Q3 2022 EchoStar Corp Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Echostar Corporation Conference call for third quarter 2022 results. 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.
So our one one on your telephone will then hear an automated message advising your hand is Reyes. Please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today Harry Brown. Please go ahead.
Thank you.
Morning, everybody and welcome to our earnings call for the third quarter of 2022, I'm joined today by summit at Gabon, Our CEO and President Bradman, Kyle President of Hughes, Dean Manson General Counsel and Secretary.
And all we booked our chief accounting officer.
As usual we invite.
India to participate in a listen only mode on the call and ask that you not identify participants or their firms in your report we will.
Also do not allow audio recording which we ask that you respect.
Let me now turn the call over to Dean for the Safe Harbor disclosure. Thanks, Terry 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 and 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, 2021 filed on February 20, <unk> 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.
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.
Now I will turn the call over to Hamid.
Thank you Jane and good day everyone.
As some of you are aware David Rayner retired as our Chief operating Officer, and Chief Financial Officer in early October and.
And we would like to thank him for his many contributions and wish him well in the future.
An executive search for his replacement is underway and we will keep you informed on our progress.
As for our agenda for the call today first.
We will provide a brief overview of financial and operational activity from the third quarter. After that I will provide an update on our business and strategy.
Then move to question and answer session.
Let's start with our financials our revenue in the third quarter of 2022 was $497 million.
Down $7 million compared to the same period last year.
So on a year to date basis.
<unk> achieved $11 million of growth.
The decline in the third quarter was primarily due to net result.
The lower U S consumer revenues.
And the negative impact of $4 million from foreign currency exchange, which was partially offset by the growth in revenues in our enterprise business.
Our adjusted EBITDA in the quarter was 159 million decreasing 15% from last year, primarily due to the shift in revenue mix from consumer to enterprise.
But also increased.
Customer care and material costs.
We hope will be mitigated as inflationary pressures subside.
In the third quarter, we saw continued momentum in our enterprise business with $174 million of new orders, that's up 111% from third quarter last year our.
Our year to date 2022 orders are higher by 64%.
Paired to the same period last year.
We remain excited about opportunities within the enterprise market. This is an extremely large addressable market.
That will continue to allow us to better diversify our business, both domestically and internationally, which is a key component of our strategy.
Although gross margin in this market segment is lower than our consumer segment. The capital investment is minimal and is scaling this business unit with amplify as profitability through higher operating leverage.
We intend to take the necessary measures regarding our fixed costs in line with the change in revenue mix.
To preserve our ability to generate cash.
Capital expenditures in the quarter was $61 million compared to $90 million in quarter three of last year.
Decrease was primarily due to lower spend on Jupiter three satellite program and consumer premise equipment.
Free cash flow defined as adjusted EBITDA minus Capex was $97 million during the quarter and a $243 million year to date through September 32022.
We ended the quarter with $1 6 billion of cash and marketable securities or cash balance positions us well.
The uncertainty of current economic conditions.
<unk> has the flexibility to explore investment opportunities that could foster growth, which is part of our business strategy.
From our last earnings call I shared with you our strategic course. This methodical undertaking is designed to both improve our financial and competitive position as well as to capitalize on short and long term growth opportunities, both organic and inorganic.
We are pursuing three parallel work streams that I call horizons.
And horizon, one we are optimizing use of our existing assets and services until we bring Jupiter three into service.
We are focused on capacity yield instead of subscriber growth and continue re gearing our service offers to optimally manage churn.
For instance, we launched the Houston infusion service, which we expect to help reduce consumer churn in the U S. While opening potential enterprise opportunities internationally.
We recently optimized staffing.
For better alignment around our strategic initiatives as well as to lower unproductive operating expenses.
We will continue to manage our operating expenses in correlation with our revenue trend and profile to preserve our bottom line performance.
Let me now turn it over to <unk>, who will provide some additional specifics on the quarter and Verizon one activities.
Thank you Amit.
And our continued effort to optimize our current products and services.
<unk> continues to focus on improving our north American consumer offering and customer satisfaction.
You will recall that we began rolling out our new use less service plans earlier this year.
Give us any more detail per plan.
These are being well received by customers.
And <unk> remained strong increasing from the prior quarter.
Continue to optimize capacity at locations to yield the best performance possible.
It relates to fleet.
This past quarter as Hamid mentioned, we launched our Hughesnet <unk> plans to customers in select U S markets.
And the early reaction has been overwhelmingly positive meeting or exceeding our expectations.
Hughesnet <unk> unit combines Geo satellite services with wireless service for low latency Internet experience.
<unk> reliable and fast.
After a successful launch of customers in the southeast.
We expanded availability to new customers in that region, and if slowly began making it available to other markets across the U S. The greatest pause.
But early December Hughesnet fusion plans will be available nationwide.
Moving to a larger vertical the enterprise business in the third quarter, we secured a $37 million contract.
Financial services company to upgrade the networking equipment and extend their SD Wan network. So 2028.
A $4 4 million.
Leading retailer pardon equipment upgrade and extension of the huge provider an SD Wan network.
Our contract with a new quick service restaurant chain.
Corporate stores covering network equipment and services.
The initial contracts.
Private for customers.
Retail petroleum and energy bucket.
In our Wattenberg program continued delivery of production gateways.
Consistent with plan.
We've shipped 26 gateways, so far and expect to complete all gateways in 'twenty three.
We've started production of the satellite subscriber modem modules.
<unk>.
It began shipments.
Also we received a large program by one web to purchase significant volume all filed electronically <unk> antenna.
Available in 2023.
Additional large order for operational support services.
Our defense group.
Procured the award to provide.
<unk> network deployment.
Additional military base.
As a civilian government market. The team won awards for several upgrades and service extensions for both federal and state agencies.
Now to our international operations.
So the U S. A priority in the Latin American market is to maximize view on our capacity.
Please signify we signed an agreement with Gedeon, our Costa Rican Internet service provider for utilize our ku band capacity to provide a premium Internet service.
Fiber and terrestrial wireless services.
No.
In addition, we're allocating additional ku band capacity to expand cellular backhaul services in Mexico.
We remain focused on that.
Adding high value subscribers through tactics, such as selective screening capacity optimize pricing plan, that's all improve.
That article.
Our Brazilian and enterprise business executed a significant new orders in the third quarter.
Including additional equipment sales and an expansion of satellite services for two utility companies.
We also won an order from a bank to expand the scope of our existing service agreements for their SD Lan network.
New business was a major engineering company to provide managed.
Services across 2000 sites and won a major contract telecommunications company, our operations and field maintenance of their painful network.
Notable instead of providing connectivity services.
Leveraging our extensive field services.
To provide this service.
In India.
Backlog continues to be a major opportunity and we have now over one gigabit capacity contracted to support <unk> backhaul services.
No.
<unk>.
Over 1500 sites deployed.
Well on our way to implementing the 10th site managed SD Wan network for the company.
In terms of Jupiter system sales, we expanded deployments with <unk>.
Existing customers, including <unk>.
Yes.
Yes.
The launch of our Jupiter three satellite program continues to be on track for the first half of 2023.
Satellite is currently in final integration.
And then we will begin to dynamic testing.
The satellite for large environment.
We continue to work closely with Baxter to maintain as scheduled.
As previously noted Jupiter three with a significant capacity to provide high speed.
Services, a loss in South America, and presents a strong growth opportunity for our business in these regions.
Let me now turn the call over to Amit.
Okay.
Thank you fragment.
As you have discussed.
Quarter in some of our horizon, one activities, let me provide an update.
On horizon, two and three of our strategy.
Horizon, two finds us focused on monetizing Jupiter three and the team is hard at work now planning not only for the launch itself, but for the service launch with new higher speed service plans will also have a new fusion offering with higher speed plans. We believe the market is <unk>.
<unk> for the kind of services will be offering and we expect to have a highly competitive set of services.
To take to market one supersede three enter service.
Horizon two includes a strong focus on our global enterprise business.
We will leverage our business connectivity managed services portfolio hybrid Leo Geo.
<unk> solutions and our own manufactured products.
Increased participation in this vast market segment is a key element of our diversification strategy.
Horizon. Two is also about improving operational scale with potential to small acquisitions, which we are exploring at this time.
This brings us to horizon three.
For this longer term strategy, we are actively evaluating opportunities for new avenues of organic and inorganic growth, including commercialization of our <unk> assets and potential larger scale M&A opportunities.
We will share more details on our efforts and plans as plans solidify.
I remain extremely excited about our strengths, including our strong balance sheet and global presence and trusted reputation our engineering expertise and our S band spectrum assets.
Let me now turn it over to the operator to start the question and answer session.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line.
Prentiss of Raymond James Your line is now open.
Thanks, Good morning, everyone.
Good morning real quick questions.
Couple of questions on my side first.
Glad to see Jupiter three is still on track for first half 'twenty three launch and did see explore all the Canada mentioned, we're expecting will offer Canadian service on that satellite in summer of 'twenty three so as it looked like the launch in service date.
Could still keep you on the Q2 late June July program, just trying to think of when that horizon two.
Talk about entering service when should we think about that being as it's summertime in 'twenty three.
We can't be more specific than what we have mentioned and we certainly cannot comment on anything that explore and it may have mentioned.
We leave the comments.
Regarding their announcements to them.
We are very much on track at the moment to be.
In.
Launch our south lagged in the first half of the year and we've accounted for a good schedule and we think that at this moment.
Everything is on track.
So.
We are not able to offer you any additional details.
But.
We certainly expect that there will be a <unk>.
Service offering.
Post launch in the second half of the year.
Okay.
Can you give us a rough ballpark, maybe as far as how long from launch they obviously can possibly but how long should be as far as <unk> launched <unk> service. So we're taking it.
Washington, three months Youll be happy to ask horizon.
Yes, it takes several weeks but.
Seven or eight weeks to get the satellite up there, but let me ask <unk> to give you more specifics about J J J three yes.
Yes, I think.
Typically in these system as it takes us about four weeks.
To get the satellite.
<unk> tested but.
That's helpful Lisa.
Contrary and operate.
As we have specified it to operate and then probably another two to four weeks to put it into full service.
Okay. Good.
As we think about the difference arises.
Is there a timeframe for when what's the definition of horizon three longer term.
Obviously horizon, one year right now optimizing until January launches in Horizon, two is chase III launches and you get it into service.
How long a timeframe as it beyond horizon to say, here's what horizon. Three envisions is that two to five year plan is that a five to 10 year plan, what kind of is the ballpark timeframe a horizon III, yes.
Great question, let me just start by reminding everyone that all three horizons are being worked in parallel.
Output of the effort on horizons.
Appear in different Timeframes. So we are working horizon III, just as aggressively as we were working horizon, one and two.
So from that perspective. These are three streams of work activity with outputs.
That will be measurable and impacting our financials in different windows of time.
The way we look at this rig is horizon III is about 2026 and beyond so you should be able to see and Thats easy.
Is it 2026 to 26 and half is 27 two.
1026 is pretty much where we think we'll see the effort.
What we're working now and give us a bit of latitude a couple of quarters back and forward, but that's the that's the window simply because.
It may happen sooner.
Spending on.
Yes.
If we find an acquisition target that we think.
Would be synergistic.
We would be absolutely the right one to do the impacted at maybe sooner in 2026, Sydney property expectation.
We think that.
We need to be.
We need to have a.
A business model that.
<unk> complements what we have today by 2026.
Okay.
Another one from my side, obviously stock buybacks are still out there, but it wasn't significant.
<unk> was not very large in Q2, you mentioned in horizon, two there might be some small M&A opportunities as well as you look at.
Providing services to the customer base, how should we think about how youre viewing the strong balance sheet the opportunity with the stock being basically trading at cash per share.
This is buying some other asset out there.
Right.
So we yes, commenting on.
Share buyback at.
At the moment, we're not actively purchasing shares.
And this is a deliberate decision to keep the cash on balance sheets.
Partly because of the market conditions that all experiencing but also.
We think this is the right decision for us in terms of the execution of our.
Roadmap into the strategic roadmap.
We are proud of the fact that we have a very strong balance sheet and we have the accumulation of cash today cash is king more than ever and we think that condition will continue.
<unk> positions us very well.
To execute the horizons that we just talked about I don't think acquisitions that we will be making in Hawaii for the horizon to impact.
We'd be so significant that we'd see.
Significantly impacted deplete our cash position so.
Probably more of our cash position will.
It will be consumed and put to use.
For opportunities in horizon three.
But again, we are a cash generating business as you as you heard me and <unk> been talking about this.
We have generated significant amount of cash this year and we continue to.
Optimize our fixed costs and optimize our operations in a way that as we transition our business from consumer to enterprise and growing our enterprise business.
The bottom line cash generation is a key focus.
So we will enhance our cash position, we will use some of the cash.
As necessary to.
Complement the horizon to business, we have you should not expect that those acquisitions, if we make him would substantially in vastly different and we just get us more competitive posture for execution and for pricing to be obviously, we are hoping and working on significant additional M&A.
Last one for me and I'll turn it over some other folks.
I mean <unk> been now in the seat for seven months, obviously come in during a very difficult macro environment as you just talked to.
You'll have a significant cash position no net debt when we think of the equity.
And where the stock is trading what do you think you can do.
To help move the equity along what's kind of on your list of things to say, here's what I can I can put in place or communicate or what are you looking at as far as how to get the catalyst going to get the stock moving in the other direction.
Right.
I mentioned a couple of things.
One is that I think the strategic framework that we have put in place.
Is the right one obviously, we've debated it we've discussed it yet.
Shared with our board and seek views and opinions.
Experts in the industry, we think we're heading the right direction in terms of our thinking.
Adam.
Develop the business for long term indefinite sustainability and growth.
Having said that.
I also want to say that.
We want to be we don't want to be rash, we want to be patient, we don't want to raise the share price.
Just to have it come down based on some announcements and based on some.
Very short term oriented tactical moves that.
As the share price and then after that precipitates again that has not been the.
The the approach that this business has taken and is not the approach we will be taking going forward look we are at a point, where we believe this is an absolute rock bottom and I think we I think we're trading at levels that nobody has ever seen in any other industry.
Well, we want to be patient.
To some degree and we want to make sure that when we execute our horizons a strategy.
We do it in a sustainable way that the share price, obviously goes to full value potential and beyond.
In a way that you can count on it being there so.
We are obviously I understand that the market expects me and expect us to move things, but for the kind of movement, we are talking about.
You don't want to you don't want you don't want to make a mistake you don't want to go ahead and for instance.
I would not look at some of the.
M&A that is happening in our space in terms of creating.
Larger scale in the same space.
Mergers in the same space.
If it doesn't diversified business I wouldn't do it so we are not.
Very prudent about our thinking is.
Long term orientation of the business, so long way of saying.
I'd like to share. It is my goal it is our intent with <unk>.
Our absolute focus to raise shareholder value and share price.
But we want to do it the right way and we will resist the pressure to do something for the sake of just being active.
So that does it.
Delicate balance we understand it but we are at.
Focused on it.
Okay very good look forward to more details as they come forward.
Thank you for your questions.
One moment for our next question.
Our next question comes from the line of Michael Rollins of Citi. Your line is now open.
Thanks, and good morning, I'm curious if you can give us an update on the competitive landscape in the consumer segment. What are you seeing in terms of.
Where fiber may be built in the future what youre seeing currently in terms of it.
Wireless as well as other competitive.
Alternatives.
That your customers may have.
Sure.
Some of the competitive dynamics you are fully aware of.
Youre aware that obviously starlink as has been in the market now for almost a year.
Sterling has grown at the well while they have created some new segments for themselves and also have impacted our business to some degree <unk> seen it in our consumer numbers, but I want to say that we're not really focused on.
Just maximizing the number of consumers, we're looking at maximizing yields.
We may have less consumers now, but we have a growing <unk>. So our revenue per customer has grown on a quarter over quarter basis. So we're keeping great customers.
Again, we are maximizing yield so I don't think you should be focusing as we are not as focused on the number of customers more then.
What we get out of the consumer business, both domestically and internationally now as it comes to.
Fiber and fixed wireless.
Look fiber never made sense to go in every place obviously with near zero interest rates.
And historically low interest rates.
For borrowing capital the infrastructure deployment was unlimited.
You could go ahead and justify investments in places where the density of population was very low and the return on investment was acceptable.
With interest rates coming higher.
I do expect that that slows down.
I don't think fiber can go everywhere, you couldnt and now even less so today at the cost of borrowing for infrastructure deployment I think the market in a long way of saying.
It's self serving as it may sound I think the market is coming our way.
We remain confident that is about 15 million homes just in the United States that we think they are underserved from a broadband perspective, we think in Jupiter three shows up we have more than double our capacity of what we have had to date.
We're looking at.
$50 100 megabit per second.
Second speeds, we diffusion.
Helping with the latency and reliability in unlimited plans that the team is working on in horizon two.
We think our <unk>.
Positioning in the marketplace will be very strong and the market is coming more our way than running away from us.
We're not blind to the competition.
But we are.
We feel that we are actually gearing up to.
We have our position going forward.
Thank you.
Thank you please standby for our next question please.
Our next question comes from the line of Chris Quilty of Quilty analytics LLC. Your line is now open.
Thanks.
Excuse me I didn't get through the full 10-Q, but the.
EBITDA margins in the Hughes business were the lowest they've hit in about 10 quarters, where there are specific incremental costs in the quarter and how do we look at some of the.
Pre Jupiter three rollout costs and the impact on margins over the next couple of quarters.
Yes, I'd be happy to comment on that yes.
EBITDA margin has come down.
It's been primarily due to the shifting mix from consumer to enterprise.
I'll comment on that a bit more.
<unk>.
But theres also been some inflationary pressures as the cost to customer care in some of the material costs have come up.
Obviously, those things all add up we think that both those other costs are transient it would be as the inflation subsides I think those costs.
Go back to more historical terms and I think we're going to recover some of that margin.
In revenue.
From consumer to enterprise, obviously comes at a lower.
Margin will impact our EBITDA on the other hand, you have to know that when you go below EBITDA.
The enterprise business doesn't have as much capex.
Some some lower cost in terms of.
General services that are not on the gross margin.
The capex the Capex will be the biggest impact here for the enterprise business having less.
The desk dragged in the consumer so.
If you look at a transition of consumer to enterprise business.
As you have seen our enterprise business is growing at a very very rapidly probably one of the fastest years, we have had in terms of growth.
You could see that as that business grows if it grows at the scale that we have been selling.
He can.
With the adjustments in our cost structure for that business.
Can replenish.
The loss of.
Profit net profit.
And ultimately it comes from the.
From shrinkage of the consumer business so.
We actually like the enterprise business, we think is going to scale faster. We think we can do that I think we can diversify using the enterprise business, which has a very large tam to account for that but in the short term. Obviously you will see some EBITDA shrinkage as we as we are in the midst of that transition I hope that answers.
Blended number I think I answered your question, but I also wanted to make sure that we have.
We're just not looking at EBITDA margin would be also looking at the net.
Net income at the bottom.
Right.
<unk>.
The consumer business consumes around 40 or $50 million a quarter in Capex just for the CPE related piece is that correct.
I don't have that I was curious if that number at.
Ed.
Yes, Chris This is Jerry I think that's relatively in the ballpark.
And I can follow up.
With you on that.
Double chocolate.
Yes, obviously I think the consumer CPE.
Please I was going to say on the enterprise business Thats not a capex cost at the hardware revenue.
Our enterprise business has a number of factors in at our enterprise business is not pure connectivity, we have a lot of services. The enterprise business, we have manufacturing in the enterprise business.
And some of them some of the.
Enterprise services patent referred to a number of.
Deals that.
He has mentioned.
So the connectivity piece obviously does include.
Capex were for equipment, but.
Not for the services and the manufacturing, we generally recover the cost for materials pretty quickly and it was not capitalized.
Gotcha.
Just to circle back on the what we call the enterprise business, if we put aside the Hughes gateway business.
That business had been sort of a slow bleed for several years, no growth or or shrinking slightly and it looks like in the past year or two put COVID-19 aside you've actually started to see organic growth in that business.
<unk>.
Again, the traditional business with sort of hooking up lottery terminals and gas stations.
How do you see the growth of the enterprise market.
I'd from acquisitions on a go forward basis, and what contributes to the growth of that business is it just underlying satellite capacity is how much better or is it more the.
<unk> managed services you are layering on top.
Yes.
Please go ahead. Thanks, I think the enterprise business consists of two parts.
Services part.
Product delivery partners.
Significant rollout of that business.
We actually ship <unk> and gateways for building networks for.
Different operators are all over the world I think what one of the items.
Accelerated that is the technology of Jupiter three.
And become the de facto standard pretty much all over the world.
Large volume sales.
In fact radio.
<unk> product sales.
Countries like Indonesia.
India, Brazil.
And so that has contributed very nicely to our.
Both.
New order input in our backlog.
And then if you look at.
Some real big system jobs that we have won.
Bulk of it for example.
<unk> job.
Supply and gateways.
<unk> coming off the supply of services.
They have come alive in the last three to five year period.
Three to four years.
So.
It's a good part of our.
Okay.
The strategy, but the one thing of course is as you've noted is the margins are much lower if somebody had mentioned earlier you don't get the margins that you've given.
<unk> business, the gross margins, but they can take it all the way down to net income as adjusted.
Not as significant as sensitive.
So service opportunity.
Great Good answer your question.
Yeah I think.
That gets us closer to the answer but.
If I were to switch final subject one web launching again, if we assume that they are.
Full service launched some time next year, hopefully mid year or something.
What does that do to your business and specifically to your business in India and can you remind us is that it in an exclusive distribution.
Yes, we have an exclusive distribution.
Agreement.
India.
Good luck.
Deb and Thats going to make us very powerful.
Because not only will we have the existing <unk>.
<unk> business, but we also have the new businesses.
And we'll be able to implement our <unk> strategy.
And then much more significantly.
Very excited about it.
All satellite bucket and then guys just beginning to take off.
The launch there in.
The last constellation of 36 satellites.
Rakesh.
Very successfully so the whole.
In telecom business structure is excited and we hope to participate in.
And that excitement in this business rules that.
Great. Thank you very much.
Thank you please standby for our next question.
Our next question comes from the line of Ric Prentiss of Raymond James Your line is now open.
Yes, thanks for taking the follow up seems like it had some open time.
I mean, I think one of the top questions, we get from investors is <unk>.
And you touched on it briefly I want to make sure if it didn't come up on other questions that came up.
But that's in horizon two horizon three.
But I think investors are trying to figure out.
How should they think about this asset that you've put together there.
How should we think about what your thoughts are with the potential for partnering is or what the potential timeline for information to the street.
<unk>. So can you frame us any more color on S band, how should we be thinking about developing that asset information into the street.
Yes, that's great question.
So the expense story has evolved for the world not just for <unk>.
Echostar.
If you think about it at.
All the way till about I don't know a year ago. So.
There was real standardization around connect.
Connectivity to the South Lake from device from Tencent, Some five G. NTN at this Paul.
So the business model for <unk> spend would have been.
And thats exciting significantly smaller perhaps not even exciting in many ways given the cost of the launch of maintenance.
A legal system for specialized devices, but as the <unk> NTN standardization has happened.
That restriction that limitation has been moved and in fact now looks very exciting.
If you could just come to the devices. The consumer devices that are just normal devices that consumers, having new pockets is exciting from the perspective of the end customer basis perspective.
We used a normal devices on kind of your specialized device. They don't have to have a second device and also is very exciting from our perspective and the supplier and provider of the service where you don't have to subsidize you don't have to design develop manufacture distribute especially like terminals. So the game has changed but remember that game is only changed in the past.
12 months again, that's a new gate now.
If one wants to bring a service based on five NTN to the market.
It requires the ecosystem of the <unk> I just mentioned that the devices would have to come from the device manufacturers and they would have to be sold on populated in the market to couple of three years away from those devices.
Insignificant poorly ratio right.
The Senate has just said it will take a couple of years for the chipsets to be manufactured.
Chipsets to make it to the terminals and terminals to be populated from sales I mean, the existing devices would not work you need the next generation pump. So when you look at all of that that kind of drives the timing and you have an element of ecosystem you can't no player no single player in the market.
Can walk in and say I have it all there is no single player. It doesn't matter, who you look at handset manufacturer satellite manufacturer service provider.
Operator, you can't none so.
It will require.
Collaboration and partnership of a number of players to make that work. That's why it takes time and Thats why its also is not prudent to make announcements unilaterally. When you don't have all of the elements that is required to develop the ecosystem and all the agreements and financials in place.
For it to become a reality, that's why you're not going to hear from us any sort of premature announcements.
And any announcements that.
I'll just give you one angle of the picture, but not not not.
Not the full picture.
But having said that I want to mention that we are very focused on it.
We.
We haven't.
<unk> the opportunity we understand the size of the market, perhaps better than anybody else given that we have manufactured terminals for almost every satellite manufacturer and provider out there.
We have been in satellite to handset connectivity in Europe .
Email European mobile business we.
We've done that we don't have today.
Two specialized devices and Laura and we understand the space.
We don't want to come in with a premature information releases, which is not helpful 94 investors know for.
Looking at our customers I.
I hope that answers your question to some degree.
Yes.
There's been a lot of other announcements out there Apple with Globalstar iridium with an unnamed partner T mobile with Spacex Starlink Theres a lot happening in the communications world and with satellite companies. So my interpretation is suffice it to say you're in talks discussions you know whats happening out there.
And you are not on the sidelines, you're just not ready to put it on the field.
With that I would say that's fair.
And if I were sitting on the other side that would be my conclusion I would also say the announcements made today are not game changers were not seeing any of those announcements as as the ultimate answer here.
None of those are based on <unk>, none of those are based on.
A greater service.
Product.
Breath that we think will change the.
Change the behavior on the economics of the industry.
We think.
The real solution of director handset would have to bring capabilities similar to people used today on a normal basis, it should be able to make voice calls data calls.
Just a few of emergency messaging or <unk>.
Providing.
Limited service over a small geography, which we don't even think it's.
Viable commercially to build the whole ecosystem to provide.
Patchwork of coverage in one country.
Don't think those things are.
First of all viable game changers and also we think that nobody is ahead of anybody else when it comes to providing.
Providing a <unk> base system, which we believe we continue to believe is the right answer.
That's very helpful. Thanks.
At this time I'm showing no further questions I would now like to turn it back to Terry Brown for closing remarks.
Okay.
Okay. Thank you everybody for joining the call today, and we look forward to talking to you.
Our next call.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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Good day, and thank you for standing by and welcome to the Echostar Corporation Conference call for third quarter 2022 results. 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 be.
Press Star one on your telephone will then hear an automated message advising your hand is raised.
Be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today Harry Brown. Please go ahead.
Thank you.
Morning, everybody and welcome to our earnings call for the third quarter of 2022, I'm joined today by Hamid at Gabon, Our CEO and President Bradman call President of Hughes, Dean Manson General Counsel and Secretary.
And I'll leave, but our chief accounting officer.
As usual we invite.
To participate in a listen only mode on the call and ask that you not identify participants or their firms in your report we will.
Also do not allow audio recording which we ask that you respect.
Let me now turn the call over to Dean for the Safe Harbor disclosure. Thanks, Terry 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 and 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, 2021 filed on February 23rd 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.
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.
Now I'll turn the call over to Hamid.
Thank you again and good day everyone.
As some of you are aware David Rayner retired as our Chief operating Officer, and Chief Financial Officer in early October and.
And we would like to thank him for his many contributions and wish him well in the future.
An executive search for his replacement is underway and we will keep you informed on our progress.
As for our agenda for the call today first.
We will provide a brief overview of financial and operational activity from the third quarter. After that I will provide an update on our business strategy and we will then move to question and answer session.
Let's start with the financials our revenue in the third quarter of 2022 was $497 million.
That is down $7 million compared to the same period last year.
On a year to date basis.
We have achieved $11 million of growth.
The decline in the third quarter was primarily due to net results.
The lower U S consumer revenues.
The negative impact of $4 million from foreign currency exchange, which was partially offset by the growth in revenues in our enterprise business.
Our adjusted EBITDA in the quarter was 159 million decreasing 15% from last year, primarily due to the shift in revenue mix from consumer to enterprise.
But also increased.
Customer care and material costs.
We hope will be mitigated as inflationary pressures subside.
In the third quarter, we saw continued momentum in our enterprise business with $174 million of new orders, that's up 111% from third quarter last year our.
Our year to date 2022 orders are higher by 64%.
Paired to the same period last year.
We remain excited about opportunities within the enterprise market. This is an extremely large addressable market.
One that will continue to allow us to better diversify our business, both domestically and internationally, which is a key component of our strategy.
Although gross margin in this market segment is lower than our consumer segment, the capital investment and it is minimal and is scaling this business unit will amplify as profitability through higher operating leverage.
We intend to take the necessary measures regarding our fixed costs in line with the change in revenue mix to.
To preserve our ability to generate cash.
Capital expenditures in the quarter was $61 million compared to $90 million in quarter three of last year the.
The decrease was primarily due to lower spend on Jupiter three satellite program and consumer premise equipment.
Free cash flow defined as adjusted EBITDA minus Capex was $97 million during the quarter.
<unk> 243 million year to date through September 32022.
We ended the quarter with $1 6 billion of cash and marketable securities or cash balance positions us well given the uncertainty of current economic conditions.
Affords us the flexibility to explore investment opportunities that could foster growth, which is part of our business strategy.
On our last earnings call I shared with you our strategic course. This methodical undertaking is designed to both improve our financial and competitive position as well as to capitalize on short and long term growth opportunities, both organic and inorganic.
We are pursuing three parallel work streams that I call horizons.
In horizon, one we are optimizing use of our existing assets and services until we bring Jupiter three into service.
We're focused on capacity yield.
Instead of subscriber growth and continue re gearing our service offers to optimally manage churn.
For instance, we launched the Houston infusion service, which we expect to help reduce consumer churn in the U S. While opening potential enterprise opportunities internationally.
We recently optimized staffing.
Better alignment around our strategic initiatives as well as to lower unproductive operating expenses.
We will continue to manage our operating expenses in correlation with our revenue trend and profile to preserve our bottom line performance.
Let me now turn it over to <unk>, who will provide some additional specifics on the quarter and Verizon one activities.
Thank you Amit.
And our continued effort to optimize our current products and services.
<unk> continues to focus on improving our north American consumer offering and customer satisfaction.
You will recall that we began rolling out our new used those plans earlier this year.
2% more data per plan.
These are being well received by customers.
And our core remains strong increasing from the prior quarter.
Continue to optimize capacity allocations to yield the best performance possible.
Satellite fleet.
This past quarter as Hamid mentioned.
Launched Hughesnet <unk> plans to customers in select U S markets.
And the early reaction has been overwhelmingly positive meeting or exceeding our expectations.
Hughesnet <unk> unit.
Geo satellite services with wireless service for low latency Ethernet expedience sponsor.
Reliable and fast.
After a successful launch of customers in the southeast.
<unk> availability to new customers in that region.
Slowly began.
Making it available to other markets across the U S. The greatest pause.
By early December Hughesnet fusion plans will be available nationwide.
Moving to a large American enterprise business in the third quarter, we secured a $37 million contract.
Thanks, Rick.
Company to upgrade the network.
And extend an SD Wan network service until 2028.
A $4 4 million of.
A leading retailer pardon equipment upgrade and extension of the huge provider an SD Wan network.
Our contract with a new quick service restaurant chain for their corporate stores covering network equipment and services.
And the initial contracts.
<unk> for customers in the retail petroleum and energy bucket.
Okay.
One Red program, we continued delivery of production gateways and says to this plan.
We've shipped 26 gateways, so far and expect to complete all gateways in 'twenty three.
Starting production of the satellite subscriber loading modules for inclusion into <unk> and <unk>.
It began shipments.
Also we received a large further by one web supported a significant volume of our electronically is terrible.
Available in late 2023.
As well as <unk>.
As a large order for operational support services.
Our defense group.
Procured the award to provide.
Pivot <unk> network deployment.
To a military base.
As a civilian government market the team won awards.
Several upgrades and service extensions for both federal and state agencies.
Now to our international operations.
The U S. A priority in the Latin American market is to maximize yield capacity.
Please signify we signed an agreement with <unk>.
Costa Rican Internet service provider to utilize the ku band capacity to provide a premium into the next phases.
Fiber and terrestrial wireless services.
No.
In addition, we're allocating additional ku band capacity to expand cellular backhaul services in Mexico.
We remain focused on that.
High value subscribers through traffic second selective screening capacity optimize pricing plans that are improving.
Our Brazilian and enterprise business executed a significant new orders in the third quarter.
Including additional equipment sales and an expansion of satellite services.
Utility companies. We also won an order from a bank to expand the scope of our existing service agreement for <unk>.
SD Lan network.
Business with a major engineering company to provide banking services.
Services across 2000 sites and won a major contract with a telecommunications company, our operations and field maintenance of the painful network.
So I think the notable instead of providing connectivity services.
Regina extensive field services.
To provide this service.
In India cell backhaul continues to be a major opportunity and we have now over one gigabit per capacity contracted to support <unk> backhaul services has been really good.
And with <unk>.
Sure Kristina.
Sites deployed.
Another way to implementing the 10000 site managed SD Wan network for the Indian Company.
It does at Jupiter system sales, we expanded deployments with <unk>.
Existing customers, including <unk>.
Yes.
Yes.
The launch of our Jupiter three satellite program continues to be on track for the first half of 2023.
Satellite is currently in final integration.
And then we'll begin to dynamic testing as you test the satellite for large environment.
Continue to work closely with Baxter to maintain as scheduled.
As previously noted Jupiter three with a significant capacity to provide high speed services a loss in South America and presents a strong growth opportunity for our business in these regions.
Let me now turn the call over to Amit.
Okay.
Thank you <unk>.
As we have discussed.
The quarter and some of our horizon one activities, let me provide an update.
Horizon, two and three of our strategy.
Horizon, two finds us focused on monetizing Jupiter three and the team is hard at work now planning not only for the launch itself, but for the service launch with new higher speed service plans will also have a new fusion offering with higher speed plans. We believe the market is eager.
So the kind of services will be offering and we expect to have a highly competitive set of services to take to market. One supersede three enter service.
Horizon two includes a strong focus on our global enterprise business.
We will leverage our business connectivity managed services portfolio hybrid Leo Geo business solutions and our own manufactured products increased participation. In this vast market segment is a key element of our diversification strategy.
Horizon. Two is also about improving operational scale with potential to small acquisitions, which we are exploring at this time.
This brings us to horizon three.
For this longer term strategy, we are actively evaluating opportunities for new avenues of organic and inorganic growth, including commercialization of our <unk> assets and potential larger scale M&A opportunities.
We will share more details on our efforts and plans as plans solidify.
I remain extremely excited about our strengths, including our strong balance sheet and global presence and trusted reputation our engineering expertise and our S band spectrum assets.
Let me now turn it over to the operator to start the question and answer session.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line.
<unk> of Raymond James Your line is now open.
Thanks, Good morning, everyone.
Good morning helpful questions.
Couple of questions on my side first.
I'm glad to say Egypt is still on track for first half 'twenty three launch and did see explore all the Canada mentioned theyre expecting to offer Canadian service on that satellite in summer of 'twenty three so as it looked like the launch in service date.
Could still keep you on the Q2 late June July program, just wondering when that horizon two.
About entering service when should we think about that being as it's summertime.
We can't be more specific than what we have mentioned and we certainly cannot comment on anything that exploring it may have mentioned.
We leave the comments.
Regarding their announcements to them.
We're very much on track at the moment to do.
In.
Launch our south lagged in the first half of the year and we've accounted for it.
A good schedule then we think that at this moment.
Everything is on track.
So.
We're not able to offer you any additional details.
But.
We certainly expect that there will be a.
Service offering.
Post launch in the second half of the year.
Okay.
Can you give us a rough ballpark, maybe as far as how long from launch day.
Absolutely.
As far as from launch to service our reporting units.
Less than three months you'd be happy to answer a rise in loving.
Yes, it takes several weeks but.
Seven or eight weeks to get the satellite update but let me ask <unk> to give you more specifics about J J J <unk>.
Yes, I think so.
Typically in the system as it takes us about four weeks.
To get the satellite.
<unk> tested at <unk>.
Thats it for Lisa.
Turning to operate.
As we have specified at cooperate and then probably another two to four weeks to put it into foodservice.
Okay. Good.
As we think about that.
<unk>.
Is there a timeframe for when what's the definition of horizon three longer term.
Obviously horizon one we're in right now optimizing until J three launches in horizon, two as J three launches and you.
Get it into service, how long a timeframe as it beyond horizon, two to say here's what horizon. Three envisions is that two to five year plan is that a 5% to 10 year plan, what kind of is the ballpark timeframes a horizon III.
Great question, let me just start by reminding everyone that.
All three horizons are being worked in parallel.
Out of the effort on horizons.
In different Timeframes. So we are working horizon III, just as aggressively as we are working horizon, one and two.
So from that perspective. These are three streams of work activity with outputs.
That will be measurable and impacting our financials in different windows of time.
We look at these <unk> horizon III is about 2026 and beyond so you should be able to see and Thats easy.
Is it 2026 to 26 and half is 27 two.
2026 is pretty much what we think we'll see the effort.
What we're working now and give us a bit of latitude a couple of quarters back and forward, but that's the that's the window simply because.
It may happen sooner.
Spending on.
B.
If we find an acquisition target that we think.
It would be synergistic.
We would be absolutely the right one to do the impacted it may be sooner in 2026, but to sit and proper expectation.
We think that.
We need to be.
We need to have a.
A business model that.
Complements what we have today by 2026.
Okay.
Another one from my side, obviously stock buybacks are still out there, but it wasn't significant.
<unk> was not very large in Q2, you mentioned in horizon, two there might be some small M&A opportunities as well as you look at.
Providing services to the customer base, how should we think about how you are viewing the strong balance sheet the opportunity with the stock being basically trading at cash per share.
This is buying some other asset out there.
Alright.
So we yes, commenting on.
Share buyback at.
At the moment, we're not actively purchasing shares.
And this is a deliberate decision to keep the cash on balance sheet.
Partly because of the market conditions that all experiencing but also.
We think this is the right decision for us in terms of the execution of our.
Roadmap strategic roadmap.
We are proud of the fact that we had a very strong balance sheet and we have the accumulation of cash today cash is king more than ever and we think that condition will continue.
<unk> positions us very well to.
To execute the horizons that we just talked about I don't think acquisitions that we will be making in Hawaii for the horizon two impact.
It would be so significant that ULE.
Significantly impacted deplete our cash position so.
Probably more of our cash position will.
It will be consumed and put to use for opportunities in horizon three.
But again, we are a cash generating business as you as you heard me in private and talk about this.
We have generated significant amount of cash this year, we continue to.
Optimize our fixed costs and optimize our operations in a way that as we transition our business from consumer to enterprise and growing our enterprise business.
The bottom line cash generation is a key focus.
So we will enhance our cash position, we will use some of the cash.
As necessary to.
Complement the horizon to business, we have you should not expect that those acquisitions, if we make him which substantially in vastly different and just give us more competitive postures for execution and for Verizon to be obviously, we are hoping and looking on cigna.
Significant additional M&A.
Last one from me and I'll turn it over and some other folks.
I mean <unk> been now in the seat for seven months, obviously come in during a very difficult macro environment as you just talked to.
Do you have a significant cash position no net debt when we think of the equity.
And where the stock is trading what do you think you can do.
To help move the equity along what's kind of on your list of things to say, here's what I can I can put in place or communicate or what are you looking at as far as how to get the catalyst going to get the stock moving in the other direction.
Right.
I mentioned a couple of things.
One is that I think the strategic framework that we have put in place.
Is the right one obviously, we've debated it we've discussed it yet.
Shared with our board and seek views and opinions.
They're experts.
Experts in the industry, we think we are.
Heading the right direction in terms of our thinking.
Develop the business for long term indefinite sustainability and growth.
Having said that.
I also want to say that.
We want to be we don't want to be rash, we want to be patient, we don't want to raise the share price.
Just to have it come down based on some announcements and based on some.
Very short term oriented tactical moves that.
Raises the share price and then after that.
<unk> again that has not been the.
The the approach that this business has taken and is not the approach we will be taking going forward look we are at a point, where we believe this is an absolute rock bottom in.
I think we're trading at levels that nobody has ever seen in any other industry and what we want to be patient.
Okay.
Some degree we want to make sure that when we execute our horizons a strategy.
We do it in a sustainable way that the share price, obviously goes to full value from potential and beyond.
In a way that you can count on it being there so.
We are obviously I understand the market expects me and expects us to move things, but for the kind of movement, we talking about.
You don't want to you don't want you don't want to make a mistake you don't want to go ahead and for instance.
I would not look at some of the.
M&A that is happening in our space in terms of creating.
Larger scale in the same space.
Mergers in the same space.
If it doesn't diversified business I wouldn't do it so we are not.
We are very prudent about our thinking is.
Long term orientation of the business, so long way of saying.
I'd like to share. It is my goal it is our intent.
Our absolute focus to raise shareholder value and share price.
But we wanted to do it the right way and we will resist the pressure to do something for the sake of just being active.
So there's a delicate balance we understand it but we are very focused on it.
Okay very good look forward to more details as they come forward.
Thank you for the questions.
One moment for our next question.
Our next question comes from the line of Michael Rollins of Citi. Your line is now open.
Thanks, and good morning, I'm curious if you can give us an update on the competitive landscape in the consumer segment.
Are you seeing in terms of where fiber may be built in the future.
Seeing currently in terms of wireless.
Well as the other competitive.
Alternatives.
That your customers may have.
Sure.
Look some of the competitive dynamics you are fully aware of.
Youre aware that.
The Starlink is has been in the market now for almost a year.
Sterling has grown at the well while they have created some new segments for themselves them also impacted.
Impacted our business to some degree you have seen it in our consumer numbers, but I want to say that we.
We're not really focused on.
Just maximizing the number of consumers.
Looking at maximizing yields.
We may have less consumers now, but we have a growing <unk>. So our revenue per customer has grown on a quarter over quarter basis. So we're keeping great customers.
Again, we are maximizing yields so I don't think you should be focusing as we are not as focused on the number of customers more then.
What we get out of the consumer business, both domestically and internationally now as it comes to <unk>.
Fiber and fixed wireless.
Look fiber never made sense to go in every place obviously with near zero interest rates.
And historically low interest rates.
For borrowing capital Inc.
The infrastructure deployment.
Limited you could you could go ahead and justify investments in places where the density of population was very low and return on investment was acceptable.
With interest rates coming higher.
I do expect that that has slowed down.
I don't think fiber can go everywhere you couldnt can now even less so today at the cost of borrowing for infrastructure deployment I think the market in a long way of saying it.
Self serving as it may sound I think the market is coming our way.
We remain confident that is about 15 million homes, just in United States that we think are underserved from a broadband perspective, we think in Jupiter three shows up we have more than doubled our capacity of what we have had to date.
We are looking at.
$50 100 megabit per second.
Second speeds with diffusion health.
Helping with the latency and reliability in unlimited plans that the team is working on in horizon two.
We think our position in the marketplace will be very strong and the market is coming more our way that is running away from us.
We're not we're not blind to the competition.
But we are we feel that we are actually gearing up to.
To whom our position going forward.
Thank you.
Thank you please standby for our next question please.
Our next question comes from the line of Chris Quilty of Quilty analytics LLC. Your line is now open.
Thanks.
You have to excuse me I didn't get through the full 10-Q, but the.
EBITDA margins in the Hughes business were the lowest they've hit in about 10 quarters, where there are specific incremental costs in the quarter and how do we look at some of the.
The pre Jupiter three rollout costs and the impact on margins over the next couple of quarters.
Yes, I'd be happy to comment on that yes.
The EBITDA margin has come down.
It's been primarily due to the shift in mix from consumer to enterprise.
I'll comment on that a bit more in a second.
But theres also been some inflationary pressures as the cost to customer care in some of.
Material costs have come up.
Obviously, those things all add up we think that both of those other costs are transient.
It would be as the inflation subsides I think those costs.
Go back to more historical terms and I think we're going to recover some of that margin.
The shift in revenue.
From consumer to enterprise, obviously comes at a lower.
Margin will impact our EBITDA on the other hand, you have to know that when you go below EBITDA.
The enterprise business doesn't have as much capex.
Some some lower cost in terms of.
General services that are not on the gross margin.
So the capex the Capex will be the biggest impact here for the enterprise business having less.
The desk dragged in the consumer so.
If you look at a transition of consumer to enterprise business.
As you have seen our enterprise business is growing at a very very rapidly probably one of the fastest years, we have had in terms of growth.
You could see that as that business grows if it grows at the scale that we have been selling.
He can.
With the adjustments in our cost structure for that business.
Can replenish.
The loss of.
Profit net profit.
Ultimately it comes from the.
From shrinkage of the consumer business.
We actually like the enterprise business, we think is going to scale faster. We think we can do that I think we can diversify using the enterprise business, which is has a very large tam to account for that but in the short term. Obviously you will see some EBITDA shrinkage as we as we are in the midst of that transition.
I hope that answers.
Blended a number I think I answered your question, but I also wanted to make sure that we have.
We're just not looking at EBITDA margin, we also looking at the net.
Net income at the bottom.
Right.
<unk>.
The consumer business consumes around 40 or $50 million a quarter in Capex just for the CPE related piece is that correct.
I don't have that number at hand.
Yes, Chris This is Jerry I think that's relatively in the ballpark.
And I can follow up.
With you on that.
Chocolate.
Got you, Yeah, obviously and I think the consumer CPE.
Please I was going to say on the enterprise business Thats not a capex cost it's a hardware revenue.
Our enterprise business has a number of factors in at our enterprise business is not pure connectivity, we have a lot of services. The enterprise business, we have manufacturing in the enterprise business.
And some of them some of the.
Enterprise services Patman referred to a number of.
Deals that.
He has mentioned.
So the connectivity piece obviously does include.
Capex were for equipment, but.
Not for the services and the manufacturing, we generally recover the cost for materials pretty quickly and it's not capitalized.
Gotcha.
And just to circle back on the what we call the enterprise business, if we put aside the Hughes gateway business.
That business had been sort of a slow bleed for several years, no growth or shrinking slightly and it looks like in the past year or two put COVID-19 aside you've actually started to see organic growth in that business.
<unk>.
Again, the traditional business with sort of hooking up lottery terminals and gas stations.
How do you see the growth of the enterprise market.
<unk> from acquisitions on a go forward basis.
And what contributes to the growth of that business is it just underlying satellite capacity is how much better or is it more.
<unk> managed services Youre layering on top.
Yes.
Please go ahead. Thanks.
I think the enterprise business consists of two parts and the services pack and product delivery.
A significant amount of.
Business that we actually ship.
Saks and gateways are building networks for <unk>.
Different operators are all over the world.
I think one of the items that accelerated that is the technology of Jupiter three.
<unk> become the de facto standard pretty much all over the world. So we have had large volume sales.
In fact angio is just yes.
<unk> product sales.
In countries like Indonesia, Europe , India, Brazil.
So that has contributed very nicely too.
Both our view order input in our backlog.
And then if you.
You look at.
Some real big system jobs that we have won.
But for example is a few jobs.
Currently supplying gateway supplying terminal suppliers services.
They have come alive in the last three to five year three to four years.
So it's a good part of ours.
Okay.
R&D, but the one thing of course is as you've noted is the margins are much lower if somebody had mentioned earlier you don't get the margins that you've given.
The pure service business, the gross margins, but they can take it all the way down to net income.
Okay.
No that significantly sensitive.
By itself.
Service opportunity.
Great.
On your question.
Yeah, I think that gets us closer to the answer but.
If I were to switch final subject one web launching again, if we assume that they are.
Full service launch sometime next year, hopefully mid year or something.
What does that do to your business and specifically to your business in India and can you remind us is that it in an exclusive distribution.
Yes, we have an exclusive distribution.
Agreement.
Yeah.
One Deb and Thats going to make us very powerful.
Because not only will we have the existing ku and K business, but we also have the EMEA businesses.
And we will be able to implement our <unk> strategy.
And then much more significantly.
Very excited about it you know the whole satellite bucket and then guys just beginning to take off.
The launch.
The last constellation of 36 satellites.
Rakesh.
We successfully so the hole.
In telecom business structure.
Excited and we hope to participate.
And that excitement in this business grows there.
Great. Thank you very much.
Thank you please standby for our next question.
Our next question comes from the line of Prentiss of Raymond James Your line is now open.
Yes, thanks for taking my follow up it seems like it had some open time.
I mean, I think one of the top questions. We get from investors is that spend.
On it briefly I want to make sure if it didn't come up on other questions that came up.
So thats in horizon, two horizon III.
But I think investors are trying to figure out.
How should they think about this asset that you've put together there.
How should we think about what your thoughts are with the potential for partnering is or with the potential timeline for information to the street.
<unk>. So can you frame us any more color on <unk>, how should we be thinking about developing that asset information into the street.
Yes, that's great question.
So the expense story has evolved for the world not just for <unk>.
Echostar.
If you think about it.
All the way till about I don't know a year ago. So.
There was no standardization around.
Connectivity to the south from the med device from pension from five G. NTN at this time.
So the business model for <unk> spend would have been.
This exciting significantly smaller perhaps not even exciting in many ways given the cost of the launch in Macy's.
A legal system for specialized devices, but as the five G. NTN standardization has happened.
That restriction that limitation has been moved and in fact now looks very exciting.
If you could just come to the devices consumer devices that are just normal devices that consumers have in their pockets is exciting from the perspective of the end customer basis perspective.
We used a normal device I don't care you specialized device. They don't have to have a second device and also is very exciting from our perspective and the supplier and provider of the service where you don't have to subsidize you don't have to design develop manufacture distribute especially like terminals. So the game has changed but remember that game is only changed.
Past 12 months the game, that's a new game now.
If one wants to bring a service based on five G NTN to the market.
It requires the ecosystem of the <unk> I just mentioned that the devices, we would have to come from the device manufacturers.
And they would have to be sold on populated in the market Theres two couple of three years away from those devices.
In significant proliferation right I mean, the sentiment has just said it will take a couple of years.
Chipsets to be manufactured chips.
Chips is to make it to the terminals and terminals to be populated through sales I mean, the existing devices would not work you need the next generation pump. So when you look at all of that that kind of drives the timing and you have an element of ecosystem you can't no player no single player in the market.
Can lock in and say I have it all there is no single player. It doesn't matter, who you look at handset manufacturer satellite manufacturer service provider.
Operator, you can't none so.
It will require.
Collaboration and partnership of a number of players to make that work. That's why it takes time and Thats why its also is not prudent to make announcements unilaterally. When you don't have all of the elements that is required to develop this ecosystem and all the agreements and financials in place for.
To become a reality, that's why you're not going to hear from us any sort of premature announcements.
And any announcements that.
I'll just give you one angle of the picture, but not not not not the full picture.
But having said that I want to mention that we are very focused on it.
<unk>.
We haven't.
Understand the opportunity we understand the size of the market, perhaps better than anybody else given that we have manufactured terminals for almost every satellite manufacturer and provider out there.
We have been in satellite to handset connectivity in Europe .
Email European mobile business we.
We've done that we do today.
Two specialized devices and Laura and we understand the space.
We don't want to come in with a premature information releases, which is not helpful 94 investors know for.
Looking at our customers I.
I hope that answers your question to some degree.
Yes.
There's been a lot of other announcements out there Apple with Globalstar iridium with an unnamed partner T mobile with Spacex Starlink Theres a lot happening in the communications world and with satellite companies. So my interpretation is suffice it to say you're in talks discussions you know whats happening out there.
And you are not on the sidelines, you're just not ready to put it on the field.
With that I would say that's fair.
And if I were sitting on the other side that would be my conclusion I would also say the announcements made today are not game changers were not seeing any of those announcements as as the ultimate answer here.
None of those are based on <unk>, none of those are based on.
A greater service.
Product.
Breath that we think will change the.
Change the behavior on the economics of the industry.
We think.
The real solution of director handset would have to bring capabilities similar to people used today on a normal basis, it should be able to make voice calls data calls.
Just a few of emergency messaging or <unk>.
Providing.
Limited service over a small geography, which we don't even think it's.
Viable commercially to build the whole ecosystem to provide.
No.
Actual coverage in one country or another.
I don't think those things are.
First of all viable game changers and also we think that nobody is ahead of anybody else when it comes to <unk>.
Providing a <unk> base system, which we believe we continue to believe is the right answer.
That's very helpful. Thanks.
At this time I'm showing no further questions I would now like to turn it back to Terry Brown for closing remarks.
Okay. Thank you everybody for joining the call today, and we look forward to talking to you.
Our next call.
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