Speedcast’s acquisition spree in the 2010’s made it one of the world’s largest remote telecommunications service providers. But, 2020 presented steep challenges to the company’s remote oil and gas and maritime markets, as oil price shocks combined with the COVID-19 pandemic caused intense disruption. The company went into bankruptcy in late April.
Now, almost a year later, Speedcast has emerged from the process under the private ownership of Centerbridge Partners. The company's new CEO Joe Spytek, formerly of ITC Global, spoke with Via Satellite just moments after the restructuring deal was closed on March 11. In this interview, Spytek outlines the themes of how Speedcast will transform its business and how software-defined technologies will improve how it serves customers in remote and harsh environments as the world returns to normal.
Spytek: We saw our way through a crazy process over the last year, but the outcome for the company couldn't be better. We have the right new owner. Centerbridge Partners started looking at this business in 2018. They thought about doing a “take private” deal. They’re a determined group, and they focus on a particular asset that they like.
Speedcast is a perfect company for them. It’s a good company that hit a rough patch and was over-leveraged. Speedcast under previous management was an acquisition machine that bought 16 companies in five or six years and got a little ahead of itself. When you're public, you're always trying to hit your numbers, and sometimes it’s hard to do M&A under the glare of the public markets. You have to fully integrate those businesses you bought, and that was one of the things that didn't happen at Speedcast as it should have.
Then there was a double whammy that made us fall into restructuring — the first was COVID, and the second was the oil price shock last year. Those two things compounded our financial woes and led us into the world of restructuring.
Spytek: Sometimes you need a change in leadership when the company needs to go in a slightly different direction. PJ said he was going to consolidate the integration layer, and he did a great job of that. He could not have predicted the global pandemic. He could not have predicted an oil price shock. The fact that the company had so much debt at the time, it didn't have the buffer it needed to survive those kinds of existential shocks. The stock market took a huge hit. Because we were public, that was our only avenue to raise capital. When the markets froze up, the writing was on the wall.
Spytek: It’s a complete restructuring — not just of our balance sheet, but of the corporate entity. We are no longer going to be a publicly listed company in Australia. We will now be privately owned and rehomed to the United States under private equity ownership of Centerbridge. It’s a $500 million equity transaction, and the company will be free and clear of all debts that it had prior to bankruptcy, about $634 million in debt. We have a very clean balance sheet and a fresh start. What’s next for the company is a transformation of the business around a couple of big, global themes.
Spytek: The first order of business is completing the wholesale integration of all the businesses that were acquired over time so that we can realize the company’s full potential. Some of the work was done, but the hard work of truly integrating all of those networks and all of the underlying infrastructure [was not completed]. We have multiple global networks when we should have just one.
Second, we're embarking on a wholesale transformation to drive efficiencies. This is driven by the demands of our customers and new technologies that are coming to the fore. There's a multitude of new constellations coming, and customers are confused about LEOs and MEOs. What we need to do is deploy a technology that future-proofs our solutions, and future-proofs their networks. We have a new concept of software-defined service delivery and software-defined networks. It’s a satellite-enabled take on SD-WAN. We're starting to deploy the technology and test it with our high-end customers in cruise and energy. We think it’s going to be the appropriate solution for large segments of our customer set.
The third thing we are doing is focusing on profitable, recurring revenue as opposed to revenue for revenue’s sake. The goals of the company before were all things satellite — all things to all people and all customers. That’s pretty inefficient. We’re going to focus on our core verticals and profitable, recurring revenue. There might be some segments of the business that we de-focus, either because we’re not making enough money or it's not core [to our business]. We’re taking a big, strategic look at all the segments within our verticals.
Spytek: The restructuring process drove that decision. I was running the day-to-day parts of the business, while keeping the restructuring folks in check. It became a real pleasure and challenge to help drive the company through this challenging time. At the end of the day, I love this industry, I love the people. I felt that we've got the best platform in the industry, the best team in the industry, and there’s a lot of disruption that presents tremendous opportunities. It just seemed like a fantastic opportunity that I couldn’t pass up.
Spytek: We're not going to de-focus any of our verticals, but maybe some segments within verticals. We feel energy is still a great place to be. We may have reached a tipping point in global use of fossil fuels, but that doesn't mean that the world needs less energy. The sources of energy might change and we'll easily expand our services to those new sources of energy. Our energy vertical is the hardest for competitors to penetrate. We have very deep and long-standing relationships with a number of the largest operators and we're the largest provider of managed services to that set. We still feel there's tremendous growth in that.
The double whammy of a global pandemic and the oil shock has driven the discussion of the digital oilfield. In energy markets, every time there is a downturn it drives more efficiency in operations. Oftentimes, that makes what we do even more critical to our customers' operations because they automate more of what they do offshore.
Spytek: Our cruise business is the vertical that is probably the most challenged by COVID. We are the largest provider of services to cruise. In a weird way, Chapter 11 helped us because we were able to use our restructuring process to get out of some of the contracts and pass some of that relief to [cruise customers]. We’ve done what a trusted partner should, we’ve been able to work with them through a downturn. That was well received.
This is the first downturn the cruise industry has ever had. Now they're thinking like energy companies. They’ve just laid off thousands of people. I don't think they're going to be in a hurry to bring all those people back. I think they're going to go into an outsource and efficiency cycle. We see that as a great opportunity to do much more for them, to penetrate their networks deeper than we have in the past. We are in some interesting dialogues with some of the major cruise operators to take on some services that we have not been involved with.
Truth be told, Speedcast in the past was a little bit more commoditized. We were just going out, buying space segment, packaging up and reselling space segment. Those days are gone. That's only going to be one component of the services that we offer onboard these ships.
Interestingly, our yacht business exploded during COVID. We've added hundreds of yachts to our network and we're putting them on our new unified global platform, so they're sharing the same network that the cruise ships are using. We're able to give them an incredible quality of service because the cruises aren't using the capacity. It's been tremendously successful, we've been able to leapfrog some of our competitors in that space.
Spytek: Given the fact that we're relocating the business to the United States, I have high hopes for our government vertical. We were a foreign-owned business and the government [segment] wasn’t able to grow in that environment. Now we will be one of the largest U.S.-owned integrators. The America-first mentality is still very much [a factor] in terms of government purchasing and we think there's tremendous upside for our government business.
The last segment is our enterprise group — that’s where we need to determine where we're going to focus. We do everything from media, IoT, telco resale, cellular backhaul, high-end enterprise, to universal service obligation deals. We're going to evaluate those sub-verticals very closely and decide where we want to focus going forward.
Spytek: It’s absolutely an approach we're looking to take across the company. With maritime, we haven't fully defined it yet. We have our SIGMA Gateway suite, which at the time it was developed, was best of breed. We probably need to play catch up there — which we're prepared to do.
You’ll see us doing R&D and developing our own new services internally. If there's any M&A in the cards for us, it'll be at the edges of our networks, with companies that add value to our customer set. The commercial maritime space is very competitive. It’s no longer the global footprint that gives you the leg up. We've got to figure out the best way to differentiate there so we're not just competing on price.
Spytek: Optimizing and future-proofing our networks jumps a generation ahead of where the satellite industry is. It takes us to the best of breed technologies that are available on the terrestrial side, enabling them for the satellite world, and utilizing them to full effect.
For example, if you look at a cruise ship, sometimes we have seven different devices that do packet prioritization. Our new platform is just a single device that can be completely managed by our customers. It gives them an incredible degree of control of their own network and their own infrastructure. It can tie into their terrestrial infrastructure, so the ship becomes just another component. All the nuance of operating over a satellite network goes away.
We'll be able to look at whatever is in orbit — megaconstellations, HAPS, 5G — it's going to be completely agnostic so our customers don't have to worry about that. It will always look at multiple assets instead of just a single network. We don’t want to bet whether Starlink, OneWeb, or Telesat LEO will be the best solution. We need to be agnostic as to whatever is launched, so we can leverage it for customer success.
Spytek: Now that we're out of our restructuring phase, we’re far and away the largest and most stable integrator. I definitely think there's room for a large integrator in this industry. We are going to be very selective about which customers we go after. We see this as an opportunity for us. RigNet and ITC, they're going to be going through their own integrations, which are harder than they appear. We’re going to be the most stable platform in the industry and we're going to be able to gain market share, even if the markets aren't growing as rapidly as we would hope.
We've already started to change the culture of the organization to be a very high-performance, customer-centric culture. If you truly understand the needs of your customers and always add value to your customers operations, that's a recipe for success. With the new Speedcast, we’ve got a lot to do. These are challenging times in our space, but I think as the world normalizes post-COVID, there's tremendous upside for Speedcast and for the industry as a whole. VS