EchoStar Corporation (SATS) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Huc [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Thank you, Mr. Deepak Dutt, you may begin your conference.

Thank you and good day, everybody, and welcome. I’m joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, Executive Vice President, Corporate and Business Development; and Dean Manson, General Counsel. As you know, we invite media to participate in listen-only mode on the call and ask that you not identify participants or their firms in your reports. 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. Dean?

Thank you, Deepak, and good morning, everyone. All statements we make during this call that are not statements of historical fact constitutes forward-looking statements, which 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 such forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K filed in connection with our earnings. All cautionary statements that we make during this 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 undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. I will now turn the call over to Mike Dugan.

Thanks, Dean. And welcome to everybody that’s joining us on the call. I am pleased to say that our financials for Q4 and full-year 2014 were strong, and continue to be consistent with our expectations and outlook. EchoStar revenue in the Q4 2014 was $844 million for a growth of 4% over Q4 of 2013. Revenue for full-year 2014 was $3.4 billion, a growth of 5% over the last year. Dave Rayner, our CFO, will address our financials in more detail little bit later in the call. I just thought it would be good to bring up few key points about EchoStar that we often don’t talk about. EchoStar has evolved into the world’s largest satellite based broadcast and broadband networking products and services company. We are currently one of the FSS satellite owners and most of that capacity is used in our broadcast and broadband networks. Our ability to be totally vertically integrated give us a unique position in the market that we serve and we’re working to get into other market as well. Obviously, each of our three divisions plays a role in this strategy and as we go into the future we will make investments to increase our market share in all of these segments. We now own, lease, and/or manage, 23 satellites and continue to add to this fleet. In addition to the Ku, Ka satellites that we have in our fleet, now we have five satellites being built including a satellite for mobility services in Europe in the next few years. We’re the largest provider of consumer broadband satellite services in North America and we dominate the global satellite enterprise market. In the United States and Europe we have evolved into the managed network services business to serve the enterprise market. We have arguably the finest set top products for video broadcast within ETC. All of this has been made possible by our engineering and infrastructure capabilities, which makes us a key partner for any new satellite program being contemplated. Our new investments include a broadband consumer business in Brazil, a home automation system called SAGE, additions to our satellite fleet for consumer broadband and FSS services in North America, the mobility satellite service in Europe we talked about earlier and continued opportunities for DTH services in Brazil. These all are exciting initiatives, in addition with our strong balance sheet, we continue to look at other M&A opportunities that are consistent with all of these strengths. We are well positioned to continue our growth in the next few years. I’m now going to turn the call over to the individual heads of our business units to go over their operations. We’ll start with Mr. Mark Jackson, President of ETC, whose birthday is today by the way. And he’ll be followed by Anders Johnson, President of ESS; and then Pradman Kaul, President of Hughes. Dave Rayner, our CFO, will give you an overview of our financials, after which I’ll come back with some closing comments before we start the Q&A. Mr. Jackson.

Thank you, Mike. So EchoStar Technologies revenue for the fourth quarter is $365 million, down about 10% compared to 2013. This is driven by lower set-top-box sales primarily to DISH Network. We are at the tail-end of a product cycle with DISH or the inventory returns from customers are at a level of a lower level requirements for new products, basically they need to burn off some of the existing products to get ready for the new products, because we’re currently in development for the next generation of boxes for DISH, which should be ready to ship later this year. In the end term, we would expect to see lower levels of sales with set-top-boxes. In the meantime, we continue to focus on developing and delivering innovative enhancements to our existing products. On the DISH front, we have enabled them to be the first DTH pay-TV provider and probably on any MSO to integrate Netflix directly into the set-top-box to give consumers a broader choice of products and also enable more stickiness for DISH. We also launched the Bluetooth adapter which provides audio streaming for the Joey family or for the Slate family of products to our customers. They can now use Bluetooth accessories such as headsets and sound-bars in their total home experience. While the Hopper family of boxes currently only used by DISH Network, we have received interests from other international customers in using the Hopper technology in their product sets and that includes the whole ecosystem of Hopper which is very robust. Changing to the different customer Channel Master, the success of the DVR+ with Channel Master continues with CNET recognizing that DVR+ is one of their favorite products of the year. While already being on CNET’s elite list of products having the highest rated reviews and staying power. We continue to make product enhancements. In Q4, we integrated YouTube into the DVR+ program guide alongside VUDU and Pandora. Consumers will now have a unified TV viewing experience across multiple content delivery sources without needing to switch TV inputs or use a mobile device for casting. In 2014, we began development of our foray into security and home automation. We recognized that this is a crowded market segment which is why we have created an incredibly unique feature set which we believe will be disruptive and economically competitive. This is to appeal to the market segment that does not have a securities solution today due to its cost or complexity which is about 80% plus of the market. SAGE will give consumers peace of mind and the convenience they need about what’s going on at their home. We look forward to the launch of SAGE in mid-2015. I’d now like to fill it over to Anders Johnson.

Thanks, Mark. ESS revenue in the fourth quarter was $127 million, a 50% increase over last year and EBITDA was $111 million, a 61% increase. Much of this increase is attributable to the five satellites we acquired from DISH in the first quarter of 2014. As we mentioned on previous phone calls, we have five EchoStar satellites under construction, plus we are managing the construction of EchoStar XVIII for DISH. I will address three of the satellite projects and Pradman will comment on the other two shortly. In December, we exercised our option to acquire TerreStar 2 construction agreement from DISH. The satellite now referred to as EchoStar XXI is an S-band satellite planned for use in part by our Solaris Mobile venture in Europe. It’s progressing according to schedule with launch planned in the first quarter of 2016. EchoStar XXIII is a very flexible Ku BSS satellite designed to fulfill multiple mission profiles including its initial deployment at the 45-degree west slot for Brazil is also on schedule with launch planned in the third quarter of 2016. In August, we contracted with Airbus for the construction of EchoStar 105, also known as SES-11, as a replacement for the AMC-15 satellite in FSS satellite at a 105-degrees west. Under an agreement with SES we will commercialize the Ku payload on the satellite while SES will commercialize the Ka and C-band payloads. In conjunction with this arrangement, we also extended our services contracts with SES for the AMC-15 and AMC-16 satellite continuing our commitment to the fixed satellite services market in North America. Echo 105 is targeted for an early 2017 launch. With the extension of the AMC-15 and AMC-16 service agreements and the contract for the replacement satellite, we are aggressively pursuing revenue growth opportunities on these satellites. In the fourth quarter, Boeing renewed an extended capacity agreement with us at the 105 orbital location with options to the third quarter of 2024. With these three satellites and the two that Pradman will discuss we are scheduled for approximately one launch per quarter on a diversified set of launch vehicles from Q1 2016 through the beginning of 2017. We are excited about the challenge and opportunities these additions will afford us to continue to grow our satellite related business. I will now turn it over to Pradman.

Thank you, Anders. Hughes had another very strong quarter and full year 2015. Our Q4 revenue was $344 million, up 10% over last year and EBITDA was up 14% at $90 million, which increased faster than revenue. For fiscal year 2014, revenue was $1.3 billion, up 9%. And EBITDA was $357 million, up 27% year-to-year. All major segments of our business performed well. In the North American consumer and enterprise units contributed significantly to our growth in revenue and margins. Despite a tough economic environment in Europe, Russia and Brazil, and strong currency headwinds, our international division held it on and also showed growth in both revenues and margin. Our sales and marketing efforts resulted in record new orders of over $1.5 billion in 2014, and a record backlog of $1.3 billion, a 10% increase. This backlog does not include our consumer business. Now, let’s focus a little bit on the North American consumer business. Gross adds for the quarter exceeded 95,000 subs. This is an important statistic because it shows that the demand in the market continues to be strong. This is despite the fact that a number of our beams are getting saturated in the high fill areas. The high growth that we’ve seen in subscribers since the launch of JUPITER 1/EchoStar XVII, has resulted in the high demand beams on the satellite getting saturated. To address this, we’ve adjusted our marketing strategy to focus on the geographies where we have the most satellite capacity available and we also made significant enhancements to our Gen4 plans featuring a new generation of performance enhancing innovations in downloading, browsing and data usage management. While we expect to grow the consumer business in 2015, the rate of growth in subscribers will be lower than it was without the capacity constraint. Consumer service revenues continued double-digit year-to-year growth in Q4 and 2014, where 17,000 net adds in Q4 and a 117,000 net adds in the total fiscal year. The makeup of this net adds is important to highlight. In Q4, subscribers of the Gen4 platform increased by net of 51,000, while our legacy subscribers decreased by 34,000. In the 12-months ending December 2014, Gen4 cell subscribers increased by 251,000 and our legacy subscribers decreased by 134,000. So as you can see we’ve been increasing Gen4 subscribers at a nice clip, while reducing our legacy subscriber base which is very much in line with our strategy. ARPU continues to be strong and rose in Q4 for the fourth consecutive quarter in 2014. Churn was higher than we would like, but - and we continue to focus on churn management. Our large base of existing subscribers causes a decrease in net adds for the same percentage churn. It trended down in the fourth quarter compared to the earlier quarters reflecting our ongoing efforts to improve the customer experience. Of our gross adds in the fourth quarter, two-thirds of them came from our retail channels, slightly more than what we experience for the full-year. So we ended 2014 with 977,000 consumers and SME subs, a growth of 14% over the subscriber base as of December 31, 2013. This sub count makes us the largest satellite based consumer service provider in North America, with the market share of approximately 60%. Let us now highlight some of the major enterprise and mobile satellite orders we booked in the fourth quarter. In North America, we booked orders from Carter’s, National Cinemedia, Springleaf Financial, Buckeye Pipeline, Yum! Brands, and Exxon Mobil. Our North American enterprise orders are generally three to five years’ service contracts for managed network services, using the best access technology available at each branch. The market likes our offering and we are optimistic about the future. In our international enterprise business, we booked large orders from Saudi Aramco, British Petroleum, Telemar Brazil and Telefónica Brazil. Our three international service companies in Europe, Brazil and India had good years and continue to grow. In our mobile satellite business, we secured major orders from Boeing for the MEXSAT project and Thuraya in the United Arab Emirates. The MEXSAT project for the Mexican government is due for delivery this year and includes supplying the entire ground network for 3G voice, data, push-to-talk systems, and user terminals, and also the development on maritime, land mobile, semi-fixed and portable user terminals. Hughes will deliver an upgrade to their voice system also and a regional data gateway in Cyprus and also mobile and portable user terminal production. We are also continuing to pursue a couple of new major international mobile satellite opportunities. In the aeronautical market segment we continued to be a major equipment and service provider to Global Eagle Entertainment with Southwest Airlines as their major customer. In addition, we also partner internationally with Global Eagle for international airlines like the Norwegian Air Shuttle, Icelandair, Nok Air, Transaero and Air China. We are also continuing to develop new products and services in this exciting segment and will be deploying them in the next few years. So overall, our Ka-band technology and platform are now deployed with service available through us directly, or through our partners in a large part of the world. Our estimate is that the worldwide satellite capacity over the next few years will double as a result of high throughput satellite technology and we expect to continue to get more than our fair share of the infrastructure equipment for these through our JUPITER technology. We’ve already secured orders for several of these and there are number of other deals that have been worked and will be announced as soon as we close on them. The strategic advantage of being able to offer our customers global service on the same platform is one of the keys of our success. Now regarding our new HTS Ka-band satellite JUPITER 2/Echo XIX construction as proceeding as planned. We are on track to launch the satellite in the second quarter of 2016 to augment capacity for our consumer business in North America and to expand our offering in Central America and Canada. With this additional capacity being available we expect to increase the growth in our consumer business. As many of you also know we signed a 15-year contract with Eutelsat to lease the Ka-band capacity connected to the Brazilian service area on the Eutelsat 65 West satellite. With the expected launch in 2016, Eutelsat 65 will host the Ka-band payload with 16 spot beams, which cover a significant portion of the Brazilian population, and generate approximately 25 gigabits of throughput. We’ll use JUPITER technology for the ground system and customer premise terminals. Satellite construction, operational planning are scheduled, and we expect to be in service by mid-2016. Eutelsat 65 will be our springboard in Brazil for broadband service to consumers. So as you can see, all our major business units are doing well and we hope to continue our growth in the years to come. I’ll now hand the call over to Dave Rayner.

Thank you, Pradman. As Mike mentioned, EchoStar revenue this quarter was $844 million compared to $808 million in the fourth quarter of 2013. EBITDA was $230 million in the fourth quarter, up 43% over the fourth quarter last year. EBITDA margins increased 7.3 percentage points to 27.2%. Net income attributable to EchoStar common stock was $54.8 million, compared to $4.5 million in the fourth quarter 2013. For the full-year, revenues were $3.45 billion for 5% growth over 2013 and EBITDA was $903 million at 39% increase over the fiscal year 2013. Full-year net income attributable to EchoStar common stock was $165 million compared to $2.5 million in 2013. Capital expenditures for the quarter were $246 million compared to $127 million last year. For the full-year CapEx was $680 million compared to $392 million for 2013. The spending increase is primarily related to the satellite construction that Anders and Pradman discussed. CapEx was not as high as we thought early in the year due to delays in some of the satellite programs. With all the programs now well underway I would expect 2015 spending to be in the mid-$800 million range with the satellites and related ground infrastructure driving the increase. Free cash flow, which we defined as EBITDA minus CapEx, was a negative $16 million in the fourth quarter, primarily due to the ramp up in satellite CapEx. For the full year free cash flow was $223 million. Turning to business segments, EchoStar Technologies revenue in the fourth quarter was $365 million compared to $407 million last year. As Mark, mentioned the decline is primarily due to lower revenue from equipment sales to DISH, somewhat offset by higher equipment sales to Dish Mexico. Also as Mark indicated, we would expect the lower sales to DISH would continue in 2015. ETC EBITDA in the fourth quarter 2014 was $34 million compared to $31 million last year, the increase being primarily due to $4 million impairment in 2013. So even with the lower revenue we had maintained the EBITDA contribution. For the full-year, ETC revenue was $1.61 billion compared to $1.72 billion in 2013, decline was again primarily due to lower equipment sales to DISH. ETC EBITDA in 2014 was $152 million, an increase of $16.4 million over 2013. As in the fourth quarter we maintained and even slightly increased EBITDA margin contribution, even with a significant decline in revenue. Hughes revenue in fourth quarter 2014 was $344 million for growth of 10% of the fourth quarter last year. For the full-year, revenue was $1.33 billion or 9% growth. For the quarter and full-year the growth has been led by consumer services, but we saw growth across all business units with one exception that being sale of wholesale consumer equipment to DISH. Hughes EBITDA in the fourth quarter was $90 million, or 14% increase over 2013 and the full-year was $357 with strong increase of 27%. Contributors to this growth were a higher mix of service revenue in 2014 will be associated higher margins. EchoStar Satellite Service revenue was $127 million in the fourth quarter, up 50% over last year and $484 million for the full-year, increasing 47%. ESS EBITDA in Q4 was $111 million, an increase of 61% during the fourth quarter of 2013, and $419 million for the full-year, an increase of 78%. As Anders indicated, the increase in revenue and EBITDA are primarily due to the additional revenue generated from five satellites we acquired from DISH, as part of the HRG transaction in the first quarter of 2014. In conjunction with the extension of the AMC-15 and AMC-16 agreements, the accounting treatment will transition from capital leases to operating leases. So while we expect to see an improvement in cash flow, we also expect that we will have an approximate $17 million negative impact in EBITDA in 2015, as a result of this change. In the all other segment, where we recorded gains on sales of securities, eliminations for intersegment sales, and other corporate transactions, EBITDA in the fourth quarter was a negative $4.5 million, compared to a negative $17.2 million last year. The increase in 2014 was in large part due to a gain on strategic investment in 2014, in a reserve recorded in 2013. We continue to have a very robust balance sheet with approximately $1.7 billion of cash and marketable securities, which gives us ample resources to continue to pursue our strategic objectives. With that, let me turn it back over to Mike Dugan.

Thank you, Dave. Before we go to question-and-answers, I would like to make a few closing comments. I’m sure you guys are looking for them to be short. For our Solaris Mobile SM venture in Europe, we exercised our option to purchase TerreStar 2, as Anders talked about, we now named it EchoStar XXIII, that’s scheduled for launch in 2016. We are working hard on the ground and terminal components of the network with our news organization and that’s progressing well. Our team is currently working with the EU and member of states to more clearly define and harmonize the regulations related to operational such as service. Our efforts to build out a high quality satellite video offering in Brazil continues to move much slower than we would like or even would have expected. We continue to have discussions with existing telecom operators in the region, but the shifting landscape is slowing any move in progress. Finally, our business development group has been very busy evaluating malleable projects and potential acquisition opportunities. We will continue to be diligent on examining these opportunities and we will put ourselves in a position of where - we will not put ourselves in a position of overreaching or overspending just for the sake of getting a deal. It’s now time for questions and answers. So, operator, would you please start the process.

Certainly. [Operator Instructions] Your first question comes from the line of Tim Quillin with Stephens Inc.

Hey, good morning. With Hughes, I think if I did my math correct, based on the 95,000 gross additions, it looks like the churn rate was something like 2.7%, is that correct?

That’s approximately...

We calculated in the one way, that number is reasonable.

And I know it impacts the legacy satellite subs a little bit more.

Yes, that is a much larger impact than the good subs that come on our Gen4 plans.

And how does the churn rate look like in the wholesale channel versus the retail channel?

I don’t think we break our churn rates down into those separate segments.

Maybe just generally if you could talk about the challenges to getting that churn rate down to a lower level, you’re down closer to two, and with DISH, I think DISH Net going through kind of a litany of reasons on their web of caveats of why somebody might not want to be a subscriber, and I think your shift is to retail versus wholesale. So it looks like they are throttling back pretty well to help reduce churn. So why are we seeing that in an overall reduction in churn right now?

Yes, I think first of all, we got to be careful about wholesale versus retail. I do not think we are dialing back. I think you said dialing back on retail and focusing on wholesale [Multiple Speakers] we also said, but certainly we continue to be extremely focused on the retail channel. The reality of churn in this business is, when we first started out, we have mapped the satellite, I believe we acquired a lot of subs in fairly competitive markets and were ended up the result of that, we added lot of subs, but we are losing some of those subs to competition. We’ve refocused all of the efforts in retail and I think you are seeing that on dishes, as you talked about to be focused adding good subs in general and underserved markets, where we have a great product and people are very happy with it. And I think it’s as simple as that.

Yes. And would you expect the net additions to kind of stay in plus or minus in the same range that you saw in fourth quarter, and so you launched JUPITER 2?

Well, we continue to build the satellite. I mean, with - to be honest with you, the team has done a super job. We’ve been more successful in telling bps quicker than we would have predicted or we should have started JUPITER 2 a little bit earlier. And we are going to continue, all I can say is, I hope things are going to continue to fill up and that we continue to hold subs. And so we are going to do our best to optimize the number of subs we get in a beam and total subs we can have on the satellite as long as we compete our customer satisfaction at the highest numbers.

Okay, very good. And then on Solaris, could you just give us an update on your efforts with regulators in Europe and trying to convince them that the complementary ground component portion of the spectrum license would be applicable to LTE data services and is Germany kind of the linchpin to that process? Thank you.

Well, I think you are getting very complex. I will tell you we’re somewhat in the early stages of working with all the countries and it’s a daunting task. I mean, there is a lot of differences in the various countries as to the amount of time they’ve been able to allocate to us the meetings, and we’ve got a full team very focused on it. It’s premature for us to give you a solid indication of progress there. But I can tell you it’s - from my perspective it’s gone better than we thought at this point in time. But we got a lot of work to do.

Okay. Thank you.

Your next question comes from the line of Andrew Spinola with Wells Fargo.

Thank you. Wanted to ask about the impact that you might have seen during the quarter from your initial next gen subs sort of hitting their two-year mark and possibly rolling off, I think there was a little bit of a concern with it. How did that manifest, was it sort of in line with your expectations or…?

Yes, I think it’s - we were pleasantly surprised. We were hope - we were expecting that maybe we would lose a lot more subs and their contracts ended. And I think the results have been better than we expected.

Got it. Pradman, the - it’s interesting that the net adds are slowing a little bit, but the revenue growth rate in the Hughes businesses is accelerating in the second-half of 2014. Can you just give us maybe a little thought on why that business, the non-consumer broadband business is maybe accelerating and what your outlook is for 2015 there?

Well, first of all the consumer revenues also went up nicely. And the primary reason for that was the growth in ARPU. And that’s been a big, big element in our success of growing to subscriber revenues and consumer business revenues. So that continued to be the fastest growing part of our business. Now, having said that, the enterprise business, both in North America and internationally, has also been doing well. And in the U.S., we find a strong demand for the managed network services that I mentioned in my doc, people are accepting those offer - those plans very eagerly. The franchise business, the Pizza Inns, Pizza Huts, the gas station for Exxon Mobil, Chevron, they’re all signing up at a rate which is very, very nice for us. Internationally, we had some outside environmental conditions that were tough and the foreign exchange part, Brazil and Europe being in - and Russia being in recession kind of environment but the rest of the world was strong and we held our own and the international business also showed through. So we’re pleased with that.

What is the primary driver of ARPU? Is it the higher price plans with bigger data caps or is it the voice…?

Andrew, one moment.

Yes, I think all the elements have contributed, the new service going to be offered, like VoIP, et cetera. We also offer, I think one of the best ones is, the repair that we give people an option to have the units shipped to us and repair and return very quickly. And that adds $1 or $2 to our ARPU. We also - also we offer these tokens to increase the size of the data caps that when they run out of data. So each one of these is contributing and we’re also finding that people do sign up for higher end plans in some cases. So if you take a little bit from each of them, we add a couple of dollars of ARPU increase over what we had last year, which has been 1 million subs, that’s a lot of revenues.

Got it. I understand that the net adds are sort of slowing going forward as the capacity fills up. And from a really high level sort of view, how do you think of the JUPITER 2 satellite will help you grow this business going forward. Are you going to use the extra - obviously you’ll have more capacity on the full beams but are you going to use the capacity to increase speeds and data caps and things like that or are you also planning to start doing more things outside of consumer broadband?

Well, it’s a little premature to finalize what plans we are going to offer and do, and things that we’re going to do, but one thing is certain, the high fill beams is where most of our potential customers are and we have more capacity in those areas to get more customers, more subs, and if you offer new services, increase our ARPU, so all of the above will happen in some form. Exactly what the combination of all of that is going to be a little premature for us to - we’re a year away, more than a year away from that event and times, we’ll firm up our plans when you get closer to the launch of satellite.

Got it and last question for me, for Mark, I just might - the way I have always thought of the technologies business is sort of relatively steady business, maybe a little bit of decline as DISH sort of orders less. The home automation is obviously interesting and then some of Mike’s comments should imply investments across all the segments. So should we think of home automation as maybe as just the beginning of what you’re planning to do in technologies? Is this a business that might see more new products over the coming years and possibly return to growth?

Well, it certainly helps, I mean, our plan right now is to attack it very hard. We’re going after a market segment that’s underserved but there is a lot of building blocks of all the other organization. teams which is helping out a lot on this project with the back-end systems and other things, but it looks very promising to us. We think we got some unique features but it’s a very competitive marketplace that we think we’re well poised to go in there and attack it and be innovative and also fairly disruptive.

Yes, I think, this is Mike Dugan. I think the thing that’s hidden within the realm of company that have been integrated under EchoStar is the fact that Mark’s organization has huge technology investments to run all of the services that he runs for DISH online. And some of the other Sling and news has all of us back and infrastructure from million plus customers and what we recognized is we got all of these great building blocks that no start up or anybody can put together and bring to market in a cost effective way. So that - that’s our challenge and between Pradman, Mark, Anders, Dave and I, we continue to focus on how the heck do we take advantage of all of those hidden capability within the company and you’re going to see some significant attempts to do that going forward and SAGE is the first part of it.

All right, thank you very much for the color. Thank you.

[Operator Instructions] Your next question comes from the line of Jason Bazinet with Citi.

Two quick ones for Mr. Rayner. In the K, if I read it correctly, it imply that you plan to recognize about $180 million more of backlog revenues relative to last year across both Hughes and ESS. And my question is, are there any sort of special headwinds that we should be aware of that would cause the top line to more muted than that? That’s my first question.

Yes, I mean, so the backlog, I mean, that’s where we got significant backlog in both the Hughes enterprise contracts as well as the ESS satellite contracts. So you got significant revenues coming through from those, you would have had a pretty good year at Hughes on signing new contracts.

Yes.

And obviously the five new satellites that we have at ESS are going to contribute to increased revenue we had 10 months ago satellites in 2014, we’ll have obviously 12 months in 2015.

Yes.

I mean the headwinds, I think, yes, certainly, as we discussed, at ETC we’re going to have some struggles in 2015 until we get the next generation of set-top-boxes to DISH. International basis, you got currency rates that are becoming an issue and as well as continue to struggle. Not that our local businesses are suffering because of that but our revenue recognition because of those exchange rate fluctuations maybe impacted. And you got obviously a lot of turmoil in a global basis and we do - I think at the last call, Hughes was selling services into a 100 different countries. All those countries are going to have some political difficulties. Brazil’s economy is certainly slowing down. Brazil is a large opportunity for us, within the Hughes business. So we feel pretty good about business overall in the direction that we’re taking it in, but there are certainly going to be headwinds, some of which we can see and some of which we really can’t escape.

Okay. Very good. And then my next question is given the relatively low amount of net debt that you have on the balance sheet and on the heels of the HRG transaction that you did last year. The coupon rates on your two pieces of debt actually seemed pretty high to me. Can you - do you agree with that based on prevailing rates and leverage, and can you just talk a bit about what opportunities you have to refinance if any?

Yes, I mean, neither piece of this debt are callable today. I mean, we can certainly go back into the market and look at refinancing those. That has not been a priority for us at this point in time, something that we’re - we always sort of keep on the back burner, but the intent right now for all the efforts that Mike mentioned as well as the efforts that Ken Carroll is putting forward is to put that money to work. Yes, it is always a possibility, Jason, but I don’t think it’s our biggest priority right now.

If you took a gander on what the - if you had to raise more debt today, what your interest rate would be, do you have a gander at what that would be?

You guys are probably in a better position to predict that, I mean, you’re at just as good a position to predict that.

Okay. All right, very good. Thank you.

Thank you.

Your next question comes from the line of Chris Quilty with Raymond James.

Pradman, wanted to follow-up, you mentioned that you were losing some subscribers to competition. Is that competition from new terrestrial services coming into your service area or are those churn across to ViaSat?

No, we don’t really see any churn to ViaSat. I think when we lose any sub to competition it’s primarily because of cable or fiber or wireless enters that particular area. So it’s primarily to new - cable fiber kind of terrestrial technologies.

And do you know when you sign up new subscribers whether they had service previously or not and has anything changed with that trend line?

What we do know by - almost by house is what kind of technologies are available for that particular house. So we try to avoid, for example, selling to a particular resident where we know there is an option to go to phires or cable, so we try to be as selective as we can. In fact, in our call center, people are trained to - if somebody calls in from a phires area just tell that customer that they are probably better off going the other way.

So by net part of this the software that they have available to them when somebody punches in the area code?

Yes, and actually by zip code, there is an incredible database that allows us a lot of insight into what is happening in each neighborhood and in each area.

Gotcha. And the ARPU trend, how sustainable do you think that is on an ongoing basis? Are you going to eventually plateau out?

Well, trees don’t reach cloud, so eventually we got to plateau, but it’s been growing up at a nice steady cliff.

Gotcha. Shifting gears the - you mentioned in the 10-K, or I think maybe in the script that you are repurposing the CMBStar satellite for Latin America, Mexico, Brazil, can’t remember. So two questions, number one, do you have an S-band license to operate? And number two, can you give us an idea what types of services you might be targeting?

Yes. Hi, this is Anders…

Let’s get our reference manual out since, we have so many satellites.

Yes. Hi, this is Anders. Well, I think you’re mixing things here, because CMBStar, which was originally configured for an S-band mission in Asia was suspended quite a few years ago and put into storage. And what we’ve done is, we’ve taken it out of storage, taken all of the S-bands payload and other S-bands specific equipment off of the satellite. And in essence we’re using the bus, the electrical system, and the proposition system and manufacturing new communications, panels, feed structures and reflectors for that satellite to become a Ku BSS satellite. So it’s a highly reconfigurable satellite once in orbit. So it’s initial deployment will be 45 degrees West in fulfillment of our license obligations to Brazil. Right now the only S-band satellite we have under construction is the Echo XXI, formerly TerreStar II, which is destined for Europe.

Great. Turning back, Pradman, one other question you - when you talked about churn and the fact that the churn was mostly coming off the legacy subscribers. Is that - are you seeing churn on the SPACEWAY satellite, or those just the legacy Ku-band?

Certainly, the legacy Ku-band and also the subs on SPACEWAY that are not on Gen 4, that are on the old plants that we had on SPACEWAY.

And are - is there any reason you don’t upgrade them to Gen4?

Our upgrade program is moving very aggressively and what you’re seeing - we’re working as hard as we can to upgrade as many of them as we can.

But a lot of those subs are in, what we’ll call the infield and we can give them a service on Gen4, on SPACEWAY that we’re able to on JUPITER.

Got you. And final…

[indiscernible] JUPITER 2.

And can you remind us what type of either being power or flexible beams you have in order to provide more capacity of those high demand areas?

Well, on the present JUPITER 1, it’s pretty much fixed right, there is no extra capacity that we can provide that doesn’t exist today. The - and the JUPITER 2 will just increase the amount of capacity, these are bent-pipe satellites with a fixed beam pattern that’s - that can’t be moved.

So no steerable beam or dynamic power that, I mean are we - should we suspect that a year after you launched that satellite the same high demand areas are going to tap out again? I mean a high class problem to have, I guess.

Yes. It’s a high class problem, but we don’t expect that a year will cause us it to saturate, just like JUPITER 1 didn’t saturate in a year, it’s been 2.5 years.

Perfect. And final question the Sling TV effort which I’m pretty sure does not actually use any Sling technology, but you had a prior endeavor with DISH on the DISH digital side. Any benefit or upside to you, I mean, the service has gotten some very positive press?

Well, first of all, EchoStar is a stakeholder in Sling TV. So its success will certainly benefit us. Second of all, EchoStar resources continued to provide the engine that drives Sling TV. And that is one of the technology capabilities that we talked about earlier that we’re going to bring to bear to allow us to provide other resources and potentially provide similar services around the world depending on the interest level. So most of the technology and the apps and everything that are powering DISH online and Sling TV, and also the Sling back, the infrastructure that drives the Slingbox technology, all of that stuff is certainly usable elsewhere in the world. And your very astute point out, but Sling TV doesn’t use any of the Sling technology, because of that fact.

Great. Thank you.

Your next question comes from the line of Andrew DeGasperi from Macquarie Capital.

Thanks. I was just wondering, I know DISH had some programming disputes as of mid-December through mid-January. I was wondering if since I know they haven’t reported yet, but if they had any impact in video business, has that tricked down to your wholesale business? And secondly, I was just wondering, can you give us any comments on any sub growth in Mexico is that ongoing? Thanks.

Well, obviously digital have their call, I think either Monday. And it’d be irrational to say that if they have churn related to those takedown with some of those subs didn’t both bundle DISH service from use and the video service from DISH. So we haven’t seen a huge impact that we can point out and say, well, that’s been a big contributor, otherwise we would have brought it up. But I’m sure there has been some of that and you’ll probably get more insight into that from DISH directly. We really - it is a wholesale deal and it’s totally what they have month-to-month. So I can’t tell you exactly whether customers are calling are coming from. As the DISH Mexico, I don’t know, Ken, do you want to say anything about?

Yes, I would just say in general that since this Mexico has obtained the local - effectively, the local channels for Mexico, which they started marketing, selling in the September, October timeframe. They’ve been - they’re certainly seeing an increase in the net adds on monthly basis.

Great. Lastly, I wanted to ask on the FX just to follow-up on that. I noticed in the case that your exposure is about 14% of revenues. Can you comment on any regions in particular that you think you’re most exposed to?

Well, I mean, I think we’re going to be mostly - we’re not going to start breaking out revenue by region. But we’ve got a large presence in euro - across Europe, obviously in India and Brazil are the biggest overall issues that we have. Certainly, as Pradman mentioned, we’ll get a quite a bit of business in the Russia too. So those are the territories that we would see the biggest impact likely coming out of exchange rate fluctuations.

Great. Thank you.

Your next question is a follow-up question from the line of Andrew Spinola with Wells Fargo.

Thank you. Just one last one for Pradman. Pradman, I saw the news reports about a potential obligation for consumer broadband offering in India and the possibility about that. And I wonder if you could comment on that, but even from a higher level, you’re looking a lot of emerging markets for possible broadband applications Brazil, potentially Mexico with Echo XIX. And you mentioned Central America on the call, India, Brazil. What makes you confident that you can be successful in these different markets when the consumer just doesn’t have the discretionary in common. I’ve gotten this question much and obviously Eutelsat has had struggles in Europe, where discretionary income is much higher. So when you think about it, do you think it can be successful entirely in consumer broadband, or are you going to need to use that capacity in those markets for more enterprise applications, how - why do you feel comfortable in going after so many emerging markets at one time? Thank you.

Well, it’s a very good question, and we’ve been moving very carefully and cautiously though, and really not going after five consumer international markets. The first one we are going to do is Brazil. And like in the United States when we first entered, we’ve done a tremendous amount of work in market research. And we have set our business plan on the basis of like we did in the United States, there are about 8 million households that have unserved and underserved in terms of broadband availability in other technologies. And Eutelsat 65, which we are using in Brazil, our capacity would be filled up if we get 300,000 subs. So for us to think that in two or three years, we should be able to reasonably confident we can get 300,000 subs or in Brazil and make the Eutelsat 65 business, not just the satellite, but the business is successful. That same kind of analysis is what we are looking at in one or two other markets. We are not really doing - we are not really addressing the consumer market anywhere else in the world. We have partners who are and we are supplying equipment and gateway infrastructure and remote terminals to them for those markets. But Hughes and Echostar, Brazil would be our first market. We are looking carefully at India. We are looking carefully at one or two other regions of the world, but we haven’t reached the point, where we are comfortable enough and make a large investment in those areas.

Very helpful. Thank you.

When we look the other part of your question was, is it and are we going to include the enterprise? We have strong enterprise businesses in all these countries and that will continue to grow and we are very comfortable with that role, because we’ve growing in the last five years. But in the - if we launch our own space segment for a consumer business, we would normally include a small and medium enterprises in that, because that’s very much in many of these countries like Internet, kiosks et cetera, that’s really blurry as to where it’s the pure consumer versus a small and medium enterprise. So when we say consumer in these international markets, it includes these means [ph].

Got it. Thank you.

Your next question comes from the line of Tim Quillin with Stephens.

Hi, thank you for taking my follow-up. I just wanted to ask a quick question about intellectual property licensing and how - that would be handled between DISH and Echostar, I’m thinking specifically where Rovi, 12 years ago licensed Echostar to their TV Guide technology, they have a big renewal coming up. Is that a discussion that Echostar has, or is it DISH the one that would handle that royalty?

So, yes, we always have different discussions with different IP right holders, it’s usually can be contingent sometimes, but it would be jointly DISH and Echostar on some of those and some of them it would just be Echostar. So I think when that deal was done with Rovi, it was under different time and place, and a lot of their pads have expired. So we’ll just have to see what happens there.

Okay, that’s fair. Thank you. And then, Dave, do you have any, I know it’s always hard, but do you have any help for us on trying to calculate the GAAP tax rate in 2015?

Yes, this is your favorite question. I think, I would say, as we look at things, I mean, we do not anticipate being a cash tax payer on a federal basis other than some maybe some AMT in 2015. So from a tax rate standpoint, I think statutory rates are as good an estimate as anything.

Okay. Thank you very much.

Thanks.

There are no further questions at this time. I would now like to turn the call back over to management for any further or closing remarks?

That does bring us to the end of this call. I just want to say thank you all for taking the time and have a good rest of the day and a weekend.

Thank you. This dose conclude today’s conference call. You may now disconnect.