PanAmSat Boosts Results Despite Transponder Glut

By | October 20, 2003 | Feature

PanAmSat [Nasdaq: SPOT] boosted its third-quarter revenues and profits despite a lingering industry-wide transponder glut in many regions of the world.

The satellite operator generated revenues of $210.1 million in its latest quarter, compared to $199.1 million in the third quarter of 2002. PanAmSat’s net income reached $21 million, up slightly from $20.7 million for the same period in 2002. Earnings held steady at 14 cents per share.

The Wilton, Conn.-based company’s third-quarter EBITDA (earnings before interest, taxes, depreciaiton and amortization) grew slightly to $151.5 million, or 72 percent of revenues, compared to $145.4 million or 73 percent of total revenues, for the same period in 2002. PanAmSat’s $6.1 million increase in EBITDA was offset by rising depreciation expense, primarily due to acceleration of depreciation on the company’s Galaxy IVR and PAS-6B satellites.

“It continues to be a tough environment for our industry, which has unfortunately launched more capacity than the markets demand,” said Joe Wright, PanAmSat’s president and CEO. “We saw this coming, focused on the fundamentals of our business and managed for profitability and free cash flow. Our strategy has worked.”

Almost all the operators have bought or launched new capacity in the last couple of years, said Andrea Maleter, technical director with Bethesda, Md.-based market research firm Futron Corp. With more than 40 commercial geostationary satellite launches planned through the 2003-2005 time frame, operators are “not really holding back,” she added.

With an influx of new capacity ahead, satellite operators need to change the way they do business to avoid providing services that can be easily duplicated by terrestrial competitors.

Fixed satellite service operators in the future will have to provide full communication services through hybrid satellite/fiber networks, Wright said. PanAmSat is developing that service model, while providing full services with a lean cost structure, he added.

PanAmSat’s third-quarter results were aided by a rise in operating lease revenues, reaching $206.0 million from $194.4 million for the same period in 2002. The improvement primarily was due to additional government revenues related to the company’s new G2 Satellite Solutions division and increased network services revenues. These increases were partially offset by lower video revenues recorded as a result of customer credit-related issues. Total sales and sales-type lease revenues fell to $4 million for the quarter, compared to $4.7 million for the same period in 2002.

Operating lease revenues from video services dipped to $119.0 million during the quarter, compared to $124.9 million for the third quarter of 2002. The decrease was primarily due to customer credit-related issues and lower revenues from occasional-use services. Overall video services revenues slid to $123.1 million in the quarter, compared to $129.6 million a year ago.

Operating lease revenues from network services increased to $54.5 million for the quarter, compared to $49.4 million for the third quarter of 2002. The rise in network services revenues is a result of net new business from network resellers recorded during the quarter.

Operating lease revenues from government services, previously included within network services revenues, soared to $21.2 million for the quarter, compared to $6.3 million a year ago. However, the $21.2 million for the quarter primarily comes from revenues by the company’s G2 Satellite Solutions division, formed in 2003 after the acquisition of Hughes Global Services (HGS).

Government services contributed 10 percent to third-quarter revenues, compared to 3 percent in the same period of 2002. Despite the increase, government service revenues had a minimal impact on PanAmSat’s profit margins, wrote Benjamin Swinburne, a satellite analyst at Morgan Stanley.

–Paul Dykewicz

(Joseph Wright, PanAmSat, 203/210-8606; Andrea Maleter, Futron, 301/347-3450; Benjamin Swinburne, Morgan Stanley, 212/761-7527)

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