FOR IMMEDIATE RELEASE
Hughes Communications, Inc. Announces Third Quarter 2008 Results
Revenues Increase 16% over Third Quarter 2007 to a Record $272 million
Adjusted EBITDA Increases 15% to a Record $39 million
Consumer Gross Adds Increase 19%
Germantown, Md., November 5, 2008—Hughes Communications, Inc. (NASDAQ: HUGH) (“Hughes”), the global leader in broadband satellite network solutions and services, today announced financial results for the quarter ended September 30, 2008. Hughes consolidated operations are classified into four reportable segments: North America VSAT; International VSAT; Telecom Systems; and Corporate and Other. The North America VSAT, International VSAT, and Telecom Systems segments represent all the operations of Hughes Network Systems, LLC (“HNS”), Hughes’ principal operating subsidiary.
“Hughes set a new record for third quarter revenue and adjusted EBITDA” said Pradman Kaul, president and chief executive officer of Hughes. “Revenues increased by 16% over the third quarter of 2007 to $272 million. All business segments recorded double digit revenue growth, led by the Consumer group and the International VSAT segment. We had 44,000 new consumer activations in the third quarter of 2008, an increase of 19% over the third quarter of 2007. Churn in the third quarter was 2.6%, which was an increase over the churn of 2.3% in the second quarter of 2008. Average revenue per unit (ARPU) was $66 in the third quarter of 2008 compared to $63 in the third quarter of 2007. As a result, consumer services revenue increased to $82 million in the third quarter of 2008, a strong 20% growth over the third quarter of 2007. Revenue in the International VSAT segment grew by 22% over the third quarter of 2007.”
For the third quarter of 2008, Hughes’ adjusted EBITDA* was a record $39 million for a growth of 15% over the third quarter of 2007. HNS’ adjusted EBITDA for the quarter was $40 million also for a growth of 15% over the third quarter of 2007.
Kaul continued, “We received $272 million of new orders in the third quarter of 2008. These orders were well distributed among our different segments. The North America VSAT segment received a significant order for $33 million from Chevron for the continuation of broadband services to gas stations and convenience stores across the United States. The contract includes the provision of satellite capacity and field maintenance and the operation of private telecommunications infrastructure. Other major orders received by the North America VSAT segment were Conoco Phillips, York Telecom, True Blue, the Social Security Administration, U.S. Government Education & Training Network (GETN), and Yum Brands. Significant International VSAT orders included Camelot, Altegrosky, Oman Ministry of Foreign Affairs, Copel, Telemar, and Canara Bank. The Telecom Systems segment was awarded major orders by Sat2k, Glocom, Thuraya and Hughes Telematics.”
For the nine month period ended September 30, 2008, revenues increased to $775 million for a growth of 12% and adjusted EBITDA increased to $106 million for a growth of 18% over the nine month period ended September 30, 2007. Hughes booked new orders of $891 million during the nine month period ended September 30, 2008, an increase of 14% over the nine month period ended September 30, 2007. This has resulted in a strong non-consumer order backlog of $861 million as of September 30, 2008, a 24% growth over the backlog at September 30, 2007.
* Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain adjustments. EBITDA is defined as earnings (losses) before interest, income taxes, depreciation, amortization, and equity incentive compensation. See “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures.”
Set forth below are tables highlighting certain of Hughes' results for the three and nine months ended September 30, 2008 and September 30, 2007.
| | Hughes Communications, Inc. |
| | | | Three Months | | | Nine Months | |
| | | | Ended September 30, | | | Ended September 30, | |
| | (Dollars in thousands) | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | Revenue | | | | | | | | | | | | |
| | North America VSAT | | $ | 169,400 | | | $ | 148,239 | | | $ | 487,431 | | | $ | 450,579 | |
| | International VSAT | | | 60,056 | | | | 49,077 | | | | 170,121 | | | | 138,494 | |
| | Telecom Systems | | | 42,263 | | | | 36,341 | | | | 116,677 | | | | 101,424 | |
| | Corporate and Other | | | 60 | | | | 46 | | | | 352 | | | | 446 | |
| | Total | | $ | 271,779 | | | $ | 233,703 | | | $ | 774,581 | | | $ | 690,943 | |
| | | | | | | | | | | | | | | | | | |
| | Operating income | | | | | | | | | | | | | | | | |
| | North America VSAT | | $ | 4,296 | | | $ | 10,430 | | | $ | 12,589 | | | $ | 29,550 | |
| | International VSAT | | | 6,390 | | | | 4,038 | | | | 14,090 | | | | 9,776 | |
| | Telecom Systems | | | 8,645 | | | | 7,338 | | | | 19,845 | | | | 15,723 | |
| | Corporate and Other | | | (929 | ) | | | (1,139 | ) | | | (2,753 | ) | | | (3,793 | ) |
| | Total | | $ | 18,402 | | | $ | 20,667 | | | $ | 43,771 | | | $ | 51,256 | |
| | | | | | | | | | | | | | | | | | |
| | Net income | | $ | 3,184 | | | $ | 11,037 | | | $ | 5,667 | | | $ | 23,609 | |
| | | | | | | | | | | | | | | | | | |
| | Adjusted net income* | | $ | 5,424 | | | $ | 12,082 | | | $ | 19,598 | | | $ | 26,676 | |
| | | | | | | | | | | | | | | | | | |
| | EBITDA* | | $ | 38,563 | | | $ | 34,033 | | | $ | 96,337 | | | $ | 89,179 | |
| | | | | | | | | | | | | | | | | | |
| | Adjusted EBITDA* | | $ | 39,273 | | | $ | 34,033 | | | $ | 106,277 | | | $ | 90,416 | |
| | | | | | | | | | | | | | | | | | |
| | New Orders | | $ | 271,827 | | | $ | 283,939 | | | $ | 890,773 | | | $ | 780,821 | |
| | | | | | | | | | | | | | | | | | |
| | Hughes Network Systems, LLC |
| | | | Three Months | | | Nine Months | |
| | | | Ended September 30, | | | Ended September 30, | |
| | (Dollars in thousands) | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | Revenue | | | | | | | | | | | | |
| | North America VSAT | | $ | 169,400 | | | $ | 148,239 | | | $ | 487,431 | | | $ | 450,579 | |
| | International VSAT | | | 60,056 | | | | 49,077 | | | | 170,121 | | | | 138,494 | |
| | Telecom Systems | | | 42,263 | | | | 36,341 | | | | 116,677 | | | | 101,424 | |
| | Total | | $ | 271,719 | | | $ | 233,657 | | | $ | 774,229 | | | $ | 690,497 | |
| | | | | | | | | | | | | | | | | | |
| | Operating income | | | | | | | | | | | | | | | | |
| | North America VSAT | | $ | 4,296 | | | $ | 10,430 | | | $ | 12,589 | | | $ | 29,550 | |
| | International VSAT | | | 6,390 | | | | 4,038 | | | | 14,090 | | | | 9,776 | |
| | Telecom Systems | | | 8,645 | | | | 7,338 | | | | 19,845 | | | | 15,723 | |
| | Total | | $ | 19,331 | | | $ | 21,806 | | | $ | 46,524 | | | $ | 55,049 | |
| | | | | | | | | | | | | | | | | | |
| | Net income | | $ | 3,585 | | | $ | 12,446 | | | $ | 7,677 | | | $ | 27,932 | |
| | | | | | | | | | | | | | | | | | |
| | EBITDA* | | $ | 39,540 | | | $ | 35,083 | | | $ | 99,032 | | | $ | 92,419 | |
| | | | | | | | | | | | | | | | | | |
| | Adjusted EBITDA* | | $ | 40,250 | | | $ | 35,083 | | | $ | 108,972 | | | $ | 93,656 | |
| | | | | | | | | | | | | | | | | | |
| | New Orders | | $ | 271,768 | | | $ | 283,893 | | | $ | 890,421 | | | $ | 780,375 | |
| | | | | | | | | | | | | | | | | | |
| | * | For the definitions of Adjusted Net Income, EBITDA, and Adjusted EBITDA, see “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below. |
Selected Highlights
| · | HNS announced the availability of HughesNet® Business Internet service plans, the fastest satellite Internet plans ever offered, bringing affordable, reliable, and high-performance broadband access to small and mid-sized businesses (SMB) throughout the nation. Customers can choose from seven plans, with speeds up to 5 Mbps on the downlink. These plans are available to SMBs regardless of their location. |
| · | HNS introduced a new equipment rental option that reduces upfront fees by seventy-five percent. The program helps consumers currently on dial-up enjoy the convenience and speed of a HughesNet service plan without the expense of having to purchase equipment. |
| · | HNS announced the availability of HughesNet Broadband Backup service plans, the newest offerings for SMBs that provide automatic satellite backup in the event of a landline failure. With HughesNet Broadband Backup, SMBs can be secure in knowing their critical applications will remain online in the event of a landline failure, protecting them against loss of data or revenue. |
| · | HNS received a number of awards during the third quarter of 2008, namely Euroconsult's 2008 award as Broadband Satellite Operator of the Year, Deloitte & Touche’s Maryland Fast 50 award and Maryland’s Exceptional 53 award. |
| · | HNS announced that America's Emergency Network, Inc. (AEN), a satellite-based emergency communications system powered by the nationwide HughesNet broadband satellite service, has been successfully streaming real-time news briefings from numerous state and local operations centers since the onset of the hurricane season. Beginning with Tropical Storm Fay, the system has been up and running for subsequent hurricanes Gustav, Hannah, and Ike. |
To summarize, Kaul said, “I am delighted with the financial performance that we have delivered in the third quarter of 2008 despite the adverse economic and financial conditions prevailing globally. Our consumer and international businesses continue to show strong growth. We did see an uptick in consumer churn this quarter some of which is due to the softness in the economy. We are continuing to monitor and address this. Our new orders performance in the third quarter has resulted in our order backlog continuing to be healthy. While we are not fully insulated from further deterioration in the economic climate, the above mentioned positive leading indicators give us reason to be optimistic about the future.”
Commenting on Hughes’ financial performance, Grant Barber, executive vice president and chief financial officer, said, “Our adjusted EBITDA and EBITDA showed strong growth in the third quarter of 2008 over the third quarter of 2007. Hughes’ adjusted net income in the third quarter of 2008 was $5.4 million and GAAP net income was $3.2 million or $0.15 per share compared with $11.0 million or $0.57 per share on a fully diluted basis in the third quarter of 2007. This reduction is primarily due to SPACEWAY® 3 satellite and network construction costs being depreciated starting in the second quarter of 2008 with the launch of commercial service on SPACEWAY 3 in April 2008. With today’s liquidity pressures in the market place, our continued focus on working capital management, expense control, and capital preservation contributed to our consolidated cash and marketable securities position improving to a strong $208 million at September 30, 2008 compared to $191 million at June 30, 2008.”
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
The following table reconciles the differences between Hughes’ net income as determined under United States of America Generally Accepted Accounting Principles (GAAP), Adjusted Net Income, EBITDA, and Adjusted EBITDA.
| | Hughes Communications, Inc. |
| | | | Three Months | | | Nine Months | |
| | | | Ended September 30, | | | Ended September 30, | |
| | (Dollars in thousands) | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | Net income | | $ | 3,184 | | | $ | 11,037 | | | $ | 5,667 | | | $ | 23,609 | |
| | Add: | | | | | | | | | | | | | | | | |
| | Equity incentive plan compensation | | | 1,530 | | | | 1,045 | | | | 3,991 | | | | 3,067 | |
| | Long-term incentive/retention cash plan | | | 710 | | | | - | | | | 9,940 | | | | - | |
| | Adjusted net income | | $ | 5,424 | | | $ | 12,082 | | | $ | 19,598 | | | $ | 26,676 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Net income | | $ | 3,184 | | | $ | 11,037 | | | $ | 5,667 | | | $ | 23,609 | |
| | Add: | | | | | | | | | | | | | | | | |
| | Equity incentive plan compensation | | | 1,530 | | | | 1,045 | | | | 3,991 | | | | 3,067 | |
| | Interest expense | | | 14,095 | | | | 10,760 | | | | 37,305 | | | | 34,070 | |
| | Income tax expense | | | 2,295 | | | | 1,092 | | | | 4,130 | | | | 1,776 | |
| | Depreciation and amortization | | | 18,793 | | | | 12,297 | | | | 48,908 | | | | 34,821 | |
| | Less: | | | | | | | | | | | | | | | | |
| | Interest income | | | (1,334 | ) | | | (2,198 | ) | | | (3,664 | ) | | | (8,164 | ) |
| | EBITDA | | $ | 38,563 | | | $ | 34,033 | | | $ | 96,337 | | | $ | 89,179 | |
| | Add: | | | | | | | | | | | | | | | | |
| | Long-term incentive/retention cash plan | | | 710 | | | | - | | | | 9,940 | | | | - | |
| | Restructuring charge | | | - | | | | - | | | | - | | | | 1,237 | |
| | Adjusted EBITDA | | $ | 39,273 | | | $ | 34,033 | | | $ | 106,277 | | | $ | 90,416 | |
| | | | | | | | | | | | | | | | | | |
The following table reconciles the differences between HNS’ net income as determined under GAAP, EBITDA, and Adjusted EBITDA:
| | Hughes Network Systems, LLC |
| | | | Three Months | | | | | | Nine Months | | | | |
| | | | Ended September 30, | | | | | | Ended September 30, | | | | |
| | (Dollars in thousands) | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | Net income | | $ | 3,585 | | | $ | 12,446 | | | $ | 7,677 | | | $ | 27,932 | |
| | Add: | | | | | | | | | | | | | | | | |
| | Equity incentive plan compensation | | | 1,445 | | | | 807 | | | | 3,610 | | | | 2,102 | |
| | Interest expense | | | 14,095 | | | | 10,759 | | | | 37,305 | | | | 34,067 | |
| | Income tax expense (benefit) | | | 2,288 | | | | 832 | | | | 4,101 | | | | 1,221 | |
| | Depreciation and amortization | | | 18,793 | | | | 12,297 | | | | 48,908 | | | | 34,821 | |
| | Less: | | | | | | | | | | | | | | | | |
| | Interest income | | | (666 | ) | | | (2,058 | ) | | | (2,569 | ) | | | (7,724 | ) |
| | EBITDA | | $ | 39,540 | | | $ | 35,083 | | | $ | 99,032 | | | $ | 92,419 | |
| | | | | | | | | | | | | | | | | | |
| | Add: | | | | | | | | | | | | | | | | |
| | Long-term incentive/retention cash plan | | | 710 | | | | - | | | | 9,940 | | | | - | |
| | Restructuring charge | | | - | | | | - | | | | - | | | | 1,237 | |
| | Adjusted EBITDA | | $ | 40,250 | | | $ | 35,083 | | | $ | 108,972 | | | $ | 93,656 | |
| | | | | | | | | | | | | | | | | | |
The condensed financial statements of Hughes and HNS for the three and nine months ended September 30, 2008 and September 30, 2007 are attached to this press release.
Note on Use of Non-GAAP Financial Measures
Hughes provides non-GAAP financial data in addition to providing financial results in accordance with GAAP. This press release includes the following supplemental non-GAAP financial measures: Adjusted Net Income, EBITDA, and Adjusted EBITDA. Adjusted Net Income excludes from GAAP net income the effects of equity incentive plan compensation and the accrual of the long-term cash incentive retention program, which was adopted in April 2005 in connection with the acquisition of HNS. EBITDA is defined as
earnings (loss) before interest, income taxes, depreciation, amortization and equity incentive plan compensation. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain adjustments. We believe these non-GAAP financial measures provide useful information to both management and investors by excluding specific expenses that we believe are not indicative of our core operating results. Internally, we use these non-GAAP measures in our review of the performance of management and in the performance of our business and operations. Management also uses Adjusted EBITDA of HNS for purposes of determining the payments to be made in connection with the long-term cash incentive retention program. Externally, we believe that investors may find this non-GAAP financial information useful in their assessment of our operating performance. In addition, we believe that these non-GAAP financial measures provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Adjusted EBITDA of HNS is also used in calculating covenant compliance under HNS' credit agreements and the indenture governing HNS’ 9½% Senior Notes due 2014.
Adjusted Net Income, EBITDA, and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP measures do not represent net income or cash flows from operations, as these terms are defined under GAAP, and should not be considered as alternatives to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Additionally, these non-GAAP measures are not intended to be measures of cash flow available to management for discretionary use, as such measures do not consider certain cash requirements such as capital expenditures (including expenditures on VSAT operating lease hardware and capitalized software development costs), tax payments, debt service requirements (including VSAT operating lease hardware) and payments under the long-term cash incentive retention program. Adjusted Net Income, EBITDA, and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures reported by other companies. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
About Hughes Communications, Inc.
Hughes Communications, Inc. (NASDAQ: HUGH) is the 100 percent owner of Hughes Network Systems, LLC. Hughes is the global leader in providing broadband satellite networks and services for enterprises, governments, small businesses, and consumers. HughesNet encompasses all broadband solutions and managed services from Hughes, bridging the best of satellite and terrestrial technologies. Its broadband satellite products are based on global standards approved by the TIA, ETSI, and ITU standards organizations, including IPoS/DVB-S2, RSM-A, and GMR-1. To date, Hughes has shipped more than 1.5 million systems to customers in over 100 countries.
Headquartered outside Washington, DC, in Germantown, Maryland, USA, Hughes maintains sales and support offices worldwide. For more information, please visit www.hughes.com.
Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995
This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, discussions regarding industry outlook and Hughes’ expectations regarding the performance of its business, its future liquidity and capital resource needs, its strategic plans and objectives. These forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans” and similar expressions and the use of future dates are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, the following: risks related to Hughes’ substantial leverage and restrictions contained in its debt agreements, technological developments, its reliance on providers of satellite transponder capacity, changes in demand for Hughes’ services and products, competition, industry trends, regulatory changes, foreign currency exchange rate fluctuations, and other risks identified and discussed under the caption “Risk Factors” in Hughes’ Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 10, 2008 and in the other documents Hughes files with the Securities and Exchange Commission from time to time.
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©2008 Hughes Communications, Inc. All rights reserved. Hughes, HughesNet, and SPACEWAY are registered trademarks of Hughes Network Systems, LLC. DIRECTV and DIRECWAY are registered trademarks of The DIRECTV Group, Inc.
| Contact Information | Attachments |
| | |
| Investor Relations Contact: Deepak V. Dutt, | Hughes Communications, Inc |
| Vice President, Treasurer and Investor Relations Officer | Condensed Consolidated Balance Sheets |
| Email: ddutt@hns.com | Condensed Consolidated Statements of Operations |
| Phone: 301-428-7010 | Condensed Consolidated Statements of Cash Flows |
| | |
| Media Contact: Judy Blake, | Hughes Network Systems, LLC |
| Director, Marketing Communications | Condensed Consolidated Balance Sheets |
| Email: jblake@hns.com | Condensed Consolidated Statements of Operations |
| Phone: 301-601-7330 | Condensed Consolidated Statements of Cash Flows |
