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Hughes Communications Announces 4th Quarter and Full Year 2008 Results

Posted on: Thursday, 26 February 2009, 05:00 CST

Strong Growth and Record Highs in Revenue and Adjusted EBITDA

GERMANTOWN, Md., Feb. 26 /PRNewswire-FirstCall/ -- Hughes Communications, Inc. (Nasdaq: HUGH) ("Hughes"), the global leader in broadband satellite network solutions and services, today announced financial results for the fourth quarter and full year ended December 31, 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.

Full Year 2008 Financial Highlights

• Revenue crossed $1 billion mark; grew 9% over 2007, 10% on constant dollar basis.
• Consumer business continued to show strength:
  • Service revenue grew by an impressive 21% over 2007 to $323 million.
  • ARPU increased 5% over 2007 to $65.
  • Subscriber gross adds grew by a record 170,000 or 14% over 2007; 86,000 subscribers on SPACEWAY(R) 3 as of December 31, 2008; total subscriber count climbed to 433,000 at December 31, 2008.
• International VSAT revenue grew 10% in 2008 over 2007, 14% on constant dollar basis, with Europe and Brazil service subsidiaries being key growth drivers.
• New orders of $1.2 billion in 2008. Non-consumer backlog of $841 million at December 31, 2008 representing 12% growth over December 31, 2007 backlog.
• Significant new contracts awarded by U.S. federal, state and local government agencies with 2008 revenue growing to $28 million -- a new and growing market for HNS' products and services.
• HNS had record Adjusted EBITDA of $155.4 million for 11% growth over 2007. Hughes had Adjusted EBITDA of $151.4 million, also a record.

4th Quarter 2008 Financial Highlights:

• Revenue grew 2% over fourth quarter 2007, 7% growth on a constant dollar basis; a solid performance under adverse macroeconomic conditions.
• Consumer service revenue increased by an impressive 16% over fourth quarter of 2007; 42,000 subscriber gross adds; churn improved to 2.4% from 2.6% in third quarter of 2008.
• Strong Adjusted EBITDA of $46.4 million for HNS and $45.2 million for Hughes.
• New orders of $274 million with key enterprise orders from ConocoPhillips, Wyndham, Blockbuster, Tractor Supply, Edward Jones, BP, Hess, and Barrett Xplore in North America; Telemar, SCT, Prodam, SEC Bahia, Primesys, Telespazio, Nynex, SREI, MPOS, Iseyco, and WIND in our international markets.

Set forth below are tables highlighting certain of Hughes' results for the three and twelve months ended December 31, 2008 and December 31, 2007.

Hughes Communications, Inc. Three Months Twelve Months Ended December 31, Ended December 31, (Dollars in thousands) 2008 2007 2008 2007 Revenue North America VSAT $180,234 $165,137 $667,665 $615,716 International VSAT 67,067 76,339 237,188 214,833 Telecom Systems 38,361 38,102 155,038 139,526 Corporate and Other 110 127 462 573 Total $285,772 $279,705 $1,060,353 $970,648 Operating income North America VSAT $8,750 $14,709 $21,339 $44,259 International VSAT 7,589 9,861 21,679 19,637 Telecom Systems 5,271 10,188 25,116 25,911 Corporate and Other (1,089) (2,378) (3,842) (6,171) Total $20,521 $32,380 $64,292 $83,636 Net Income $3,351 $19,931 $9,018 $43,540 Adjusted Net Income* $8,363 $21,124 $27,961 $47,800 Adjusted EBITDA* $45,164 $44,040 $151,441 $134,456 New Orders $274,103 $333,325 $1,164,876 $1,114,146 Hughes Network Systems, LLC Three Months Twelve Months Ended December 31, Ended December 31, (Dollars in thousands) 2008 2007 2008 2007 Revenue North America VSAT $180,234 $165,137 $667,665 $615,716 International VSAT 67,067 76,339 237,188 214,833 Telecom Systems 38,361 38,102 155,038 139,526 Total $285,662 $279,578 $1,059,891 $970,075 Operating income North America VSAT $8,750 $14,709 $21,339 $44,259 International VSAT 7,589 9,861 21,679 19,637 Telecom Systems 5,271 10,188 25,116 25,911 Total $21,610 $34,758 $68,134 $89,807 Net income $4,419 $21,869 $12,096 $49,801 Adjusted EBITDA* $46,438 $46,352 $155,410 $140,008 New Orders $273,993 $333,198 $1,164,414 $1,113,573 * For the definitions of Adjusted Net Income and Adjusted EBITDA, see "Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures" below.

Other Recent Highlights

• HNS signed an agreement with the Secretariat of Communications and Transportation of Mexico (SCT) for supply of NOC hardware and 4,800 terminals to upgrade the e-Mexico 2 and 3 programs to HNS' latest technology. The e-Mexico project is an initiative by the Mexican government to bring Internet access to the underserved population of Mexico. The multiyear contract is valued at over $7.5 million.
• HNS announced the launch of its Inter-Government Crisis Network (IGCN), a unique satellite-based solution that enables government agencies to communicate securely and reliably in preparing for and responding to an emergency -- when terrestrial networks are most vulnerable to failure.
• The Los Angeles County Sheriff's Department selected the Helius digital communications system to inform and train its employees, as well as to keep inmates abreast of correctional facility rules and regulations. The Helius solution, chosen in part because traditional communications channels are often inefficient, will allow the Sheriff's Department to optimize the flow of information from central command to local offices and ensure that timely information is disseminated quickly and efficiently.
• SPTI-Boldt Group, a major telecommunications service provider in Argentina, selected HNS to supply its advanced HN broadband satellite system hub plus HN7700S and HNS7740S broadband routers to support a variety of SPTI-Boldt's customers in Argentina. SPTI-Boldt will use the HN system to provide broadband IP services for lottery, government, and corporate programs in Argentina.
• E&E Enterprises Global, Inc., a leader in telecommunications and information assurance services, announced that it has been selected by the Defense Commissary Agency (DeCA) to provide a HughesNet(R) high-availability network solution to support DeCA commissaries worldwide. HNS will provide the high-availability VPN service to E&E Enterprises Global as a subcontractor, utilizing its nationwide HughesNet broadband satellite service. The contract award is valued at $12 million and is for a term of one year, with three one-year options.
• ConocoPhillips selected HNS to supply HughesNet Managed Network Services for its gas station network throughout the United States. Under the contract, HNS is providing a choice of VSAT or DSL services in a PCI compliant architecture, and optional firewall and enhanced security services. Major deployment commenced in the fourth quarter of 2008 with approximately 2,500 sites installed and will continue into the first half of 2009.
• Wyndham Worldwide extended its contract with HNS for Managed Network Services which support its reservation system at over 5,000 hotel properties across the U.S. The extension provides for the upgrade of 1,500 sites to broadband VSATs and includes options for high-availability and wireline services.
• Hughes Communications India Ltd. (HCIL), a subsidiary of Hughes, delivered an additional 2600 VSATs in the fourth quarter of 2008 for installation at rural kiosks across multiple states in India. This brings the total number of VSATs delivered to approximately 11,000. The VSAT equipment will enable provision of G2C (government to consumer) services and other services such as internet access and online education, as part of the Government of India's e-governance initiative to bridge the digital divide.

To summarize, Pradman Kaul, president and CEO said, "I am pleased that we have been able to deliver this strong financial performance in 2008 despite the adverse macroeconomic head winds that accelerated in the third and fourth quarters. The stability and growth in our business model derives largely from the diversity of our products, technologies, markets, and geographies, and the continued shift in our business mix from hardware to services. These factors have helped and will continue to help Hughes weather economic downturns. We come into 2009 with a strong backlog, continued demand for broadband access in our consumer market, adequate satellite capacity, and a strong balance sheet to enable continued growth. I continue to be optimistic about our near and long-term future."

Commenting on Hughes' financial performance, Grant Barber, executive vice president and chief financial officer said, "Our continued focus on working capital management, expense control and capital preservation has resulted in a strong cash position of $204 million at December 31, 2008, thus positioning us well for growth."

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, and Adjusted EBITDA.

Hughes Communications, Inc. Three Months Twelve Months Ended December 31, Ended December 31, (Dollars in thousands) 2008 2007 2008 2007 Net income $3,351 $19,931 $9,018 $43,540 Add: Equity incentive plan compensation 1,733 1,193 5,724 4,260 Long-term incentive/retention cash plan 3,279 - 13,219 - Adjusted net income $8,363 $21,124 $27,961 $47,800 Net income $3,351 $19,931 $9,018 $43,540 Add: Equity incentive plan compensation 1,733 1,193 5,724 4,260 Interest expense 14,022 9,705 51,327 43,775 Income tax expense 3,463 3,561 7,593 5,337 Depreciation and amortization 20,029 11,039 68,937 45,860 Long-term incentive/retention cash plan 3,279 - 13,219 - Restructuring charge - (26) - 1,211 Less: Interest income (713) (1,363) (4,377) (9,527) Adjusted EBITDA $45,164 $44,040 $151,441 $134,456

The following table reconciles the differences between HNS' Net Income as determined under GAAP and Adjusted EBITDA.

Hughes Network Systems, LLC Three Months Twelve Months Ended December 31, Ended December 31, (Dollars in thousands) 2008 2007 2008 2007 Net income $4,419 $21,869 $12,096 $49,801 Add: Equity incentive plan compensation 1,611 918 5,221 3,020 Interest expense 14,022 9,705 51,327 43,772 Income tax expense 3,487 4,095 7,588 5,316 Depreciation and amortization 20,029 11,039 68,937 45,860 Long-term incentive/retention cash plan 3,279 - 13,219 - Restructuring charge - (26) - 1,211 Less: Interest income (409) (1,248) (2,978) (8,972) Adjusted EBITDA $46,438 $46,352 $155,410 $140,008

The consolidated financial statements of Hughes and HNS for the twelve months ended December 31, 2008 and December 31, 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 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. Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, amortization, equity incentive plan compensation, long-term incentive/retention cash plan and restructuring charge. 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' 91/2% Senior Notes due 2014.

Adjusted Net Income and Adjusted EBITDA are not recognized terms under GAAP. These nonGAAP 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 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 1.8 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.

Hughes, HughesNet, and SPACEWAY are registered trademarks of Hughes Network Systems, LLC.

HUGHES COMMUNICATIONS, INC. Consolidated Balance Sheets (In thousands) (Unaudited) December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $203,816 $134,092 Marketable securities - 17,307 Receivables, net 200,373 209,943 Inventories 65,485 65,754 Prepaid expenses and other 20,926 43,720 Total current assets 490,600 470,816 Property, net 507,270 479,976 Capitalized software costs, net 51,454 47,582 Intangible assets, net 19,780 22,513 Goodwill 2,661 - Other assets 118,628 108,950 Total assets $1,190,393 $1,129,837 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $82,939 $72,440 Short-term debt 8,252 14,795 Accrued liabilities 157,534 177,932 Due to affiliates 1,507 12,621 Total current liabilities 250,232 277,788 Long-term debt 578,298 577,761 Other long-term liabilities 18,005 6,526 Total liabilities 846,535 862,075 Commitments and contingencies Minority interests 5,711 5,401 Stockholders' Equity: Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued and outstanding as of December 31, 2008 and 2007 - - Common stock, $0.001 par value; 64,000,000 shares authorized; 21,514,963 shares and 19,195,972 shares issued and outstanding as of December 31, 2008 and 2007, respectively 22 19 Additional paid in capital 724,558 631,300 Accumulated deficit (357,850) (366,868) Accumulated other comprehensive gain (loss): Foreign currency translation adjustments (11,212) 3,305 Unrealized loss on hedging instruments (17,403) (5,482) Unrealized gain on securities 32 87 Total stockholders' equity 338,147 262,361 Total liabilities and stockholders' equity $1,190,393 $1,129,837 HUGHES COMMUNICATIONS, INC. Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited) Year Ended December 31, 2008 2007 Revenues: Services $611,247 $537,688 Hardware sales 449,106 432,960 Total revenues 1,060,353 970,648 Operating costs and expenses: Cost of services 406,697 356,306 Cost of hardware products sold 378,264 355,475 Selling, general and administrative 177,848 152,051 Research and development 26,833 17,036 Amortization of intangibles 6,419 6,144 Total operating costs and expenses 996,061 887,012 Operating income 64,292 83,636 Other income (expense): Interest expense (51,327) (43,775) Interest income 4,377 9,527 Other income, net 178 242 Income before income tax expense; equity in losses of unconsolidated affiliates; and minority interests in net earnings of subsidiaries 17,520 49,630 Income tax expense (7,593) (5,337) Equity in losses of unconsolidated affiliates (599) (640) Minority interests in net earnings of subsidiaries (310) (113) Net Income $9,018 $43,540 Basic net earnings per common share: $0.44 $2.31 Diluted net earnings per common share: $0.44 $2.26 Basic weighted average common shares outstanding 20,317,155 18,860,517 Diluted weighted average common shares outstanding 20,633,833 19,227,919 HUGHES COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Year Ended December 31, 2008 2007 Cash flows from operating activities: Net income $9,018 $43,540 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 68,937 45,860 Amortization of debt issuance costs 1,424 906 Equity plan compensation expense 5,724 4,260 Minority interests 310 113 Equity in losses from unconsolidated affiliates 599 640 Other (97) 340 Change in other operating assets and liabilities, net of acquisition: Receivables, net (2,540) (23,270) Inventories (2,710) (3,708) Prepaid expenses and other (9,319) (10,442) Accounts payable 6,314 14,100 Accrued liabilities and other (5,957) 21,176 Net cash provided by continuing operations 71,703 93,515 Cash flows from investing activities: Change in restricted cash 3,104 1,168 Purchases of marketable securities (2,070) (32,864) Proceeds from sales of marketable securities 19,190 122,690 Expenditures for property (81,669) (233,952) Expenditures for capitalized software (14,564) (14,228) Proceeds from sale of property - 516 Acquisition of Helius, Inc., net of cash received (10,543) - Additional equity investment in Hughes Systique Corporation (1,500) - Hughes Systique Corporation note receivables (500) - Net cash used in investing activities (88,552) (156,670) Cash flows from financing activities: Net increase in notes and loans payable 223 376 Proceeds from equity offering 94,498 - Equity offering related costs (1,452) - Proceeds from exercise of stock options 75 113 Long-term debt borrowings 3,606 119,731 Repayment of long-term debt (13,749) (24,843) Debt issuance costs - (2,053) Net cash provided by financing activities 83,201 93,324 Effect of exchange rate changes on cash and cash equivalents 3,372 (3,010) Net increase in cash and cash equivalents 69,724 27,159 Cash and cash equivalents at beginning of the period 134,092 106,933 Cash and cash equivalents at end of the period $203,816 $134,092 Supplemental cash flow information: Cash paid for interest $54,139 $53,594 Cash paid for income taxes $3,622 $3,567 Supplemental non-cash disclosures related to: 95 West capital lease $5,838 HUGHES NETWORK SYSTEMS Consolidated Balance Sheets (In thousands) (Unaudited) December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $100,262 $129,227 Marketable securities - 11,224 Receivables, net 200,259 209,731 Inventories 65,485 65,754 Prepaid expenses and other 20,425 42,131 Total current assets 386,431 458,067 Property, net 507,270 479,976 Capitalized software costs, net 51,454 47,582 Intangible assets, net 19,780 22,513 Goodwill 2,661 - Other assets 112,511 103,870 Total assets $1,080,107 $1,112,008 LIABILITIES AND EQUITY Current liabilities: Accounts payable $80,667 $69,497 Short-term debt 8,252 14,795 Accrued liabilities 156,796 177,136 Due to affiliates 2,619 13,473 Total current liabilities 248,334 274,901 Long-term debt 578,298 577,761 Other long-term liabilities 18,005 6,526 Total liabilities 844,637 859,188 Commitments and contingencies Minority interests 5,629 5,350 Equity: Class A membership interests 177,425 180,655 Class B membership interests - - Retained earnings 80,999 68,903 Accumulated other comprehensive gain (loss): Foreign currency translation adjustments (11,212) 3,305 Unrealized loss on hedging instruments (17,403) (5,482) Unrealized gain on securities 32 89 Total equity 229,841 247,470 Total liabilities and equity $1,080,107 $1,112,008 HUGHES NETWORK SYSTEMS Consolidated Statements of Operations (In thousands) (Unaudited) Year Ended December 31, 2008 2007 Revenues: Services $610,785 $537,115 Hardware sales 449,106 432,960 Total revenues 1,059,891 970,075 Operating costs and expenses: Cost of services 406,673 356,232 Cost of hardware products sold 378,264 355,475 Selling, general and administrative 173,568 145,381 Research and development 26,833 17,036 Amortization of intangibles 6,419 6,144 Total operating costs and expenses 991,757 880,268 Operating income 68,134 89,807 Other income (expense): Interest expense (51,327) (43,772) Interest income 2,978 8,972 Other income, net 178 193 Income before income tax expense and minority interest in net earnings of subsidiaries 19,963 55,200 Income tax expense (7,588) (5,316) Minority interests in net earnings of subsidiaries (279) (83) Net income $12,096 $49,801 HUGHES NETWORK SYSTEMS Consolidated Statements of Cash Flows (In thousands) (Unaudited) Year Ended December 31, 2008 2007 Cash flows from operating activities: Net income $12,096 $49,801 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 68,937 45,860 Amortization of debt issuance costs 1,424 906 Gain on receipt of investment by subsidiary - - Equity plan compensation expense 473 309 Minority interests 279 83 Other (112) 384 Change in other operating assets and liabilities, net of acquisition: Receivables, net (2,638) (23,319) Inventories (2,710) (3,708) Prepaid expenses and other (10,811) (9,648) Accounts payable 6,985 12,767 Accrued liabilities and other (3,758) 21,769 Net cash provided by operating activities 70,165 95,204 Cash flows from investing activities: Change in restricted cash 3,104 379 Purchases of marketable securities - (22,096) Proceeds from sales of marketable securities 11,090 114,105 Expenditures for property (81,669) (233,952) Expenditures for capitalized software (14,564) (14,228) Proceeds from sale of property - 516 Acquisition of Helius, Inc., net of cash received (10,543) - Net cash used in investing activities (92,582) (155,276) Cash flows from financing activities: Net increase (decrease) in notes and loans payable 223 376 Long-term debt borrowings 3,606 119,731 Repayment of long-term debt (13,749) (24,843) Debt issuance costs - (2,053) Net cash provided by (used in) financing activities (9,920) 93,211 Effect of exchange rate changes on cash and cash equivalents 3,372 (3,010) Net increase (decrease) in cash and cash equivalents (28,965) 30,129 Cash and cash equivalents at beginning of the period 129,227 99,098 Cash and cash equivalents at end of the period $100,262 $129,227 Supplemental cash flow information: Cash paid for interest $54,139 $53,592 Cash paid for income taxes $3,598 $3,357 Supplemental non-cash disclosures related to: 95 West capital lease $5,838

SOURCE Hughes Communications, Inc.

Source: PR Newswire

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