Q3 2019 Earnings Call
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Welcome everyone and thank you for joining Intelsats third quarter 2019 earnings Conference call earlier. This morning, we issued our earnings release and published a quarterly commentary both of which are available at <unk> Dot com.
The quarterly commentary supplements our release, a 6K filing and provides information in context that you need to analyze our results in advance of the earnings call.
During today's call, we will discuss adjusted EBITDA and other financial metrics not prepared in accordance with U.S. generally accepted accounting principles, including EBITDA related margins and free cash flow from operations. We provide reconciliations of these metrics are the most directly comparable U.S. GAAP measures in the earnings release and on our website later today, we expect to file or quarter. It quarterly report on form.
I'm 6K, with the FCC you can find the link to the filing on our website.
Additionally, our conversation today will include forward looking statements that reflect our current expectations for future industry conditions as well as our business strategy market trends and positioning and expected future financial performance. These forward looking statements are subject to risks and uncertainties many of which are outside of our control. Please refer to the safe Harbor statement included in our quarterly report on form 6K for the quarter.
Ended September Thirtyth 2019, once filed under other FCC filings for information about some of the factors that could cause our actual results to differ materially from or expectations.
Finally, please be aware that our conference call today is open to the investment community and media with the media invited to participate in listen only mode members of the media are not authorized to close either directly or in substance any participant in the call who is not a representative of Intelsat.
Our call today is hosted by our CEO , Stephen Spangler, and our executive Vice President and CFO , David Tali Boeing opening remarks by Steve We will open the call for questions Steve.
Thanks, Dan.
Our third quarter results reflect inline performance and on track to execution with respect to where 2019 plan.
Since our last call, we successfully launched the Intelsat 39 satellite placing into service two weeks ago.
Satellites footprint spans Europe Africa, and Asia, and our business plan benefits from a long term commitment from the Ministry of Transport and Communications of me in March.
Further we've incorporated some of the Intelsat 39 beams into our flex network, adding resiliency in throughput to our managed service platform and these high demand regions.
Across the business, we are improving the stability of our core business.
To briefly highlight Intelsats financial performance.
In the third quarter, we generated revenue of $507 million, a decline of $30 million or 6% as compared to the prior year period.
Hi, good EBITDA was $356 million, where 70% a revenue declined a 14% as compared to the prior year period.
In addition to the revenue trend the largest contributor to the adjusted EBITDA result was the increase in direct costs related primarily to two satellites launched earlier this year.
Also contributing to the increase indirect costs was the purchase of off network capacity to support it'll said 29 E traffic restoration.
Further third quarter adjusted EBITDA reflects a bad debt charge of $7 million, the majority of which was related to one media distribution customer in eastern Europe .
Substantially all of the commercial impacts of the April 2019 failure of Intelsat 20, Ninee are now known we're comfortable that we have adequately forecasted the remainder so today, we affirm or 2019 guidance in all respects with expected performance in the upper half of the range for both revenue and adjusted EBITDA.
Before we moved to Q1 I just a few words on the C band Alliance proposal to the Federal Communications Commission.
Or FCC proposal outlines a market based framework for clearing a portion of C band spectrum in as little as 18 months. Following the receipt of a final order from the FCC.
We are acutely focused on the four goals of this proceeding as outlined by the FCC Chairman. They are one clear a significant amount of spectrum to protect existing users three accomplished the clearing quickly and for generate revenue for the United States Federal government.
Yesterday, sparling announcing our ability to clear 300 megahertz of spectrum inclusive of a 20 megahertz garbin demonstrates our significant progress to address the first two goals.
We collaborated with our C band customers to design updated compression centric television distribution networks. This allows us to clear additional spectrum, while ensuring the quality and continuity of critical television distribution requirements of our customers.
This filing demonstrates conclusively to all interested parties that we've provided an unmatched solution to the core question of the N. PRM that is clearing the necessary amount of C band spectrum to allow the U.S. to lead in the era of Fiveg innovation, while also protecting the incumbent users in the band.
The third goal speed is a defining feature of our proposal our market based approach accelerates the key milestone required to embark on the clearing process. The funding of new satellites to supplement capacity for the coldest video neighborhoods.
The CB eight companies expertise in complex networking environments, and our ability to implement the most efficient staging of the transition steps provides an advantage for speed of implementation.
Speed contributes directly to our addressing the fourth goal generating revenue for the U.S. government.
Our proposal generates billions of dollars in direct and indirect revenue for the U.S. government. The sooner U.S. service providers have access to cleared spectrum. The sooner the wheel of Fiveg innovation will begin to turn.
Accelerating fiveg will speed the creation of economic growth in hundreds of thousands of high technology jobs. Moreover, we are on the record with our commitment to make a direct contribution to the U.S Treasury as a result of an FCC order, which incorporates the C band Alliance proposal.
We are confident that our proposal generates the greatest value for the U.S. government in terms of both public interest in economic benefit and is the right path for enabling Fiveg leadership for the United States.
Based upon comments made by the FCC. It appears that decision could be made in 2019, the FCC controls the timing of the order whenever the order is issued we'll be ready to implement our proposal quickly and efficiently.
Let's move to culinary so we can discuss this topic and address your questions on the business.
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Our first question comes from Philip Cusick with JP Morgan. Your line is now open.
Hey, guys. Thanks, So great news on the of two proposals and make 300 megahertz of spectrum available any color on how to haul given it was always thought to be more complex in the original plan and was there a change in conversations with C band end users, but there are no more willing to transmission transition to.
Production technologies.
Sure. Thanks, Thanks, Phil.
Yes, we have obviously been very closely engaged with our customers and users of our C band spectrum and services on this particular issue we couldn't.
Reached the conclusion of clearing 300 megahertz without that close engagement.
We know these networks very well.
We know the plans with these customers have and we sat down with all the major media and distribution companies to talk about their long term distribution plans. How compression is currently being used to that work and how it could be used in the future.
We did see a lot of receptivity to moving to AGV see a compression which is an important step to makes the network more efficient to clear more spectrum and so by working with each one of these these major customers on their longer term plans, we were able to conclude that.
It was possible to clear more spectrum and as we said all along it. It is a complicated effort to do this is a major change to these customers networks are requires an equipment change at both the uplinks as well as the Downlinks.
And the change of their operations and so we gave our commitment that we would work closely with them through this entire process of migrating their network to a higher order compression and more efficient transmissions.
I see it only still takes a satellite.
Why not more and can you help us range the high end versus the low end of clearing costs.
Sure.
You know our current view is that.
We'll take eight satellites it may take more as we finalize our plans, but not materially more perhaps one more.
And the.
Clearing costs for the 300 megahertz, obviously has increased from what we had stated before and so we're looking at a range of 2.5 billion to 3.5 billion in total.
Cost, which includes all of the equipment that we would have to implement the satellites the implementation of filters on all the labor.
Required to achieve all those goals.
Thanks.
Welcome.
Thank you.
And our next question comes from Jason Kim with Goldman Sachs. Your line is now open.
Thank you and good morning. So you Tulsa is still not officially part of the CB at this point what does your updated plenty contemplate in terms of cooperation from them.
Well first of all we're moving forward, we don't see the fact that utilize that is not in the CBVA as an impediment to the timing.
Or the completion of our work.
With the various stakeholders in the FCC. So we're driving driving forward in this in this process and making very good progress.
Of course, we would we would welcome them to participate in this in the CBS going forward.
But ultimately that's going to be their decision went there whether to.
Whether to rejoin.
Understood and it's good to see that the additional spectrum can be freed up the timeframe quite the same timeframe you had outlined earlier and actually more spectrum freed up for the first try and versus what the CB a compact that line before.
My question is when we think about the second tranche in your proposal for 180 megahertz would that be available all at the same time or would that be some differences within that block as well.
Our current view is that it would be available virtually at the same time.
The second tranche.
Necessitate the implementation of the additional satellites and full operational those satellites and re grooming of the customers traffic. So there's there's a lot of work to be done.
So its envisioned to be available at that 36 month point.
Got it and just quickly on bad debt expense for the 7 million that that you highlighted.
The quarter ended the 60 million a reduction in backlog this quarter. The seems like it's a true attributed to a single customer in Europe afford that is that a quarterly revenue EBITDA impact from this customer the 7 million.
Where is that a year to date number that you're taking a charge against and in terms of the backlog impact what was the length of the the contract that you I think you wrote down.
The the incremental bad debt expense in the quarter was really a related to one customer in this quarter wasn't really a year to date number. We finally have to make a judgment about.
The probability of collecting our receivables.
From this customer and so we took that charge this quarter and then the change in backlog.
It was driven across our book of business, that's not just related to one customer.
And you know is the result of some de bookings as well as some lower pricing from renegotiated contracts year to date.
Got it thank you.
Thank you welcome.
Next question comes from Lance Vitanza with Cowen Your line is now open.
Hi, guys. Thanks.
Question on network services, you mentioned in the commentary that there were some non renewals in Latin America could you provide more color on that and I'm really specifically wondering are these non are these customers just want to go into traditional fiber solutions or is there a new technology or and what extent.
His softness in their own end market accelerating these you know the pace of the non renewals.
Sure. Thanks Lance.
Latin America in general is a softer market than the other regions of the world demand is kind of flattish and and so we are seeing the impact of some.
Weak economies in that region.
As a result, you know we've seen customers in the network side consolidating some of their their capacity and services with us, they're not going away, but they may be renewing less as as they renew so that's been a factor there hasn't been any more migration to fiber.
Other things than the normal so there's nothing.
Trending in that direction, that's out of the norm.
I would also say that there are several customers in Latin America that belong to a larger telecom group that have their own satellites and so some of the services have migrated back to those captive satellites within those those telecom group. So so that has been a factor in the quarter as well.
Great and then just maybe a follow up on the epic side in terms of commercial aviation airline seemed to be gravitating toward free Wi Fi for virtually all passengers now not all airlines are using two k. you, but a lot of the market could you talk about your ability to service the perspective demand in a freeway.
Hi Fi World given your current constellation at what point would you envision, adding potentially additional epic capacity and and might failure to add capacity push airlines toward K.
Sure so.
I think you have the basic concept right in the sense that.
As airlines moved to free Wi Fi.
Demand is expected to increase in the requirements for additional network capabilities through our service provider partners and from Us.
Increases.
So we're we're aware that and of course are talking to.
Our our distribution partners and service provider partners on those topics.
As we talked in the past we have the ability to move satellites into the North American region to support some of these applications.
And we are doing that.
Post the Intelsat 20 Ninee.
Failure.
But that is not necessarily enough, it's going to help us plugs some holds and build some additional capabilities but longer term.
We have stated that we're going to.
Have a follow on to replacement type satellite.
For Intelsat 20, Ninee that would provide some substantial intelsat epic class capacity into the North American region. So.
Yes, we would we would envision.
Making the right investments to make sure that our customers are able to.
Meet that ultimate demand when free Wi Fi becomes a reality.
Thanks very much.
You're welcome.
Thank you. Our next question comes from Anthony Klarman with Deutsche Bank. Your line is now open.
Hi, Thanks, a question on the media side, the quarterly commentary talks about a and early termination.
Fee that you received in the quarter of about 4 million.
Which would bring I guess the number down to around 219 million and then I guess I'm wondering if the.
If the lower revenue for the high risk customer that you have is that also backed out of that number such that you're recognizing that now on a cash basis.
So that when it comes in or are you still accruing revenue for that customer that is on paid.
So the termination fee that is noted in the quarterly commentary is correct. So if you were to back out that termination fee revenue would have been to 19. So your math is correct.
And then with the bad debt.
Expense that we took in the quarter related to the European media customer.
We are continuing to recognize some revenues from that customer.
That are consistent with our current cash collections from that customer they are still paying theyre just not paying at the full rate that was specified in the contract. So and we believe they will continue to do so.
So those record revenues are continuing to be recognized and we haven't given given up on collecting a what they tell us we just took vehicle.
And then maybe David while while we're on that topic, how do you think about.
Your FX exposure in a world of in appreciating dollar against other currencies, obviously, the the cost of Intelsat services to somebody smaller customers gets more expensive have you thought about how.
You will think about sort of the provisioning for bad debt and should we start using these higher bad debt.
On rates kind of the new norm given the dollars appreciation against a lot of global currencies.
You know I I honestly don't think so.
This has been for the longest time, primarily a U.S. dollar denominated business as you know.
We make some accommodations for customers.
When we think it's in our financial interest to do that.
But it's not a primary driver of our business.
And.
You know and our exposure is relatively limited and finally, if you look at the company historically overtime through cycles bad debt expense has been less than 1% of the topline.
And if you look at our allowances today.
We've got almost 2% of the run rate topline in those allowances. So we feel that were pretty fully reserved or even given the foreign exchange rate environment that you're referring to.
Thanks, and maybe Steve if I could.
Ask on C band I guess I'm wondering what the response was like from your customers. When you went back to them to try to coach them on the needs and wants to to move to 300 and sort of what the big impediments were in their mind I guess just to sort of maybe lead to witness a little bit I guess.
I'm wondering if you establish proof of concept with your transition.
Spending that you adequately or create a suitable replacement.
For the C band services from them is there is there any reason why there would not be more spectrum, that's able to be freed up over time once you're able to actually demonstrate that you can do what you say you're going to do on the 300.
Well.
Let me just answered the bottom that last part of your question first.
We really worked hard with our customers to determine what is the maximum amount of spectrum, we can clear leveraging all the available technology on the marketplace, while still protecting and retaining all those services and all that revenue on our on our side.
And we felt we went to the Max when we talk what we got two to 300.
And so we think that that's a place where.
We're comfortable that are that our customers are let's say comfortable but going beyond that would be would be very very difficult and don't see that occurring.
Anytime soon.
You know we.
Like I said, we've been engaged with these customers for decades, we know their networks really well we've engaged with them through this whole process very closely and I think the customer community the media companies broadcasters content owners.
They track what it is trending in Washington, just as we do and so I think they recognize that there is a very strong interest.
Is the FCC and on Capitol Hill to clear as much spectrum as possible.
And that their alternative proposals out there that was we're going to two accomplished some of those goals if they were feasible.
So I think they recognized the public need and the priorities of the FCC just as we did so.
Then it was a matter of sitting down with them and and figuring out what is possible and working customer by customer service by service to determine how do we how do we get to a higher clearing amount and that's the outcome of the process.
Thanks, and if I could maybe tag one more on you had previously published a band plan.
A proposed auction format with I think.
Yes.
I'm wondering how that changes now that you've moved to 300 and really what are the major differences. If any between you know sort of the first 100 and the next 200 to comps aside from just actual megahertz availability are there any kind of distinguishing features in terms of where they sit in the band or you know how the band.
Plan might change as you've gone from 200 300.
Well, we are just on the on the band planned in the let's call. It the auction process, we're still engaged.
Across let's say the community of carriers and interested parties.
Regarding how how that can be optimally designed in a way that's that's fair that's transparent.
That that meets the needs of large carrier small carriers in various intra so that dialogue is continuing.
Today and in so we.
We will get to a point, where we find.
You know a common ground that that everybody will be comfortable with and we'd be able to move forward with I'm pretty confident the that.
I would also add that.
In terms of what the spectrum looks like.
As noted in our release yesterday, we've gone from 60 megahertz 200 megahertz in the first 18 months.
We have expanded you know overall.
Bye.
100 megahertz more than the previous versions in terms of cleared spectrum.
And so like a typical auction process.
There will be the auction transactions and then there will be the assignment phase of an auction, where a spectrum will be reallocated to make sure that.
The various parties will have contiguous blocks and are able to operate in the right kinds of environments that they require to deploy fiveg.
Just as a additional point just to be clear on that first 100 megahertz that is specifically for the top 46 P. ace in the country. So.
It's designed to get early spectrum out in the places of high population density to allow interested parties to start deployments as fast as possible.
And presumably the following 200 will also be in those 46, a wide spectrum depth into those markets.
That's correct.
That's correct. Thank you.
You're welcome.
Thank you.
Next question comes from kind of Stein with Jefferies. Your line is now open.
Good morning, Thank you I have three questions piece.
First one I just wanted to explore the relationship as you see it and and as it's been informed by your engagement with potentially interested parties in the spectrum.
The relationship between aggregate spectrum being played and auctioned and then aggregate proceed.
I don't think any of US believes that there will be a one to one relationship between the two but it'd be interesting to get your comment on how the increase in spectrum is going to increase your aggregate proceeds.
If at all.
Second one was a much shorter do you think DFT she's going to let you set your own reserve price or is that something that's going to be.
Put upon you.
And then the last one is coming back to the question have you telesat.
You've been very consistent in your view the you Telesat baby it doesn't impinge upon your timing your or your ability to deliver what you or what the CB. Eight has said it will deliver utilities converts seizing the opposite they think they do have a hold out so I know each your views, but can you help me trying to bridge the difference between your views why do they.
I think they do have a hold out thank you.
Okay.
Maybe if you take the first two please sure of course, thank you Steve.
Hi, guys on.
The aggregate spectrum and proceeds if I understand your question correctly.
Yeah.
We do believe that the total proceeds of the auction will be higher and a in a 300 megahertz world as opposed to a 200 megahertz world, we see a incremental a marginal value to the spectrum from the buyer community.
It's very difficult today to tell.
You know how much incremental value exists, but but we believe the total proceeds will be higher.
On reserve price.
We really don't have any comment on that at this time, it's an issue that we're still working through so we will learn more later and regarding Udall sat I'll, let Steve take that question, yes in terms of utilize that you know I think.
You know if you look at the record and the filings around the legal authority of the of the FCC and that was on the record I don't know month or so ago.
I think most parties believed that the FCC have the ability to.
Address address any hold out a issues.
And so.
If you we believe we were comfortable with the fact that the FCC has authority to move forward. When service is in the benefit of the public interest so.
They've done that in the past and we think that they would have ways to deal with that in the future.
At the same time, you know we have we have said that other members or other other parties are welcome to join.
The CBVA up on a an affair and non discriminatory basis, and we would we would address their their needs. Accordingly, so to reiterate what we talked about before you know there welcome welcome back in and.
I think utilize that has to weigh what is the impact of a potential FCC order.
Under which they would potentially lose primary status.
In a portion of the spectrum and that's something that they would have to take into consideration.
Understood. Thank you.
Thank you.
Next question comes from Mike pace with JP Morgan Your line is now open.
Hi, Thanks couple on the business and then one on C band.
I guess, what the government business Im curious how much repricing risk from older legacy contracts are still in the system and then on the flip side of that it just feels to me to the language that you've used in your quarterly reports on the government business.
Has been a little more positive.
Over the last year or so so I'm curious on on the growth prospects. There that's number one.
We are too on your North American.
C band business currently I guess as part of the discussions that you've been having with your media customers going from 200 to 300 and as part of that upgrading them to new digital compression technology free of cost to them.
Is there another side of that meaning that they will ultimately be paying you less money for the scene business that they currently have and then I'll just how much you've been follow up afterwards.
Yes, Mike on the second question you know it is possible that they're going to be some different commercial terms.
As as the services get compressed.
So that is that is correct and but we would handle that in the course of normal commercial negotiations with our customers.
To your first question about government.
I think what we've seen as is more stability in the government business.
There is not a lot a lot of new orders coming through and of course, we're under a continuing resolution right. Now. So there are no new starts to projects and programs at the moment.
So that's that's not helping matters at all.
But we do see an opportunity in the government area, especially around managed services and especially for mobility.
Around mobility in particular, where we've launched the flex ground service for our government customers where.
It is very well suited for communications on the pause or communications on the move.
And Weve obviously.
Embarked on a government aeronautical service for our customers as well, so that's where we see the growth opportunity, but but having said that you know it's generally a stable business theres not a lot of new new starts at the moment.
Regarding your question about renewals and pricing you know, we're seeing a renewal.
Pricing right now is relatively stable.
In the current period.
And that is obviously a benefit of.
The elimination of the LPTA.
Means of contracting.
And.
I would say very modest declines for new business and that's probably a direct.
Relationship to the fact that Theres, just not a lot of new business and competition for what's out there as compared to a couple of years ago. I think it's a lot smaller percentage, it's coming up for renewal as compared to what we experienced doing in 2020, absolutely yeah, I'm 20, I'm sorry in 2019, yes.
And he might want to put it and you go back to your CBN question real quick to remind you because I know you're trying to size that and the continental U.S. media distribution is about 6% of total company revenue and only about 85% of that well, 85% as is the cbm portion and of course, you would just be compression compressing part of that traffic so hopefully that help.
Yes, you kind of size that other side of that quite.
It does thank you and then Steve just months, even I realize this is a difficult one but.
I'll just ask of direct.
Have you had any discussions or has the SBA had any discussions with the FCC regarding the U.S. treasury contribution and if yes.
I'm curious you know thoughts versus what the Cvac expectations has been and if not why not have those discussions to completion.
Oh Wow CB has had discussions on the contribution to the U.S. Treasury.
In a number of places and within the U.S. government.
I don't want to comment on anything specific.
Except to say those conversations have been constructive.
And we don't see that as an impediment to bringing this overall.
Order in for Atlantic that's acceptable to the CB eight.
And then just to follow up there would you expect the U.S. contribution to be embedded into an FCC order.
For C band or is that something that could happen post order and.
Maybe just wonder up having to get negotiated.
Between that and auction proceeds or something like that and that's it. Thank you.
Yes, I'm not so sure if it will be embedded in an order, but we would expect it to be.
The find at the time of the order, which is probably put it that way that's what our expectation is.
You're welcome.
Thank you.
Next question comes from James Ratcliffe with Evercore ISI. Your line is now open.
Good morning, Thanks for taking the question Oh, there's been discussion about that's there always is the potential for litigation around the C. C band process and assuming if you do get epic CE approval. How comfortable you are you with moving forward on satellite orders and investment.
In the transition while that would occasion goes on or would that have to be resolved before you could todd start putting shovels in the ground so to speak.
There is.
Normally after an FCC order there is a stay period.
When aggrieved parties me claim irreparable harm.
To stop the order that is a very high bar a it is very rare that that is successful.
So that is.
I believe a 30 plus some additional days so some between 30 and 60 days that's day period.
It does that does not mean that you know there couldn't be other litigation occurring.
And in that timeframe or after that timeframe, but having said that.
You know we're very confident.
That the elements of our proposal are consistent with the Fccs authority under numerous a pluggable laws, we have put that on the record.
And.
That has been shared with the FCC publicly.
It is a fact that the FCC has brought authority to develop policies that contribute to the public interest.
And.
They have the ability.
And focus too right in order that.
Will.
Allow them to minimize that litigation risk so.
We believe that they know exactly how to handle these situations. They know what their authority is a and they will write the order accordingly.
But absent a stay you know we will proceed with the project.
And what's the long pool in the tend to in terms of making the spectrum available is that oh actually going out and putting on filters or is it ordering and deploying satellites.
For that for the 36 month time period period, we have to get these satellites built and launched in operational so that's a critical path no question.
For the first 18 month clearing we have to get filters out to quite a few earth station Downlinks. So those are the that the main elements of the project.
Great. Thank you.
Thank you. Our next question comes from Nick Dempsey with Barclays. Your line is now open.
Hi, good morning, guys.
Say festival W.R.C. 19, just kicking off.
That's a debate every time, we have one of these regarding spectrum around the world and mobile operators wanting some of that from your engagements with the 2019 conference should we be concerned outside the U.S.
About spectrum being taken away for use as as a result of what's going on through the Theepan process.
Second question.
You just that was on the record on the dockets as saying that the SBA did not have authority to go beyond 50% Treasury contribution.
No one else is to the mentioning a 50% treasury contributions I, what where do they give that number from on why was on the focus of that conversation.
So okay. Thank you Nick terms of WRC 19 of course this is a.
A major industry event every few years.
Intelsat is present at WRC 19, along with other satellite operators and other associations in the satellite sector. We've been working very closely with with a associations and other operators.
To defend our interests and protect our interests of WRC 19 at this WRC. The main focus is around some of the higher bands.
Hey, bad in particular.
And so we are supporting the industry's efforts to make sure that.
That spectrum is is protected for satellite use well into the future and so we're working diligently on that particular topic.
C band is not on the agenda at this WRC. It there may be some proposals to put it on the agenda for the next one.
So we will obviously be engaged on that so.
This is a regular part of our business.
We have as an industry sought defined areas of cooperation and support with the wireless interest but.
We have to protect our spectrum just as they are anxious to get spectrum themselves.
Regarding upul set I really don't have much of a comment on.
They're statement regarding the.
Contribution to the Treasury.
They haven't been present in the meetings with the government along with the CBVA, So I'm not sure where that came from.
Thank you that's great.
Thank you. Our next question comes from Walter Piecyk with light shed. Your line is now open.
Thanks can you provide some kind of timeline on how to expect things in terms of maybe a change in the auction structure and and the any government contribution do you anticipate.
The CBVA, making a recommendation or is this something that will just come out at the time of.
PRM.
Well, let's let's look at the timeline, we know that the FCC wants to achieve something this year.
So the timing is tight there's a lot of activity going on right now there are a lot of conversations.
Between the SBA and other stakeholders and so we're moving as a as quickly as we can to find common ground with the stakeholders to bring this effort to a conclusion and that includes how we bring the spectrum to market and in an auction designed in approach.
I understand the I mean, just I'd just seems like you sent to the press release out last night to address this obviously important issue.
Yeah amount of spectrum is going to be something similar in terms of.
Auction structure, which you previously obviously presented.
As well as contribution which Youve acknowledged is an issue that you're dealing with is it going they take the form a view.
Issuing releases about this ahead of the order or is it just going to be a part of the order that you will then come out the same daily order and say hey, we approve of what the FCC is just proposed.
No. We look we want to put things on the record as as its appropriate and that's what we've done through the whole process and so if there's something to put a record that would help the FCC moved to completing its drafting of the order then we'll do it.
Understood and then.
In terms of the.
You mentioned, the 30 day to day period, if someone is suing.
The government you FCC that would obviously not occurred during this within that 30 day comment period right that's outside of that and I'm just curious if.
There's any kind of acknowledgment that like look everyone can sue if they want their obviously going to sue here's how we're kind of framing how it could have an impact on the timeline of the process in terms of getting the spectrum. The fiveg spectrum in the hands of operators and maybe the costs.
I should the costs you probably don't care in that case. The fccs is the one incurring the cost because they are defending themselves. So I guess, it's more about.
If someone suing on jurisdictional termed outside of the stay period, how long you think that that may take.
Well look the if there's a suit outside of the stay period that does not impede the progress on the project we continued to move forward.
How long it will take a look we know how fast the courts move it takes years and so.
It doesn't mean that that we can't make substantial progress in the meantime, understood. So your point is I'm sorry for the last this'll be the last thing. So I think what you were just saying then as if the FCC issues. This in someone's challenging there jurisdiction you believe that everyone can move forward you can clear the spectrum you can conduct the private auction even if there is this.
Lawsuit going on in the background.
That's correct.
Excellent. Thank you.
You're welcome. Thank you. Our next question comes from the Vexed along with New Street Research. Your line is now open.
Hey, Thanks, guys I was wondering if you could talk a little bit about the demand that you and CB eight seen from spectrum as far as potential buyers I think it's well understood that the major U.S. wireless carriers are likely to participate in that auction, but who are the other companies or maybe groups of companies that you're seeing interest from.
Yeah, I don't want to get a specific about what who we're talking to in this process but.
We believe that the C band spectrum is unique.
It is.
It is unique in the sense that it is available in large nationwide blocks.
Which is which is important it's clear spectrum.
Meaning that it theres no encumbrances from other other services and so.
Well I all accounts and by the way. It's also being used internationally in other markets for Fiveg and it's being deployed today. So we believe its central to the Fiveg strategy and deployment of of operators and you know the range of operators could be big national operators. So they could be small regional a rural operators as well.
The importance of Fiveg is a nationwide priority not just a urban.
Priority so.
We can't speak specifically about demand, but our expectation is this is very unique.
Spectrum that would be going on the market.
Got it you sort of break it down into a existing large and small carriers and I guess I'm. Just wondering are there potentially new large carrier entrants that that you're seeing demand from.
I think I think this could be attractive to all kinds of companies and so we'll see see what happens.
When it comes to market who shows up.
Got it thanks.
You're welcome.
Thank you.
Next question comes from Iran. That's hard Jain with credit Suisse. Your line is health.
Hello, Stephen David or not to put the copper for the horse or daring to look beyond C band just a couple of bigger picture questions from me.
First you know industry rationalization at this point.
Be good to hear your thoughts on whether it's needed in the broader context, and then secondly on Leo me out do you think I'm, having a bigger participation.
There is important for you and then thirdly.
Roll up like resellers, an industry specific service providers, like Gogo, and anti and KVH et cetera, any opportunity there in terms of either vertical integration consolidation or a or other thoughts on that on that would be helpful. Thanks.
Sure.
Okay. Thanks, everyone.
Well, if we've said for a while that.
Consolidation in our sector could be a healthy next step.
So that is always a possibility.
For synergistic and for most importantly for strategic reasons.
But it's always been difficult in our sector as well right. So.
We just have to wait and see what what develops there we can't obviously comment on anything more specific than that.
Likewise.
Inverter vertical integration.
Is something that is a possibility as well it may be.
The appropriate in certain areas where.
The value chain needs to be strengthened.
And and the go to market strategy needs to be strengthened.
And so I think there could be some speculation of where that could make sense first for some companies.
But no specific comments on on that either in terms of Leo and Mayo. We've we've always believed that the future is a is a hybrid future. We have a a fleet of Geo satellite is now that that operate in CK, you NK band and spectrum.
Can be sourced from all different spectrum bands. We also believe that that Geo satellite can coexist in a hybrid service.
With leos.
In other orbitz or even a non terrestrial networks, such as such as high altitude platforms and so.
No one particular orbit spectrum solution fits all requirements and so as we look to the future you know, we'll look at a hybrid multifaceted type architecture and network.
So.
We'll continue to engage across the ecosystem to see what capabilities, we want to incorporate.
A room, it's David I might add one thing.
You know, we we continue to evaluate M&A opportunities, whether they have to do with industry consolidation or a vertical integration opportunistically. It's something we think about and look at all the time.
But we also believe that it's critical to control your own destiny, because you never know when these opportunities might be available or available at a value that makes any sense. So when you think about the investments we're making it our managed services platforms or how we think about reinvesting in our space segment.
It's always with a view to building.
A solid Standalone industrial company, you know and stabilizing and ultimately growing our topline and then if there are things to Opportunistically. In addition to that fantastic.
Thank you both.
You're welcome.
Thank you. Our next question comes from Rick Prentiss with Raymond James Your line is now open thanks good morning.
Couple of questions apologize, it's been a busy wireless infrastructure satellite last 12 14 hours.
On the on the C band proposal. When you mentioned clearing of two Traunches is the first tranche expected to be an auction format or is just the second tranche expected to be an auction format.
So you know that is still in development on how we would proceed.
And so I'm not going to comment specifically about what the format will be but we recognize the importance of having a process that is a transparent that's fair that's open to a whole range of bidders that's familiar.
To the bidding community so that so that we can move quickly.
Through the process and so that is very much in development at present.
Those are all the right, whereas we keep hearing from the other side equation to so glad to hear those Ah.
Yep.
Yeah.
When you talk about a.
100 megahertz available 120 put into it.
In the in 46 of the top 50, P. days, which markets are not in the top 46 out of 50 trying to figure out how many pops are we talking about that we'd be in that first tranche.
No if I can name all four of and I think if that Ti, yes, when we know that well first of all honolulu's not part of it because that's not part of this proceeding.
And then there are three other three other three other major markets, Okay, I'll give that from Diane later today.
And then second when I'm glad to hear the comments on that you're are having discussions in different parts of the government about a voluntary contributions in the past there has been thoughts in saying that it's hard to figure out who you're supposed to negotiate with and you don't want to negotiate with yourself has it become more clear who really is the correct party to be negotiating with.
And how do we think about the path to getting that resolved.
We think it's become more clear and we're having those conversations with those parties.
But it is nice as I said earlier, it's progressing constructively, but I can't say, it's completed yet so that's that's very much in process, but but the right people have heard what we're willing to do which is the important thing.
As oppose you don't know who's looking negotiate with so that's that's a clear plus okay.
And then the final one from me.
As previously unclear during the 200 plan. It was that you had not included four satellites into your Capex budget for that now the latest when says there might be eight satellites is that eight for the whole C. Band that you would just have to do for of or how should we think about the old thought of four satellites were not in capex guidance and now.
That there might be a satellites.
So so.
The satellites that we're talking about our CB, a let's call them CBVA satellites that would be procured both by Intelsat an SCS.
And that's not in our current guidance.
And so cities eight for both companies a combined for both companies and previously when you thought it was four was that just for for you.
Yes, well when we talk about four as it was four for US that's correct. Okay. So it's really not a change in the number of satellites is just eight have to be C band and by both you and as yes right.
Okay, and then any clarification on the two and a half to 3.5 billion versus the previous one to two about how much is still for satellite versus how much is for the compression and other items.
We haven't we haven't broken it down but you can you can see the increase.
Relates directly to the large investment we're going to have the making compression technology.
Right, Okay very it thank you.
You're welcome.
Thank you. Our next question comes from cast on with Jefferies. Your line is open.
Thank you thanks for the extra question it was them.
Quite specific I, just wanted to come back to a civil lever of a at GPC investment and thought about investment.
Have been the two things you've spoken about that gives you the extra hundred I just wanted to before whether there was any acceleration in the channel switch off by customers by broke off.
It's also contributing to.
You know the can you know.
Typically squeezing down the volume squeezing 15 envelope of business into a smaller spectrum allocation.
So some questions about the questions about SD Giles.
Yeah, that's right. So you've seen this differential for awhile, but you know did you sit down with the customers say look if you really did switch off those 10 channels and move towards GBC. Then you know we can really goggles, who was there any aspect.
So.
Yes, I mean that has been happening we've been talking about how some SD channels had been switched off and how distributors of content are down converting from HD to SD when they need to at the at the head ends.
As we engage with our customers on the plans to implement HGV see it was it was a discussion in the context of their existing plans for various decisions and their network and and I have to assume that some SD switch offs were part of that.
But but.
It was a comprehensive view of where their plans are in terms of the distribution over time and what channels in what formats et cetera. So I assume that that's somewhat part of it.
But I, but I will say that there was nothing in those discussions that would suggest that any channels are being turned off for over the top type alternative transmission that that impact does not seem to be part of the equation as we have had these conversations.
Okay. So it's just the regular retirement of channels that doesn't have that rather than say anymore.
You know it all depends on the in the operators each each particular, operator, you know how they how they distribute their their various channels around the country. It's more format because sometimes they put out those SD and an HD at the same channel and so what this does this just gets them down to distributing single format.
Yeah, it's not just knocking it out of course.
Sorry go ahead.
No not like that's correct I mean, it's not it's not that you're turning off discrete channels are just reducing the duplication.
In their distribution.
Okay understood I'll leave it that thank you very much okay. Welcome. Thank you Sir our next question comes from Chris Clearly with Quilty analytics. Your line is now.
Hi, Thanks, I just wanted to get two clarifications on the the Capex profile does the current guidance include the replacement for 29 E and do you expect to get that order locked down.
Shortly.
Chris What we said last quarter was that we thought we could incorporate a replacement for 29 the within the current Capex guide and that continues to be the case.
And so I would expect you know and announcement in that regard to just coming the ordinary course.
Gotcha and do you expect it to be in the same epic design or I guess is a follow on question are you still on track for.
Announcing the post epic plans by the end of this year.
Yes, it will be a high throughput satellite.
That will have a similar but better capabilities that our existing Intelsat epic.
Satellites, we have the benefit of time.
As time has gone on since our last epic satellite has been built we believe we can get better.
Better economics.
And better performance in this.
Satellite so it's not necessarily our next generation next generation of Intelsat epic is part of our software defined settle it satellite strategy that we've talked about in the past and that we're very much focused on at the present time.
But it's a it's a step in between lets just put it that way.
And Chris when commit to it and I wouldn't commit to it but I think we will have something to say about it this calendar year.
Okay and final question on mobility services can you give us an idea in the quarter, how that compared obesity last year up down flat.
Well mobility in particular was impacted by Intelsat 20 Ninee.
So.
That unfortunately puts some pressure on that.
But Chris I would say so so it it would've been down year over year, but that is primarily due to the dislocation caused by 20 Ninee. So for example, if you were looking to look quarterly sequentially.
It would have been up.
Gotcha, and is that primarily or maritime or aviation or across all markets.
To the primary drivers were maritime and arrow, but but those weren't the only drivers.
Got you. Thank you.
You bet.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Steve Spangler for any further remarks.
Oh, thanks, everyone for joining our call and thanks for your questions.
Look forward to seeing many view it up come upcoming investor and industry events in the months of November and December so thanks for joining us.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.