Intelsat: Sell And Lock In Profits

Summary

• Intelsat's quarterly results were more or less inline.
• However, for several quarters now, quarterly results are not the center of attention. The center of attention is the FCC outcome.
• Not having enough clarity as to the roadmap of the FCC decision and given the mythical profits the stock has given, I am recommending selling Intelsat shares.

Intelsat's (I) Q1'18 results were nothing special. For the record revenue was $543.78M higher by 1% Y/Y, and adjusted EBITDA was $392 million, lower by 4% Y/Y. EPS came in at a loss of $0.56, missing by $0.17. Overall, I was not expecting anything of the quarter, and the results were ballpark of what I was expecting.

But if you have noticed, I have not paid much attention to Intelsat's earnings for several quarters now. This is because for some time now, everything has been about C-band licensing and not earnings.

As was expected, most questions in the conference call were about the C-Band spectrum. And to be honest, the questions in the conference call complicated matters a little instead of shedding light on the FCC outcome.

Let me share with you some of the dialogs.

We've had a number of meetings with representatives from the FCC. Their public comments and actions indicate an interest in our proposal.

While I would not expect Stephen Spengler to say anything that might conclude the proposal is a done deal, I did hope for something better than an indication of interest to the company's proposal.

An indication of interest was good enough to speculate on Intelsat shares when the stock was at $3 share. At $13, I need a little more confidence that the proposal will be accepted to continue holding the stock.

The process going forward will, no doubt, be a complicated series of events. The FCC controls the process, the timeline and the ultimate order. For that reason, as we answer questions today, we'll refrain from addressing topics that require speculation and stick to the fundamentals of our proposal.

This is something we know for a while now. And to be honest, it makes it very difficult to invest in a stock when you don't have a clear time frame on the main catalyst. In fact, I was hoping for the FCC to decide by Q1, and here we are in Q2 already, without a clear time frame as to when the FCC will make a final decision.

Sebastiano C. Petti - JPMorgan Securities LLC

Hi. This is Sebastiano Petti on for Phil. Thanks for taking the question. I know, Steve, you mentioned that you're trying to refrain from answering speculative questions or topics. But just given recent comments from FCC commissioners about clearing 200 megahertz to 300 megahertz of spectrum versus your 100 proposal, I mean what is the potential you or SES come up with a new proposal, with a path to that goal before an NPRM is issued this summer?

Stephen Spengler - Intelsat SA

Well, you're right. I don't really want to speculate on what's going to happen in the coming months, because it is going to be a complicated process with the FCC. But let me just say this, we do believe it's possible to clear more than 100 megahertz over time. But it really is going to be a matter of timing, cost and complexity. It's not a small undertaking.

So, the FCC was thinking about 200-300 megahertz of spectrum, while Intelsat and SES were talking about 100 megahertz. And as Stephen Spengler replied, 100 megahertz is possible, but it will not be easy. While I did not think it would have been easy, I did think it would not be that hard either.

Anyhow, the conference call made me aware that many things might go wrong, and that the process might take longer than I imagined.

Please note there were many more issues talked about as well as many C-Band questions. I advise investors to read the conference call transcript (link above) for better clarity of the company's quarter.

Let me put on my speculator's cap once more

The difference between speculation and investment has to do with the amount of information available to make a decision. The less information you have at your disposal, the more speculative the decision is.

When I was making a speculative case for Intelsat shares at the $3 handle, the market cap of the company was about 1/4 of what it is today.

At the $3 level, main issue that was relevant was the balance sheet and the company's quarterly results. The speculation part was an added bonus. Today, however, everything rests on what the FCC will decide in the future.

As such, today we need more clarity. It's not enough for management to simply give investors a few crumbs of information anymore. Investors need the entire loaf of bread to be able to figure out what to do.

While I am not blaming management in any way, at the same time, we do not have enough information to be able to decide if Intelsat shares are worth buying, holding, or selling. This is because we do not have enough clarity on the FCC decision.

In fact, we have no idea when the FCC will make a decision. We also don't know how long it will take for Intelsat to receive its first dollar of monetization revenue after the FCC makes up its mind.

We also don't know if Intelsat will sell a portion of its C-Band spectrum (for a one-time lump-sum consideration), or if they will receive monthly licensing revenue from those interested.

We also don't know how much money the spectrum might be worth. I am not kidding when I tell you I have yet to see any kind of guess from anyone.

And the longer we continue without a roadmap or guidance, the higher the chances the stock will correct. Especially given the mythical profits it has given shareholders over the past several months.

I data by YCharts

Bottom line

For the first time, I am advising readers to sell Intelsat shares. We simply do not have enough clarity to be able to decide what to do from now on, pertaining to the FCC outcome.

Please note that my call has to do with the unknown factor pertaining to the FCC outcome and not the company's core business.

I am assuming the average reader who followed my recommendation is sitting on 200-300% profits to date. Due to the uncertainty of the FCC outcome, those who have shares from much lower levels should lock in profits. The market can give it, but it can also take it away.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[David Orr]

Mulled this stock over a lot. What are they really offering? Satellite data services. What are two big picture changes to the market in the last 5 years?

For one thing, everyone is on 4g now. It is very high bandwidth, capacity, priced well and reliable. This is true even in poorer countries - everyone in Vietnam had this service as well when I visited, for example. It is doubtful that a satellite could actually provide better data services than this. Similarly, fiber is spreading ever wider and offers a superior product for stationary uses.

The other big thing that changes is is the cost of a satellite launch has gone down significantly. This can be done by SpaceX now, according to wikipedia, for just $60m. Add to that rapidly improving technology - leaving the old fleet obsolete - and you have to wonder why you wouldn't want to invest in a satellite company that isn't billions of dollars underwater for new satellite ventures if there was actually a new opportunity.

The last thing to consider is that companies which provide satellite internet where it would actually be useful - in flights, on boats, oil rigs and in remote locations pretty much all lose money. VSAT just turned into the red the last two quarters. GOGO just tanks really hard. WIFI is about to drop off a cliff here after its 4x price run up on nothing but continued bad results.

This stock is the market's blackjack table. It could continue to be for a time. But the value of this "investment" is a mirage. If you're looking for a sound, long term investment be extremely wary of this one. I am honestly a little shocked it was allowed to have an IPO in the first place - the entirety of the IPO money raised was used to... pay down 3% of the company's debt. How did regulators even let this situation arise? Well... that is why you don't rely on regulators to protect people I suppose.

[George Kesarios]

However talking with several people, they told me that there were issues over the past 2-3 years. Again, have not followed it and do not know to what they were referring to.

[emiliospot]

Hi George I was wondering if you had any insight into Folli Follie situation ?

[George Kesarios]

No I do not. In fact I just got around to reading it yesterday (have not seen Greek financial news in a while).

[zip6485]

Go, UOIP, makes those 13 willful infringed bad actors to pay you dearly.
Cost me $0.0035 a share, what is the price now? Up.
Still do not believe me?

[zip6485]

When I mentioned UOIP, I knew you guys thought I was a fruit cake or a nut case right? I am very serious about investing, the lawsuit against those
13 US cable companies for infringement is going very well for UIOP. I started nibbling it at $0.0035 a share, if you still do not believe me, you can
check the share price today. When all the BS settles down, I will have more
than 1000% price appreciation by the end of this year.

[Cal Stanke]

So you turned 35k into 300k unrealized on a sub penny stock.

Care to screenshot the trade buy execution on $UOIP ?

[zip6485]

Like I say, investing is an art, not science! Still do not believe me?
I predict today may be bad for Intelsat because all the negative noises. Thank God, it stands firmly.

[hksche2000]

Sold half of my position @$13, debating whether to sell the rest. The 5G game is on worldwide. I just can't figure the FCC shooting it down in the US as it's vital to stay competitive in the Telecom game. Instead of selling the other half, I'll probably average back in if/when the price drops below $9. At a minimum, I may become a buyout target.

[Greg5thTrad]

A fine level-headed look at where this stock stands, George 😉

[zip6485]

George,
Anything involves the government, it is complicated and time consuming, look at it, the Fannie and Freddie mess, the treasure secretary said that the matter would be deal within the first 100
days. Now what happen? Intelsat will get its task done, just take a little bit longer. Not its fault. Intelsat CEO ought to be very careful what he is going to say in CC. Nowadays, shareholders or those lawyers can sue him for anything. Right? I still have couple thousand shares, I want to see the end game of this one.

[jbzw]

Thanks, George. I do not disagree with you about the common. However, I will continue to hold my various Notes, including the 12.5% 22s. The long term for I is not limited to just 5G. Additionally, I has a history of refinancing its debt. Good luck to all. Again, many thanks to you George for all of your hard work.

[zip6485]

Jbzw,
Nice to hear from you. I only have two series of Intelsat bonds: 7.75% of 2021 and 8.125% of 2023. I cannot buy any 12.5% of 22 for it because of
144A rule, it sucks. My brokerage firm said that they could get this bond for
me but they had to " LOOK AROUND." I said it was too much hassle and forgot about it.

[zip6485]

Dear George,
I booked in more than 1/4 million dollars. Thank you. I felt very good as I read your first article
this year. I used a small portion of the profit and bought a lot of a sub-penny, OTC issue about
14 days ago. As I read this contributor, Dr. Anthony Cataldo's (PhD in accounting and professor) articles and blogs, I also
felt good about this issue. UOIP. Please do not laugh, I am very bullish and very serious about it. I bought it at on average $0.0035 a share, it closed over 1 cent today. I have 10+million shares. May be you should take a look, hopefully all matters are going to resolve this calendar year. I plan to hold on this one once the good news hit the wire.