New Skies Satellites [NYSE: NSK] displayed resiliency during the first quarter at a time of weak demand for fixed satellite services (FSS) that hamstrung the performance of many other FSS operators.

The company managed a slight boost in first quarter revenues, rising to $52 million from $51.8 million for the first quarter of 2002. It benefited from increased capacity demand from governments and news broadcasters due to the war in Iraq.

New Skies notched favorable financial results, despite a low utilization rate of slightly below 50 percent for its in-orbit satellites. That rate was weighed down by the recent launch of the NSS 6 satellite, with its capacity less than 20 percent filled right now.

New Skies, based in The Hague, Netherlands, also achieved free cash flow of $9.7 million during the first quarter. That positive free cash flow marked the first time New Skies had managed to operate out of the “red” during any quarter, according to a research note by Tom Watts, a satellite analyst at SG Cowen.

A positive free cash flow is significant because it shows a company is able to generate net cash flows from operating activities after accounting for purchases of property and equipment. Positive free cash flow also is expected for the full-year, he added.

The company generated a first quarter net income of $3.6 million to rebound from a net loss of $17 million during the same quarter last year as a result of a one-time charge of $23.4 million for an accounting change affecting goodwill. That charge wiped out what would have been net income of $6.4 million, company officials said. Operating expenses, excluding depreciation, fell by $0.2 million to $23 million during the first quarter, in contrast to $23.2 million for the same quarter a year ago. The reduction is a by-product of keeping tight control of costs, company officials said.

EBITDA (earnings before interest, taxes, depreciation and amortization) inched up $0.4 million, or 2 percent, to $29 million during first quarter, compared to the same quarter last year.

New Skies also repurchased 12 million common shares of its own stock during the first quarter. Management believes that the share price is undervalued. The company thus far has bought back 92 percent of the stock it was authorized to acquire.

There is an improved outlook in some geographic regions, such as Africa, India and the Middle East. New Skies recently inked a deal with KMS/FalconStream, a Kuwaiti information technology firm, for KMS/FalconStream to lease transponders from New Skies in order to provide high-speed Internet access services throughout the Middle East, the Indian Subcontinent and North Africa, Watts noted.

Latin America is showing signs of stabilizing. New Skies earlier this month inked a pact with Star One, an Embratel company in Brazil, under which Star One agreed to use almost 50 percent more capacity on the NSS-7 and NSS-806 satellites, Watts said.

Another encouraging sign is that transponder pricing has remained relatively stable, with an average annual rate of $1.5 million per 36 MHz. Any pressure to cut prices would be only “slight” and any revenue reduction would be “insignificant” if it happened at all, New Skies officials said.

–Paul Dykewicz

(Tom Watts, SG Cowen, 212/278-4260; Elizabeth Hess, New Skies, 31 70 306 4133)