EchoStar Corporation (SATS) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone for the EchoStar Corporation First Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I would like to turn the call over to Mr. Deepak Dutt, Vice President, Treasurer and Investor Relations Officer. Please go ahead, sir.

Thank you, Lisa, and good day, everybody. Welcome to our earnings call for the first quarter of 2017. I’m joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; and Dean Manson, Executive Vice President and General Counsel. As usual, we invite media to participate in a listen-only mode on the call, and ask that you not identify participants on the phones in your reports. We also do not allow audio recording, which we ask that you respect. Let me now turn this over to Dean for the Safe Harbor disclosure.

Thanks, Deepak, and hello everyone. All statements we make during this call, other than statements of historical facts, constitute forward-looking statements that involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by those forward-looking statements. For a list of those factors and risks, please refer to our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q filed with the SEC. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. I’ll now turn the call over to Mike Dugan.

Thank you, Dean and Deepak. Good morning and welcome everyone to our earnings call. We got off to a great start for the year in the first quarter. To name a few of the highlights, we commenced consumer service on EchoStar 19 satellite, which was launched successfully, fully tested and put into service in that timeframe. We will provide capacity to resume growth in our HughesNet consumer business in North America with the Gen5 service. The EchoStar 23 satellite was launch successfully in March and is also now available for service. We are awaiting the launch for EchoStar 21 and 105. I think Anders is going to talk about that in a minute, and we closed on the share exchange transaction with Dish Network. Our two business segment Presidents will share with you details and highlights of their own businesses. So, let me start it off by handing it over to Anders Johnson who will talk about our ESS business unit. He will be followed by Pradman Kaul on Hughes; and Dave Rayner will follow Pradman with a financial overview before we get to any questions and the answers. Anders, take it on.

Thank you, Mike. ESS’s first quarter revenue was $100 million compared to $103 million for the first quarter of last year. EBITDA in the first quarter of 2017 was $83 million compared to $89 million last year. The successful March 16th launch of EchoStar 23 satellite on SpaceX’s Falcon 9 from Kennedy Space Center was the highlight of the quarter. The satellite entered the service at the 45 degree west orbital to the location at the end of April following the successful in orbit testing. We have two additional satellites that are now slated for launch in 2017. We have been working closely with ILS and its parent Khrunichev since the Proton launch vehicle was effectively grounded by the Russian government just prior to the scheduled of Echo 21 on December 28th of last year, which was in turn delayed from its originally scheduled launch in the second quarter of 2016. That launch is now scheduled for the end of this month. Echo 21 is an S-band satellite that our EchoStar Mobile subsidiary will use to provide MSS services throughout the European Union and we have been in regular communication with most of the European regulators to whom EML’s licenses are answerable to keep them abreast of the developments around the launch of the satellite and EML’s launch of services across the European Union. EchoStar 105, the hybrid Ku, Ka and the C-band satellite that will replace AMC 15 at the 105 degree west orbital location, could potentially launch in the third quarter or fourth quarter of 2017, but is paced by SpaceX both on the hardware and manifest assignments. I’ll now turn it over to Pradman.

Thank you, Anders. First, a few financial highlights. Q1 2017 revenue for the Hughes segment was $329 million, a small growth over the same quarter last year. EBITDA was $101 million in Q1 compared to $110 million in the same quarter last year. You’ll recall the growth in our North American consumer business had stalled most of last year, because the EchoStar 17 satellite beams were full. We launched a new satellite Echo 19 in December and I’m pleased to inform you that on March 16th we inaugurated a new HughesNet Gen5 service ahead of schedule. HughesNet Gen5 offers significant enhancements to the Gen4 service including download speeds of 25 megabits per second, upload speeds of 3 megabits per second and data allowances of upto 50 gigabytes per month for consumers and up to 250 gigabytes per month of business users. All plans include a free bonus zone allowing an additional 50 gigabytes per month of off-hours usage and soft data limits, permitting access beyond the contracted levels. Also available is a new HughesNet mobile app which gives subscribers more visibility and control of their data from a convenient personal device and the new HughesNet modem includes a built-in dual band high-performance Wi-Fi router. We also offer a range of exciting upgrade options for existing subscribers. HughesNet Gen5 is the first ubiquitous course-to-course internet service that meets the FCC 25/3 broadband standard. And Hughes continues to be the market leader in providing satellite based internet access. According to a recent FCC survey, HughesNet continues to be the leading internet service provider while meeting advertised speeds. We ended Q1 with 1,043,000 subs, a slight increase from Q1 and Q4 last year. With the launch of Gen5, our initial focus was on existing subscribers that express the a desire to upgrade to the new service. I am very pleased that we now have activated all of our sales channels, and we’ve been seeing strong subscriber growth since. Our Brazilian HughesNet service has also been growing at a nice space and we are very happy with the growth in that subscriber base, and the reception from the markets that we are serving. As you may be aware, in addition to the United States, Echo 19 has beams over Canada, Mexico, Colombia and other Central American countries. Our partner in Canada has already started offering service on this system and our Mexican partner is expected to do so very soon. We expect to start service in Colombia in the second half of this year followed by service in the remaining countries. We are very excited about entering these markets and expect to add additional capacity in some of these markets with the launch of our hosted payload on the Telesat’s T19 in mid-2018. Our target markets continue to be those that are unserved or underserved by cable and fiber. And the new HughesNet Gen5 will be a strong and viable alternative for the many millions of households across the U.S. that are limited today to unreliable slow speed DSL or have no cable or fiber access. During the first quarter of 2017, we transitioned our wholesale arrangement to DISH through a sales arrangement relationship with DISH, under which DISH will market and promote our HughesNet service and related equipment. We will make certain payments to DISH for each service activation generated and installation performed by DISH. Going forward, as is typical for our other retail arrangements, we will have a direct relationship with the subscriber, billing the subscriber directly for hardware and the monthly service, and we will incur the subscriber acquisition costs. As part of this new arrangement, subscribers sold by DISH’s sales channel will have an opportunity to receive DISH TV service at an attractive bundle discount. Additionally, together with DISH, we’ve been able to create an attractive upgrade offer for existing dishNET subs who are currently on HughesNet Gen4. This offer allows them to upgrade to the HughesNet Gen5 service and transfers them to a direct relationship with us. I am confident that these changes represent a strong value for dishNET subs while also improving the economics for us. Now, to our aeronautical business. Our equipment is now in service on approximately 840 aircraft. And during the quarter, we continued to expand our sales, both domestically and internationally. We announced our next generation, JUPITER high-speed aero terminal capable of exceeding 400 megabits per second per aircraft. This terminal will be fully compatible with both Ku and Ka band satellites. And together with our recently announced dual-band, Ku/Ka aero antenna will enable our customers and partners to offer aero services throughout the world. In Q1, we also announced our first major agreement for the new JUPITER KA-band aeronautical service. We will be supporting Thales Live TV in-flight connectivity solution by providing network services and KA-band capacity in North America on Echo 19 to SES. We are selling JUPITER aeronautical terminals directly to Thales. Our enterprise business also had a strong quarter in terms of new orders, both domestically and abroad. Key orders are from Jack in the Box, Sherwin-Williams, Sonic, Xplornet and OneWeb. Our international enterprise business was also awarded significant new orders. The first from a multinational organization to implement, support and manage a global IP-based network of more than 300 geographically diverse and remote monitoring sites in a large number of countries around the world. And an order from Reliance Jio of India for Hughes India to be its turnkey satellite communications partner to set up a nationwide cellular backhaul network to extend 4G LTE services to over 400 remote and rural locations using the state of that art JUPITER system. Hughes India’s role ranges from planning, design and operations of the entire satellite-based cellular backhaul net. [Ph] Reliance has one of the largest cellular infrastructures of the world with the subscriber base of almost 100 million subscribers. And Reliance views this backhaul network strategically as being the key technology enabler to complete its vision of providing ubiquitous and seamless connectivity all over the country. We ended the quarter with $1.6 billion of enterprise backlog, an increase of 11% over the backlog at the same time last year. As you may know we do not include the consumer business in our backlog number. Our work on the large developing contract with OneWeb continues in full swing, and we continue to be excited about the potential of LEO satellites in various markets. So, we’ve been very pleased with JUPITER 2 Echo 19’s initial performance and customer acceptance. We have been designing the next generation JUPITER 3 for a potential 2021 service launch with significant additional capacity in the Americas. This design includes several new technologies, and we expect to make a final design in the next few months. To summarize, I’m very pleased with our accomplishments in Q1; they position us very well for continued growth in the short-term and long-term; and we’re truly excited about these developments. Let me now hand it over to Dave.

Thank you, Pradman. On February 28th, we closed on the agreement to exchange our equity interest in certain companies that help substantially all of our EchoStar technology’s businesses and certain other assets, and exchange with DISH’s interest and the tracking stock which represented 80% of the economic interest in the Hughes Retail Group. As a result of the exchange, we no longer operate the EchoStar Technology’s businesses and the tracking stock was retired. The EchoStar Technology’s business have been presented as discontinued operations in our current financial results. Discontinued operation disclosure is subject to a very specific GAAP rule and as result, the financial results of the impacted operations are disclosed in a single line net of tax on our P&L. We also present EPS for both continuing and discontinued operations. The prior year numbers are presented in a same manner. Following the exchange transaction we’ve also changed the way we present our segments. Historically, the costs of all 8corporate functions were allocated each of the business units and reflected in their respective EBITDAs. Under our new presentation, these costs are no longer allocated to the operating segments and now reported and analyzed as part of the Corporate and Other segment. Prior period segment EBITDA has also been restated to reflect this change. We believe that this gives a clearer view to the results of the business segments without being clouded by allocations of corporate overhead. Now to our consolidated financials in the first quarter. EchoStar revenue was 433 million, about the same as the first quarter 2016. EBITDA was a $183 million for the first quarter compared to $186 million in the first quarter of last year. More on these variances when I get into our segment financials shortly. Net income attributable to EchoStar common stock was $39 million in the first quarter of 2017, compared to $51 million last year, and diluted earnings per share were $0.41 compared to $0.54 last year. The decrease in net income was primarily due to an increase in interest expense from the issuance of the 2026 notes in the third quarter of 2016 and the decrease in EBITDA, as discussed, and increase in depreciation as a result of EchoStar 19 being placed in service in Q1 and a decrease in income from discontinued operations. Offsetting the decrease was a reduction in income tax expense. Capital expenditures from continuing operations for the quarter were $90 million compared to $206 million for the same quarter last year, primarily due to reduced capital expenditures on satellites. Free cash flow which we define as EBITDA minus CapEx was $93 million for Q1 compared to a negative $20 million last year. The increase being primarily due to the lower CapEx in the current quarter. We expect CapEx to be in the $375 million to $425 million range in 2017, which includes the impact of amounts deferred from last year due to the launch delays as well as increased SAC related CapEx as a result of the conversion with DISH sales arrangement that Pradman spoke of. This amount does not include any CapEx for new satellite programs we may pursue. We continue to have a strong balance sheet and ended the quarter with approximately $3.2 billion of cash and marketable securities. Now to the second financials. Hughes revenue in Q1 increased by $3 million primarily due to higher equipment sales, domestic enterprises and Brazil consumer revenue, somewhat offset by reduced sales and service to dishNET and a reduction in international enterprise revenue. EBITDA was lower by $9.5 million due to a decrease in gross margin from our international equipment sales and impairment loss on certain strategic equity holdings, and an increase in sales and marketing expense related to consumer business in Brazil, which began in the third quarter of last year. ESS revenue decreased by $3 million in Q1 2017, primarily due to the termination of the AMC lease in first quarter last year. EBITDA was lower by $6 million, primarily from a lower revenue as well as a positive non-recurring item last year. EBITDA in the Corporate and Other segment increased by $13 million in Q1 over Q1 2016 due primarily to gains on strategic investments, partially offset by a positive non-recurring item in Q1 2016. As we have previously indicated, we expect to have decreased corporate expenses going forward as a result of the share exchange transaction. Let me now turn it back to Mike.

Thank you, Dave, Anders and Pradman. In closing, I must admit that I’m very excited and optimistic about some of the many initiatives that are finally coming to fruition like Echo 19 and some of the launches that we have going on with the other satellites. I’m looking forward to seeing the financial benefits of these to take effect the remainder of this year. Let me now turn it back over to the operator so we can start the question-and-answer session.

[Operator Instructions] Our next question comes from the line of Jason Bazinet with Citi.

I just had two quick questions. I guess, it started back in 2014 when you originally set up the Hughes Retail Group structure when people first started talking about M&A. And I think when you did the debt raise in 2016 and then unwound HRG transaction more recently that M&A narrative hasn’t really changed. But, you guys are still sitting with north of $3 billion of liquidity on the balance sheet. So, has anything changed or is your historic commentary regarding M&A is still intact? And I just had a one follow-up.

Well, I think that Dave may contribute to that but the fact is it’s a very step-by-step process. We believe we’re excited and we think that the transaction recently with DISH streamlines us to better approach M&A. And I’m pleased with the progress there but I’m sorry we don’t have anything specific to announce at this time. I don’t know if you have anything else…

No. I think you captured it, Mike. I mean, strategic M&A activity, I think as Mike alluded to, it is ongoing. We have taken multiple steps to position ourselves better. But, we are not prepared at this point in time to discuss or announce any sort of eminent transaction.

Makes sense, okay. And then, one -- I guess, the couple of times you’ve spoken about your CapEx that has the caveat in there around new satellite projects. Is that sort of just typical boilerplate sort of caveats or are there things out there that you think are likely to get spent in terms of new satellite programs?

I think as Pradman alluded to, we’ve been looking at JUPITER 3; we have not made any decisions regarding next generation satellites. But between Pradman and Anders, we are constantly evaluating potential new satellite builds that we will announce those when those plans are finalized.

Your next question comes from the line of Ric Prentiss with Raymond James.

Thanks. Follow-up on couple of those questions. You mentioned the final decision on a JUPITER 3 might be a few months away with the 2021 service date. Walk us through what kind of those next steps are as you kind of make that decision process? What are you in particular trying to look at? That sounds like maybe by next quarter probably might have an answer.

I think we’ve said about everything we want to say about JUPITER 3, except we’re very serious about the satellite business. We’re very, very serious about satellite broadband. We streamline the company to focus specifically on ESS and Hughes activities. And as Pradman mentioned, there is a new technologies and so on so forth. I’m very pleased we took a time we did on Echo 19 -- I mean Echo 17 and made the right decisions there and then Echo 19; we got that into orbit, we got it into service much quicker than people predicted. A lot of those things have to be clearly considered as we look at bigger, more powerful satellites. I don’t want to launch and come back and tell you where it will be in another year before they get into service because we got to do electronic orbit raise [ph] and that’s one of the things that also complicates this. So, I can only tell you we’ve got the best crew working it, and we’ll have an announcement as soon as we can.

That helps. Might be a interesting question also, if you look at the satellites you own versus the satellite DISH owns, what’s the logic -- obviously when haven’t talked about the stock a lot of time on my team, but what’s the logic as far as EchoStar 15 and 18, being owned at the DISH side versus the other satellites owned by you? and is there a possibility, given the asset swap that you did in February for more asset swaps with DISH?

That’s obviously a potential. The reality is, we are trying to focus more and more on broadband, and some of the EML stuff and so on and so forth. And DISH needed those assets. And so, which is just a way we chose to allocate the assets. But certainly some of that could make sense for both companies, we’ll explore it.

Okay. And then, my final one is just any update? You mentioned a little bit in the Q about the different regulatory milestones between Europe and Latin America. Can you give us any more granularity on the call as far as what you guys are doing on the different milestones?

Anders, do you want to take that?

Yes. Well, certainly, regarding EML, we’ve kept both the European Commission in Brussels as well as the member states apprised of our situation vis-à-vis waiting for a launch vehicle. In the meantime, we’ve established all the necessary terrestrial infrastructure and hired people and created devices to use the network, once it up and operating. And all of the regulators are working with us through this delay, knowing that eventually our launch will occur and the network will be created. So from an EML standpoint, hopefully the end of the process is in sight. As to Latin America, I’m not quite sure which specific question you’re asking.

I think there was some discussion about some of the Ka -- sorry, I pulled my notes out here -- some of the Ka, Ku and S-band on Echo 23 met the Ku regulation but there is some others that were still open?

Yes. We’ve been in a dialogue with the Brazilian regulator ANATEL, regarding the component parts of the milestones that are fundamental to our license. And first and foremost, the license was a Ku BSS license at the 45 degree orbital position which we have now brought into use and are actively flying the satellite from our new space craft operation center located in Brazil. We continue to have a dialogue with ANATEL relating to the milestones relative to our Ka-band and S-band authorizations. And they are working very actively with us and in support of us of seeking some clarifications as to what exactly Brazil status is from an ITU priority standpoint because we are hard pressed to launch the construction of new satellites for using those frequencies at that orbital location. And so a number of fundamental coordination matters are settled vis-à-vis filings of higher international priority. So, they are working very actively with us in understanding those details as well as giving us some relief from what the original license milestones specified in those two bands and giving us some more breathing room until these issues might be resolved.

Your next question comes from the line of Andrew DeGasperi with Macquarie.

I wanted to ask first on your subscriber trends. I just wanted to know, how many people have been moving from Gen4 to Gen5? Can you also maybe let us know how do you view the markets you are expanding in, like Canada, Mexico and Colombia, what do you think the potential subscriber opportunity is? And lastly, can you just give us an update on competition, what are others doing in response to Gen5 right now? Thanks.

Pradman, do you want to take that…

So, let me just take some of the -- the second and third question first. In Canada and Mexico, we are basically working through partners where we are offering the retail service and we are selling wholesale capacity and network operations to them. So, the Canadian partner has started service, as we mentioned earlier; and we expect the Mexican partner to start service very, very soon. Colombia, we are going to be offering retail services on our own and we expect to launch that service by the end of the year. So, as we add each of these new markets, it’s obviously good for us because we have continue to get new subs. In terms of the upgrade, we don’t really breakout the numbers and tell you how many sites were upgraded. But, our focus for the initial was to upgrade as many customers as we could. We gave that a priority. But it’s running pretty much even between upgrades and new subscribers. So, that’s going very well. And we will now focus on new subs in the next two quarters.

Andrew, this is Dave, just as a point of clarification on Canada and Mexico with those partner arrangements. The users of the service in Canada, Mexico, we will not include and haven’t included historically in our subscriber counts. As Pradman indicated, that’s a capacity sale. As they become more successful, we get to sell them more equipment. So, the benefit there really comes through the enterprise side of the business, not through the consumer.

Thanks for that. And the competition, is everything changed after the launch of…

No, nothing is changed. We really have one competitor, ViaSat as you all know. And they are going to be behind us with the launch of ViaSat-2. And -- but that’s about the only competition in the markets that we are in.

And just last question from me. As far as the arrangement with DISH, just wondering how should we think about the impact on financials? I mean, obviously, it seems that obviously you are going to incur SAC, more OpEx, more CapEx than you did previously. But as far as the bundles are concerned, I mean, should we be thinking of ARPU difference and also thinking about the margin efforts there? Thanks.

Yes. Andrew, I think as you think about that arrangement, it’s really a transition from wholesale to retail. So, we will be paying DISH a sales commission just as we do to our other sales agents. They will fulfill the order themselves. And so we’ll be paying them an installation charge just like we pay third-party installation charges. And from an ARPU standpoint, this will -- you will see an increase an ARPU going forward as we transition away from the wholesale to the retail base. So, it really becomes more of a retail economic picture where we’re incurring the SAC and we get the full benefit of the revenue as well as the margin on that.

[Operator Instructions] Your next question comes from the line of Andrew Spinola with Wells Fargo.

I’d like to ask that last question in a slightly different way. I think there is two ways you can look at this new relationship with DISH. On the one hand, if you can fill those subscribers and capture more of the economics that’s obviously a good thing. I think a second way to look at it is maybe DISH is viewing this as less of a long-term opportunity and wants less exposure to this opportunity. And I’m just -- those are sort of hypothetical view points. I just wanted to hear sort of your views on how you view this opportunity and what the change in DISH’s behavior means to you.

We’re excited about the change. I think both DISH and EchoStar/Hughes had some issues with the wholesale agreement. It wasn’t as effective as either one of us would have liked. We think that change is a very positive one where we’re taking responsibility for our own destiny to a certain extent. We’re taking over the customer interface and making sure they’re getting kind of support that they need, just like all of the other subscribers and we think it’s a bit of a simplification process. And I see no indication that DISH is less focused on satellite broadband going forward. So, if anything, I think they will be more motivated under the new agreement but we’ll just have to see if that’s that or not; that’s just my prospective.

Fair enough. And then, as we think about the ramp of Echo 19, there is obviously not a lot of history to focus on, but there was a ramp of Echo17 in 2013 where we saw you add something like 50,000 subs a quarter, about 225 for the full year. Obviously, you’re off of a bigger base now but you have less competition at the current movement. Do you think that’s a ceiling for you or do you think you can achieve that number or even do better in 2017?

Well, I think you’ve got to realize that my team has better infield coverage. So, it doesn’t just have the West Coast and East Coast. So that certainly expands the coverage. As we launch -- we did have some launch delays on 19 that we had to predict to get our channels in order, and I don’t know if you have anything to add, Pradman. But I think we’re pretty excited about that.

Yes. We’re seeing a good ramp. I don’t know how to compare it to the ramp we saw on Echo 17, but all the indicators at the early stages are good.

And I think Andrew you correctly point out, offering off a bigger base and so you got sure and coming off that larger base. So, while gross adds I think could be conformable or conceivably better than historical positioning, but the net growth will be harder because of that churn on the larger base as you correctly point out.

On Brazil, I was wondering, I think you hit 40,000 at the end of February, any update you can give us on that business. And particularly, especially now that you’re considering clearly going into Colombia and some of the other Central American countries. Now that this business is approaching a year or something like that, can you give us some color on the churn or anything you’re starting to see in that market, now that you’re starting to see some ageing of the those initial subs? It will be helpful.

We’re seeing -- we’re very, very pleased with the Brazilian business. We obviously are not breaking out the numbers yet. But in general, I would say all the indicators are positive. I think we’re doing better than -- in terms of subscriber acquisition better than our plan. Obviously in a new service you have some problems, we have them but we’re solving them as they occur. And I expect that we would be very pleased with the results of our Brazilian business at the end of the year.

On the Echo 23 satellite, and I know we are waiting for that to get into service before maybe some customers could take a look at it and consider either leasing the capacity or thinking about a joint venture. Do you have any customers or potential joint venture partners that are trialing that satellite where we might hear something on what you are going to do with that satellite in the near-term?

We don’t have anything that we can talk about on the call but certainly, we continue to try to work through the complexities in the Brazil market. As you know, things have been very challenging down there. And although I can’t guarantee somebody’s trialing anything, we certainly are exploring a number of options. We haven’t shut down any activities in Brazil right now as far as looking at that.

Got it. One last one from me for Anders. Anders, now that 21 is going to go up, the way I think about that business evolving is the satellite will be launched, tested, goes into service and then you’ve got a partner there that’s going to sell some sort of service, mobile hotspot throughout Europe. Can you explain to me what happens on with the terrestrial piece with that spectrum? With the countries where you have this CGC approval, is there a customer who is ready to go, maybe deploy something terrestrially or something that could generate revenue? What can I expect to happen in the year following the Echo 21 entry into service?

Well, I think for the first year, much of our activity will focus on the MSS rollout. And while we have, as you cited, a distributor relationship with a UK-based company that will be our initial distributor of that device, we also have a number of other uses for the satellite which we’re developing with third parties where other capacity on the satellite will be used for other purposes in the MSS modality. I don’t envision there to be meaningful rollout of a CGC application in the first year of service. But, certainly once we have the MSS service in place and operating and we get a little further down the development path to what 5G is going to look like from a standard standpoint, I think then we will have more meaningful conversations with potential partners of the use of the CGC portion of our license in the European Union.

Your next question comes from the line of Chris Quilty with Quilty Analytics.

A question for David, just as a clarification. Your existing wholesale subs with DISH stay wholesale, they are not going to be converted?

Yes. The plan is that they stay wholesale. As Pradman indicated, we do have an arrangement for DISH. If those customers who want to be upgraded, we will upgrade them and migrate them to a retail customer arrangement.

Okay. And speaking of which, DIRECTV/AT&T kind of fell off the tree quite a while ago, is there any talks about bringing them back in as a wholesale partner or a retail partner for you?

No, they have always been a retail partner. They have been the sales agent for us. I don’t know what you mean, Chris, by the fell off; they continue to be a partner as a sales agent and that relationship continues today.

Okay, good. Another question, David, it looks likes you did an 8-K that restated the annual numbers. Are you going to give us something with quarterly other than we’ve got the comparables on Q1 but not for the balance of…

I think what you are referring to is the 8-K gave pro forma and it’s interesting. The GAAP rules for pro forma are actually different than the GAAP rules for discontinued operations. So, it’s not a smooth, clean preparation of those financials. But, I recognize the need for investors to see sort of a historical track record and we are working on that.

Got you. And for Anders, looks like the Echo 8 was retired in the quarter and I assume that’s being put into an inclined orbit. Are there any opportunities to potentially sell that like some of the transactions we’ve seen recently with SES and Global Eagle or does that just maintain as a inclined orbit for the time being?

Echo 8 is -- not wasn’t inclined orbit. It’s not been fully retired. So, it’s actually been turned off and ejected from its positions. So, it has no -- no further opportunity for any uses or sale or anything like that.

Got you. And on that same vein Anders, what opportunities do you see with some of the older satellites in the fleet for the additional monetization? And obviously you’ve got AMC 15 that has Ka-band capability and you’ve got a new relationship with Thales. Are there opportunities to sell capacity there?

Well, with regards to our owned assets, which we have a small fleet of assets that are in our possession that we are positioning for what I’ll characterize as strategic development activities and in certain instances actual deployment where there will be the generation of revenue with a partner more on an opportunistic basis to validate some new products and service that we’ve been developing specifically for the use of these older assets, in so far as AMC 15. And AMC 15 continues to be located at the 105 Wes orbital location until such time is Echo 105/SES 11 is launched at which time it is the Ku-band portion of AMC 15 will be replaced by Echo 105. As to what SES is going to do with AMC 15 and the Ka-band payload on that asset, it’s really in their hand, because we contractually return to the asset. And so far as the Ka-band payload, we returned that back to SES some time ago. So, their onward deployment or use of that asset with regards to the Thales Live TV transaction, it’s really theirs and....

Got you. And I guess this is a joint question regarding the aviation market. Obviously there is a new relationship with Thales and they have some existing customers that they are serving here in the U.S. Are you looking at international opportunities, given the fact that you’re offering a Ka/Ku solution?

Yes, absolutely. And in fact, with the partner, we have bunch of international airlines that are using our equipment and ground based services and we’ll continue to chase them with Live TV in Thales and SES together.

Got you. So, entirely through partner relationships, no intent to do anything direct?

Yes. No, we won’t be -- our strategy in the aeronautical market is to work through these partners.

Got you. And final question, Pradman, you mentioned that the ARPUs should trend up on a go forward basis as you see the shift at DISH from wholesale to direct. But independent of that, have there been any changes in either the ARPUs or gross adds that you’ve been seeing in the last couple of quarters?

Well, ARPU has trended to -- from ever since we started in the business for the last five years, has trended up every quarter, not significantly, but slightly. So, but the gross adds as we pointed out till the end of Q1, most of the Q1, we were still severely limited in the capacity available in the beams. So, we really -- the gross adds didn’t go up, but we hope that now with the initial capacity of the Echo 19 that we will be able to reverse that trend and have the gross increase nicely over the next remaining part of this year.

Your next question comes from the line of Arun Seshadri with Credit Suisse.

Thanks for my questions. Most of them have been answered. Just one from me. Has there been any impact to relationship with one OneWeb, since I guess over the last couple of months, either in terms of commercial arrangements or future plans, sort of how do you see them as a partner today versus maybe a couple of months ago?

No, we have a great relationship with OneWeb. We are obviously an investor in OneWeb. And in addition, we are a major vendor for them. We are doing the development of the gateway infrastructure. And we have significant development contracts at this stage with them. In addition, we are also developing the modem card for the user terminals. And we expect to be a service provider using their network. So, all aspects of our relationship with them are still in place and in a very positive mode.

So, you are not really seeing any impact of their sort of discussions or Intelsat or anything? And you don’t -- it sounds like you don’t really visualize any future impact either.

No, I think it’s all complementary. We have a good team of partners and working very well together.

Your next question comes from the line of Andrew Spinola with Wells Fargo.

One follow-up for Pradman. Pradman, best I can tell from some of the assumptions in my model, the international enterprise business was down again year-over-year. I think that was described in the Q as well. And I was just wondering, if you could give us an update on what you are seeing in those markets. I mean, there was the pricing pressure and the currency in the prior years. What are you seeing now and what’s your outlook for that business?

Well, the international environment is something difficult to predict and clearly is a major element in the revenues that we recognize internationally. And obviously, some of the markets that we serve have seen significantly the currency problems or political problems. So for example, Russia used to be a good market for us. And in the last year and a half or so, we pretty much lost a significant amount of our Russian business. And to make the international business grow at any good level, you have to have all the engines firing at the same -- all the cylinders firing at the same time. Now, if you look going forward, I think our -- with the currency improvement and the economic improvement in South America, I expect we are going to see good results in Brazil, especially with the addition of our consumer business there, over the next couple of years. In addition, I think we are seeing some very encouraging signs in India, and we are beginning to see some good signs the Middle East and Africa. So, hopefully, we will see some recovery in these markets. But, it’s very difficult to predict because we don’t control the environment.

Real quick specific question, is there any seasonality to renewals and enterprise, is there a large number of renewals at the very end of the year such that any step downs tend to occur in Q1?

Well, usually, in our business, Q4 is always the best quarter in the enterprise business. And there are number of reasons for it, in the sense budgets get redone for the next year, people tend to spend their money. So from the hardware sales point of view, the Q4 is always our best quarter and we always see that. But from the service by point of view, it doesn’t matter. Once you get the service in backlog, it tends to flatten out the seasonality in the revenues and margins. But, certainly, the hardware sales part, Q3 and Q4 are usually the best quarters.

And there are no further questions at this time.

Deepak?

Yes. Thank you, operator. We’ve come to the end of our conference today. So, thank you everybody for participating, and have a good day.

This concludes today’s conference. You may now disconnect.