NSE New Skies Satellite Hlds Ltd

Second Quarter Revenues up 16 Percent to $59.7 Million, Adjusted EBITDA Increased 31 Percent to $38.6 Million New Skies Satellites Holdings Ltd. ("New Skies") (NYSE:NSE), the global satellite communications company, today reported financial results for the three- and six-month periods ended June 30, 2005. Revenues for the quarter were $59.7 million, up 16 percent over the same period in the prior year, net loss was $13.2 million and Adjusted EBITDA(a) was $38.6 million, up 31 percent over the same period in the prior year. Commenting on the results, New Skies CEO, Dan Goldberg, said: "New Skies had an exceptionally busy and productive second quarter. With respect to our financial performance, I am pleased to report that we increased revenues 16 percent relative to the same period last year, primarily a reflection of the fact that we sold a significant amount of capacity over the last twelve months. Indeed, the utilization of our state-of-the-art satellite fleet grew from 52 percent to 61 percent in that period. In the last quarter we secured a number of important commercial opportunities for data and IP services in Central Asia, the Middle East, Africa and Asia; video services in Southeast Asia, the Indian subcontinent, and Latin America; and government services around the world. Importantly, the combination of strong top line growth and meaningful cost savings from our continued efforts to enhance our operational efficiency resulted in a 31 percent increase in Adjusted EBITDA on a year-on-year basis. Underscoring the largely fixed cost nature of our operations, Adjusted EBITDA margins grew from 57 percent to 65 percent in this period. Notwithstanding the strong growth in revenue and Adjusted EBITDA, we had a net loss for the quarter of $13.2 million as a result of higher interest charges arising from the debt we put in place to finance the acquisition of New Skies Satellites N.V. by affiliates of The Blackstone Group as well as a one-time fee associated with our initial public offering. In addition to our strong financial performance, I am pleased that we completed in May our initial public offering on the New York Stock Exchange. The IPO allowed us both to broaden our shareholder base and further reduce our outstanding debt. In this regard, the IPO proceeds, the cash returned to us from Boeing as a result of the renegotiation of the NSS-8 program, and our operating cash flows enabled us to reduce our debt by over $230 million - 31 percent of the total debt outstanding at the outset of the year - in the first six months of this year. And in addition to our emphasis on deleveraging, the commencement last month of our quarterly dividend payments reflects our strong commitment to returning value to shareholders. I am also pleased to inform you that in July we reached an agreement with SES Global S.A. affiliates relating to certain orbital slot coordination matters. Under its terms, New Skies agreed not to bring an FSS satellite into use at the 125 degrees west longitude location in order to ensure that SES will be able to operate its own satellite at this location without interference. In return, SES will make a total payment to New Skies of $9.5 million, which we expect to receive early this month. This payment will be reflected in our third quarter results. In sum, our strong year-to-date performance - including our increased capacity utilization rate and meaningful top line and margin growth - is a reflection of the dedication of the entire New Skies team to deliver the highest quality services possible, the customer community's recognition of our powerful and flexible satellites, and our relentless pursuit of enhanced operating efficiency. I am pleased with the progress we have made in the first six months of this year and our prospects going forward." Financial highlights: For the three- and six- month periods ended June 30, 2005, New Skies achieved the following financial results: -- Revenues for the three months ended June 30, 2005 were $59.7 million, an increase of $8.4 million, or 16 percent, from $51.3 million in the same period in 2004. For the first six months of the year, revenues were $117.9 million, up $14.8 million, or 14 percent, compared to $103.1 million in 2004. These amounts exclude proceeds arising from the resolution of certain orbital slot coordination matters. The revenue growth was primarily due to an increase in the overall satellite fleet fill rate to 61 percent as of June 30, 2005 compared to 52 percent as of June 30, 2004. -- On-going operating expenses, comprised of Cost of Operations and Selling, General and Administrative costs, decreased by $2.1 million, or 9 percent, in the quarter primarily as a result of reductions in third party teleport and other operating expenditures. For the six month period, our Cost of Operations and Selling, General and Administrative costs decreased by $5.5 million, or 11 percent, as compared to the same period in 2004. Reduction was driven by lower third party teleport costs, in-orbit insurance and overall operating expenditures. -- Stock-based compensation recorded in accordance with Statement of Financial Accounting Standards No. 123 was $9.6 million and $13.2 million for the three- and six-month periods ended June 30, 2005, respectively, compared to $0.7 and $1.4 million, respectively, in the same periods in 2004. -- Sponsor monitoring agreement fees for the quarter were $6.6 million and $6.9 million for the six-month period ended June 30, 2005. These amounts are inclusive of a $6.1 million charge in connection with the termination of the agreement upon completion of the Company's Initial Public Offering. -- The gain on frequency coordination reflects a one-time payment from SES Global S.A. affiliates of $10.0 million in the first quarter 2005. In 2004, we received a one-time payment from Intelsat LLC of $32.0 million following the successful resolution of certain longstanding frequency coordination matters. -- Interest expense, net was $17.0 million and $35.9 million for the three- and six-month periods ended June 30, 2005, respectively, compared to $0.3 million and $0.6 million, respectively, in the same periods in 2004. The net increase was due to the addition of new debt in respect of the purchase of the assets and liabilities of New Skies Satellites N.V. by affiliates of The Blackstone Group. Also included are non-cash charges of $5.2 million and $8.6 million, for the three- and six-month periods ended June 30, 2005, respectively, related to the accelerated amortization of debt issuance costs associated with the early repayment of a portion of our term loan facility. -- Net loss for the second quarter of 2005 was $13.2 million compared to net income of $19.5 million in the same period in the prior year. For the six-month period net loss was $12.8 million compared to net income of $19.6 million in the same period in 2004. -- In the second quarter of 2005, Adjusted EBITDA was $38.6 million, compared to $29.4 million for the same period in the prior year, reflecting an increase of $9.2 million, or 31 percent. Adjusted EBITDA margin increased to 65 percent from 57 percent in the same period in the prior year. Adjusted EBITDA for the six months ended June 30, 2005 increased $17.5 million, or 30 percent, to $75.4 million, as compared to $57.9 million for the same period in 2004. The Adjusted EBITDA margin for the six-month period ended June 30, 2005 was 64 percent compared to 56 percent in the same period in 2004. -- Backlog at the end of the second quarter of 2005 was $555 million, approximately three times annual revenues, compared to $649 million in the same period last year and $558 million at the end of the first quarter of 2005. -- Total long-term debt as of June 30, 2005 was $513.6 million, reflecting a total paydown of $231.4 million for the first six months of the year, thus reducing long-term third party debt(b) to Adjusted EBITDA(c) from 6.2x as of December 31, 2004 to 3.7x as of June 30, 2005. -- During the quarter, the Company also declared a partial, quarterly cash dividend for the period from May 13, 2005 to June 30, 2005, in the amount of $0.252146 per share, with an intended level of $1.8525 per share for the first four full fiscal quarters following the Initial Public Offering. Initial Public Offering On May 10, 2005, New Skies completed the sale of 11.9 million newly issued ordinary shares, equivalent to 37 percent of the total currently issued and outstanding ordinary shares in an initial public share offering that generated gross proceeds of $196.4 million. The sale of an additional 1.8 million shares, consisting of shares used to cover over-allotments, was completed on May 27, 2005. About New Skies Satellites (NYSE:NSE) New Skies Satellites is one of only four fixed satellite communications companies with global satellite coverage, offering data, video, Internet and voice communications services to a range of telecommunications carriers, broadcasters, large corporations, Internet service providers and government entities around the world. New Skies has five satellites in orbit, one spacecraft under construction (NSS-8) and ground facilities around the world. New Skies Satellites Holdings Ltd. is headquartered in Hamilton, Bermuda, and has subsidiaries with offices in The Hague, Hong Kong, New Delhi, Sao Paulo, Singapore, Sydney and Washington, D.C. (a) See definition of Adjusted EBITDA and the related reconciliations in Note 2 of "Notes to the consolidated quarterly financial information". (b) Long-term third party debt includes borrowings under the senior secured credit facilities and fixed floating rate notes, amounting to $745.0 million and $513.6 million as of December 31, 2004 and June 30, 2005, respectively. (c) Adjusted EBITDA for the four-quarter period ended December 31, 2004 and June 30, 2005 was $120.5 million and $138.1 million, respectively. Conference call: CEO Dan Goldberg and CFO Andrew Browne will host a conference call today at 11:00 a.m. (EST). To listen in please dial +1 888 222 0364, passcode "New Skies." International dial-in number is +1 334 323 6203. The call will also be webcast live on the New Skies web site at: http://www.newskies.com/investors.htm. The conference call will be available for replay, 24 hours a day for the subsequent 5 working days and will also be archived on New Skies' website. The dial-in number for the replay is +1 888 365 0240 or +1 954 334 0342 for international callers. Passcode: 670970. Safe Harbor Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934 provide a "safe harbor" for forward-looking statements made by an issuer of publicly traded securities and persons acting on its behalf. New Skies Satellites Holdings Ltd. has made certain forward-looking statements in this document in reliance on those safe harbors. A forward-looking statement concerns the company's or management's intentions or expectations, or are predictions of future performance. These statements are identified by words such as "intends", "expects", "anticipates", "believes", "estimates", "may", "will", "should" and similar expressions. By their nature, forward-looking statements are not a matter of historical fact and involve risks and uncertainties that could cause New Skies' actual results to differ materially from those expressed or implied by the forward-looking statements for a number of reasons. Factors which may affect the future performance of New Skies include: delays or problems in the construction or launch of future satellites; technical performance of in-orbit satellites and earth-based infrastructure; increased competition and changes in technology; growth of and access to the company's target markets; legal and regulatory developments affecting the company's business; and worldwide business and economic conditions, among other things. These risks and other risks affecting New Skies' business are described in the company's periodic filings with the U.S. Securities and Exchange Commission, including but not limited to New Skies' Registration Statement on Form S-1 (File No. 333-122322). Copies of these filings may be obtained by contacting the SEC. New Skies disclaims any obligation to update the forward-looking statements contained in this document. -0- *T New Skies Satellites Holdings Ltd. and Subsidiaries Consolidated Balance Sheets June 30, 2005 and December 31, 2004 (unaudited) (In thousands of U.S. Dollars, except share data) June 30, December 31, 2005 2004 ---------- ----------- Assets Current Assets Cash and cash equivalents $ 40,891 $ 37,974 Trade receivables 36,403 36,371 Prepaid expenses and other assets 10,033 10,591 ---------- ----------- Total Current Assets 87,327 84,936 Communications, plant and other property, net 683,774 895,906 Deferred tax asset 20,844 17,362 Restricted cash 30,000 - Debt issuance costs 21,846 32,109 ---------- ----------- TOTAL $843,791 $1,030,313 ========== =========== Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities $ 29,357 $ 28,381 Accrued interest 7,094 4,880 Dividends payable 8,524 - Income taxes payable 19,782 20,480 Deferred tax liabilities 7,969 10,848 Deferred revenues and other liabilities 23,029 21,031 Satellite performance incentives 5,340 6,332 ---------- ----------- Total Current Liabilities 101,095 91,952 Deferred revenues and other liabilities 9,178 10,224 Satellite performance incentives 28,274 30,597 Preferred equity securities subject to mandatory redemption - 164,327 Long-term debt 513,560 745,000 ---------- ----------- Total Liabilities 652,107 1,042,100 ---------- ----------- Shareholders' Equity (Deficit) Ordinary Shares(1) (57,142 shares authorized, par value $35.00; 43,312 shares issued as of December 31, 2004) - 1,516 Preferred Shares (250,000,000 shares authorized, par value $0.01; none issued) - - Ordinary Shares(D) (500,000,000 shares authorized, par value $0.01; 32,288,731 shares issued as of June 30, 2005) 323 - Additional paid-in capital 296,602 - Accumulated deficit (105,651) (13,973) Accumulated other comprehensive income 410 670 ---------- ----------- Total Shareholders' Equity (Deficit) 191,684 (11,787) ---------- ----------- TOTAL $843,791 $1,030,313 ====================== See notes to the consolidated quarterly financial information (D) At December 31, 2004, ordinary shares relate to New Skies Investment S.a.r.l. As part of the reorganization that occurred on May 10, 2005, New Skies Satellites Holdings Ltd. indirectly acquired the shares of New Skies Investments S.a.r.l. and became the Group's ultimate parent company. At June 30, 2005, 32,288,731 shares were issued and outstanding. *T -0- *T New Skies Satellites Holdings Ltd. and Subsidiaries Consolidated Statements of Income Three- and six-month periods ended June 30, 2005 and 2004 (unaudited) (In thousands of U.S. Dollars, except per share data) Three-month periods ended Six-month periods ended June 30 June 30 --------------------------- --------------------------- Successor(E) Predecessor(E) Successor(E) Predecessor(E) ------------ -------------- ------------ -------------- 2005 2004 2005 2004 ------------ -------------- ------------ -------------- Revenues $59,658 $51,253 $117,894 $103,108 Operating expenses: Depreciation 23,775 25,775 47,278 51,643 Cost of operations 10,770 13,623 21,829 27,375 Selling, general and administrative 10,274 9,569 20,654 20,596 Stock-based compensation 9,635 736 13,169 1,396 Monitoring agreement fees 6,563 - 6,938 - Transaction related expenses - 2,846 - 2,846 ------------ -------------- ------------ -------------- Total Operating Expenses 61,017 52,549 109,868 103,856 Gain on frequency coordination - 32,000 10,000 32,000 ------------ -------------- ------------ -------------- Operating Income (Loss) (1,359) 30,704 18,026 31,252 Interest expense, net 17,038 258 35,886 588 ------------ -------------- ------------ -------------- Income (Loss) Before Income Tax Expense (18,397) 30,446 (17,860) 30,664 Income tax expense (benefit) (5,239) 10,961 (5,091) 11,039 ------------ -------------- ------------ -------------- Net Income (Loss) $(13,158) $19,485 $(12,769) $19,625 ============ ============== ============ ============== Earnings (Loss) Per Share(3) Basic $(0.51) $0.17 $(0.57) $0.17 Diluted $(0.51) $0.16 $(0.57) $0.16 Weighted Average Shares Outstanding(3) Basic 26,030,937 118,034,480 22,281,079 117,856,339 Diluted 26,030,937 119,777,004 22,281,079 119,568,242 See notes to the consolidated quarterly financial information *T (E) New Skies Satellites Holdings Ltd. commenced trading on May 10, 2005, the date upon which the Company successfully completed its Initial Public Offering (the "IPO"). Immediately prior to the IPO, the Company performed an internal restructuring pursuant to which pre-existing shareholders indirectly contributed 100 percent of the equity and preferred equity certificates of New Skies Satellites S.a.r.l. to New Skies Satellites Holdings Ltd.. As New Skies Satellites Holdings Ltd. did not trade prior to the restructuring, the results for the quarter and the six-month period ended June 30, 2005 represent the combination of the results of New Skies Investments S.a.r.l for the period up to and including the date of the restructuring and those of New Skies Satellites Holdings Ltd. for the periods thereafter (the "successor"). On November 2, 2004, New Skies Investments S.a.r.l, through its wholly owned subsidiaries New Skies Holding B.V. and New Skies Satellites B.V., purchased substantially all of the assets and liabilities of New Skies Satellites N.V. Prior to this transaction, New Skies Investments S.a.r.l did not trade. Accordingly, the results for the quarter and the six-month period ended June 30, 2004 represent the results of New Skies Satellites N.V. (the "predecessor"). -0- *T New Skies Satellites Holdings Ltd. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Six-month periods ended June 30, 2005 and 2004 (In thousands of U.S. Dollars) Six-month periods ended June 30 --------------------- Successor Predecessor --------- ----------- 2005 2004 --------- ----------- Cash flows from operating activities: Net income (loss) $(12,769) $19,625 Adjustments for non-cash items: Depreciation 47,278 51,643 Deferred taxes (6,353) 775 Stock-based compensation expense 7,739 1,396 Interest on preferred equity securities 4,379 - Amortization of debt issuance costs 10,777 321 Changes in operating assets and liabilities: Trade receivables (61) (1,573) Prepaid expenses and other assets 673 2,297 Accounts payable and accrued liabilities 1,067 5,428 Accrued interest 2,214 - Income taxes payable (682) 9,846 Other liabilities 974 453 --------- ----------- Net Cash Provided By Operating Activities 55,236 90,211 --------- ----------- Cash flows from investing activities: Payments for communication, plant and other property (3,562) (3,859) Reimbursement of NSS-8 construction costs 168,000 - Increase in restricted cash (30,000) - --------- ----------- Net Cash Provided by (Used In) Investing Activities 134,438 (3,859) --------- ----------- Cash flows from financing activities: Repayment of long-term debt (231,440) - Proceeds from Initial Public Offering, net of expenses 202,313 Repayment of preferred equity securities (83,361) - Dividends paid (70,385) (3,985) Stock options exercised - 741 Satellite performance incentives and other (3,829) (3,159) --------- ----------- Net Cash Used In Financing Activities (186,702) (6,403) --------- ----------- Effect of exchange rate differences (55) (285) --------- ----------- Net change in cash and cash equivalents 2,917 79,664 Cash and cash equivalents, beginning of year 37,974 23,253 --------- ----------- Cash and cash equivalents, end of period $40,891 $102,917 ========= =========== *T Cash payments for interest (net of amounts capitalized) were $18.2 million and nil for the six-month periods ended June 30, 2005 and 2004. Income taxes paid amounted to $1.4 million and $1.1 million for the six-month periods ended June 30, 2005 and 2004, respectively. See notes to the consolidated quarterly financial information. New Skies Satellites Holdings Ltd. and Subsidiaries Notes to the consolidated quarterly financial information (in thousands of U.S. dollars) Three- and six-month periods ended June 30, 2005 and 2004 (unaudited) (1) Basis of presentation New Skies Satellites Holdings Ltd. commenced trading on May 10, 2005, the date upon which the Company successfully completed its Initial Public Offering (the "IPO"). Immediately prior to the IPO, the Company performed an internal restructuring pursuant to which pre-existing shareholders contributed 100 percent of the equity and preferred equity certificates of New Skies Satellites S.a.r.l. to New Skies Satellites Holdings Ltd. As New Skies Satellites Holdings Ltd. did not trade prior to the restructuring, the results for the quarter and the six-month period ended June 30, 2005 represent the combination of the results of New Skies Investments S.a.r.l for the period up to and including the date of the restructuring and those of New Skies Satellites Holdings Ltd. for the periods thereafter (the "successor"). On November 2, 2004, New Skies Investments S.a.r.l, through its wholly owned subsidiaries New Skies Holding B.V. and New Skies Satellites B.V., purchased substantially all of the assets and liabilities of New Skies Satellites N.V. Prior to this transaction, New Skies Investments S.a.r.l did not trade. Accordingly, the results for the quarter and the six-month period ended June 30, 2004 represent the results of New Skies Satellites N.V. (the "predecessor"). (2) Adjusted EBITDA Adjusted EBITDA is defined as EBITDA (i.e. earnings before interest, taxes, depreciation and amortization), further adjusted to give effect to adjustments required in calculating covenant ratios and compliance under the indentures governing the notes and the senior secured credit facilities. We use Adjusted EBITDA to give effect to adjustments required in calculating covenant ratios and compliance under the indentures governing the notes and the senior secured credit facilities. For instance, both the indentures governing the notes and the senior secured credit facilities contain financial ratios that are calculated by reference to Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in the senior secured credit facilities could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratio contained in the indentures governing the notes would prohibit us from being able to incur additional indebtedness other than pursuant to specified exceptions. Adjusted EBITDA is not presented as an alternative measure of operating results or cash flows provided by operating activities, as determined in accordance with accounting principles generally accepted in the U.S. Adjusted EBITDA as presented in this release may not be comparable to similarly titled measures reported by other companies. The following table sets forth the reconciliation of net cash provided by operating activities and net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated. -0- *T Reconciliation of Net Income (Loss) to EBITDA Three-month Six-month periods periods ended ended June 30, June 30, ------------------ ------------------ 2005 2004 2005 2004 --------- -------- --------- -------- Net income (loss) $(13,158) $19,485 $(12,769) $19,625 Income tax expense (benefit) (5,239) 10,961 (5,091) 11,039 Interest expense, net 17,038 258 35,886 588 Depreciation 23,775 25,775 47,278 51,643 --------- -------- --------- -------- EBITDA $22,416 $56,479 $65,304 $82,895 ========= ======== ========= ======== *T -0- *T Reconciliation of EBITDA to Adjusted EBITDA Three-month periods ended June 30, ----------------- 2005 2004 -------- -------- EBITDA $22,416 $56,479 Gain arising on frequency coordination (a) - (32,000) Transaction related expenses (b) - 2,846 Unused satellite capacity leased from third party (c) - 1,347 Costs related to stock-based compensation (d) 9,635 736 Monitoring fee paid to Blackstone Management Partners IV L.L.C.(e) 6,563 - -------- -------- Adjusted EBITDA $38,614 $29,408 ======== ======== Six-month periods ended June 30, ----------------- 2005 2004 -------- -------- EBITDA $65,304 $82,895 Gain arising on frequency coordination (a) (10,000) (32,000) Transaction related expenses (b) - 2,846 Unused satellite capacity leased from third party (c) - 2,715 Costs related to stock-based compensation (d) 13,169 1,396 Monitoring fee paid to Blackstone Management Partners IV L.L.C.(e) 6,938 - -------- -------- Adjusted EBITDA $75,411 $57,852 ======== ======== *T (a) Reflects a one-time payment from Intelsat LLC of $32.0 million in 2004 and a one-time payment from SES Global affiliates of $10.0 million in 2005 following the successful resolution of certain longstanding frequency coordination matters. (b) Represents non-recurring costs incurred in connection with the purchase of assets and liabilities of New Skies Satellites N.V. (c) Reflects costs related to unused capacity on leased transponders, with the underlying contract terminated in November 2004. (d) Stock-based compensation includes $5.4 million of cash payments made for bonuses and taxes due. (e) Reflects the monitoring fee paid to Blackstone Management Partners IV L.L.C., of which $6.1 million represents a payment for the termination of this agreement in connection with the Company's Initial Public Offering. -0- *T Reconciliation of Net Cash Provided by Operating Activities to Net Income (Loss) Three-month periods ended June 30, ------------------ 2005 2004 --------- -------- Net cash provided by operating activities $18,096 $60,639 Depreciation (23,775) (25,775) Deferred taxes 6,315 (529) Stock-based compensation expense (4,205) (736) Amortization of debt issuance costs (6,284) (160) Change in operating assets and liabilities (2,422) (13,954) Interest on preferred equity securities (883) - --------- -------- Net Income (loss) $(13,158) $19,485 ========= ======== Six-month periods ended June 30, ------------------ 2005 2004 --------- -------- Net cash provided by operating activities $55,236 $90,211 Depreciation (47,278) (51,643) Deferred taxes 6,353 (775) Stock-based compensation expense (7,739) (1,396) Amortization of debt issuance costs (10,777) (321) Change in operating assets and liabilities (4,185) (16,451) Interest on preferred equity securities (4,379) - --------- -------- Net Income (loss) $(12,769) $19,625 ========= ======== *T (3) Earnings (Loss) per share Basic net earnings (loss) per share is computed by dividing net income (loss) by the weighted average ordinary shares outstanding. For the purpose of calculating the weighted average shares outstanding for the three- and six-month periods ended June 30, 2005, the effects of the internal restructuring immediately prior to the Initial Public Offering are deemed to have occurred at the beginning of the period, and reflect 18.5 million shares. Diluted earnings (loss) per share reflects the potential dilution that could occur if potential dilutive securities, such as stock options, convertible securities and contracts that may be settled in cash or stock, were converted to shares as of the beginning of the period, if dilutive. For the purpose of calculating diluted loss per share in 2005, approximately 1.5 million potentially dilutive common shares relating to outstanding stock options have been excluded from the calculation of adjusted weighted average shares outstanding as their inclusion would have had an anti-dilutive effect due to the net loss in that period.