Q2 2021 EchoStar Corp Earnings Call
And thank you for standing by welcome to the Echostar Corporation second quarter 2021 results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then 1 on your telephone keypad.
If you require any further assistance. Please press star then zero.
At this time I would like to turn the conference over to your host a day Mr. Terry Brown, Sir please begin.
Thank you good morning.
Everybody and welcome to our earnings call for the second quarter of 2021, I'm joined today by David Rayner, COO and CFO problem Kaul President of Hughes Andre Johnson, Chief strategy Officer, and President of Echostar satellite services, and Dean Manson General Counsel and Secretary might do to North Sea.
<unk> Unfortunately could not join the call due to an illness.
As usual, we invite you to participate in a listen only mode on the call and ask that you not identify participants or their firms in your report. We also do not allow audio recording which we ask that you respect.
Let me now turn this over to Dean for the Safe Harbor disclosure.
Thank you Sherry.
All statements we make during this call other than statements of historical fact constitute forward looking statements made pursuant to the safe Harbor provided by the private Securities Litigation Reform Act of 1095.
These forward looking statements 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 a list of those factors and risks. Please refer to our annual report on form 10-K for the year ended December 31.2020.
Following February 23, and our subsequent filings made with the SEC all cautionary statements we make during the call should be understood as being applicable to any forward looking statements, we make wherever they appear.
You should carefully consider the risks described in our reports and should not place any undue reliance on any forward looking statements. We assume no responsibility for updating any forward looking statements I'll now turn the call over to Dave Rayner.
Thank you Dean and good morning, everyone. Mike Dugan asked that we pass on his apologies for not being able to attend today.
I'll be providing a financial overview, followed by <unk>, who will provide an update on the business.
As usual, we will close with a question and answer session.
Yeah.
As usual my narrative will include comments on adjusted EBITDA, which is reconciled to GAAP measurements in our press release.
Consolidated revenue in the second quarter was $500 million up $40 million compared to the same period last year driven by our Hughes segment.
Equipment revenue increased $26 million from higher sales activity for both domestic and international enterprise customers.
<unk> service revenue increased $13 million, primarily due to growth of our Latin American consumer subscribers.
<unk> revenue in Q2 was $4 million up slightly as compared to the same period last year and corporate and other revenue was $3 million also up slightly.
Okay.
Consolidated adjusted EBITDA in the second quarter was $187 million, an increase of 16% from last year.
Hughes adjusted EBITDA in Q2 was $207 million higher by $21 million.
The growth in Hughes adjusted EBITDA was driven primarily by the higher revenue and selling general and administrative expenses remained relatively flat.
<unk> adjusted EBITDA was up slightly as compared to last year and corporate and other adjusted EBITDA was a loss of $23 million compared to a loss of $27 million last year.
The primary driver of the lower loss was an improvement in earnings of unconsolidated affiliates in dividends received from certain marketable investment securities.
Our consolidated adjusted EBITDA margin was 37, 4%, increasing 2.4% from the same period last year.
Net income increased $50 million to $35 million the increase primarily due to higher operating income of $31 million and higher gains of investments of $37 million, partially offset by costs associated with litigation and higher income tax expense.
Capital expenditures in the quarter were $83 million compared to $92 million in Q2 last year free.
Free cash flow defined as adjusted EBITDA minus Capex was $103 million during the quarter, increasing $35 million.
In the second quarter of 2021, we bought back 2.4 million shares of our stock in the open market at a cost of $58 million, we also repurchase or paid off the remaining $809 million of our 7 and 5 eights percent bonds, which matured on June 15th.
As of June 30, we had $1.6 billion of cash and marketable securities and debt of $1.5 billion.
With that let me now turn it over to per admin.
Thank you Dave.
A few comments before I get into specifics on the second quarter.
We run our business with the primary objective of growing revenue and earnings.
We do track and measure ourselves against several other supporting metrics, but top and bottom line growth.
All of that Ingalls.
We have achieved both goals handily in the first 6 months of this year.
Do Hughes revenue, 6% and use adjusted EBITDA by 17% through June 30th over the same period last year.
These strong financial results driven by our innovative products and.
In connectivity solutions, and the efficient management of our services businesses.
Now, let's turn to some specifics.
For the second quarter.
We ended Q2 of <unk> 31 was approximately 1.5 for 2 million subscribers across the U S and Latin America down 11000 for March 31st 2021.
U S subscriber base declined by approximately 20000 subs, however growth in our U S retailer.
Remained robust driven by the strong demand for broadband capacity.
This growth in U S. R, who helped offset the decline in revenue due to the lower net U S subs.
We expect these trends to continue in the near term.
As you know our U S consumer offering is capacity constrained and we continue to manage assets sales and marketing efforts proactively to optimize service to our existing subs.
As a result U S news again recognize use that as the best satellite Internet service provider for 2021.2022.
And among the top 10 best Buy's fees.
Overall across the U S.
In Latin America in Q2, we grew our subscriber base by approximately 9000.
Continuing stay at home conditions throughout the region have driven usage, leading to capacity constraints in certain markets.
As in the U S. We are balancing network utilization with subscriber levels and monitoring all aspects of our consumer operations.
We anticipate ongoing growth in our Latin American consumer markets through 2021.
As for our enterprise business, we are building on the momentum from Q1 with strong Q2 orders an increase of 138% for the same quarter last year.
Our North American Enterprise Division remains active.
<unk> across multiple areas, including the franchise retail petroleum and SME business sectors.
We continue to invest in our market leading capabilities and have implemented further refinements.
And our network management portfolios, including our industry first artificial intelligence for it.
Operations.
We received recognition for our efforts in the fall of our brands globally Award for artificial intelligence in the 2021.
Was 1 of only 2 companies in the U S to be sold recognize.
Activity is also picking up in the in flight connectivity market. Our partners have resumed installation planes. So we have restarted equipment shipments.
Within the Ses 17 program, we continue to meet the milestones.
In preparation for deployment of that system.
Turning to our effort of gateway deployment for 1 web work is proceeding well.
We have now deployed 7 gateway systems globally to support for the initial service lines.
We expect to complete all gateway shipments by the end of 2022.
During Q2, we expanded our involvement with volume.
Signing a multiyear contract to provide technical sales and operations support for each of the deployed gateways.
Our international Enterprise business was also extremely active this quarter.
In India, we were awarded a 5 year contract by the bank of India to connect 1800 branches using satellite broadband powered by the Jupiter system.
In the Asia Pacific Region, We received a services agreement extension from a large multinational oil company well managed network services to connect.
Petroleum operations.
In Brazil, a major supermarket chain selected Hughes supervise managed SD Wan services to connected stores.
In terms of system sales to be signed a significant new contract to provide the Jupiter system series 3.
For the upcoming Ku band satellite.
Requires flexibility and capacity density requirements.
Well, so about the Jupiter system.
In Indonesia, we signed a new operator, that's using the Jupiter system to provide broadband services for the government.
Also 1 of our resellers in Indonesia.
For us it's a body has ordered a new gateway for channel global and continues to expand.
The business with other operators.
<unk> operating <unk> satellite continue to expand the network implementation using for Jupiter system.
In addition, 2 of our service partners have been selected to rollout satellite backhaul.
Our 2000 LTE locations by a consortium of operators.
These contracts are a testimony to the efficiency performance and versatility of the Jupiter system the.
The defect of standard for satellite broadband implementations.
Right.
We remain focused on closing our joint venture agreement with Bharti Airtel in India.
Joint venture.
Greater scale operation efficiencies and market reach to provide Indian customers drug band solutions for enterprise and government networks.
Positive contributors VSAT business.
<unk> and our existing subsidiaries for them.
33% stake.
As previously noted this is subject to regulatory approvals.
Finally, we are working towards the launch of the Jupiter 3 satellite, which we expect will take place in the second half of 2022.
As you are aware as the technology on the satellite with lowering our cost per bit and significantly increase the capacity and speed.
Services, we can offer to our customers in the Americas.
Along with the manufacturer of a Max.
We are focused on recovering the scheduled for delivery.
Other insuring.
For the satellite meets all of our operations specifications.
Satellite technology and new uses for this technology are evolving at an amazing pace, the new services and applications launching closer to the state.
Demand for connectivity continues unabated and hybrid solutions of Geo and GSO and terrestrial networks.
Satisfy this need in the most cost efficient way.
Thanks to our multi transport iterations.
Continuing involvement in the implementation.
Leo networks through the 1 web system Hughes is uniquely positioned to play a leading role in providing the best hybrid net.
Solutions to meet each customer's needs.
Let me now hand, it over to Anders.
Thanks, <unk> and good morning in.
In Q2, ESF revenue was $4 million up slightly from Q2 of last year.
We continue to pursue opportunities to lease our available ku capacity as the market slowly continues to recover.
Our third nanos that Echostar global 3 launched on June 30th aboard the transporter 2 mission.
The satellite is completed orbit raising in commissioning activities and is placed at the altitude prescribed in our license for the S band frequencies.
We therefore satisfied the extended conditions granted to Australia by the international Telecommunications Union, an important step in perfecting our rights to the spectrum.
We are excited about a broad range of potential applications being proposed for this new constellation.
On the European front, we are progressing in our collaboration with <unk> Tec, leveraging Lora L. R. F. H SaaS technology as part of our plan to use our echo Echostar 21 satellite to deploy and develop the first real time bi directional satellite service delivering massive.
Iot services using licensed spectrum.
We expect initial operations to begin in the first half of next year and are beginning to seek out potential early adopters for lower Laura early adopter program.
In addition, working with <unk>, we have concluded development of a band 65 compliant modem and have entered into research and development and business development activities to support the development of UAV and unmanned aerial mobility applications across Europe.
On the global S band front, we are looking forward to the upcoming standards released by the wireless industry's main standard setting Association third generation partnership project or 3 GPP.
We've already had success with free GPP standards with our Echostar mobile SaaS services and <unk> released 17 due out early 2022 will be the first to include non terrestrial networks and to address satellite's role in the <unk> Global communications ecosystem.
We remain focused on our longer term strategic goal of full integration of S band satellite services into global <unk> networks and are continuing our work on multiple fronts to further that effort.
We're excited to take <unk> to the next level, providing truly seamless worldwide connectivity via satellite.
I'll now turn it back to Dave.
We believe Echostar has delivered another strong quarter, improving financial results and advancing strategic initiatives.
With that we'll now turn the call over to the operator to start the Q&A session.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then 1 on your telephone keypad. If for your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question or comment at this time. Please press Star then 1 on your telephone keypad.
Our first question or comment comes from the line of Rick Prentiss from Raymond James Your line is open.
Thanks, Good morning, guys.
Good morning, Rick.
A couple of questions for.
First good to see the nano satellite launch communicated ryzen into position and satisfy the other regulatory hurdle in for.
Amendments.
Or as you mentioned the 3 GPP is there any day more specific for at least 2017, and then early 'twenty 2 because that share. It seems like 1 of the things we should be watching on the street as far as that Fox getting checked and what are other milestones Hughes suggests we watch from the outside as you guys move towards this S band strategy.
Well I think the releases do out in the first quarter, whether that means the end of February or March I don't know.
3 GPP is an interesting negotiation amongst a lot of different factions.
<unk> operators as well as manufacturers and other interested relevant parties, but.
We're doing our best to make sure the rules that count for US are included in that in the release 17.
Going forward there'll be for future refinements and enhancements.
But that will move us into 2 into.
2022, 2023, but I think the starting gun for us will be 2022.
Okay.
Dave you guys did some more stock buybacks in the quarter looking at the 10-Q, the pacing was interesting to us it looks like about 1 and a half million shares in April dropping to <unk> 6 million shares in May and just 0.3 in June how should we think about how you pace that and have you done any post <unk>.
Well, Rick we put in place a buying plan at the end of last year, and we continue to execute under that under the parameters.
There were established for that time, we have not changed.
That plan and that plan continues in place.
Currently.
Okay and I didn't notice was there any post <unk> Act was a stock buyback I had 1 client that was asking what he thought he had seen zone.
We haven't made any announcements on anything past June 30th, but as I said the plan remains in place.
Makes sense, Okay, I didn't see it either.
And operationally.
For admin you talked about a stay at home orders in some other Latin American countries like capacity constraints are you talking about installation capacity you are talking about satellite capacity, how should we think about what that capacity constraint is why is it happening and how you expect it to get fixed.
Yes.
Thank you.
I think the capacity constraints that you were talking about.
Primarily the fact that because of the.
The COVID-19 conditions et cetera, the amount of debt steady subscriber is using increased dramatically.
And.
So.
The effect of that and therefore was.
For the satellites will be providing more detail to each subscriber and resulting in fewer subscribers are the quality of services getting impacted to some extent.
Then results in.
Hi, Joan.
And.
Consumer unhappiness.
Moving to service.
But as conditions.
Conditions improved in South America in terms of.
The COVID-19 and political instability in for few of the key countries. We are beginning to reverse that trend.
See subscribers using the right amount of data that day.
<unk> for the kind of service offering that is for that.
<unk>.
In addition to that Rick in certain regions of South America, we have had restrictions on and are impediments on getting things installed as some countries some regions.
Continue to have travel restrictions and so getting installation crews.
Uh huh.
As prudent somewhat difficult on a continuing basis. So to answer. Your question is for admin said you know we've got capacity strength restraints in some beams and we've got also restrictions.
<unk>.
Installation capacity, if you will.
Right, Okay, and the Jupiter 3 launch still on track for a second half 'twenty to launch when should we expect a launch day to officially get announced in and what milestones are we looking for that we can monitor from outside as far as moving towards that date and how about the rising into in service for that 1 any target dates.
Well I think there's a.
Schedule is still the same we expect total.
The launch of the satellite and launch the service in the second half of 'twenty 2.
There are a whole bunch of milestones in getting there.
Uh huh.
Should start seeing some specifics.
Getting more accurately define probably by the end of this year.
But at this stage weighted on track for that overall schedule.
Alright, well good started here Steuben was ill hope you all stay well and healthy and best wishes guys.
Thank you Rick.
Thank you. Our next question or comment comes from a lot of Michael Rollins from Citi. Your line is open.
Thanks, and good morning.
You mentioned earlier.
Good morning.
Discussion earlier, you were discussing skus, playing a leading role in hybrid networking solutions and I was just curious if you make further progress on agreements for commercially constructing a hybrid Leo Geo.
<unk> product and then just secondly, just curious if you have any expectations with respect to the.
Broadband component of the infrastructure Bill.
In terms of what kind of influence second have on your strategy in operations over time.
Okay.
2 different questions.
The first 1 on the Leo Geo networks, where we're doing a lot of work index Asia and developing.
The network architecture.
As you know we have our investment in a partnership with 1 word we are developing.
For service plans.
Neutral.
Choose with them for many parts of the world.
We're fortunate to have.
Strong geo presence with the Jupiter platform it almost empty.
And on the Globe and I think now is 1.
1 way of getting into services.
In 'twenty 2 debt, we will see some of these architectures played out.
So more to come in the next 6 months to 9 months.
Thank you.
Making announcements in that day.
Now on the second question was on.
Sorry.
The structure.
Broadband build infrastructure for ultra broadband yes.
You know the.
It's an area, where we are very very interested.
<unk> band connectivity market is very large.
And as you know in.
Any of these networks the priorities that we have our speed bandwidth and price.
Great majority of traffic is video about 75 to 85 per cent of the traffic on our networks and video and video is not latency sensitive which is.
This advantage of with you.
Satellite right, so, but with the hybrid architecture.
Think we can solve the agency problem and therefore, we believe we will be able to get.
Some of the subsidies that the government is offering in these different programs.
At this stage the details of these programs are not firmed up and there's a lot of debate going on.
In this area.
But we expect we'll be able to come up with an offering that meets the speed.
Bandwidth and hopefully use agency for diabetes architecture.
Architecture to get a piece of that pie.
Thanks, and just 1 other follow up you mentioned.
The opportunity for subsidies and was just curious are you seeing any impact to your operations.
The E B b the emergency broadband benefit program that lease previously introduced.
No I don't think we're seeing any.
Any significant.
The negatives or positives at this stage.
We announced our participation in this program on July.
So that means we can benefit from the subsidy.
Our customers are qualifying for the bandwidth.
For the benefit and choose to participate so I think we have.
We will play in that game.
Thank you.
Thank you. Our next question or comment comes from the line of Chris Quilty from Quitting Corp.
Analytics your line is open.
Thank you.
A question for you I think somewhere in your script, you mentioned that you expect to see international grow through 2021.
With that language is supposed to indicate that after 2021, you will find it difficult to grow where am I reading too much into that.
Well youre reading too much.
We expect to continue.
We expect to continue to grow.
And 'twenty 2.
So I don't think so.
Activity, we're working right now to make sure that we figured out how to get additional capacity.
First we would need in 'twenty, 2 and 'twenty 3.
As you know.
For the 3 has a significant amount of capacity in South America.
So when you launched Jupiter 322.
The second half.
When you get a significant amount of new capacity.
We can utilize to grow.
South American business.
So I expect to see us continuing to grow that business for the next few years.
Understand and prior to Jupiter 3 do you anticipate needing incremental third party capacity or.
Is the current capacity that you have with Telesat Udall sat and you're all set sufficient.
There are probably some beams, which starts saturating in this timeframe, but.
Mr King demands capacity there.
Other beams.
We're simply talking to people.
Who have either launched at half capacity, we ended below in South America.
And.
If you can derive D b.
Right geographic area, we could augment.
Our space capacity.
Some more.
Great and a question on international growth outside of Latin America, I know, you've got your partnership with Y'all sat which just went public.
Are you Flushing out plans to expand into more of a global provider and would you look to do that.
Through our company.
Hughes specific satellite or something through a partnership arrangement.
I think it's both.
As we go country by country in the World.
We decide whats the best approach right now. So for example, we have <unk>, we have the Americas, which is which is close to us.
We used to use our own totally vertically integrated networks.
Let me go into.
The JV is yahrzeit recovery in Africa, and the Middle East.
In India, we have.
The current business.
Rich.
The largest satellite services provider in India, we have the highest market share that so that's going well and so as we go.
Do other years.
Like Russia like Southeast Asia.
We tend to basically have partnerships.
Yes.
Existing satellite services providers.
And.
Using the Jupiter platform.
Standard equipment, so that the customer gets the same service anywhere in the world all of those.
<unk>.
Equipment using partnerships.
<unk> and using a zone.
Spacing.
So we use all of those tools to provide services.
Broadband services to our customers.
Great and how about India can you remind us of.
The regulatory status for either.
Hughes receiving approval for putting a geo over the Indian region.
Or b, 1 webs ability to get license there.
And.
A follow on on that second point.
What does that relationship look like between.
Between you and Bharti and 1 web have you come into any sort of agreement about how you would address the Indian market.
Okay first on the satellite we continue to.
We have a filing in for us.
Satellite a geo satellite.
We are number 1 in line.
And government.
The government.
Uh huh.
Issued in satellite policy.
Which allows satellite ownership can be deregulated.
Nobody has yet gotten for formal approval and we continue to pursue that.
1 word.
<unk> also filed for the license for an engineer so landing rights.
And considering the bulk is.
Hughes Telecom service provider revenue bump.
400 plus million subscribers cellular subscribers.
I think they have a good shot at getting.
And GSO lending rates.
In India, but they've applied and pursue net right now.
Great and a final question for you with regard to North America, I mean, it sounds like in Latin America people are continuing to consume more capacity more stay at home.
Are you seeing any reversal of that in the U S where people are starting to slowly return to the office are they are you seeing indications that as people leave home head to the office there.
Going back their subscription plans.
No I don't think anybody is dialing back the subscription plans, but we are having to constantly manage this.
In the shaping of the traffic.
To keep the customers happy give them within their existing plans asthma for flexibility as we can give them.
And use debt to control mature now can use this churn as a guide to see as.
As a guide to the quality of service debt.
Subscribers is getting.
The churn in North America.
Is significantly better than the say South America today.
Because of all the uncertainty we've talked about it in South America and all the politics.
And COVID-19 related.
Problems in South America. So the U S has been very very good churn rates declining slowly.
For the customers seem to be getting they seem to be happy with the quality of services they're getting.
Great and if I can sneak in 1 more for Dave can you give us an update on the Capex profile for the balance of this year and next year.
Yeah, Chris I would expect full year 'twenty, 1 capex to be mid 4 hundreds.
Next year, probably a similar range obviously, we've got the completion of <unk> 3.
As well as the launch contract payments.
Going up to launch later in the year 2022, as we implement service, we'll start seeing consumer.
Consumer equipment and installation Capex start increasing.
As we bring J 3 into service and start adding subs at an increased rate.
Awesome. Thank you gentlemen.
Thank you.
A follow up question for Mr. Ric Prentiss from Raymond James Your line is open.
Thanks, Paul for Christmas questions, Let's say in India for a second.
PRASM and you mentioned.
The bharti.
<unk> joint venture.
Any update I know it takes regulatory approval any updates 1 on how COVID-19 is doing there, but 2 whats the process to get regulatory approval and are we thinking it could get approved for or at year end 'twenty 1.
Yes.
Hopefully that will get approval for the.
Down to 1.
Total needed and I think we are.
Hopefully we can get them for the next few months.
And with the Covid.
In India, how is that affecting business and is that affecting the approval of the JV.
No it started affecting the approval of the JV it on the.
Service.
It's not in the consumer business in India.
This offerings that we have.
For the enterprise and the.
Careers.
So that's been impacted in terms of the speed of installation of the Netherlands, because again travel was.
Difficult, but I think things in India.
In the last 30 days.
And we have.
Office is back in full operation non employees back.
Attending the jobs for those jobs, so, let's keep our fingers crossed and hope that it will continue in that way.
Knock on wood, that's a that's a good sign and day.
Dave.
A couple of quarters as we went through Covid you had some bad debt items are there any 1 time items in the <unk> results that we should be aware of and how is the for bad debt or collection of debt trending.
Yes, bad debt today is I would say is back to a normalized level pre COVID-19, obviously, we've had some recoveries.
For most companies that declared bankruptcy last year and half since.
Emerged and we collected some work in some cases a hall.
Of the owed amounts.
In so I don't think there's anything from a bad debt standpoint, that's unusual in the quarter. Obviously, we did have a litigation expense accrual that's called out in both the Q as well as the press release.
Mhm, Okay and be remiss if I didn't also asked the supply chain question are you guys seeing any issues.
Any other components or pricing for any of your equipment.
You know we have a really good guy who runs our operations manufacturing and I think he has done an incredible job that organization is doing a great job, but we haven't seen any impact.
At this stage, but things are tightening up.
And.
Oh yeah.
Trying to be very aggressive.
Our inventory plans.
<unk>.
Maintaining our inventory levels in the right and so far we haven't really been impacted but the market is tight.
And we hope we can get through the year with millions of items and today it looks like we can.
Great. Okay. Thanks, guys patient follow ups.
Thanks, Rick.
I'm showing no additional follow up in the queue I'd like to turn the conference over to Mr. Terry Brown for any closing remarks.
Yeah. Thank you everybody for joining today and we look forward to talking to you next quarter.
Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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