Northern Sky Research

Assessing FSS Operator Backlog

Nov 16th, 2012 by Jose Del Rosario   More from this Analyst | Profile

NSR’s Satellite Operator Financial Analysis, 2nd Edition study is the industry’s only independent analysis of key financial metrics for the leading fixed satellite services (FSS) operators. This study assesses and ranks each publicly reporting FSS operator by eighteen financial metrics comparing end of year 2011 results to those from 2010.

One particularly interesting assessment is that of FSS operator backlog as well as their ratio of Years of Backlog to Annual Revenues. For 2011, NSR based its assessment of backlog on seven FSS operators for which NSR has annual revenue and backlog data. Yet, the conclusions pulled from this assessment can be easily applied to all FSS operators in the industry.

Backlog refers to the cumulative future value of capacity contracts signed with clients; i.e. their cumulative future revenues. Since capacity contracts with FSS operators typically include strict cancellation fees, these contracts have a very high probability of being realized. Plus, the larger the Backlog and the higher the number of Years of Backlog to Annual Revenues, the more secure the financial position of the FSS operator.

In terms of pure Backlog, this quantitative metric tends to track overall FSS operator revenues with the top FSS operators in revenue terms also typically following in the same order in Backlog terms.

However, the more interesting assessment is when an FSS operator’s total Backlog is divided by its Annual Revenues giving the number of Years of Backlog an operator has compared to its Annual Revenues. This metric can be used as a proxy to estimate the client-type mix of an FSS operator. FSS operators with a greater share of video distribution and, more typically, DTH clients will often have more Years of Backlog booked since video distribution and DTH contracts tend to be for very long terms – 5-15 years, or for the entire lifetime of a specific satellite. Operators that come in around the average for this metric typically have a wider mix of clients being both strong in the video distribution and DTH areas but also having a substantial number of data/telco services clients, which typically lease (relatively) smaller amounts of capacity for shorter periods compared to video/DTH clients. Finally, operators that come in below the average for this metric most often have a limited DTH client base, or their existing base of video clients tend to have shorter contract period, 5 years and less, similar to data/telco services clients.

Bottom Line

Backlogs and the Average number of Years of Backlog of the sector as a whole have increased over time. Currently the average for those reporting operators assessed is 4.2 years worth of annual revenues booked, with ranges from about 2.5 years to over 5 years. Leaders like Telesat and Spacecom tend to have a relatively large base of long-term DTH contracts in their client base, while others like AsiaSat and Satmex have a smaller percentage of DTH clients among their key contracts. Finally, Eutelsat, Intelsat and SES tend to have a healthy mix of DTH/video and more data centric clients putting them right around the industry average. Applying these industry averages to other operators allows for a quick “status” check of where they stand within the industry in terms of client base as well as an indication of the strength of their overall financial position vis-à-vis their industry peers.

Information for this article was extracted from NSR's report Satellite Operator Financial Analysis, 2nd Edition