Easy come, easy go. That may soon become the motto of investors in Intelsat (NYSE:I) stock.
Just a few weeks ago I was on these pages writing about the astounding 20% surge that Intelsat stock enjoyed after news broke that the satellite communications company had partnered up with Intel to petition the FCC to open up certain radiofrequency bands for "co-primary" use and satellite communications. Three weeks later, Intelsat stock has just experienced another 20% movement -- this time in the other direction.
On Thursday, Intelsat reported a $0.26-per-share loss in its fiscal third quarter. Intelsat's losses were less than the $0.30 that Wall Street analysts had predicted it would lose. The satcom company also posted revenues of $538.8 million, $4 million more than Wall Street predicted.
On top of all this, Intelsat reported its first positive free cash flow quarter in a year, generating real cash profits of $114 million in Q3. This was more cash than Intelsat had generated in any quarter since Q1 2016, and enough to turn the company as a whole (barely) free cash flow-positive for the trailing-12-month period.
And how did investors react to this better-than-expected news?
They sold off the stock to the tune of 20%.
The bad news for Intelsat
So what was not to like? Well, there were a few black spots on the quarter -- mostly involving guidance. Based on its latest information, Intelsat says that although it still expects to land within its previously predicted range for revenue this year, the final number is probably going to be "at the bottom" of that range -- $2.15 billion.
Assuming this is how things play out, 2017 is going to be Intelsat's fifth year in a row of declining revenue, and the company's worst revenue year since at least as far back as 2009. (That's as far back as S&P Global Market Intelligence has data on Intelsat.)
Intelsat also dropped hints that, although it looks free cash flow-positive now, it won't remain that way for long. Over the past 12 months, you see, Intelsat's cash from operations has amounted to less than $530 million -- and falling. If we assume this trend will remain unchanged through the final quarter of the year, that means Intelsat needs to spend less than $530 million on capital investment to remain in the black, in terms of free cash flow.
So, all together now: "How much money does Intelsat say it expects to spend on capital investment this year?"
Between $500 million and $550 million. In other words, even if Intelsat manages to end the year free cash flow-positive, it will be so just barely.
Patience is a virtue... in short supply
The good news for free cash flow-focused investors is that, looking farther out, Intelsat expects to ratchet back capital spending in future years, with capex running somewhere in the mid-$400 millions in each of 2018 and 2019. If cash from operations is strong, that could be good enough to put Intelsat back in the black. However, management didn't give any guidance on its expected cash flows that far out. Assuming they don't shrink too much, too fast, there's at least a chance we'll see real free cash flow in Intelsat's future.
Just not this year.
As for the company's investors, it seems they aren't feeling inclined to wait around and see if next year will be better. With FCF prospects so iffy, debt levels still high, and the prospect of a balance sheet-saving merger with OneWeb now apparently permanently dead, I can't say I blame them.