Q4 2019 Earnings Call
Standing by and welcome to the Echostar earnings conference call for fourth quarter or year end up 29 pm.
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Thank you good morning, everybody and welcome to earnings call for the fourth quarter 2019, I'm joined today by more to dinner CEO, Dave Rayner sealed and she also probably Polk rather than a fuse honors Johnson Chief strategy Officer across America store satellite services.
Dean Manson General counsel.
Usually been radio to participate in a listen only mode on the coal and ask that you not identified participants reforms in your report.
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Thanks Terry.
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 the forward looking statements Burleson those factors and risks please preferred.
<unk> annual report on form 10-K filed today with the FCC.
Cautionary statements, we make during the call should be understood is being applicable to any forward looking statements. We make wherever they appear you should carefully consider the risks described in our reports and should not place any undue reliance on any forward looking statements. We assumed responsibility for updating any forward looking statements I'll now turn the call over to Mike Dugan.
Thanks, very much too.
Good morning, everyone and welcome to earnings call.
Overall I'm very pleased with our performance in 2019, we delivered solid financial results by growing revenue.
Adjusted EBITDA compared to 2018.
We completed a transformative transaction would finish that is simple part organization allows us to focus on expanding broadband and conductivity markets.
We also closed our joint venture with your onsite in Brazil as well as acquired if you will require corporation, which holds a global spectrum rights for us for him mobile satellite services and systems.
I'd now turn it over to Pradman, we'll talk about views he'll be followed by owners, who follow up with deal so something else Bambi, Our mill and then finally, Dave will provide an overview of the actual financials Bradman.
Thank you Mike.
I'm pleased with our financial performance.
Reported revenues increased 11% year over year, despite relatively food beams in North America Jupiter Sadly.
We ended 2009.
Our orders increased by 49%.
The consumer into that business. We ended the fourth quarter was approximately 1.477 million use their subscribers.
Net adds of approximately 20000 in the quarter and approximately another 20000 subscribers acquired as part of the closing of high joint venture in Brazil with Viasat.
Our international consumer subscriber base is now approximately 237000.
As announced earlier this year were up and running it was a consumer service in Mexico, which began in October one.
23 beams dedicated to Mexico.
This is the reached 95% of the population.
Our focus in Mexico, the fourth quarter, most to solidify our operations, while investing in our brand awareness.
I suppose now in seven countries in Central and South America should continue to provide international subscriber growth.
[noise] who's on capacity in North America is relatively food.
Continue to look for ways to generate higher yields and not be and Gould revenue.
The focus for managing to learn and Richard does of course, replacing these customers with higher ARPU plans.
We continue to believe there's an extremely large addressable market of unserved and underserved households, within the United States.
We have more drew the FCC activities related to the <unk> digital opportunity fund, but do not anticipate any material impacts on our target market or existing customer base due to that program.
As mentioned in November we closed a joint venture with jasek, which expands our ability to provide internet searches and enterprise solutions in Brazil.
The integration of the Hughes, Brazil, Ya said, Brazil operations is progressing well.
The main stream so the installation of a Jupiter gateway pointed to the all three satellites.
The migration of the existing guys said, Brazil subs to the Hughes that platform and the absorption the yes, its distribution network by Hughes, Brazil.
The new organization will help us achieve scale in the consumer business, but getting access to new capacity, new coverage areas and new distribution channels.
Also better position Hughes, Brazil to pursue new applications.
Basically cellular backhaul and community buffet.
We continue to work on closes our joint venture agreement, but Theyll tell in India, which will help us bring greater scale operations efficiencies and market reach through didn't customers.
This is still subject to regulatory approvals.
That I expected to be receive later this year.
We continue to explore and discuss other joint venture opportunities elsewhere in the world.
Our community wildfire service offering or use express buffet is expanding rapidly throughout Latin America. This service in partnership with Facebook has not been deployed is approximately 800 locations.
We plan to continue to expand on that broke a room by if I our sports the users can access the internet on a prepaid for use basis, making it more affordable and accessible.
A key soon to our strategy the use of a single broadband platform. The Jupiter platform that enables all of applications in every region of the world.
This broad coverage it reduces recurring and nonrecurring costs and helps improve margins.
In addition, the same platforms those radius applications and market segments for the consumer to government mobility in enterprise.
As we could do you do renewal rate any announcements have been segment becomes available to the benefit of all segments.
Our North American Enterprise business also had a very strong forward over new orders.
Significant enterprise or does include signing a new customer in town sports International for a fully managed network and then Atlantic clubs.
Well, it's a seven year extension with retail platform customer quick check.
A franchise business was primarily addresses the gas station and quick. So this casual dining markets also saw continued booking from operators that British petroleum Phillips 66 and Exxon.
In the energy sector, we extended our relationship in Madison pipelines and Buckeye pipeline.
And then the inflight connectivity market, we signed a deal with a C is so deployed the Hughes Jupiter system.
That contract provides for the initial implementation of an aviation connectivity platform across the Americas Caribbean and be Atlantic Ocean.
Loading the as he has 17 satellites starting in 2021.
CB internationally enterprise.
We're pleased to announce at a major telecom service provider in Brazil.
Selected us to provide Internet services grew approximately 16 underscores the ruling yet.
Our engine entity completed the deployment of over 20000 sites.
All retail automation for Indian laws buys petroleum and they are done in the San petroleum using Jupiter technology.
Hughes, India, which was the first.
In the country to receive licenses for offering maritime.
And broadband services is now in the process of deploying maritime services to their first to customers.
We're also in the process of deploying the Jupiter system for the utilize that connect new generation high throughput satellite for Western Europe and Africa.
Because recently launch.
In Indonesia, the bucked the programs, where we are providing the Jupiter system to all five selected service providers continues to roll out successfully with no how's in cellular backhaul sites operational.
Speed gas infested provider remote communications and I'd services has also chosen the Jupiter system to power 3000 community buffet locations in the Philippines.
Our defense and government business continues this strong performance, but several awards during the quarter.
These included a satcom system.
For a military airborne drone and a contractor the U.S postal service to provide a reset the network connecting hundreds of postal service facilities across the United States in Puerto Rico.
We expect to see continued orders and revenue growth in this business and 2020.
As you probably have heard one but the second launch up going on February six and like its post launch last year was a success.
This launch included 34 production satellites [laughter] our book on the ground infrastructure continues to progress extremely well as we continue to deliver gateways seven of which have been shipped to date.
We continue to believe that to you and the old system to be complementary and this new systems come online in mature the optimal solution will be I agree hopeful.
We believe Geo satellites will continue to provide the lowest cost for a bit and lowest cost per terminal for high capacity density applications.
[noise] Lilly moved away wide coverage and enable low latency applications as well in this work for mobility in areas that are less populated in the future to reach everyone and ensure that everyone is connected will need every type of data transport.
Including terrestrial view.
Ngs those.
All in all of very strong quarter, a year and I'm looking forward to another exciting year in Tony Tony Let me know handed over to Anders.
Thanks problem and good morning.
Fourth quarter. He asked US continuing operations revenue was $4 million, which was consistent with the fourth quarter of last year.
We continue actively exploring opportunities to lease are available ku band capacity. However, the environment for commercial FSS services remains challenging.
In other developments the 2019 World Radio Communications Conference also known as the WRC well held with the to you every three to four years concluded. This last November.
The Echostar regulatory team successfully protected our existing and planned operations in both Kay and Q envy bands, ensuring the spectrum can be used for Jupiter three and future broadband satellite and also provided for expansion an S band protecting flexibility to provide both terrestrial mobile and.
MSS services.
With regard to the S band development as we mentioned last quarter, our Echostar Global subsidiary acquired Healios wire and its Australian subsidiary Siri on global pursuant to which we acquired global spectrum rights for S band Mobile satellite services.
Construction in launch of our first flight of S band Leo satellites remains on track with launches targeted for next month.
Echostar globals broader mission is to continuing exploration of opportunities to develop S band platforms that we expect will reduce the cost of satellite delivered I O T services, including machine to machine Communications public protection and disaster relief in other end to end services.
We continue to work with a number of strategic partners in designing a future system architecture, which will support all these products and applications.
We also continue to make good process with our European platform Echostar mobile our new Hughes 4500, omni directional terminal has been well received since this November launch and we've seen a lot of enthusiasm for our new terminal roadmap from seven several new distribution partners are.
40, 510 terminal hybrid MSS terrestrial version of the 4500 terminal should be available in mid 2020, and we're pushing forward with plans to develop new technologies that will enable us to offer devices that will greatly increase the potential addressable market for global satellite delivered.
Mtwom and Iot T. services.
Full integration of the S band satellite services into Fiveg networks remains our longer term strategic goal and we also continue to explore ways to integrate our complementary ground component authorizations into these and other developments.
Now turn it over to Dave.
Thank you wanders.
Like last quarter I will be speaking to our adjusted EBITDA measurement the measurement excludes for me, but a certain nonrecurring items as well as gains and losses on our investments unrealized gains losses on foreign exchange.
More details are in the GAAP to non-GAAP reconciliation in our earnings release.
We believe that adjusted EBITDA more closely represents our operating efficiency and financial performance.
Before I discuss results I'd like to address a few items that impacted our financials in the fourth quarter.
As discussed in more detail in our 10-K and press release, the Supreme Court of India issued an order affirming certain license fee assessments interest penalties and interest on the penalties imposed by the Indian Department Telecommunications.
Related to a license fee dispute with the government of India to date that that dates back over a decade.
And as affected the entire Indian telecom industry.
On February 14, 2020, the Supreme Court of India denied the petitions filed by US another telecommunications service providers asking the court to modify the order to permit giotti to calculate the final amount to extend the payment deadline.
As a result of the Supreme Court decisions based on the duties Curt apology for assessing penalties and interest we booked an additional totaled $61 million during the quarter.
This accrual impacted SGN expenses by 2 million and interest expense by 59 million.
Net income attributable to non controlling interest set a corresponding offset of $9 million adjusted EBITDA excludes all activity related to this dispute.
We now have $80 million recruit for this matter as of December 31, 2019.
Any eventual payments made with respect the ultimate outcome may be different from our accrual and such differences could be significant.
We also made a change to our accounting process on how we report our equity method investments.
Shifting reporting two or three month flat. We believe this will remove some of the variability from our reporting due to periodic adjustments within the organization to the entities we've invested in.
Because of this change.
Our Q4 results in equity in earnings.
Of unconsolidated affiliates line excludes Q4 19 activity.
Finally, we are the closing of the asset joint venture.
In Brazil Q4 includes December operational activities for the new organization with the assumption of assets and liabilities that were part of the transaction as Brad mentioned, we're excited about the conclusion this transaction and the new opportunities over five.
None of the financial results.
Consolidated revenue in the fourth quarter was $499 million a growth of 10% over the same period last year, driven primarily by growth in our Hughes segment.
Consolidated adjusted EBIT in the fourth quarter was $156 million compared to $131 million last year.
Our net loss from continuing operations was $56 million in Q4, the loss declining by 73 million from last year. This change was primarily due to the impact of an asset impairment in Q4, 2018 higher net gains on investments and the higher operating income.
Excluding the asset impairment.
This was partially offset by higher interest expense, which increased by 45 million due to the impact of the $59 million from the Indian license fee dispute.
Capital expenditures in the quarter were 104 million compared to 140 million in Q4 of last year.
The decrease was primarily due to lower spend on construction and infrastructure associated with satellites.
Free cash flow defined as adjusted EBITDA minus Capex was $52 million during the quarter.
With regards to our capital spend in 2020, we anticipate it will be higher in the $418 million total that we spent in 2019, primarily driven by continued spend on the Jay Jupiter three satellite program and associated infrastructure as well as consumer premises equipment in South America.
Turning to the segment.
Hughes revenue Q4 was $492 million, an 11% increase over last year, driven primarily by growth in Hughes consumer service in enterprise hardware sales offset partially by lower enterprise services.
Excuse adjusted EBITDA in Q4 was $177 million, 17% increase over Q4 last year, primarily from a higher margin associated with our consumer business, which grew twice as fast as or other business groups in 2019.
Yes, as revenue Q4 was $4 million flat to the same period as last year. Adjusted EBITDA was 2 million in Q4 also flat year over year.
Adjusted EBITDA in the corporate and other segment in Q4 was a loss of $23 million compared to a loss of $22 million last year.
Corporate overhead and other spending increased primarily due to continued investment in corporate development activities, such as Echostar mobile.
We're also seeing the impact of certain real estate, there was transferred to dish as part of the BSS trend jet transaction, which was not treated as discontinued operations.
These unfavorable impacts were offset by lower loss and equity and earnings of affiliates impacted by the change in our equity accounting that I discussed previously.
We ended the quarter with $2.5 billion of cash and marketable securities. We continue to invest and opportunities that we believe have attractive returns and are constantly evaluate valuating ways to foster growth both organically and Inorganically. This includes potential investors.
In some technology services or joint ventures that can expand our footprint or product roadmap, we constantly evaluate our capital structure. Unlike the optionality our balance sheet provides.
Let me turn it back over to Mike.
Thanks, a lot Dave.
Our goal and took 2020 has to continue to operate the business in an efficient manner and pursuit ways to increase the yield on our revenue generating assets.
We're also very focused on managing the Buildout Jupiter three electing to launch provider and implementing the associated ground infrastructure.
We will continue to explore opportunities in pursuit of our strategy of being a global conductivity provider of people enterprises and things.
These are extremely exciting times for our industry and we're well positioned from a technology and financial standpoint, there continue to be a global leader in broadband satellite networks and services, while expanding into new areas.
With that let me close by saying I'm looking forward to an exciting to 2020.
Let me now turn it over to the operator to start the question and answers.
Thank you for as a reminder to ask a question you will need to press star one.
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Your first question comes from Rick Prentiss with Raymond James Your line is that Wilson.
Thanks, Hi, guys.
Good morning, Rick.
Couple of questions first within the fourth quarter, Dave were there any onetime items to call out as far as what might have helped revenues and EBITDA and if I read the 10-Q quotes on a busy day looks like you asked that JV might have contributed less than 1 million in the quarter, but just wondering.
Other onetimers, we should be thinking about.
No I don't think there was anything specific I'll ask proppant in fees IEC anything that comes to mind, the offset the operational impact.
And financial impact in Q4, obviously was only one month and it was relatively minor as you point out.
When there was probably an acceleration of some of the.
One web shipments in Q4 that probably helped a little bit.
We anticipate thats going to be ongoing now with the launch of their satellites fraud munis or anything else. You. You can think I think I think I agree that view, which is.
Okay, and then I think I saw the distributor three launches looking like 2021 still need to select large provider, but any update as far as what timing you're looking for for the the satellite to be completed construction and targeting for large in service.
Yeah right as you know I mean, these are complex builds and over an extended period of time.
Yes, 2021, I understand it's pretty broad range, but given how far we are out still on it.
Yeah, we feel comfortable saying a launch in 2021.
But really are not comfortable getting more specific than that.
Okay, and I think probably the top question, we've been getting really this whole calendar year has just been how does the this use business.
Pair to what's happening with all the new lives that are being launched fraud menu mentioned theres a hybrid future maybe between goes live shows and terrestrial but lot of people are just wondering what does starlink mean, what does oneweb mean, what does it mean from a addressable market, but also competitive dynamics.
Sure.
The basic.
Premise here it is of course that what Leo the brings to the paki is coverage.
And latency is the fact that you don't have the delay problem that yields have so those are the two advantages of the leos did you bring to play. The fact that you can address high density areas with a lot of capacity at the lowest possible cost and so thats the advantage of the Geo So the idea.
When we are providing network services globally.
Creating a hybrid configuration between the leos than the Geos, we weren't able to first of all covered every square inch of the of the globe.
Not in not only with that June but with the Leos and then we have the capacity and the cost efficiencies of the Geos to address high density areas like beams or New York go San Francisco or the major metropolitan area.
And then a lot of phone customers to come from so by creating a hybrid structure based on the application and then an agency comes into play and based on the geography between the two we'd have a very strong service offering to the market.
If people think about the ground equipment cost what are you seeing out there as far as the cost curve for some of the LIBOR goes from there from their user equipment side.
Versus your slow.
There are two two models that one is a model for the enterprise markets like Paul said, there's a backhaul et cetera when.
The phasor antenna, which is the main cost element is today higher than what it would be two years from now. So currently the phase of the antenna probably them, but there's going to be around $10000.
But it's is rapidly decreasing in the in price over the next three four years.
The consumer market, but obviously not be able to support.
A thousand dollar antenna. So the initial applications of leos will primarily be forward.
For the enterprise markets that prices are reasonable number to be able to.
Meet the business requirements, but to get to the residential bucket and the largest volumes the cost has to be driven down for the next level, which I think will happen as technology moves on the next two or three cents.
Last one for me just a quick one David any thought about disclosing more financials now that you've done.
On the transaction with dish, maybe U.S. versus last heavyside subscribers or enterprise like problem. It was just talking about versus consumer any thoughts about how you run the business and any other financials that might help us model the company.
Yes, thats an ongoing conversation.
Rick.
Part of the issue that we have is our accounting systems are set up to accommodate that we're continuing to work and looking at ways to do it obviously, if we start defining different segments, we have to be able to allocate cost of those segments and many of those operations today our combined.
Those cost allocations, obviously have to be.
In a format and enough disciplined behind it that they could be audited.
Will allow us to disclose different segments. So it's something we're interested in doing it's something that is constantly on our mind.
But certainly for the end of Q4, we chose to stay true where the traditional segments that we have.
Thanks, guys.
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Your next question comes from Chris Quilty of Quilty analytics. Your line is that within.
Thanks, I Didnt have time to go through the 10-K handful, but it looks like the quarterly net adds were sort of restated wood from what they had previously been for the consumer business and I was wondering can you well a clarify whether that I'm in fact, correct on that and be gives a sense.
Yes.
What the underlying changes were that resulted to the new numbers.
Yes, Chris we're all looking each other where the questioning look.
Okay.
When we were not aware of any changes that we made.
In how we disclose those numbers relative to historical numbers.
Okay. That's fine I must have hit upon a incorrect section there or my read of it.
Second question here is how are you going to account for the JV subscribers on a go forward basis did those all accrue fully to Hughes and then you've got a minority interest back on the partnership.
Yes.
The combined joint venture operations will be fully consolidated.
We will account for everything.
On that basis, and obviously minority interest from a financial statement standpoint.
And the subscribers that you brought in was that the whole some of their existing installed base.
Yes, yes.
Okay. So they've got a lot of room to grow presumably.
Or can you remind us.
Yeah and win when did the satellite if you could remind me come online.
The one doesn't it came up.
Oh, you all three.
Yes, we came on board about a year ago.
Okay.
So.
I think was the number 20000 subscribers that they've brought on in the first year.
Yes.
The number subs that we.
Except that we're reporting as acquired yes.
I understand and where the subscriber plans similar to what you get offering through year Hughes, Brazil says it subsidiary.
Yes, very close.
Okay.
Shifting over to India, I mean, what are your expectations for.
The potential growth there in the maritime market and I guess for Dave how does that all get reported as enterprise revenues or does that flow through also in the consumer side.
Well I'll, let pradman talk about the prospects from an accounting standpoint pretty much everything in India is enterprise.
Yeah, I think it said this maritime market is a brand new market for us.
And for our Indian subsidiary, we've got the initial two customers.
And this is addressing primarily the coastal markets.
I mean for familiar with the geography.
And yet it has a large coastline that goes from the eat.
Thanks to the east side and so this is this.
Market is going to address the shifts that fly that line.
So it's right now just to customer that was a few ships, but we're hoping that.
As we develop the so is that it has generated.
Some decent revenues so for US and then we're also taking that same kind of technology into potentially other international markets, which has similar applications.
I understand so is this intended as a regional lonely coastal service or it sounds like you're indicating that.
Perhaps you would look for ways to integrate that service with you know a roaming work mobile type capability, either that you build or partner with others.
Yes, I initially it's clearly a regional service because in fact light that covers indio goes as little bit outside sort of been covered the coastal areas. If you had to ship that was going from India to England to Europe. It obviously wouldn't have the same satellites, so you'd have to develop roaming.
Relationships, it's a bit premature for us going through it does that market, that's the market that inmarsat and some of the larger maritime satellite cat Hughes exists but.
You know because you have it develops but right now it's focused on us.
The region you folks provider.
Okay. A question for honors I think you indicated that there were some perhaps hardware product announcements. This year is there a particular you know trade show or events that we should look to for those announcements.
Well the ml teams have been participating in sort of the relevant trade shows across Europe I know that recently there was.
Our utility show I believe it was based in the UK.
At which they introduced some of the wrote the product roadmap to the market I guess, we're targeting a couple of different verticals initially and our only starting to participate in their respective industry conferences and the like so I think you'll see more and more of our presence at those.
And it would be through those venues that would be we would be targeting and rolling out specific products and applications.
Great and it sounds like you've reserved a launch slot for the Leo satellites.
When would you expect those to be in service and can you give us an idea of what the.
This sort of prototype being testing customer base or you know slash roll out to services will look like over the course of the next year or two.
We havent spoken much about that publicly I think the only things that we've discussed or it's the fact, we have a number of satellites.
In the manufacturing process two of them are nearing completion and as I stated previously we're going to launch too.
Next month on two different launch vehicles.
And.
With a number a number in production what would theoretically be the size of the constellation.
We havent disclosed any of that.
And.
I don't think this is the appropriate time to do so.
[laughter].
Okay I had to ask.
Alright, Thank you gentlemen.
Thanks, Chris.
Thank you you have no questions at this time for sensors and will continue.
Okay. Thank you operator were thank you everybody for joining and though we look forward and talking to the next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank everyone for participating you may now disconnect [noise].
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