Michael Targoff - Chief Executive Officer
Harvey Rein - Chief Financial Officer
Avi Katz - General Counsel
John Capogrossi - Controller
John Stack - Assistant Treasurer
Wendy Lewis - Director of Communications
David Sacks - Hawkeye Capital
Loral Space & Communications Inc. (LORL) Q3 2009 Earnings Call November 10, 2009 11:00 AM ET
Good day everyone and welcome to the Loral Space & Communications third quarter results conference call. At this time all participants are in a listen-only mode. (Operator Instructions)
Now I’d like to turn the conference over to Wendy Lewis, Director of Communications; please go ahead, ma’am.
Good morning. As we proceed with the call today some of the remarks we make about our future expectations, plans, and prospects. We’ll be forward-looking statements under the Private Securities Litigation Reform Act of 1995. As you know, actual results may differ materially from those discussed here as a result of a wide variety of factors and conditions. Please refer to the most recent 10-K and 10-Q Forms that we’ve filed with the SEC for information on those factors and conditions.
Now I’d like to turn the call over to Michael Targoff, Chief Executive Officer of Loral Space & Communications.
Thank you, Wendy and good morning everyone. With me today are some of Loral’s Senior Executives, including our Chief Financial Officer, Harvey Rein; our General Counsel, Avi Katz; our Controller, John Capogrossi; and our Assistant Treasurer, John Stack.
The yesterday we announced our results for the three months and nine months ending September 30 and filed our 10-Q for the quarter. I’d like to take this opportunity as we have in the past to review the quarter. Draw your attention to some of the important highlights and discuss our current status. At the end of the call, as noted we’ll take questions that you may have.
Despite the continued challenging economic environment, our performance in the quarter was outstanding. In the past I have cautioned that is important to measure our operations with a long term view rather than focusing on any single quarter. I have said this and discussing quarterly results that were negatively impacted by what I described as onetime events.
The same applies now in light of these positive results. With that said an even modulating somewhat for these onetime events, which contributed approximately $10 million to third quarter adjusted EBITDA, our results were still excellent. I believe these performances provide evidence that we are right on track with our expectations for growing value at both Space Systems Loral and Telesat.
By the way during this call when I were discuss EBITDA I will refer to at simply as EBITDA, but you should know that I am really referring to adjusted EBITDA has defined in our quarterly filling. Talking first about our Space Systems Loral, our manufacturing units are focus on operations has contributed to noteworthy margin improvement.
EBITDA for the first nine months of the year was more than doubled the comparable period in 2008. The dramatic increase was driven by a combination of scope increases of certain contracts, which I consider as noted to be onetime events. As well as increased revenue and good operating performance.
As with a prior negative onetime items the importance of my calling them out to you is not to say that they should be ignored rather it is to reflect that they maybe reported for accounting purposes in the quarter, but from an operating perspective I consider and this part of their performance over the life of a particular contract.
Booking for the year continued to be strong with awards for five satellites. We are seeing continued customer demand, which we expect will results and at least one additional order before at the end of the year. The number of satellites completed in launched as also been very impressive with six satellites successfully launched so far this year, including one for Telesat, at seven satellite in Telesat No. 14 is schedule to launch this week end.
This satellite is worthy of some specific discussion, because in addition to its regular fixed satellites services its payload and includes what we describe as I hosted payload. In this case it is a Cisco router design for U.S. Government news as an alternative to our government own satellite. As the U.S. Government focuses on the most cost effective’s ways deploy satellite applications we believe that our high power platform and our experience incorporating government payloads on commercial Spacecraft will serve as well.
Going back to the reported results SS/L revenues at $254 million for the quarter and $746 million for the first nine months to our marked improvement over the same periods in 2008, this reflects a 17% increase for the quarter and a 15% increase from the first nine months. EBITDA from the quarter was $32 million which compares to $10 million in the third quarter of ‘08. For the first nine months of the year the EBITDA was $54 million up from $25 million in the first nine months of ‘08.
While we expected our revenue growth and focus on operating margins to continue to improve long term growth in EBITDA, there was an uncommon combination of events as I described earlier which close our EBITDA margins in the third quarter to be a robust 12.5%, if the benefit of the scope increases or backed out of the quarter. The EBITDA margin would have been approximately 8.5%.
I would expect that our fourth quarter EBITDA to be strong as well, probably somewhere mid range between the second and third quarter reported results. This would be more in keeping with the regular EBITDA growth we had been striving for. Speaking about the future of SS/L it is noteworthy that SS/L $1.6 billion in backlog at the end of the third quarter and continues to be robust.
On the liquidity side our current cash position is quite strong. We ended the third quarter with $173 million of cash and cash equivalents and borrowing availability of $95 million under SS/L is revolving credit facility driven largely by increased customer advances our SS/L contacts as well as reduced inventory levels and tax refunds, our net cash improved by $111 million over the nine month period.
In addition during this period long term orbital receivables grew by more than $40 million and we spent cap, $32 million for on capital expenditures. While we have ample liquidity for operations going forward, our cash position will likely decreased from its current level driven by the continue growth of our long term orbital receivables and reduction in customer advances. We will also have capital expenditures requirements all of which will more than offset our expected EBITDA in the fourth coming period.
On a Telesat side, Telesat six satellite services business has demonstrated remarkable strength and continues to match or exceed our expectations, when we made our acquisition. Telesat new satellite Nimiq 5 which was build by SS/L was successfully launched in September and began service last month. The revenue stream from this satellite which is 100% leased to EchoStar commenced in the fourth quarter of the year.
Telesat is continuing is growth initiatives was a procurement of a replacement satellite Telstar 14R which is currently under construction SS/L and its schedule for launch in 2011. It will replace and provide expanded coverage in the Americas and over the Atlantic Ocean for what was Loral’s EDS. Telesat as also announced plans for a new direct-to-home television satellite Nimiq 6 which will be fully leased to Bell TV.
Construction of this satellite is schedule to begin in the first quarter of 2010, even without this new satellite Telesat backlog continue to be very strong at $4.4 billion in US dollars. The swing in net income at Telesat in the third quarter compare to the same period last year at demonstrate the impact of United States in Canadian dollar currency fluctuations. Net income in the third quarter of 2009 was $168 million compare to a net loss of $53 million reported in the same period in ‘08.
For the first nine months of the year net income was $279 million compare to a net loss of $131 million in the first nine months of 2008. US dollar versus Canadian dollar exchange rate fluctuations makes analysis of Telesat results complicated. I would like to refer you to both Telesat and Loral’s filling for a detail in the Canadian dollar and US dollar GAAP reports.
However I do want to point out if we adjust for foreign exchange rate changes, Telesat EBITDA for the third quarter of 2009 on a US GAAP basis would have been approximately $15 million US dollar than the third quarter EBITDA in 2008, and for the first nine months of the year EBITDA would have increase by approximately $60 million over the 2008 results. Not that these numbers are only just beginning to reflect the benefit of Telstar 11N which was put into service in the spring of this year and they do not include any of the revenue or EBITDA contribution that Telesat as now realizing from Nimiq 5.
Regarding our investment at Loral level Nimiq 1 you may recall that Telesat had an option to take over Loral’s rights for the Canadian portion of the satellite for which it would have had to pay in the Loral of $13 million premium. Telesat decided not to exercise the option, because it did not meet its investment criteria for several reasons. These include, other existing and expected growth initiatives that Telesat had and its credit agreement limitations on investments and liquidity.
Loral was very supportive of Telesat’s decision in this respect, but for Loral, given our lower cost basis, this should be a very good investment. Our cost will be $16 million for the launch satellite as we previously disclosed, approximately $25 million of which has already been spent. Regarding the future of this asset, we are now in very advanced discussions with the Canadian service provider, to utilize this capacity for broadband service over Canada and we hope to have more news on this in the very near future.
In connection with this potential contract, we would expect to invest approximately $15 million on ground infrastructure. The Loral has a strong belief in their potential for satellite broadband services throughout the world and we will continue to look for opportunities in other regions to support the growth of this evolving technology.
In closing, I would like to reiterate, that despite the worlds continue economic difficulties, and our outlook is very promising in both of our segments. Our backlog is strong, our liquidity remains solid, we see strong ongoing customer demand and our operating performance continues to improve.
With that, I would like to turn the call over to the operator and Elizabeth if you please arrange to open it up for questions.
(Operator Instructions) Your first question comes from David Sacks - Hawkeye Capital.
David Sacks - Hawkeye Capital
Michael, could you go over the capital spending profile for the fourth quarter of this year, what your expectations are for 2010, if you have any thoughts on 2011 that you know…?
I think we’ve indicated repeatedly that, we see at the Loral level at SS/L, a normal spending pattern that would be somewhere between $25 million to $30 million in regular CapEx.
We have as I’ve said, embarked upon a expansion program at SS/L, that allows us to accommodate up to as many as nine satellites and while that’s substantially completed the expenditures to updated test equipment, continue to have a requirement for spending somewhere between $5 million and $10 million, as we look forward in the next 15 months, I guess you question would.
So we would see on the normal expenditures plus and approximately $10 million number for the extra test equipment. We’d also expect to complete over the next two years. The spending for the remainder of the $35 million for ViaSat-1 and $15 million of ground infrastructure equipment and that would be at the Loral level. That would be it, unless we have new or unusual items, or out of the ordinary course of requirements.
David Sacks - Hawkeye Capital
Can you speak it all to the Telesat spending requirements over the next year or two?
Well, I could, I’ve really refer you to Dan Goldberg’s remarks yesterday, but essentially they’re building T14, which I think they’ve disclosed is a total cost to them. I’m not sure whether they include the capitalized interest in or in it of somewhere between $215 million to $300 million Canadian and they will be building Nimiq 6, which again they’ve described as being in the same cost range.
So I think you know that those satellites take anywhere from 24 to 28 months typically, so you can plan it out.
David Sacks - Hawkeye Capital
What do you expected in turn of rate return beyond those projects?
I don’t think we probably disclosed that and I don’t think I want to tell you more about that other than, I think Dan has indicated that the Nimiq 6 is in the pattern of contractual relationships that have historically been between Bell and Telesat, which we at Loral viewed very favorably when we acquired the company. We would hope that would be same here and 11N it’s just a typical FSS satellite and your, we thought at Loral was a fine location and the early evidence I think speak for itself.
(Operator Instructions) It appears that we have no questions sir.
Okay. I want to thank everybody for joining us. We appreciate your participation and we’ll talk to you again at the end of the year. Thank you.
Once again, that does conclude today’s conference call and we thank you for your participation.
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