Q2 2020 EchoStar Corp Earnings Call

At this time all participants are they listen only mode. After the speakers presentation, there will be a question and answer session.

Question during the session you want me to press Star one on your telephone.

If you're require any further assistance. Please press star zero I'd now like Dan The conference over to your speaker for today Mr. Terry Brown. Thank you Sir Please go ahead.

Thank you operator, good morning, everybody and welcome to earnings call couldn't second quarter 2020.

Today by Charlie Ergen Archer.

Might do than our CEO, Dave Rayner ceiling to Apollo.

Robin coal President of Hughes honors Johnson, Chief strategy Officer, and Crossamerica buckets or satellite services.

And Dean Manson General Counsel.

As usual, we invite media to participate in the listen only mode on the coal and ask that you not identify participants were there for into New report. We also do not allow audio recording which we ask that you were sparked let me now turn this over the team from the Safe Harbor disclosure.

Thanks, Terry all statements we make during this call other than the statements of historical fact 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 for lift.

Those factors and risks please refer to our annual report on form 10-K, and quarterly report on form 10-Q filed with the FCC.

All cautionary statements, we make during the call should be understood as being applicable to any forward looking statements, we make wherever they up here.

Carefully consider the risks described in our reports and should not place any undue reliance on any forward looking statements. We assume no responsibility updating any forward looking statements I'll now turn the call over to Mike Dougan.

Thank you very much too.

Thanks, everybody for joining us in the call today, and we hope you and your family are still safe and healthy.

With the cobot complexity. It was an unusual quarter, what they are premier first start to.

When our customers need us the most we kept them conducted the vital information entertainment social service medical education business.

Applications, although the demand for services continued to remain very strong. We also had the implement cost savings initiated the help preserve our margins during these uncertain times.

We're placing top priority on protecting the safety and health of our employees, while effectively maintaining product to terminate and keeping up our pace of engineering innovation and also keeping all of our customers happy Let me now I'll turn it over to the management team first prep in Europe.

Thank you Mike.

Despite all the uncertainty given by the corporate spend demick foreign exchange headwinds and the ones that bankruptcy filing in Q1.

We grew Hughes adjusted EBITDA, like 20% or last year.

The adjusted EBITDA margin for the second quarter was 41% compared to 34% last year.

And our Hughes new subscriber base.

Grew by approximately 26000.

Ending Q2 with 1.5 for 2 million subscribers.

Including approximately 321000 subscribers in Latin America.

Much of our U.S. network is operating at full capacity and we continue to stay focused on providing outstanding customer experience, while also managing churn.

With the expiration of the FCC play during June Thirtyth <unk>.

We will resume more normalized U.S. fields activity.

Continued strong buyer pools in the second half of the.

We also expect a good do new subscriber growth in the international consumer markets.

Regarding the Jupiter three program, we still expect a satellite TV launch for the second.

Oh 2021, and you got an active discussions with large providers.

Switching to our North American enterprise business.

To do so lower than normal installation activity in April and me due to the covered 19 impact on our customers.

But activity was recovering by June and we are currently engaged in catching up on activity that had been delayed.

We've also had a lot of new contract activity recently, including a multi brand restaurant company and the retail chain each one thousands of sites.

In addition, custom wasn't that he do petroleum space are upgrading their networks to accept credit cards.

You picked on energy at the pump.

We also secured a contract to sell network operations center systems to deficit.

Great to have their existing hubs with Jupiter technology.

On the international Enterprise side, we're pleased to announce several new awards in India large coaster moves into petroleum banking and communication industries.

We've also deployed a region. Okay, you bright broadband maritime services, along the Indian close night.

Initial contracts for that service have been signed grids for shipping companies.

As many of you know the Jupiter system is already the ways Defacto standard for satellite broadband systems.

And today, we are pleased to announce that Cignal TV in the Philippines.

Has selected us to enable satellite broadband service towards 2 million subscribers.

Also in the Philippines speed guys is using a Jupiter system.

2000 locations.

Their community life I ought to smart project.

And telephonic up room has expanded their network of Fourg ended up back problems by an additional 400 locations.

Our government and defense business continues to build momentum.

We have significant activity with partners an interesting opportunities.

A social security administration.

We also have two very successful demonstration.

So far through the rotor blade Hello sad.

Capability, you aboard a black Hawk helicopter.

We announced last week that view of agreed in principle to join to consortium of the UK government and Bhakti enterprises purchasing one read from bankruptcy.

We are excited about continuing I'd vote involvement is one that I said investor.

Elicit technology and distribution partner.

We see many such strategic synergies ahead for our business as complex hybrid networks become the norm of our industry video satellites complemented by Leo and meals satellites as witnessed restroom connectivity.

In this hybrid structure deals can deliver ubiquitous coverage and low latency loved use bring high capacity at the lowest possible cause they never needed, especially in areas that limited or no terrestrial access.

The combination will increase the size of the market, we can address significantly.

Geo satellite high speed services continue to be the most viable technology.

Cost effectively sobering customers in low density is <unk>.

We believe the near term focus of leaving their drugs will initially be on enterprise verticals, including cellular backhaul arrow maritime and government applications.

So do an underserved markets.

We also expect juice to maintain a significant cost stage in markets, but at the lowest possible latency is not a top priority.

We continue to monitor activity related to the Fccs Ruby digital opportunity fund.

Oh for shock.

The auction provides incentives for lower latency and high speed services.

Clearly advantages fiber and to a lesser extent fixed wireless so sort of sodas in the Denso census blocks.

Given the high build out cost associated with these technologies.

We believe modest phase one funding, but did you mean for the lower household density.

Buckets that Hughes themselves.

Well. This reason, we do not anticipate any negative material impact brought target market due to size and the cost challenges of solving the low density.

Despite the technology by itself the our golf, we have filed an application to participate in phase one bidding.

It is expected to begin in October 2021.

We see potential economic upside if he could ultimately secure funding.

Although jewelers economic advantage would views in the who lived density markets. The our Gulf market program could potentially subsidizing view service offering due to the latency too.

Based on our recent announcement, we have the opportunity now to augment our geo offerings of one bed capacity and have more favorable positioning or our adult funding.

Overall, I'm very pleased with that performance and outlook.

Consumer business remains strong.

And although on enterprise business has slowed during the pandemic, it's both divorce and resilient and we anticipated recovery in the second half of this year and in 2021.

We are excited about the opportunities associated with all the aspects of our business assets continues to evolve.

Let me now and over two Andas.

Thanks, and good morning.

In Q2, yes, as continuing operations revenue was $4 million up slightly from Q2 with last year.

We continue to pursue opportunities to lease our excess capacity during these challenging economic conditions.

On the global S band front.

The launches of our first pair of new satellites for Echostar global subsidiary delayed due to the pandemic had been rescheduled for the third quarter of this year.

Business development activities are continuing and we're gratified to see a lot of interest from arranger vertical players supporting the Echostar Global mission.

Our European subsidiary Echostar Mobile also continues to see strong interest in its new products and services as pandemic travel restrictions have eased are proof of concept activities are ramping back up and we're seeing a lot of appetite for app for the application of NSS technique.

Allergies to emerging verticals, such as autonomous platforms and Fiveg integration.

As always full integration invest and satellite services into Fiveg networks remains our longer term strategic goal and we continue to explore ways to integrate our complementary ground component authorizations into these and other developments.

Ill now turn it over to Dave.

Thank you wanders.

As in previous quarters will be speaking to our adjusted EBITDA measurement.

The measurement excludes from EBITDA, certain nonrecurring items as well as gains and losses on our investments and unrealized gains and losses on foreign exchange.

More details from GAAP to non-GAAP reconciliation our earnings release, we believe in adjusted EBITDA more closely represents our operating efficiency financial performance.

Consolidated revenues and second quarter was $459 million relatively flat compared to the same period last year.

Hughes revenue was 453 million slightly higher than last year, despite negative foreign exchange impact of approximately $12 million.

Strong growth in Hughes consumer service was offset by lower equipment sales, primarily driven by the impact of the one what bankruptcy and lower domestic and international Enterprise services.

Yes, that's revenue in Q2 was $4 million up slightly to the same period as last year, while corporate and other revenue decreased about 3 million due to certain real estate being transferred addition, Q3 last year as part of the DSS transaction.

Consolidated adjusted EBITDA, and second quarter was $161 million, an increase of over 19% from last year.

Hughes adjusted EBITDA in Q2 was 186 million an increase of 31 million from last year.

The margin associated with a growing consumer revenue lower sales marketing spend on our domestic consumer service and lower DNA spend where the main contributors to the large increase.

Corporate and other were slightly lower as result of the reduced revenue and increases in losses.

Equity affiliates.

Our net loss from continuing operations was $15 million in Q2 compared to a $30 million launch last year.

The largest components of the change where an increased $39 million in operating income offset impart by lower gains on investments $19 million and higher income tax provision of $6 million.

Capital expenditures in the quarter were $92 million compared to 107 million in Q2 last year.

Decrease was primarily due to lower satellite related spend partially offset by higher spend on CP driven by growth in our consumer business.

Free cash flow defined as adjusted EBITDA minus capex from $69 million during the quarter versus 28 million last year.

We ended the quarter with 2.5 billion of cash cash equivalents and marketable securities. We feel very good about our cash balance given the uncertainty in the current economic conditions present.

It affords us with the flexibility to explore investment opportunities foster growth, both organic and inorganic.

With that I'll turn it back over to Mike.

Thank you Dave.

Very proud of everything that was talked about earlier.

During the second half of 2020, we will remain focused on operating our existing business in a prudent manner carefully managing the construction and delivery of the Jupiter through satellite.

Looking for additional growth opportunities, we continue to adapt to the challenges the code 19, pandemic, which has affirmed the need for global conductivity and communications.

Let me now turn it back to the operator to start our culinary session.

Ladies and gentlemen.

If you might ask a question please press star and the number one on your telephone Keith.

And then a star and the number one.

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

Thanks, Good morning, guys glad to hear you are doing well through the cobot 19 endemic.

Firstly and business wise.

This is for Charlie appreciate.

Hey, being on the call today I think it's maybe even two years since the last time I don't Echostar call. When you talked about the inmarsat offer.

A lot of progress at dish moving beyond pay TV into wireless Fiveg, but maybe you could take the opportunity to update us on your vision for Echostar.

How you see things playing out and how it fits into your for the future.

Okay.

Thanks for the question I mean, the big picture is that obviously that the.

We've been primarily a satellite company and and.

And that weve related to connectivity and said that.

A place where the world needs to go the and the pandemic has shown us all the connectivity and broadband access.

Is it isn't necessity so.

And that's around the world and so as far as well position I think big picture is we will continue down that path I think maybe a greater emphasis on the broadband side.

As well and we're well positioned do that we've been patient almost to a fault, but now with $2.5 billion a cash.

No net debt and the you know and the company.

In a world where at least within some of the satellite community that some of the businesses are going to are going to be challenged for several years.

Well position to.

Too as it with a strong bad strong balance sheet, maybe just drop one of the strongest balance sheets and industry you know to move forward and take advantage of opportunities and to extent that opportunity is done exists we couldn't internally grow our business.

Through a variety of a methodology as you see a little bit that would when honors talked about S band, which is.

An opportunity to connect the world, so low frequency or our.

Our continued interest in Oneweb.

Which is which will.

Out of bankruptcy a much stronger company, we it was always a challenging.

A business plan.

To start, but because the bankruptcy those companies that comes out.

We think it will come out.

And a strong position and so we continue to made an interim maintaining enters their small interest financially, but a much greater commitment from the technical side.

And when you think about the hybrid spectrum in hybrid network.

How do you view, where that's playing out and do you envision.

Echostar be able to help dish in the U.S. as well.

Well when.

A lot of the stuff that that.

You know that goes to R&D initiatives because it.

Because of my involvement in both they end up normally we look at things that might that might be advantageous as an example in the next Jupiter satellite has tremendous capability for for wireless backhaul.

And if you're building added.

Dish, obviously has to build out of network, it's going to as it builds out more rural sites.

Maybe even inside places where people are today satellite backhaul could make that economical underway that.

That may be hasn't been there before and Jupiter.

And part of the Jupiter design is to be able to do that.

So they're there obviously are things that we look at between the two companies.

If they make sense and of course, there's things that don't make sense and the company's go there separate ways, but but.

When you look at S band.

And how that might affect.

Wireless carriers around the world. It certainly is a frequency that you can make the case that you can go from very very small low power device, including perhaps your phone two satellites. So we think that the things that Andres you're working on has potential for.

Wireless carriers around the world. So there's a lot of.

On the as dish becomes really experts in the wireless world, particularly in Fiveg and open architecture cloud based architecture that that that that will that will pay dividends for four strategically how hughes and echostar pursue opportunities as well.

And last one for me is obviously, there you've got a great balance sheet here at Echostar.

What is it that would be as interest.

On the M&A world as far as what you would want or need.

To kind of make the Echostar strategy play out.

Yes. Thank you I think anything that where there might be synergy, particularly in the connectivity broadband world.

With what.

Costar is doing in doing that and and companies that.

Can make that can have positive cash flow.

In the long term those are the things.

You'd look for other synergies as a potential summer for an increasing cash flow business do they shore up they build on strengths we already have.

To shore up weaknesses that we have.

Those are kind of things.

You'd look for out there and.

As a lot of great companies out there some are going to struggle in the short term just Nick just based on the nature of the customer basin.

As you said a strong balance sheet, it's a good spot to be in.

We've been patient will continue to be patient, but if that theres opportunity. We certainly would would take advantage of.

And maybe that's why not a lot of stock buybacks, because clearly the stocks been.

Undervalued in our opinion, but keep the cash on the balance sheet looking for opportunities rather stock buybacks.

Well the.

I always challenge management that we look at stock when we look at dividends and look at stock buybacks, but the extent that were that we didn't we do that means our management hasn't found a place to put capital to grow capital.

For a better return for our shareholders and Nike Challenger management.

Defined a better better use of our capital, but to extent that week that we come to conclusion that that perhaps.

That's not something we're able to do in the foreseeable future than than I think stock buybacks.

It makes some sense and so I think we bought back a little bit of nickel Davy, but end of Q1, we bought back little bit Q1, we did we didn't binding back you do so.

You never say never but hopefully we can find it better use of capital, but not that it's something that we we continue to do our board has given us the up the authority to up to buy back I believe $500 million of.

Of our stock and.

That's that's remains a possibility.

I appreciate you being on the call today, everyone stay well in these difficult times.

Your next question comes from the line of credit quality with Cody analytics.

Thank you everyone to follow up a little bit on that question of just focusing on the M&A first and then look back over to internal investment, but when you look across the company's portfolio and you've got international operations, you've been growing and in Latin America, You've got India, you've got a Leo opportunity.

Got your traditional Geo was there any one of those that stands out to you as an area where.

With the capital on hand, and given the fact, you've got struggling competitors that it makes the most sense too.

Step out and maybe perhaps do a bolt on or find something that's additive to your business.

Faster growth path.

The news that question to dress do [laughter] AOL Lake Charles I'm, sorry, I'm, sorry, I know what honors will say.

No problem at all say.

I don't know Theres any one thing that stands out to I think that that.

The ideal situation, something where there's energy something words, and and and somewhere in the satellite connectivity business doesn't have to be satellite, but that's been a connectivity or broadband business.

And.

On something that that.

You know can generate cash flow.

And the long term, even if it needs investment.

Get there so.

You know it it's interesting time I.

Yes.

It.

I think patients I hope where patients will be rewarded it hasn't been the last three four years and.

And.

But.

For my Poker days, I remember sitting in poker game fallen for eight hours and.

Now when the last two Anthony you go home pretty big win.

But ticket you know you Didnt get input you folded for eight hours you just had to be patient and I think some of those business lessons.

Applied a business as well and the the depend demick has certainly changed.

Changed.

Apples business plans and and you know.

Two things beyond People's control, you know things or are some industries are gonna be changed for a while not long term, but certainly for awhile and so.

We'll see if there's things that make sense for us.

And we look at it everyday.

And maybe just a follow up in all product specific example, with the inflight connectivity market.

You guys. Fortunately have taken sort of an arms merchant approach to that industry, which was the right approaches it turns out.

But you know things are happening right now obviously, the industry's her pretty badly but.

I think most people believe theres going to be assets available is that a market that you believe in as a growth market and no is that something that you take a look at it maybe you know more fulsome stake in the supply chain of what's going on in aviation market.

Well, it's certainly long term business and certainly as companies are well positioned there that the echostar approach has been and I think this is this is.

Do you know you know the queues and Bradman as DMR, we've chosen to partner with with people.

Who.

Need our technology, our capacity rather compete compete with with them and so win as a general rule, where somebody has an asset that exist. We we would rather if they are willing to partner with us we would rather partner with them rather than to duplicate that asset.

And and.

For the most part that's what we've done in inflight connectivity space, where.

We have we partner with with just about everybody.

And look as a partner to the extent that somebody.

I'd tell were I think we've been there to help those companies through thick and then I think we will continue to try to do that because we have strong relationships with those companies and then internationally. We've done the same thing were chosen to partner with companies internationally rather than to.

So to go it alone are to compete as long as are willing to partner with us not everybody is but but.

We have strong relationships with with a variety of companies, we we feel a lot of loyalty to those companies.

And they've been good partners for us So I think thats a a path. We generally we continue on a you know to extent that people want to continue do businesses.

I understand and final question for Charlie the consumer broadband business has been great steady grower for Hughes and yet if I look back over the last 10 years the pace at which you guys have acquired a and built new satellites has continuously lag.

Actual demand in the market I think that's happened with both skews and Viastat inside.

When you look at that market.

This is a time when it would make sense to perhaps step up the pace at which you replace those satellites.

And do you still see a path for improved performance on Geos.

Yes, that's already talked about a bias at four design.

Or is it a better time to kind of step back and see what happens as Leo.

Good question, So I'd say a couple of things one is on that one of the things we built for the United States, because we knew exactly where we needed our capacity in the United States.

And we had.

In addition, Directv is as and pet infrastructure to get to rural customers.

We didn't have to totally duplicate so it so that so that so the north American market.

Kind of unique market for us internationally, we've chosen to partner with people on the international side.

Because that's always there's a government regulation there is always it's a dip it's a different kind of animal we already had facilities.

In South America to some degree we've we've now partnered with.

Well you asked that.

In Brazil.

And in Africa. So.

We're 40 Gung Ho on that on the other international market were but we want but we don't want to go it necessarily alone due to the complexities of.

Of the regulatory.

And operating environment internationally. So we want want strong local partners and as those as we find people are willing to commit to that we're certainly willing to invest money there on the on the future satellite side I think we've been.

Freedom and how we do it because there's there are two technologies that are actually three technologies are starting to that will still compete with geos, which will be meals and Lee else, but also terrestrial.

And so based on a lot of things we've learned on the decide on on Fiveg in architecture, we and we think that terrestrial side, there's there's opportunity.

That.

We'll take away some of satellites opportunity from a geo perspective.

And then we think leos than me owes to extent did you can build economical phased array antenna is that will be a game changer. Those don't exist in the marketplace, yet, but there are certain an awful lot of people working on them and end to extent you get a low cost phased array antenna.

Change it complexity of it'll take away one of the advantages of Geo. So we've been prudent about it we know that that are next generation satellite that we had we know we need demand in North America, we know where that demand use that usages were basically.

Full you know were base at full capacity today, so we desperately need that capacity.

But but we think there's other opportunities in addition to geo.

Around the rest of world and we think theres opportunities in the United States that don't include Geos.

So that's like a big picture is I think we.

I think we have as good a handle on satellite as anybody.

In the industry and we have a strong balance sheets take advantage of it to extent that there's a paradigm shift that that starts moving in the industry in a different direction.

Great. Thank you for the responses and dopey, a stranger to you and sometimes sooner than the Nick I promise I, probably around once a year.

I don't have any day during the pandemic. So they they feel sorry for me invited me.

Okay. Thank you.

Your next question comes from the line of Giles Thorne with Jefferies.

Thank you My first question was back on.

On the topic of Oneweb and.

I'd be interested to hear propping comments on.

Why.

Well I previewed business plan didn't work and the new business time, well not be my first question.

Yeah, I I think the focus of the new business plan is to.

Go we've put the mobility market entrants surprise market government markets assess engine.

And your comments and I think that's a those markets.

One of the common elements in those markets into cost of the consumer antenna is not a big factor.

Unlike the could you know like the can do a market that you'd need a phased array antenna as Johnny mentioned that doesnt exist today.

That will eventually come come into play so I think it's timing you know where the antenna wasn't there.

And ER.

I think by bringing them out of bankruptcy obviously.

You are much stronger company, because the investment India old stuff is.

It's no longer.

Hurting your balance sheet.

And I think in the last probably element is the two major partners.

Certainly different types of people, you've got the United Kingdom government, which obviously has a.

In foods phase balance sheet, and then you've got one of the largest a virus. So it was providers in the words, but he asked the other major park.

Bhakti, obviously as a whole lot or 400 million subscribers. So they'll bring a lot of strength in India in Africa.

To do one bad in terms of set it up back call and other real applications.

And then also very big in Africa, So they will complement our young click.

Joint venture.

So a and they also obviously have raised I think over $14 billion. So oh, thereby this network. So they know how to raise money there.

Very successful so between them in the UK government.

I think a they have a big legs on indicative plant than they did in the previous black.

So just picking up on that.

If I remember correctly.

One way or if it's a pretty hawk from consumers to enterprise and government mobility, a long time ago.

That's not a new phenomenon that happened.

I want to say 18 months, maybe two years ago.

So I didn't mean, so I'm not comment I mean, I suppose the comment around the antenna makes a bit more sense.

<unk>.

Could you, maybe just give us a bit more color on what should they did the financing.

Right. The point is that previously in the current business plan.

And you know they don't have much emphasis on the consumer markets because they don't have the antenna the previous business plan as a significant focus on the consumer market, but the internet technology and cost was not there.

So the two didn't job that's well just comment was all about and the second element and obviously the shareholders and the ability to fund.

Good day to continue funding the development of the business plan.

Okay, and and then just most Pacific.

So sticking with the antenna.

I mean, if I think about putting on tenant development infecting the comes to mind as stated goal going bust. So.

You just given your color because you got better visibility than certainly made.

Into into what you're seeing on the I'm satisfied that gives you confidence.

Well that's probably.

Maybe five to 10 companies that have spending a lot of energy in time and trying to develop.

A phase do they intend or at the cost of that at the cost points that we need to know each of these do markets has different close points the consumer markets would obviously want to.

Oh, phasor antenna, maybe $100 under $50 maximum the aeronautical market.

Antennas go for 150 Grand.

So.

When you go to some of the.

Mobility markets and the government markets and the enterprise markets the pressure on having an antenna.

The lowest possible of course is not as as often as strong as it does in the consumer market.

So if you look as if technology today.

I think there's no question, we can build.

Phase don't intend that the low end.

Probably in the low 1000 dollar range.

But nobody is figuring out how to get it down $200.

But for the other buckets the technologies there for that.

A price points that we need for those buckets.

Both the aeronautical and maritime and the enterprise markets.

So I I think we're now in a position that we love to write economics for those markets, it's probably a few years away from having the economics.

The consumer.

Okay and this is Charlie I just had two things on a couple things on one by one is one is we know that the technology works I mean that we obviously had been.

Heavily involved in the ground segment in terms of you know testing that the current satellites that are up and you know while there's still a lot of.

A lot of technical things to do that.

We know the system as planned original plan can work.

Second thing is it comes out of bankruptcy.

You know either you would you would expect that it comes out with a strong balance sheet, but also potentially that you know given the given the.

UK government involvement in potentially orders actually revenue.

It's it's a little bit like ER, and I'm, not saying it will be a dramatic exist, but it's a little bit like iridium.

Where that came out at that bankruptcy and they I believe they had orders mute department of defense and that's a that's a that's a well managed very prop you know.

Lot of value company. They came in at bankruptcy $50 million and it's obviously there were several billions of dollars now so.

Those opportunities exist in one wed just needs to be.

Just needed to get over the hump in the second thing.

Is that one web remains remains having a high priority in the eye to you for the use of.

Now the gigs frequency so.

Our megahertz of frequency, so they're well positioned from a regulatory point of view.

As as a company that has.

Yes.

As for Black for like better word first in line.

From a regulatory precision as long as they can launch continue to launch more satellite, so which they'll be funded well enough to do today.

And they already have launch contracts and and so it's a matter of just build the satellite. So there's lot of potential positive in the oneweb still long waited for them to go but that but they're in the REIT structure.

With the right partners moving forward.

Your next question comes from the line of Michael Rollins with Citi.

Hi, Thanks for taking the questions.

Sure. So first as you think about.

The S band Spectrum Holdings.

Is it more likely that you could increase value from those holdings through in operating model that that Echostar controls your partner split.

Or is it more likely a monetization strategy of finding alternative purposes for that spectrum. For example, trying to push it to mobile or some other wireless service and then just taking a step back as echostar as a company.

Evaluate.

Investments for the satellite business for Aiotv fight and she can.

Can you share with us how you're citing the addressable revenue market given that lighty services and applications don't really exist. Today. So so you could share is the framework and maybe some numbers that you're using for that that would be great. Thanks.

I Wonder if you want to take that one.

Well I'm on the S band side it certainly.

Early days I mean, right now our efforts are focused on getting.

Our initial Leo satellites launched so as to crystallize, our rights, which overlay the existing Geo rights. So once we have that in hand.

I mentioned that my comments were already and meaningful discussions with a number of.

Potential customers that we didn't essence be anchor customers or partners in the development of a non geostationary S band service.

Which we intend once the business plans make sense to invest and I don't see us just monetizing the spectrum rights to third parties I think I see us.

Developing the MSS opportunity in some very unconventional ways and then we have a second wave of development opportunity to the extent, we then pursue the co licensing.

The use of the same spectrum terrestrially in areas, where we don't already on.

Your next question comes from the line.

David talent.

Hey, guys I had two questions about the trends in the residential business. So the first one was I was wondering if you guys could quantify the Keith America connected to churn issue in the quarter and and.

What you sort of expect for that in Q3 as we'll pledge has ended and then the second question is.

We have to make some assumptions around how much of the FX headwind held back the residential revenue increase but it does look to me like you residential revenue grew faster than your subscribers, which suggests to me and ARPU growth excel.

Depreciation in the quarter and I was wondering if you could talk about what may have driven that.

Yes, I'll start and then Pradman can finish up little bit there's no question that certainly in North America.

That the ARPU growth was significant.

You too.

Grew over 5% from Q1 2020, so the ARPU for certainly up and that's really an indication.

At least in part of the higher utilization that customers had upgrading plans.

Buying additional capacity as they see the data caps.

That's what drove that part the headwinds in South America.

Our significant most of those are on the consumer side of the business.

And as we said $12 million revenue decline year over year as result of those FX.

In terms of the number of subs in the pledge.

We're going to hold back on disclosing what that number is it safe to say, it's in the tens of thousands.

And I'll, let five minutes Russ.

He thinks happens to it going forward.

Yeah, I think the you know the pledges to be due to has ended and as of the end of June and we filed phone that we've converted to reasonably big percentage of the.

Customers that went into it live convergent them to regular subscribers in this study being the views. So the note I think we've been in into Q or something we clearly pointed out that the subscribe to that end this blades bucket where counted as.

Having churned out so that caused us to numbers to be slightly higher than what we had.

I had seen in the last couple of quarters, but I think.

But converting them to paying customers, we should see that being recovered in the next few.

It's a as we go forward, but all in all dysplasia.

<unk> agreement that we signed with the government.

As not being.

That's helpful. I suppose I saw the arming our numbers the significantly.

And then any case, it's no done then been normal mode at this stage.

Got it and not that the ARPU strength that you commented on is that something you guys.

I guess persist into the back half of the year or is it something that was particular to a lot of people being Oh I understand some orders in Q2 or is it do you think it's more persistent.

I'm, sorry that question was or in relation to what.

The the ARPU boost in North America that you commented on David.

Yes, I think we're going to have to see whether that continues if people are still working from home. If there is still classrooms from home versus returning to schools. If theres a lot of unknown surround opened 19, and what the impact will be on the individuals and more specifically our customers in terms of usage patterns.

And asked me a more societal.

Impact as we go forward so.

It's tough to really forecasts exactly what is going to happen in the U.S going forward until we've got more clarity.

On returning work return schools et cetera.

Got it right.

Your next question comes from the line of Brad Hathaway part Yeah.

Perhaps your line is open.

Let's move to the next question.

You have a follow up question from Rick Prentiss with Raymond James.

Thanks, since we don't get Charlie again for another year figured out through a couple of Charlie.

You can come on this call Tomorrow [laughter] exactly.

Speaking of dish quick easy one is any other asset swaps.

Envision between Echostar and dish in the short term.

But the more complicated question as you were early and blunt on what the trends and pay TV work.

And you were right.

What do you think the trends are in consumer broadband.

I mentioned that you think you can see the demand for Jupiter three but as you look at the competitive dynamics.

Leo's and flavor, how do you think about that demand curve and the ability to earn a return on Jupiter three over the long run.

Well I mean.

Because we have a lot of control over North America.

Yes.

And because a lot of this subscriber acquisition cost is already in place for our customers and our customers are asking for just more capacity.

Math on Jupiter three is good and it's it's.

Brad Evans, probably answers, but and I can't but it's it's comparable to.

To what we've been able to our Darren on on a previous broadband satellite so.

We're confident that that's a good.

Rental rate return for us.

The.

The biggest on up to two things good two things are happening that will that would probably.

You know if you look five years down the road zipper, where where might we might go the government obviously is subsidizing.

With the rural development funds and we think that's only going to continue to grow regardless of who the next to present United States is we think that there'll be subsidization of Oh rural broadband connectivity I'm excited it's gonna be like electricity was.

You know if it turns a century were.

You know people had electricity and ultimately became ubiquitous across United States same things going have to broadband satellite will play a role there, but but so we'll.

Leo's amigos as well as Jos and so and so well dressed you're also.

You know I think that's a place that that Echostar can play to take what they do well with Geos and and continued to be in the on the forefront of that broadband connectivity and they have the and they have the capital would go do that and the right spot animals, and obviously, the and obviously two things what does.

What is the cost of an antenna come down to a if you've got to Lee or me how can they get low enough to consumers and second you know what does the government going to do in terms of subsidization. So.

You know there were just well positioned there, but you certainly not going to go do things.

And then there's also things like aeronautical and maritime that you're just not going to do any other way.

Then two satellites, so and commercial so.

No I mean, I think we do like we always do look at the math and every investment we expect to get to return and when in doubt, we don't do it and when we feel good about something and we feel like there's a there's a vertical that we can go into it make money then that's where we're going to go.

Great that helps a lot thanks Charlie.

By the way I'd add to it you know echostar because of because of their.

They are getting knowledge from the wireless side on the decide so they get access to.

You know did you see in every there isn't anybody in the world in a in Fiveg.

Architecture.

New generation I had a bill network that the dishes and talking to at very high levels. So dishes seen technology and the lab long before in the consumer is going to see it and echostar.

To extent, we can share information when it was privy to some of that some of that and so it helps them and no one where things are going.

And so I think the decision making process that echostar as an advantage and knowing a lot about where the terrestrial world is going to go.

So in terms of developing products that will help the terrestrial world and staying away from products that might not be competitive given the long lead cycles of building satellites. So I think there uniquely position.

In that sense and perhaps.

Thats more so than other other other companies.

And no other asset transfers planned in the short term.

I think all the material asset there might be some assets you know here there, but I think the material assets have been transfer.

Thank you again.

Your next question comes from the line of Brad Hathaway with RBC.

Hi, guys, sorry about a minute ago and thanks for taking the question. So Charlie I just wanted to ask your question about kind of bigger picture. When you think about kind of larger M&A and the cost of kind of your equity capital I mean, how do you think about your share price as a potential assets.

Does it kind of frustrate you that you were that the echostar doesn't seem to attract the same valuation as a lot of your peers and then kind of how do you think about maybe changing that perception going forward. Thank you.

Well I mean, I mean, I think I don't think it takes a great financial analysts to see that that are the the multi EBITDA multiple it at echostars materially lower than than some other companies.

Yes, theres been a.

A strong track record of performance at Echostar.

So you know what that would be disappointing but.

No.

For me its challenge our management to show that they've got to.

That they've got.

No featured they've got growth they can accelerate as opposed to plot long.

Even though its plodding along at a.

Well.

And then so that they actually just fire multiple but but clearly even if you look at it today the multiple.

Seems to be a little low, but it's up to management to go out there and.

And convention Mark to make sure. They are in markets that have growth and convince the market that those are long term sustaining growth things and you know they have the capital to do it and they just maybe just do it. So we get up this call you know, we could talk to Bradman, Mike and honors and.

No well with them into shape a little bit.

That's why I want to be on the call, but so that today. So the Oh you guys should be staying the same thing our manager.

No great greatly appreciate your being on the call because I think one of the overhang has historically been concerns over a kind of long term capital allocation and so really appreciated that some of your discussions about kind of some of your long term thoughts so banks and again congrats on the operational quarter.

You know looking forward to seeing are seeing the strategy going forward.

Operator, I think got type one more call.

Okay.

Question comes from the line of Michael right in line with Citi.

Oh, Thank Ted just find a follow up on the second question I had for Charlie if you could talk a bit but as you're looking to invest in I O T and find she would satellites how your sizing this market for revenue an opportunity given that a lot of the applications and services.

Going existing that form or or that way today.

Yeah.

Yeah, I don't think it.

I don't think we haven't exact side on the other than the market was potentially very large. So yeah. You certainly have billions of things that need to be connected that.

Our in access of a terrestrial network or fiber so.

Certainly.

Are you get you can think about maritime and you can think about.

Yeah, I agree it and.

And how those things might want to connect and you can see you can see you know inmarsat and iridium doing some of that today Orbcomm Jinsong todays you started to see that the beginnings of that but it's in the first any where that's going to go in and.

The though the big picture is that its billions of units and even if you were making the dollar a month of those connectivity to the it's a huge market.

You know and as you as you think about the kind of devices. You connect you you could you could you could get into you know you know you can imagine anything anything as handheld whether it be a phone or something else that you already you get billions of things that it can happen. So all you needs a fleet of satellites the cover.

With that govern the planet that have a frequency that's low enough that you don't.

Needn't.

That you have an omni directional antenna and.

And you can imagine with low battery power or fixed devices, what that might be.

And that's it that's.

Incredibly large business, assuming you could develop the right technology to do that.

And we don't see anything in law physics that would prevent you know an S band frequencies frequency from doing that.

You might have regular regulatory you might have.

You know from each country you might have.

Those kinds of.

Issues, but there's nothing to allow physics would prevent people to be connected around the world with a omni direction with the <unk> omni directional antenna, which could be as simple as a jet, but and a device. So it doesn't have same kind of problems that we'd have.

With Beijing antennas to die or at the cave in frequency so different market different application.

But that's what honors working on and an honor just spend a lot of time on that with people.

Never own ideas other people have ideas.

And we think thats potential big business for us, but theres still we get our first two satellites up which is what we're costs and hopefully when I call next quarter, we'll have the first two or two satellites up.

Thanks very much.

Yes.

Hi, guys were out of time here. So we're ready to conclude the meeting so I'd like to thank everybody for calling in.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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