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PanAmSat’s Outlook Positive Despite Revenue Decline

By | July 30, 2003

      PanAmSat [Nasdaq: SPOT] had revenues of $203.4 million in the second quarter of this year, a drop of just under 3 per cent compared to the corresponding quarter last year. The U.S. satellite operator had revenues for the first half of the year of $403.3 million, almost $13 million less than for the first six months of 2002. But, the company has been able to reduce costs. It had operating expenses of $54 million for the quarter, a reduction of almost $5 million compared to the second quarter last year.

      Despite the reduction in revenues, most analysts’ said the results were in line, if not better than, what they had been expecting.

      Robert Peck, a satellite equity analyst at Bear Stearns, said in a research note: “The company continues to execute on its top line growth despite the difficult telecom markets both domestically and internationally.” Vijay Jayant, a satellite equity analyst at Lehman Brothers, said in a research note, “PanAmSat’s second quarter results were modestly better than our expectations. Its revenues of $204 million came in slightly higher than our $200 million estimate.”

      Bright Spots

      While the revenue numbers were down, there were some bright points. Perhaps the brightest of all was the growth seen in operating lease revenues from network services. These increased to $68.2 million in the second quarter, compared to $54.8 million in the second quarter of 2002. This represents a 24 per cent increase and is primarily a result of net new business recorded from the company’s G2 Satellite Solutions division and network resellers. PanAmSat is also looking to generate more revenues from multimedia applications, as well as high-definition TV (HDTV). Jayant wrote: “In the longer term, the company is looking to develop multimedia-based services in developing countries. In Mexico, for example, the E-Mexico initiative has already rolled out into 3,200 locations (using the Galaxy IIIC satellite) and is becoming one of the largest VSAT networks in Mexico. In addition, the company’s venture with Liberty Foundation in South Africa is on the verge of commencing its pilot program of providing educational programming to approximately 100 primary and secondary schools in South Africa.”


      While government services and multimedia applications offered hope for the satellite operator, there was some discouraging news in the quarter. In a Securities and Exchange Commission filing, the company said it had experienced “anomalies” on the secondary xenon ion propulsion systems (XIPS) of two Boeing BS 601 HP satellites – PAS 6B and Galaxy IVR satellites. It remains to be seen how this potentially could affect the company. The situation could create a number of issues relating to the PAS 6B satellite. Peck explained: “The Galaxy IVR is fully insured and the company expects to make a full claim if and when it determines that the satellite is totally impaired. The company expects the insurance proceeds along with a previously paid spare launch contract to cover the cost of launching a replacement satellite. PAS-6B, on the hand, has an exclusion for XIPS failures and as such PanAmSat does not have coverage in the event the satellite is deemed a total loss. Thus, a backlog of approximately $380 million is at risk beyond the remaining life of the on-board fuel.”

      –Mark Holmes

      (Contact: Vijay Jayant, Lehman Brothers, e-mail:; Robert Peck, Bear Stearns, e-mail:

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