. Thanks Simon.
Im not going to comment specifically about about the CBVA, but I will maybe offer some some general observations.
The SBA was established to advocate for market based proposal.
A couple of years ago. It has worked very well towards those goals in general because you can see a lot of.
The activity the SBA incorporated in the draft order.
But as we know the FCC changed a path in November and move towards a public auction.
And when the draft order came out.
On the seven.
It was very clear that the FCC was treating each satellite operator individually and so therefore.
We believe it made sense for each company to respond from its own perspective.
Once the FCC change that orientation.
So we know is this moves forward, there's a significant implementation phase ahead, and there will be ample opportunities therefore operators to cooperate and make sure that the outcome is as good as possible for the FCC and for for the country.
In terms of media.
The breakdown between Dth distribution and contribution.
Is 53% Dth, 41% distribution that when we're feeding cable head ends and 6% for contribution.
And right now the media business is about 61% of our total company backlog.
Great. Thanks very much.
Okay welcome sign.
Your next question comes from the line of Ric Prentiss with Raymond James.
Thanks, Good morning.
Yes talked a lot on the C band proposal, but I thought.
Whether things was interesting as you filed in exhibit B that.
Was for confidential treatment can you share was a little bit about what was new or different in that exhibit b versus what had been previously provided for yourself or others.
I can't comment on the specifics of that it was it was filed under confidential treatment because it was confidential company information.
And that exhibit so I'd prefer not to.
Elaborate further than that this time.
Okay is it safe to say that maybe was updated for year end result, though.
No.
Second question is and obviously, it's very hypothetical right now until we know what the final order from the FCC is but given kind of the shared usage of the C band.
Can you hypothetically walk us through if.
One set of Sally operators elect to clear early at another said, we're not how would that impact the process or what would be kind of.
The impact just trying to think philosophically.
Well you know in general.
Because its shared use as you note.
All the spectrum used to be clear to have cleared spectrum for.
[noise] cleared spectrum for the mobile operators that we'll be using the spectrum. So.
There is not necessarily in advantage to clear early.
But it is critical that its cleared by the date set in the drew in the final order when that comes out.
So I guess theoretically you could say look if we know there.
So is this threshold of 80% in the order where 80% of the people have to opt in in order for accelerated clearing to be active essentially.
But obviously people, who intend to clear could fail actually or.
Somebody representing 5% of the traffic could opt out of clearing.
And so we think that the people who are buying the spectrum.
We'll be making bets as to whether people can execute.
On declaring that they've committed to and that the results of the auction will will reflect those bets as to whether spectrum is going to be available in five years, or 48 months or 18 months or whatever.
Right.
Obviously chairman advised on.
A lot of work here to move this forward Congress keeps raising their head occasionally.
Updated thoughts as far as how Congress is going to play into it as far as affecting either the FCC order or stuff after the FCC order.
Rick I would just say this is that it's very hard to speculate on legislation.
There's been a lot of activity a lot of talk so I really don't want to go there because it's very uncertain as to what will happen.
I will say, though that that it's pretty clear from the fccs actions and proceeding with the draft order and moving towards a final order that they believe they have the authority.
To execute on this.
This proceeding without Congress being involved.
That helps okay. Thanks, guys, yes, you're welcome.
Well.
Then comes from the line a big data with New Street research.
Hey, guys. Thanks for taking the questions.
Really quickly who has historically paid for Mpeg two Mpeg four upgrades is that something the cable distributors or the programmers generally a pay for and how should we think about that level of compensation that has historically been incurred by those parties.
As it relates to a potential EGPC upgrade going forward.
Yes, thats typically done by the by the programmer the content owner as they distribute their content out into the cable.
Distribution plant around a particular country.
So you know for them, it's a carefully weighed in examined expenditure because it's not.
Inexpensive and it's not simple in so many have moved from Mpeg two to Mpeg four.
Many have networks that.
Our well established and Dth.
Give me it would make it difficult to make that change and really incredibly costly to make that change. What we're seeing now is that some of the media companies are looking to see of AGV C is the move and skipping directly from Mpeg two at HSBC.
In the future, which gives a much higher levels of compression and positions them for up.
Ultra HD, if they choose to go in that direction.
Got it thanks, and just wondering really quick one you're incurring about 650 million in annual Capex and network cost of service how much of this work can now sort of be re purpose or undertaken the C band reallocation, assuming that goes forward.
Can you restate your question today.
I don't think we yeah sorry.
So I'm just trying to sort out how much of the existing Capex and network cost of service budget could be reallocated or refocused on the C band reallocation effort and potentially be compensated for through.
The relocation fund.
I think the right way to think about it is that our costs.
To clear the spectrum will be entirely incremental.
So.
If there are opportunities to absorb overheads or other costs.
That that the FCC is comfortable with you know as representing the cost of the transition will look for those opportunities, but but for planning purposes. I think you should assume that the cost to clear the C band is all incremental.
Got it thanks.
You're welcome.
Your next question comes from the line and some Giles Thorne with Jefferies.
Thank you I have three questions. Please my first question was on the India Dth.
On your contract when the last similar to the India Dth, it's a bit of a math.
I think it's five of fixed pay TV operators in that market.
Accessing the market Todd could you go to go through reserves.
And.
The commercial guys that have managed to do that pretty well and trends so.
I wanted to get offensive actually how quality how high quality. This new revenue stream is going to be few.
Yeah, we havent more modeling software.
John Sorry European way, Steve you remember I go to get will free out [laughter].
Great Thats starting to not to mention.
Yeah, just mention with Diane's running well this down I'm the second one of them both please on.
Forgotten, where I was second one of them and software defined satellites.
The software defined timeline thought that is the utility quantum program, which is going to give them a window of proprietary technology, and then as SCS with and power, which is gonna be unique to them.
I'd just be interested to know how much of the technology youre getting access to is going to be you need to you I is that really going to be a cost puppet advantage that Dave was referring to earlier or intimated idea.
And then the third question was I'm afraid back from the fee by method.
In short SCS is released today intimate that with your actions in the ex parte pay filing from yesterday you are in some kind of contravention off a few amount alliance agreement.
So I guess my question is what are your.
I don't know legal hanging tough.
Under the Cbm ons agreements and do you feel that you are in contravention all of them in the way that if the suggesting thanks.
Okay. Thanks Jess.
First of all on India Dth.
This is a not a startup dth operator, it has an established dth operator that needed to have a new home because they're satellite operator was not replacing their satellites. So they are they are one of leading players and they're very well established and it was a competitive bid situation for us to win.
This business.
Fortunately because they are established.
The is ROE challenges are obviated.
So theres no real risk in terms of getting the appropriate licenses and approvals from Israel and that one.
In terms of software defined satellites.
We're talking about the next generation of Geo satellites that are.
Absolutely high throughput high capacity satellites with maximum flexibility based on software.
And the the thought here and what a number of the manufacturers are doing are trying to standardize a hardware platform and allow great flexibility.
By leveraging the software capabilities to give different operators.
The flexibility to deploy that capacity and those services as they see fit so on the basic on the on the on the base level. These designs are very capex.
Advantageous in terms of what kind of capacity, we can get for each capex dollar and as David mentioned the cost per bed, which is critical for competitive positioning long term.
We'll be competitive with the other systems that are being.
Deployed or envisioned today, including.
The Leo in May of systems.
So what makes it unique is how each operator uses it.
We will be incorporating this next generation into our global architecture underpinned by Intelsat epic.
It will be optimized when it's in space for specific applications, whether its mobility or network mobile network operators services or others and so is the uniqueness comes in the deployment and how it's implemented within a network and we feel very good about how this will fit into our our future network.
Steve I would add one thing to that.
Because I totally agree with it we're services company not a technology company right, we don't believe whether its.
Power or the Udall SSAT program that you referred to or even the next generation of our epic satellites that we refer to will provide a sustainable technological advantage. It's all about how it's incorporated into the network and generally speaking the whole industry is going to ride these technology trends together.
And and yet people make poor decisions about capital investments all the time.
And end up with stranded capital. So we're focused on being efficient incorporating it into the network lowering our cost per bit and providing a cost effective system.
And total cost of ownership it makes sense for our customers.
And Jeff to your last question is something that I really shouldn't comment on it.
At this point in time, so thanks for the question, but I can't answer here.
Very good. Thank you. Thank you for that Okay got you welcome.
Your next question comes from the line fill acoustic with JP Morgan.
Hi, guys. Thanks coming to the end here, but can you give us some idea of pre leasing on galaxy 30 to be launched next quarter and when that will be in service as well as on Intelsat 40, and the timing of that launch. Thank you.
Sure.
Galaxy 30 is scheduled to be launched.
Late in the second quarter and put in service in the third or fourth quarter.
The C band payload on that satellite.
It is.
Virtually committed because it is a replacement payloads and one of our cable distribution neighborhoods so to see bands totally committed.
The L band was hosted payload for the FAA is of course totally committed.
And we're out marketing the account you in the K.
Capabilities on that satellite today with a pipeline of opportunities.
In terms of Intelsat 40 E.
Our target.
Availability of that satellite is the end of Twentytwenty too.
And.
Thats as we said we that is in construction early stages of course right now.
Thanks.
Okay.
Your next question comes on line of around fish I agree with credit Suisse.
Yes, hi, Thanks, taking my questions. Just a couple from me now that you have a sense of needs at a high level of the timing of the two payments.
Can you talk a little bit about how you what your initial thoughts are in terms of the accounting treatment.
Of the proceeds and then separately if you'd also talk about any updated views you have on on what taxes would be out.
Sure. So first in terms of accounting treatment.
That's not something we've really spent any time looking at.
We're focused on maximizing the expected value of the opportunity and the business deal and once that has come to rest will figure out the appropriate way to account for it.
So that was your first question and then on the second look we are a taxpayer.
In both the U.S. and then ended Luxembourg.
Once the order is finalized and we understand better.
What what these payments streams look like and whether the order is acceptable to US we'll figure out the.
The appropriate.
Tax treatment.
Okay Fair enough and then separately if you're also talk a little bit about your.
Your your comfort level vis-a-vis, the first mean maintenance covenant and and if you have begun any discussions to a sort of look at that thanks.
I haven't begun any discussions at all and.
Very comfortable with it for the foreseeable future.
It will get a little tighter overtime.
At some point, we'll need to have some some discussion about that but it's not a burning issue.
Thank you.
Thank you.
Your next question comes online Amico SAP with Exane.
Thank you I'm not sure that's three questions. The first one.
So for difference Hutton I can you provide more details on the cost, but we took advantage that these satellites to provide perhaps comparing denim is it kind of mix to your current epic, which never going to 10, 20, 50% better and perhaps comparing it to one way or starting the.
Secondly, what type of spot price deflation do you assuming your guidance for the networks Division Twentytwenty and Lucky can you remind you combine satellite operators.
Yes, who took the package away from.
Thank you.
Okay. So in terms of the software defined satellites I don't want to get into the specifics of.
How much lower it will be than the Intelsat epic, but it will be meaningfully lower than that.
And what we see and we believe is that it will be competitive.
With the Leo.
In other systems that will be potentially deployed when the software defined satellites are in operation. So we feel good about its competitiveness.
We love its flexibility we love the fact that weekend, we can invest in one satellite at a time and focus on particular markets and vertical applications and build it as we go.
And we feel very confident that will be competitive from a cost standpoint.
So maybe the second question was related to pricing in networks.
Yes, I mean, assuming thats tied for number so we fully assumed.
We will have repricing and our networks business upon renewals and so that assumption is built into our plan for for Twentytwenty.
And as I said earlier.
Net change in pricing at renewal is nowhere near what it was like a few years ago, It's something we're managing very carefully.
They were very diligent in implementing our yield management strategy to make sure we get proper value for everything that we sell.
So is it mid single digit drug and double digit inflation.
Oh it has been.
It hasn't been in the double digits.
For a while.
We'd be seen.
Definite improvement.
And last question was about India, I really don't want to say.
With the operator is that is.
Providing the service today, because I'm not sure that they have made that information public.
Understood. Thank you very much center.
You're welcome. Thank you Simon thanks.
Your next question comes from the line of Chris Quilty with Quilty analytics.
Thanks, David you mentioned.
Projected double digit growth in the mobility business in 2020 could you give us what it was in 2019 and and or the fourth quarter.
And have you given any thought to breaking out.
Managed services to give us some sense of how large that activity is growing.
I should backup the your flex a family of services would love to know how large that has grown and.
Trajectory.
Thanks.
We have we havent given any thought to breaking out managed services.
Which isn't to say that we shouldn't at some point just that we havent.
And then in the mobility business I don't have a my reference to double digit growth going into 2020 was really after I stripped out 29, either from the first quarter of 19, So I'm looking at it on it as adjusted basis I don't have that same look on a quarterly basis, but it's single digit growth.
That's right it didnt.
Chris and 2019 over 2018 year on year growth for our mobility is about 9% so high single digits.
And it's roughly about 50% of our total company revenue now mobility Im speaking about.
Gotcha.
And following on that the new 40 satellite in the announcement on that you indicated that the design is different than what you did for 29 E based upon.
Changes that have happened in the ensuing years with the demand trends can you give us a sense of what you're seeing both for maritime at aviation and what you think it trends will be.
That you're designing into that satellite.
Yes sure. So the Intelsat 40 design is focused on the U.S. market in particular with with flow into surrounding.
Countries and waters.
And of course needles that 20 I'd.
Was was a much broader in coverage than that.
But we didnt feel we felt that we needed to focus on.
The North American market in particular for the replacement satellite because we already have Intelsat epic coverage existing in Latin America with one of our other Intelsat epic satellites as well as over the North Atlantic.
So the focus is for the North American market, where we believe.
Theres going to be some meaningful future demand, especially for aeronautical services.
As airlines.
Change their model with customers potentially to a free Wi Fi service that has been talked about in a few places and so we felt is important too.
Bring additional.
Hi throughput capacity into the market for for those opportunities.
Understanding.
Maybe that the putting capacity in the U.S., where you've got.
Viastat three Jupiter three and it is 17, all coming in the market with a obviously 40. He is going to be K. You base can you give us your thoughts again on.
How the.
The band Wars are trending and whether you see any competition.
Okay, you capacity in the U.S.
Yes, we've talked about this.
For a while now we believe that the aeronautical.
Connectivity business in marketplace is large there's is a large opportunity globally in really only a fraction of the planes and fraction of the capacity is available today compared to what it will be in the future.
The fact is today.
[music] band is the global platform of choice Global is the key word there even vice that uses.
Okay you band.
Internationally.
So we believe that the can you band ecosystem is strong and one of the key benefits of the K band is that as a resilient there are multiple layers of satellites multiple layers of beams.
So when there is a problem.
Customers have protection, they're able to move the other space craft.
And the Ku band is predominantly an open architecture.
Compared to K band, So we saw the benefit of this.
Unfortunately, when Intelsat 20 Ninee.
Failed, we were able to restore all of our mobility customers on other ku band that we have in other key you band in the industry.
So if that resilience that's important for global operators and we believe that that it will be important differentiator going forward.
And we see continued expansion.
In this frequency band.
By global Eagle, and Gogo and others and so we feel very confident that it's going to be competitive over the long term and there's a big marketplace and so we're going to have our share of the marketplace and provide some very strong resilience.
And robust services for our customers.
Great. Thank you.
You're welcome.
Hi, I'm showing no further questions at this time I would like to turn the conference back over to your house.
Thank you Lisa our goals for this year are quite clear billed revenue stability, while positioning for future opportunities and our team is energized.
To take on these challenges I want to thank everybody for joining the call today, we look forward to providing an update after the conclusion of the C band.
Vote at the FCC and meeting with investors at conferences next month.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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