Q2 2019 Earnings Call
By your conference call, where we get momentarily once again, thank you for your patience and please continue to standby.
Good day, ladies and gentlemen, and welcome to the <unk> second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
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I would now like to introduce your host for today's conference Ms. Dianne Vanbeber, Vice President of Investor Relations Ma'am you may begin.
Welcome everyone and thank you for joining it'll set second quarter 2019 earnings conference call earlier. This morning, we issued our earnings release and published a quarterly commentary both of which are available at our website.
The quarterly commentary supplements are released in the 6K filing and provides information and context that you need to analyze our results in advance of earnings call.
During today's call, we will let Chad discuss adjusted EBITDA and other financial metrics not prepared in accordance with US 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 us GAAP measures in the earnings release and on our website. Later today, we expect to file our quarterly report on form 6K with the FCC you can find the link to the filing on our website.
Additionally, our conversation today will include forward looking statements 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 quarterly report on form 6K for the quarter ended June Thirtyth 2019, once filed and our other SEC filings for information about some of the factors that could cause <unk> actual results to differ materially from our expectations.
Finally, please be aware that our conference call today is open to the investment community and media with the 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 of infat.
Our call today is hosted by our CEO , Steven Spangler enter executive Vice President and CFO David Tali.
Following remarks by Steve well open the call for questions Steve.
Thanks Diane.
Our second quarter activities reflect a focus on our operating priorities and in particular on leveraging our new satellites.
Since our last call, we have announced a sizable contracts for wireless and other broadband infrastructure.
The Asia focused horizons, three satellite Intelsat 30, Threee satellite combined to form an attractive and sizable service footprint for the region.
Later this quarter, we're scheduled to launch the Intelsat 39 satellites its footprint spans Europe Africa, and Asia, Intelsat 39 benefits from a large prelaunch commitment from an infrastructure customer demand more ministry of technology and communications.
Across the business, we're executing on strategies to improve the stability of our core business.
To briefly highlight Intelsats financial performance.
In the second quarter, we generated revenue of $509 million, a decline of $28 million or 5% as compared to the prior year period.
Adjusted EBITDA was $374 million or 73% of revenue.
The quarter includes most but not all of the revenue and cost impacts of the Intelsat 20, Ninee satellite failure that occurred in April we're still finalizing some of the commercial elements discussed in our April 30 conference call.
We believe that the total impact of Intelsat 29, he will be within the adjustments, we made to our financial guidance last quarter. So we affirm our 2019 guidance in all respects today.
Before we move to Q1 I had just a few words on the C band Alliance proposal to the Federal Communications Commission.
Our FCC proposal outlines a market based framework for clearing a portion of C band spectrum within 18 to 36 months following the receipt of a final order from the FCC.
Since the April earnings call, our focus has been on making technical and operational enhancements to our proposal.
Combined our filings demonstrate our expertise in identifying and addressing the challenges of operating networks in the future environment, where satellite and wireless applications will need to safely coexist.
Our recent discussions with the FCC emphasize the following three elements of our proposal.
The first is the value that our proposal will deliver to the U.S. government.
We are confident that our proposal generates the greatest value in terms of public interest because we balance the protection of essential incumbent services with efficient spectrum clearing.
The sooner you as service providers have access to cleared spectrum the sooner the wheel of economic development and innovation will begin to turn.
To address concerns voiced by Capitol Hill, we recently indicated that depending upon the structure of the final FCC order, we're willing to make a contribution to the U.S. treasury as part of a transaction.
We won't let something easily addressable stand in the way of adopting our proposal.
We'll defer any questions from the investment community on this aspect of the proceeding until we understand better proposal represents the path forward and the situation is further defined.
The second element of our proposal is the amount of spectrum to be cleared.
It is evident that the government seeks to adopt a holistic plan declares as much spectrum as possible.
We understand this objective.
Our goal is to provide a path to efficiently clear the spectrum that will allow the U.S. to attain leadership in fiveg.
However, this should be done.
Without significant disruption to the consumers and businesses that rely on C band services today.
The third element is the primary benefit of our proposal time.
As a transition facilitator, we're fully accountable for a fast and safe clearing schedule.
Our committed schedule for clearing spectrum increases the certainty that the expected benefits of Fiveg deployments and the innovation that will spring from it will accrue to the U.S. economy.
Based upon comments made by the FCC. It appears that a decision could be made this fall the FCC controls the timing of the order.
Whenever the order is issued we will be ready to implement or proposal quickly and efficiently.
Let's move to Q1 nice so we can discuss this topic can address your questions on the business.
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Our first question comes from Philip Tusa with JP Morgan. Your line is now open.
Hey, guys. Thanks.
Two if I can first Dave or Steve can you expand on the comments about doing some of the C band proceeds to the Treasury I understand if you don't want to talk about the right level, but are you confident at least that there's a procedure.
That is legal for that and who could sign off on it.
And then maybe can you talk more about replacing the capacity for 20 Ninee.
What do you how do you think about the spending on that what's the opportunity to look like for that capacity. Thank you.
Okay sure.
As we said.
We see the availability of the C band spectrum as accruing a huge benefit to the U.S. economy and to the security posture of the United States and so.
Just to reiterate what I just said you know depending on what the final order looks like you know we are prepared to make a contribution to the treasury.
We do believe the precedents exist.
For this we that we have the ability to do this.
But I think the mechanism and how we accomplish that will be subject to how the final order comes out so I really can't comment any further at this time, because it's really dependent on on how things progress.
In terms of Intelsat 29 E.
As we mentioned.
In the last call. We immediately started developing plans for how we're going to address.
The loss of the satellite and the capacity from this high throughput satellite.
First thing that we've done is we've commenced a drift a one of our.
Satellites from another region. Okay, you band satellite that is on its way.
To the North American region.
That will be coming along and we're looking at other opportunities within our fleet.
To support Backfilling some of the some of that regions capacity.
We're looking at other options across the industry, where we can potentially cooperate with other.
Operators in bringing some near term capacity into operations for our customers.
In addition, however, we're also looking at whether we can execute a quick.
Procurement of a high throughput satellite we believe this is possible in a reasonable amount of time that we can bring some differentiated high throughput capacity into the network within a few years and we can accomplish this within our our current guidance that we've provided.
To the marketplace.
Hi can you if I could follow up on a couple of those where is the k. you sort of like coming from.
It's coming from.
Well, let's say the African region, and it's Pete made have been made available by the fact that we brought a new satellite into that region and so it's it's a no longer required.
They're not.
And then.
The potential to bring that differentiated capacity on within a few years. So this would be a new satellite that similar to 29 E or or less expensive and less complicated.
Well you know technology has progressed since the Intelsat epic satellites were built and so we do think we can.
Contract for a satellite that's going to have even improved economics in a cost per unit standpoint, So we will be able to take advantage of that.
We're looking at a high throughput design hydro put multi spot design, but we're still working out the exact coverage area at this point in time, so it would in general addressed the North American in particular.
Lost capacity from Intelsat 20, Ninee just as a reminder, we had another intelsat epic satellite Intelsat 30, 70 already configured over.
Eastern U.S. Caribbean in Latin America that has allowed us to restore.
Customers at the time of the failure.
Got it thanks.
You're welcome.
Thank you.
And our next question comes from James Ratcliffe with Evercore ISI. Your line is now open.
Great. Thanks for taking the question.
20, Ninee and also network services.
Given that you had the onetime benefit in.
And also.
20, Ninee I would've expected revenue to be down a bit more than that.
Was it just offsets from other sources.
Hi, good indication for that.
Is there something else going on.
Well I think in general I think the network business.
Had been tracking to our expectations prior to the issue.
You know we did take did have some impact for 20 Ninee in Q2, but as I noted not all of the impact.
Has been recorded the one thing to keep in mind is that.
What you don't see is the the growth expectations that we had in our plan and in our original guidance for the full year and so you're going to see that that's going to play out and it's been adjusted in our new guidance for the full year.
So we still see some some very positive activity in networks.
Especially around other horizons three satellite some new business on Intelsat 30, Threee E. We have the new Intelsat 39 satellite launching shortly that will support that business. So we are ramping up services promote mobile network operators up for broadband connectivity in a remote rural areas and so we're getting some some positive new business in that area as well as growth in our managed maritime mobility services called Flex Maritime.
Having said that though that that sector still is dealing with issues around pricing and some non renewals, where we have point to point services moving to fiber and other technologies.
Thanks, and just a follow up on.
Good questions I understand you correctly that Q.
You think you may be able to get another high throughput satellite.
But still be within the Capex guidance that you put out for.
Yeah, that's correct I mean, it obviously requires adjustment of priorities and plans, but we do believe it can fit within an envelope.
Great. Thank you.
You're welcome.
Thank you.
And our next question comes from Ric Prentiss with Raymond James Your line is now open.
Thanks, and one follow up obviously in a couple of those.
You mentioned that the full impact of 29.
<unk> to Q.
That's where we talked about maybe some recurring impact in some nonrecurring impact.
Can you update us maybe as far as what we look from Twoq to Threeq, how much more impact should we see and can you split out that kind of recurring versus nonrecurring.
[noise].
I think what we talked about on the last call. Thank you for the question was $45 million to $50 million of revenue impact for the calendar year.
The failure was on April 7th if I remember correctly, so essentially right at the beginning of two Q.
So if you want the full year run rate impact on revenue you could just run rate that $45 million to $50 million.
For the year.
Before you do that though you'd need to take out about 15 million.
Of that impact of that was due to onetime outage and re pointing credits those get netted against revenue they don't show up as costs.
So if you take that $45 million to $50 million net out the 15 and run rate it.
I think you end up with something like $40 million to $47 million of run rate revenue impact.
And then I don't I don't know whether this was in your question or not but if you want to step that down to EBITDA you'd have to take.
The $15 million of restoration costs.
And run rate that as well.
Yes that helps.
And then you also mentioned.
The.
David Welcome.
Thank you.
When you look at.
The comment on the amount of spectrum clearly that's been an issue with the C band.
I think you mentioned you understand the objective and there can be a path can you elaborate a little bit further on that because theres been a lot of discussion of exactly how much spectrum is needed one.
I was going to understand how you're making it through the consensus process.
Well I mean.
Key to navigating through the consensus processes to be in dialogue with the FCC, which we have been.
You really understand.
What their priorities are and what their objectives and so we do understand those priorities objectives and as we noted.
They are looking to see how more spectrum can be cleared.
And we're doing everything possible to balance that with.
How do we protect the services our customer services other on that that.
Capacity in that spectrum today.
We've commented in the past that.
A key to the path to clearing more potentially would be the use of compression and next generation.
AGV see technology, so that would be central to that evaluation.
Also key would be engagement with our customers to make sure.
That.
They would be able to adopt this technology.
How they would adopt the time of adoption et cetera. Because these are there they are networks delivering valuable television radio and other content across the U.S. So.
We're committed to.
Finding a way to clear.
More spectrum, which is which is the.
FCC to objective to maintaining quality of customer networks.
And we'll do what we can to balance those goals are the best of our ability.
Okay, and obviously there has been some legislation introduced do you expect any other legislation to be introduced it would seem like legislation probably isn't the final path, but just what do you expect from the legislative side.
Well there has been there has been activity on Capitol Hill, there have been several bills either introduced or previewed.
I think the main message from what's happening on Capitol Hill is that there is bipartisan.
Urgency on Fiveg.
All of these these initiatives are around how do we how does the country clear more fiveg spectrum faster now different bills may have different areas of focus some may focus on spectrum. Some may focus on the mechanism. Some may focus on protecting incumbents or how.
A transition funnel facilitator.
Can can play.
I would just say that we're aligned with those goals in general in terms of.
Clearing the maximum amount of spectrum protecting encumbered users and using our expertise as satellite operators and our knowledge of this these networks and the spectrum.
To facilitate a transition.
I think.
In the end. However, you know, it's not clear how congressional legislation will advance.
But.
In our view the FCC has the authority has the authority to act and we expect that it will.
Great. Good luck thanks, guys.
Thank you.
Thank you and our next question comes from Giles Thorne with Jefferies. Your line is now open.
Thank you I have three questions. Please.
I wanted to start with Oneweb.
It's been there for a while but so far it was going to play some kind of math distributor role for one web and there's now been used in the past for equal for confirming that.
Good.
The reason that I want to confirm whether your historic exclusivity around aviation and maritime remains in place.
And if so how exactly does softbank fit into that picture.
From your perspective.
And secondly, coming back to the question of and the impact of Intelsat 20, Ninee and I suppose I'm coming at a previous question from a different angle you've been clear on that.
The short term impact.
You've been clear on what the short term impact will be.
And it must come as a relief three months down the track, it's largely playing out as you anticipated, but given this is a very dynamic environment out there for sending it to mine and mobility.
And does the loss of your Vanguard HTS capacity from conversations with customers might you worried about your overall medium time relevance in this.
This one important area.
And lastly, I'm coming back to the question of feedback that I'm going to give this voluntary contribution question another shot.
Enough time has passed and enough.
Hey, that's been published showing that there have been enough all hands meetings at the FCC and form a view on what a voluntary contribution mechanism could look like so what exactly have you socialized.
With them is this is the approach one of.
Fix proceed or percentage or a sliding scale any color would be really useful at this point. Thanks.
Okay. Thank you Charles.
So first on on Oneweb.
The short answer is yes, our agreement with Oneweb.
It's still in effect and includes distribution rights for mobility government and oil and gas opportunities.
So just want to clarify that you asked about.
It will set 20, ninee and mobility.
I think you're right in the sense that Intelsat 20, Ninee what is part of our integrated.
Managed service network that is largely serving mobility and other other applications.
So there there are some.
Territorial gaps in that network now, but at the same time, we recently put Intelsat I'm, sorry, horizons three into operation, which gives us the entire coverage of the Pacific all the way through Alaska in parts of the U.S. So.
We still have a very substantial network.
That's that's almost completely global at this point in time, we're still serving the main.
Maritime routes around the world and as I indicated earlier worse, we're seeing some some good growth on those managed mobility services, we see opportunity as well in the aeronautical area, where we're still covering.
Major routes across across the globe with that with that platform. The performance has been very good.
On these intelsat epic backed managed services our customers are getting excellent performance.
And we'll continue to drive new business in that area.
I think that there are probably some delays in some of the things we are working on the flex exact perhaps in the us obviously.
But we're continuing to move forward building out our distribution partners.
And growing those parts of our business.
And then last question on C band contribution.
I really not gradually rather not comment on the specifics of what's possible because that is all subject to how.
The final order and arrangements are determined.
We do believe there are several paths to do it.
But I don't want to speculate on what that could be at this time, because it's just too early to say.
Fair enough just to come back to the 20 Ninee question.
Anecdotal evidence coming out of airlines and and.
I'm a bit its <unk> distributor is that one of the key criteria when making their buying decision its visibility on road map to lower cost per bit.
So.
Being able to put in front of potential customers you know your future investment plans and where that would take economics has been part of why people to one business.
It feels that youre not in a position to be able to present a.
You know for some cost per bit road map.
Is that something you're finding as an issue.
I would disagree with that that statement Giles because.
We talked about last quarter, our plans and efforts that have been evolving over the last couple of years and developing the next generation of high throughput services on software defined satellites.
We believe that this is.
Something that is in development that becoming more real.
It is going to be significant.
For the future. These next generation satellites.
Our extremely flexible.
They can come out of the factory.
At a faster clip than previous generations.
They are extremely capable satellites from a performance standpoint, and most importantly.
They have significant improvement in a.
Cost per capex per bit.
Standpoint that allows us to remain competitive over the longer term and so.
These geo satellites are going to continue to be important for the future. It's part of our roadmap, we're sharing that with customers.
Today, and as I indicated in the last call.
Our objective is to get to an order for one of these satellites and on or about the end of this end of this year or little bit laughter, but but we're we're very much on the path to doing that.
Charles I might add that if you look at the mobility business year to date actual despite the loss of 20 Ninee mobility was up.
And if you were to pro forma out the 20 Ninee failure. It would have it would have been up in up in a way that's pretty healthy. So I think all of that supports.
What Steve said.
In terms of how customers are thinking about us in the mobility business. Despite the loss of 20 Ninee.
Understood. Thanks, Thanks, a lot guys.
Okay, you're welcome.
Thank you and our next question comes from Lance Vitanza with Cowen. Your line is now open.
Hi, Thanks, guys.
So on the network services side, the revenue if I'm reading the commentary correctly the revenue appears to be up sequentially when we adjust for the.
For the one time accounting benefit that you had Q1 19, I'm talking about sequentially.
And then obviously the satellite failure and so.
Okay from again, the commentary seems to suggest that it was mostly that the new Asia Pacific start could you discuss sort of.
Whether or there are other opportunities either in the region or perhaps in Latin America. They could follow and just sort of generally what the pipeline for new business looks like I'm not talking about the backlog with the pipeline for for new deals that may be in the works that you haven't yet announced.
Sure.
So so.
As I indicated earlier and you you dissect the numbers well because if you take out a few things that have happened in the networks business we're actually.
Having a decent year.
In that area and certainly the horizons, three and new start business for mobile network operators in Asia is important part of that.
At the same time.
We.
Have expanded our mobility services on that new satellite and globally in general as David was just referencing.
And we brought on.
A new customer, which we talked about this quarter that using horizons three he and it'll set 33 four.
Remote community broadband connectivity and so we still see a lot of growth opportunities on those two satellites.
Across.
Asia.
Across Africa, as well I should also mention corporate networking.
As growing decently in Africa for for those assets as well so.
There is still excellent growth opportunities in networks, not only for mobile network operators for some of the.
Enterprise services as well as of course, the mobility services that we've been been talking about.
I think Latin America is probably going to be a little bit slower we have we still have.
Intelsat 37 E. there.
Which which was very critical for our restoration efforts around.
After Intelsat 30.
20 Ninee.
Failure.
So we do see opportunities for growth on that asset but.
It's going to be a little bit slower.
As a region in our view.
And then just as a follow up in terms of prospective epic business I'm, just trying to dig in a little bit on the avionics opportunity as distinct from mobility, and maybe I should be referring to it as aeronautics I think thats, what you termed it in your in your commentary but.
Do you have any data points there to suggest that this is going to be a real opportunity I mean I have heard obviously a lot of people talking about it and I'm just trying to get a sense for.
The timing and to the extent to which that you as a supplier I really think that this is viable.
Sure.
We think that obviously mobility is a great area of longer term growth opportunity.
For our business.
And aeronautical mobility or aviation mobility.
Is absolutely part of that.
Whether it's it's providing capacity for other operators or for service providers or developing some of our managed services.
A data point, we can give you is something from NSR that they forecasted.
1.36 billion of growth from mobility applications between now and 2023.
About two thirds of that is from aviation.
Broadband so it's it's a pretty large proportion of the expected growth in that sector and it's an area of focus for us.
Well it sounds like maybe let me try to be a little bit more clear it sounds like what you're referring to the sort of the consumer driven broadband into the cabin type application I'm trying to get at the you know the more what I call avionics, which is really the the the communications between the pieces of equipment that are on the jet itself back to the ground for maintenance.
For for repair et cetera.
Is that.
A viable distinct category or am I, making too much out of that.
I think it I think over time that will be an important category when you think of.
Avionics and that.
Sort of Internet of things in terms of monitoring operational equipment on planes a lot of that of course is being served by by L band services today.
Especially in the cockpit.
But overtime as broadband connectivity is.
Established on aircraft I think we could see some more applications being served on that on that plane, but for the most part when we talk about aeronautical or aviation applications, we're talking about broadband connectivity for the cabin.
Thanks very much.
You're welcome.
Thank you and our next question comes from Anthony Klarman with Deutsche Bank. Your line is now open.
Thanks.
A few questions.
I guess while were on Tam.
In the U.S.G. and you called out some increase in bad debt expense largely related to customers in Latin America and Europe .
I guess I was wondering if that was correlated to some of the non renewal that you mentioned on the revenue side and network services and how we should think about.
Whether some of that drags into the back half of the year.
Anthony I think the just thinking through the specific bad debt in Latin America.
I think probably we're seeing in Q2 relates to Venezuela.
Which was related to the ITL sat 20, ninee failure and Thats, probably the biggest impact in that particular region in Q2.
Okay got it and then.
There was a mention in both direct costs NSG Nay regarding staff related expenses as part of the rationale behind the higher expense increase and I assume that some of that relates to sort of transitional expenses and staff related expenses associated with 20, ninee, but maybe to get to the heart of an earlier question I'm wondering how much of that will not repeat or nonrecurring as we think about.
The back half of the year, and I guess really what I'm getting at.
For you, Steve or for David is just how to think about the correct pacing.
As we look at where the first half finished up and what your guidance implies for the back half of the year.
Sure I think the primary these numbers get pretty small so forgive me, but the primary driver of those staff related expenses would really be the investment in the PML that we are making for our managed services business.
I would expect that to continue into the second half frankly, we think managed services is a very important part of our future.
There are also some compensation accruals that are running through that line item that may or may not manifest themselves in terms of cash.
In the second half of the year.
And then.
Some ones and twos thereafter, but those are the primary drivers.
Got it okay.
And then maybe finally on on C band, rather than delving into the voluntary contributions Steve I was wondering if you guys have further refined any of your views around.
Around potential taxes, and I think previously you had said that this was not considered an asset sale at least in your.
Original views, but if you had any views as to how proceeds that might come in would would be taxed and then maybe David as an add on to that with a fresh set of CFO wise. If if you had any sort of thoughts as to how the application of proceeds might work or where you might target some de leveraging and the structure going forward.
Sure I will take that look in terms of tax what I would say I'd repeat what Steve said earlier, we don't currently have a deal.
So what we are really focused on is deal execution and making something happen here.
That's favorable for all of US once we have a structure and its finalized we'll analyze it and try to understand more about what the tax implications are.
We expect to pay whatever is appropriate.
In the U.S. and Luxembourg were subject to tax in both jurisdictions.
But I think it's far too early to say what the potential.
Tax exposure might be in a deal related to C band in terms of use of proceeds I would say again.
It's it's.
Not something I'm spending a tremendous amount of time thinking about we're focused on making a deal happen, but I do think it's fair to say that a significant deleveraging would be a very important part of any use of proceeds if we're successful in making a deal.
All right. Thanks, David.
Thank you and our next question comes from Jason Kim with Goldman Sachs. Your line is now open.
Good morning. Thank you I have a longer term question for Steve and a follow up for David So for Steve as I look at some of your satellite Peters a few of them are pursuing different strategies in terms of investment in different satellite network.
And business opportunities Intel has had levered balance sheet along for a long time, so you've always had to look to be as efficient as possible, but to the extent that your leverage can come down are there initiatives or M&A or other investment that you would think you want to make to help the top line trajectory of the business long term or do you see the current level of investments in the core business and sufficient to ride out the near term pressure and see revenue stabilization sometime in the future or just your high level thoughts here will be helpful.
And for David.
Obviously were joining at an important juncture for that for the company, putting aside C band process. If you had a blank states. What do you think is appropriate leverage for the for the business from your perspective, given the changes in the sector in recent years.
Okay. Thanks, Jason.
You know.
I think the most most important thing to too.
Keep in mind is that we are focused on right now stabilizing the business and returning to growth I mean growth is still the key over the long term.
And so.
That's where we are now and then as it relates to C band.
As David just indicated our first priority would be to address the the the balance sheet and our capital structure.
But of course, as we do that it creates opportunities.
And we always are looking across the landscape as to where to deploy capital or resources.
To grow we have a number of those growth initiatives underway now from an from an organic standpoint, but as we always have we will look at inorganic situations.
To enhance that strategy in the future. So we don't comment on specific things to do but.
You've seen some of the smaller investments that we've made over the last few years, it's focused on how do we accelerate technology development to get access to new platforms distribution.
We would we would certainly look in those areas as well as others into the future.
In terms of leverage I guess, what I would say is.
I believe the company has previously provided guidance that five to six times debt to adjusted EBITDA is a reasonable target range.
I don't see any compelling reason to update that guidance currently.
Again, our focus is on deal execution currently as it relates to C band.
I would say that.
Obviously, whatever capital structure, we settle in with needs to be sustainable and provide enough leveraged free cash flow for reinvestment in the business.
So that we can get the top line turned around.
And.
Services, but a quick one.
Just on the one time revenue credits and re pointing costs I'm just wondering.
You stated that Theres more of this are a little bit of this to come and I'm, just wondering why that doesn't happen.
Almost initially are clearly in the first couple of months post that and I do have a couple of other questions I don't do after.
Mike just to clarify that I mean, there when when something like this happens it's very complicated situation. So there there are several.
Customer situations that we're still working through for very very large networks, and so where we're working through those issues and so it's just we just don't have a clear answer as to how it's all going to sort out.
From a from a financial standpoint, but it's within our everything we're working on is within our expectations at this point.
Okay Fair enough and then I guess on the first quarter call you highlighted.
Probably some incremental weakness or headwinds and the government and media businesses and I'm. Just wondering is this playing out maybe better than expected or as expected or is it really more of a timing into the second half because it seems like the the run rate there is doing a little bit better than what you stated and then Steve just a bigger picture question for you and clearly much longer term, but you know with all of the hype in Fiveg and clearly you guys are involved here with with the C band spectrum, but I'm also just wondering you know how your satellite infrastructure plays a role in fiveg much longer term U.S. and globally.
Sure.
Let me just touch upon media and government first and I would say that.
What we talked about last quarter in terms of softness in media and government is playing out as expected.
In the media space.
We've we've seen more nonrenewals than we originally had anticipated.
Entering the year and we've talked about the reasons for that it's it's customers that are that are actively trying to control cost and be more efficient and shifting some of the some of the ways that they utilize our capacity by turning off H SD channels or compressing, a better or doing some different things and so that's playing out as we expected over and we expect it will play out over the course of the year as we as we indicated in the government side, we talked specifically about a couple of Nonrenewals.
In the first quarter that affected our view of the year and so.
Those non renewals have full year impact.
We don't have any.
Other events that would suggest that.
That our guidance would be.
Off from what we anticipated.
In that area.
Regarding fiveg.
This is a very important area for us as a company we believe.
Putting aside our efforts around fiveg in the C band, we believe that Fiveg.
It's an important catalyst.
For the satellite industry, just as it is for the broader telecom industry.
It is the opportunity for satellite services.
To be incorporated into an industry wide telecommunications industry wide standard for the first time in so we and other operators actually have very engaged with the fiveg standards bodies.
These are the regional entities that are working on the Threeg PPE standard.
And satellite.
Services and satellite network.
Aspects are being incorporated into that standard in the release 17, Thats coming up in the near future. So we view this as as a very exciting opportunity, it's going to allow better interoperability between satellite networks in wireless networks and terrestrial networks.
We believe it has the potential to stimulate.
Sharing of R&D, and technology, and chipsets and really make.
Some of the services that we provide more efficient.
And cost effective for end customers going forward and the importance of that is that it will allow us for the first time to reach some scale and cost structures that will hopefully unlock new applications and services are the future on a hybrid basis with other.
Telecommunications technologies.
Thank you.
You're welcome.
Thank you.
And our next question comes from a room Seshadri with credit Suisse. Your line is now open.
Hi, Thanks for taking my questions Stephen Welcome David just a couple of things for me one just wanted to ask on the on the government the renewal side.
Sounds like you had pretty good renewal rates. This quarter. If you could talk about any any characterize any changes in sort of pricing or anything you've observed and then separately. How is you know just wanted to update on flex there.
How is that being competitively received in the marketplace.
Sure. So you are correct government renewals in Q2 were very solid above 90%. So vast that playing well we are seeing some price adjustments on those renewals again lot of these government services are five years old. So there are some adjustment.
For for that.
But but volumes are holding up in that sector. So.
That's that's all good news.
In terms of flex there, we're just getting moving on on flex there we've been very active in in.
Validating.
The terminals that can be used with this flex platform as you know the government users have a wide range of terminals that they use on airborne systems and so we're going through the process of verifying and certifying those terminals onto the flex network, we have our distribution channel set up but in terms of expectations you know we.
Saw this as a.
A launch year for that service, we have good interest from our customer sets, but we don't see that having a significant impact on 2019, it's really something we're going to ramp this year.
And get moving forward into next year.
Got it Thats helpful. Thanks, Steve and then.
And then it today as far as overall 2020 outlook goes I know you don't want to comment specifically guidance comes out later, but just wanted a sense for your visibility today.
Vince if you three months ago, and then what are you able to say on 2020.
Well you know.
First of all.
As you know we don't we're not going to comment specifically about 2020, our objective is to close out this year and achieve our goals and objectives that we've laid out.
You know, we're just starting into our business planning process and budgeting process for next year and so it's really premature to say anything.
Fair enough.
Last thing for me is on the on the reduction in backlog I assume.
A decent amount of it or more than half of that reduction in the backlog sequentially from 7.9 billion to seven and a half billion.
It was some 20 ninee if you could just sort of is there any way you could quantify that in terms of how much was regular way.
Versus how much specifically was about 400 million reduction was 20 ninee that'd be helpful. Thanks.
That's not a number that we disclose but but I can tell you that the loss of 20 Ninee was a substantial driver of the drop in backlog from the 7.9 billion to the 7.5 billion sequentially that you mentioned.
Okay. Thank you.
Okay. If there were.
Thank you and as a reminder, ladies and gentlemen that Star then one to ask a question.
Our next question comes from David Phipps with Citigroup. Your line is now open.
Hi, Thanks for taking the question maybe you can level set the market on some of the milestones that you're thinking about for the C band as we go through the rest of the year like when do you think it comes up on the FCC calendar.
Any other back and forth you might have.
And.
And over timing as to when you could sorry I'm in the process.
Well.
The timeline is 100% control by the FCC and in particular, the Chairman's office.
All we really have to go on is that the chairman statement that he wants to.
Bring this forward in the fall and so you can take that literally which means you know anytime in September to December timeframe.
We do see.
A lot of engagement at the FCC on this topic. So we know they are working hard on this is a priority and we're engaged with them it.
At the at the Chairman's office, the other commissioners and the bureaus. Accordingly, so we're doing everything possible to help them.
Move forward and conclude on this in that timeframe.
What we've also said, though is that we've continued to do our work in preparation for how do we.
Managed the transition how do we proceed on things commercially.
And so we have developed all of our plans in those areas technically as well we have our designs ready to go with our satellites.
So what we said is when the FCC comes out with an order we're going to be in a position to move very quickly and we believe faster than than any other options out there.
Has anything come up in the discussions.
Mobile sprint merger is being contested and them I'm sure you'd love to have extra bidder. If T. Mobile is not allowed to pursue this brand acquisitions. So has any of that factored into the timing or discussions that you've had so far.
I don't know because like you know the FCC doesn't necessarily share that with us.
You know when we in in terms of Timo and sprint and what it means.
We can't really speculate on on who the participants may be in any market based process down the road. What we do know is that our mid band spectrum is unique we think it's valuable and important for fiveg deployment in the us.
And therefore, we think it's going to have a lot of interest when we get there.
Great most of my questions. Thank you.
Okay, you're welcome.
Thank you.
And our next question comes from Chris Quilty with Quilty analytics. Your line is now open.
Hi, I was wondering if you could give some specific numbers for either revenues or the growth rate for the mobility business, which I think you've done in the past.
We have.
We have we talked about what mobility is in terms of our company revenues is running at about 13%.
Of the company revenues.
But from a quarterly standpoint.
There has been impact on until sat Fi two Intelsat 20, ninee in the quarter. So while there were seeing services growing.
In mobility around the world the Intelsat 20, ninee impact pretty much wipe that out for the quarter.
So Chris I would just add as I said previously on this call and I'm not prepared to give any specific numbers, but.
As Steve indicated about 13% of the topline is mobility.
I said earlier on the call that mobility was up on an actual basis first half over first half even with the impact of 20 Ninee.
Gotcha and can you characterize is the nature of the mobility revenue shifting at all from transponder services managed services.
And is there some sort of goal you'd like to see over the longer term.
Well in terms of volume.
The overwhelming volume for mobility services. It is by the way of transponder services.
But having said that you know we're investing in our managed services for mobility for maritime for aeronautical for.
Consumer broadband as well as business jet as well as government and so we think that there is.
A great opportunity over the long term to enhance these managed services.
In those sectors and as I indicated earlier our maritime.
Managed service.
Flex Maritime has done very well.
Since it was introduced last year and continues to grow quarter by quarter as more ships are connected as they upgrade from L band to do real broadband services and as we add additional distribution partners in different parts of the world. So.
I can't really comment right now about what's the percentage your mix going to be but we're going to see more and more of these managed services as it's it's an attractive way for service providers to grow.
Very efficiently.
On a global basis.
Thanks, and one question on the government business was a little intrigued by your you mentioned that you saw a decrease in LPTA contracting which was always intended for for pensions and staplers not advanced services is that.
It's something that you saw as a one time issue or are you actually seeing.
Directives coming from the Pentagon or the administration to kind of right size the use of that contracting vehicle.
Yes, I think the pressure came largely from Capitol Hill.
It was in some of the.
Andy a language.
And we do know that there are a number of people on senators and congressmen that that identified this as a very inefficient way of buying a sophisticated services.
And so.
This year.
We've seen a complete reversal and we've seen a lot of.
A lot more if not all of the services on a on a.
Total value basis, and not just on lowest cost technically acceptable and so we're glad to see that allows us to differentiate what we bring to our customers. It allows us to talk about past performance and how we've performed.
For these specific customers and so we really do welcome that change and we think it's a much more intelligent way.
To be buying sophisticated mission critical services for the DRD.
Got you and final question on Latin America.
Continued headwinds there.
If you were to rank you know the primary issues you are dealing with there is it.
Is it primarily competition.
End market or available capacity.
I think it's a mix of a number of things.
I think that there's there is.
You know, maybe a slowdown in demand in certain in certain areas.
And there is there is plenty of supply for the most part in the region at the moment.
But I don't think its necessarily long term it may be just a cycle, we're going through until it comes back into balance.
Got you. Thank you very much.
You're welcome.
Thank you.
And I'm not showing any further questions at this time I would now like to turn the call back over to Steve Spengler, Chief Executive Officer for closing remarks.
Okay. Thank you everyone for joining our call and thanks for the questions as well, we look forward to meeting with investors at upcoming Investor and industry events in September . Thank you for joining us.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect everyone have a wonderful day.
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