EchoStar Corporation (SATS) Q1 2016 Earnings Report, Transcript and Summary

Good morning. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Q1 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the presenter’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Deepak Dutt, Vice President, Treasurer and Investor Relations Officer. Please go ahead, Sir.

Thank you and good day everybody. Welcome to our call today. I am 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, EVP of Corporate and Business Development; and Dean Manson, EVP and General Counsel. As you know, we invite media to participate in the listen-only mode on the call and ask that you do not identify participants or their firms in your reports. We also do not allow audio recording, which we ask that you request – respect. Let me now turn this over Dean for the Safe Harbor disclosure. Dean?

Thanks, Deepak, and hello everyone. All statements we make during this call other than statements of historical facts constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors, that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q filed in filed in connection with our earnings. All cautionary statements 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 any undue reliance on forward-looking statements. We assume no responsibility for updating any forward-looking statements. I’ll now turn the call over to Mike Dugan.

Thank you, Dean. Good morning and welcome everyone to our first quarter 2016 earnings call. You will recall that on our last few earnings calls I did try to focus on the strategic initiatives that we are investing in to drive longer-term growth. These included pursuing the global demand for broadband Internet access to development work underway on our new set-top-box product line and in OTT and finally investing in the numerous satellites that are currently being built to provide capacity for growth. Our new home security and automation product has been launched and we also continue to invest in a few other initiatives. I’m very pleased to inform you that we’ve made excellent progress on all of these initiatives in the first quarter and the management team will now talk more about this. So let me first turn it over to Pradman Kaul who will talk about Hughes. Pradman will then be followed by Mr. Jackson on ETC, Mr. Johnson on ESS and finally Dave Rayner will address the quarter’s financial results.

Thank you Mike, good morning. First a few financial highlights. The first quarter 2016 revenue was $326 million, slightly more than the first quarter last year, while EBITDA for this quarter was $99 million, a growth of 9% over the Q1 last year, driven primarily by the North American consumer business. In the consumer business we had 3,300 net adds despite the fact that many beams on Echo XVII are full. We ended the quarter with a 1,038,000 subs, compared to 998,000 at the end of Q1 last year, an increase of 4%. Key enterprise orders in this quarter were from IGT, British Petroleum, Springleaf Financial, ConocoPhillips, York, Yum, Xplorenet Communications, Academy Sports, Aghimata [ph] in Indonesia, Bank of India, State Bank of India, Telenor, Brazil and [indiscernible]. We came into the second quarter with $1.4 billion of order backlog, an increase of 17% over the backlog at the same time last year. The Echostar XIX Satellite construction is proceeding well and is scheduled for launch in the fourth quarter of this year. We’ve completed spacecraft thermal vacuum testing and are currently in the final assembly of the feeds, waveguide, antennas and solar panels in advance of dynamic testing. We expect to place the satellite into service in Q1, 2017 and that will provide capacity primarily for our consumer business in the U.S., Canada and Mexico and help resume the growth rate of the subscriber base. Our Brazilian consumer broadband project using a hosted payload at the 65 West orbital slot is also proceeding very well. The satellite was launched successfully on March 9, in-orbit testing was completed on schedule and the satellite has been turned over to us for pre-service testing with the ground network. We expect to commence commercial service in July with all gateways in operation. We have also signed an agreement with SES at the national retail distributor in Brazil and various other regional distributors. We are also in discussion with pay-TV operators, for being a wholesaler and for distribution of our service. We will publish the available plans with applicable details on the HughesNet Brazil website, prior to service launch. We are very excited about this service, which will be the first international expansion of our highly successful, North American consumer service. Our leads of the Ka payload of the Telesat’s satellite scheduled for launch in the second quarter of 2018 at the 63 West orbital location, will further enhance our capacity in Brazil and other parts of South America. So with SPACEWAY 3, Echo XVII and XIX and the Ka payloads on 65 West and 63 West, we will have approximately 360 gigabits of broadband capacity over the Americas. Our JUPITER ground infrastructure platform also continued with success. In Q1, we announced a series of enhancements to the JUPITER ground system that strengthens our ability to provide enterprise and cellular backhaul services. The JUPITER System continues to be the de facto choice for broadband globally. A few recent examples of new orders are now, something I want to talk about. Just yesterday, we announced that Eutelsat Communications and Facebook have selected Hughes network systems to supply JUPITER System as the technology platform for satellite broadband services that both companies are preparing to launch in sub-Sahara and Africa. With the selection of the JUPITER System, along with high-gain Ka-band spot beam capacity provided by Spacecom’s AMOS-6 satellite, Eutelsat and Facebook are assembling a dedicated infrastructure that will extend cost-effective broadband to areas of Sub-Saharan Africa beyond reach of fixed and mobile terrestrial networks. The AMOS-6 satellite is due to enter service in early 2017. The JUPITER System configuration being purchased by Eutelsat includes three gateway stations, two centralized data centers, a comprehensive network management system and an initial number of user terminals. For Facebook, this system will support its Express Wi-Fi project. Eutelsat will employ the system, as a key platform to drive growth of premium consumer and professional Internet connectivity services in Sub-Sahara, Africa. Hughes and Intelsat also reached an agreement, where Hughes will provide the JUPITER System to offer next-generation broadband services via multiple VNOs. Turksat ordered a significant expansion of the JUPITER System, which will enable them to effectively double the service area, supported of the Türksat 4B satellite. And a major international direct-to-home operator placed an order for a JUPITER System, it is a 5000 site pilot for broadband services with significant up side. In the LEO area, we are making excellent progress on the OneWeb project, development work on the ground network including gateways has started and we remain very excited about this project. A few words now on our aeronautical strategy. On the Q4 call, I had mentioned that the cornerstone of our strategy was to expand our services to Ka-band. Last month we concluded an agreement with Global Eagle, where we would deliver connectivity for Global Eagle’s next-gen, multi-band services using our high throughput Ka-band and Echo 19 satellite set to launch in the fourth quarter, along with the Jupiter aeronautical modem that will deliver 200 mbps per second per aircraft. In addition, we are actively pursuing the development of next-generation HTS satellites and hosted payload opportunities in other parts of the world. So to summarize, I’m very pleased with our performance in Q1 2016 and we are well-positioned for growth going forward consistent with the strategy we had discussed in past calls. Let me now hand it over to Mark.

Thank you Pradman. So revenue for ETC in Q1 was $385 million, up 11% from the same quarter last year with EBITDA also up 10%. Hopper 3 and 4K Joey joined Hopper family early this year with features such as Sports Bar Mode, a multi-channel views that because any four HTC will display them on your TV simultaneously. To provide this customers with even more content options, as of April 8, users can now access the Netflix catalog of ultra HD 4K shows and movies from the integrated Netflix app on the set-top box. Netflix is also incorporated into the Hopper 3’s universal search results, such that all Netflix titles are populated in DISH’s episode list so customers can more easily discover all the content available. We can continue to development the Hopper 3 software features, this includes continue work on YouTube integration along with many other enhancements to the consumer experience, which we expect to roll out later in 2016. These new features will provide DISH customers with easier access to the content they want to watch and a more comprehensive user experience overall. Our SAGE by Hughes security in home automation solution had a product launch in early March. So SAGE is available directly to consumers via our website, sagebyhughes.com. Since then we have been testing a variety of marketing strategies geared towards building brand and product awareness in the market. Our digital and out-of-home marketing campaigns, including cities such as Denver, Boston, and Philadelphia started rolling out last week. We’re also ramping up our retailer distribution program which will be launched later this quarter. Last week we announced the ability to use SAGE in connection with less products. Our intent is to continue to advance the interoperability and functionality of the overall SAGE platform. In addition, we are continuing to develop other consumer-based products that we expect to roll out later this year. Our new network group is the platform provider for DISH’s Sling TV service. Our ongoing efforts to enhance the new platform have taken it to a higher level of reliability including a new benchmark level of peak concurrent users through this year’s very popular college football play out and the NCAA basketball tournament. We continue our work with Sling TV to deliver new functionality, including the recently announced live data multi-stream service which has content from Fox Networks Group overall. Currently we are working to add more Sling media devices to the client platform. Overall our efforts remain dedicated to engineering leading edge hardware and software technologies for our customers. I’ll now hand things over to Anders.

Thanks Mark. ESS revenue for the first quarter was $103 million compared to $125 million for the same quarter last year. EBITDA was $88 million in the first quarter of 2016 compared to $106 million last year. ESS continues to advance with the expansion initiatives we discussed on previous calls with four EchoStar satellites scheduled to launch by the end of this year and the EchoStar XVIII satellite which we are managing for DISH Network, scheduled to launch in early June. [Indiscernible] spoken about Echo XIX and the successful launch of the Hughes result payload of 65 West, I’ll address the remainder. EchoStar XXI, our S-band satellite, which will enable EchoStar Mobile to begin services across the European Union, completed construction earlier this year. We’ve received notice from ILS, the data production delays with launch vehicle our launch previously scheduled for the second quarter is now scheduled for the third quarter of 2016. While not ideal, launch delays are not uncommon in the satellite industry and despite of this delay, we expect to be able to meet all regulatory milestones for the EchoStar Mobile MSS service in EU. With the regards to our regulatory obligations for EML, we received 27 out of 28 MSS authorizations in the European Union. We’ve received our launch authorization for Echo XXI, the authorizations for our gateway Earth station, which is fully built and many of the required authorizations for our calibration of Earth stations. We’re also working to obtain authorizations to serve the country’s within our satellite footprint which were not members of the European Union. As we announced on our last call, 3GPP, the global wireless standards body, approved Band 65 to standardized additional spectrum for broadband wireless services in Europe and Asia, better position EML to take advantage of the economies of scale from regionally harmonized frequency band. We continue to progress working with European Union and the member states to establish these MSS, CGC harmonization standards on an EU wide basis. Now to the other two satellites scheduled to launch this year. EchoStar XXIII, a flexible Ku BSS satellite designed to fulfill multiple mission profiles is slated to launch on a SpaceX Falcon 9 in third quarter of this year and will be deployed at our Brazilian orbital slot at 45 degrees west. The EchoStar 105 hybrid Ku/Ka C band satellite, which will replace AMC 15 at the 105 degree west orbital position under agreement with SCS is on scheduled for launch in the SpaceX Falcon 9 in the fourth quarter of 2016. We will be commercializing the KU payload on the satellite and expect the capacity to be available in early 2017. As we’ve said in the past, 2016 is a very busy year for the ESS team. I will now turn it over to Dave Rayner.

Thank you, Anders. EchoStar revenue for the first quarter of 2016 was $816 million, compared to $799 million for the first quarter of 2013, with the increase primarily attributable to EchoStar Technology revenue, offset partially by a reduction in ESS revenue. More about this when I talk about specific segments. EBITDA was $223 million for the first quarter, compared to $214 million for the first quarter last year, the growth contributors being Hughes consumer business and EBITDA in the all other segment offset partially by lower ESS contribution from lower revenues. Net income attributable to EchoStar common stock was $50.7 million compared to $33.4 million for the first quarter 2015 and diluted earnings per share were $0.54 compared to $0.36 last year. The increase in net income was primarily due to the higher EBITDA, lower deprecation and lower net interest expense. Capital expenditures for the quarter were $211 million, net of certain credits, compared to $178 million for the same quarter last year. The higher CapEx was primarily due to higher spending on satellite contracts. I would expect full-year 2016 spending to be in the mid-$800 million range with the satellites and related ground infrastructure driving the bulk of the spend. Free cash flow, which we defined as EBITDA minus CapEx, was $12 million for Q1 2016, compared to $36 million for the same quarter last year with change being primarily due to the higher CapEx in Q1 2016. Turning the business segment. Hughes revenue for the first quarter 2016 was $326 million, up slightly from last year, consumer broadband revenue was up 10% driven by increased subs and ARPU. The increase was largely offset by decreases in the mobile satellite and international businesses. Hughes EBITDA and the first quarter was $99 million, an increase of 9% from last year, primarily contributors to the strong EBITDA growth where the change in revenue mix towards consumer services which has higher margins. EchoStar Technology revenue for the first quarter was $385 million, compared to $346 million last year, the change coming from increased sales to Dish Network, and DISH Mexico and services built to DISH with support of Sling TV. ETC EBITDA for the first quarter 2016 was $28 million compared to $26 million last year, increase being driven by the higher revenue somewhat offset by SAGE marketing spend. EchoStar satellite service revenue was $103 million for the first quarter, compared to $125 million last year with decline caused primarily by determination of leases with DISH for EchoStar I and EchoStar VIII in the fourth quarter. EBITDA was $88 million, compared to $106 million in the same quarter last year with the decline be the result of the reduced revenue, offset by a reversal of a reserve for FCC fees. This reserve was recorded in the first quarter last year so has a doubling impact on the comparison between periods. In the all, other and elimination segment where we recorded gains and losses in the sales, securities, elimination for inter-segment sales and other corporate transactions, EBITDA for the first quarter was $7 million compared to a negative $10 million last year. The increase being primarily due to the termination of our lease with DISH on EchoStar XVI in the fourth quarter and reversal of similar reserved FCC charges to ESS, as well as increase in gains in certain portfolio investments. We continue to have a strong balance sheet at the end of the quarter with approximately $1.5 billion of cash and marketable securities, which is approximately the same at the end of 2015. Finally, about the Change of Control Offer. On May 6, HSSC made an offer its note holders to repurchase its secured and unsecured senior notes at 101% a par. Let me give you some background that led to this action. In first quarter 2014 we and DISH Network entered into an agreement where in exchange for – I’m sorry five satellites and $11.4 million in cash, we issued preferred stock to DISH network. This preferred stock consisted of tracking stock in EchoStar and HSSC, which would track a huge retail residential consumer business. We recently became aware of a possible interpretation under which the transaction may be considered to have constituted a Change of Control under the indentures. The indentures provide that upon the occurrence of a Change of Control, HSSC is required to make an offer to note holders to repurchase notes at 101% a par. Although we believe a Change of Control or related default may not have occurred, we have nevertheless determined that was an abundance of caution, it would be prudent to make a Change of Control offer for the secured and unsecured notes. Because of this offer in accordance with GAAP, the notes have been recorded as current liabilities on our balance sheet as of March 31, 2016, since it is out of our control as to whether bondholders will tender their bonds. Following the completion of the offer, any outstanding notes are expected to return to being reported as long-term debt. I should point out that since the issuance of the tracking stock, the bonds are traded well above the 101% offering price and continue to do so. So we would be surprised that bonds are tendered through this process. Let me now turn it back over to Mike.

Thank you, Dave. In closing you’ve seen how we’ve made significant progress on our numerous strategic initiatives while also delivering solid result for the quarter. Now it’s time for questions. Operator, would you please start the process.

Yes sir. [Operator Instructions] Your first question is from the lines of Andrew De Gasperi with Macquarie.

Thanks. First question, you focused a lot on adding capacity over the Americas, I was wondering if you ever considered looking at other regions as well?

Yes, we’re obviously looking at other regions. In fact were looking at all parts of the world. We have significant Jupiter platform equipment sales as I mentioned in countries all over the world and we’re looking to now expand it into providing capacity and Internet access services also.

Got it. Secondly, can you may be comment on the mobile satellite and international business that was weaker year-over-year? Thanks.

As we’ve always mentioned, mobile satellite equipment business is an opportunistic business that usually ends up with now we get major contracts. And then eventually when the equipment is delivered, if it is not replaced by another major contract then you see a null in our revenues. So I think that’s the effect we’re seeing in this quarter.

And should we expect similar type of volatility going forward or do you think at this point [indiscernible]?

I think it’s opportunistic, it’s opportunistic. So, if we win a major contract, then you’ll see a spike and if we don’t, then you’ll see a low.

Got it, thank you.

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

With 65 West A, having passed, essentially I guess most of the tests, what stands between you, between now and launching that service? What needs to be done at this point?

We’re deploying total ground network with three gateways and many, many remotes. So the testing that’s going on, basically takes every beam that we have, there are 16 beams on the 65 West. We have to go beam by beam and verify that each beam is operating as per the specs. And the equipment is operating as per the specs. So as you point out, the major hurdles that are out, so it’s not just a matter of establishing the baseline in each beam and each gateway.

And is July 1 still the anticipated launch date?

Yes, around then.

Around then, okay. A far but actually, one of the things that I thought was interesting about your recent release about this deal with Facebook in sub-Saharan Africa is, at least everything I’ve heard, that’s supposed to be a pretty aggressive price to contract on the services side and I assume on the terminal side, I’ve always thought that your products as being a little higher end, but I guess you’re also selling it to Brazil. So do you have a higher and lower end terminal that you sell into different markets or have you been able to reduce the cost efficiently such that maybe we’ll start to see benefits to the subscriber acquisition costs in the U.S.?

Yes, we’re constantly working on reducing our cost of our terminals. And over the years have always been a leader in the market and can compete not only on technology and features, but also on cost. And that effort continues and you’re seeing the results in our market share and the world for just selling the terminals and the equipment.

I guess my understanding was…

[Indiscernible] Sorry, the benefit we obviously get also, the lower cost in our consumer services business in the Americas.

Got it, okay. I wanted to ask, may be one question for Mark. Do you ever – could you maybe share with us some of your thoughts on the addressable market for the SAGE products you have now or what you envision that product line looking like in the future?

So, the market data says about 20% of all households have a home security system. So there’s 80 plus percent in our opinion that don’t have a system. And our system is designed to attack that piece of the marketplace which is a much bigger marketplace overall. I think I’ll get my fair share of the 20% because of the feature set and costs of our platform. But we’re really, really aiming for everybody that doesn’t have a system. And what we understand from all the data and surveys that we’ve done is people don’t have a system today because they don’t see any value in the $30 to $50 month fee that they have to pay for a monitored alarm system. So that’s kind of what we’re doing.

And what are your thoughts on expanding the distribution? Is it still too early or how do you think you will do that?

Well, everybody talked about Big Box, but we are not – we don’t see a lot of potential there, we are certainly going to sell into there. But if you look at what’s happening today in the marketplace people are starting direct, that’s what we are really focused on. And what we are experimenting right now before we really do our big marketing spend is, which sites do we advertise on to get the best results. So today, digital marketing is very sophisticated. You have lots of data back. So we are out there tying to marketplace and sticking our toe in the water and see what works and then we’ll push harder. The other thing that we’re doing is we’re going to tap the satellite retailers. They just had Team Summit and the satellite retailers are looking for more products to go off and sell and generate revenue basically. We were very enthusiastically received at Team Summit with independent satellite retailers. So we are tapping that market which really helped Charlie get started in the early days with Dish and he did that instead of Big Box. So we’re certainly taking the page from his playbook and meeting that avenue also.

Got it. Dave, there has been a couple of pretty high profile acquisitions here in the reseller industry putting together aviation and maritime markets. You’ve got a pretty big enterprise business and it looks like people are trying to sort of consolidate and leverage the scale versus the satellite providers. I’m just wondering what your general thoughts are on sort of the strategic rationale to ramping up your enterprise business. I think that would potentially make sense.

I’m going to let Pradman answer that.

Well, the enterprise business in the United States has changed dramatically over the last five or six years. From being the VSAT kind of technologies that are used for providing access to where we now primarily use terrestrial capabilities. Our value add now, in the enterprise business is providing features and applications that customers want, but leasing the fiber capacity from the major Telco’s. And since we have done that our enterprise business has started rebounding and we continue to be very optimistic. With the blue chip customers that we have in the future of that enterprise business.

The guys that we compete with are the AT&T and Verizons I don’t think we are going to buy AT&T or Verizon so I don’t see significant consolidations occur in the..

Understood. We’ve been seeing from the satellite providers, a lot of talk about pricing trends in the enterprise markets internationally down 20% to 30%. I’m assuming you’re seeing that, too. Is that benefiting you at all? I know David said that better margin in Hughes in Q1 was primarily just mix as it became more consumer, but are you seeing any lower costs in the international enterprise business? And what are some of the trends in that market that you’re seeing?

International market is primarily satellites that are used as a medium as we just pointed out and bandwidth costs from the major ISS operators have started declining gradually. And I think we will see some effect of that – we haven’t seen significant impact yet because of our contracts that extend in to this year and in to next year. But I think over the next two or three years we should see some significant reduction in space segment costs. In addition we keep driving the cost of our equipment down so that makes the net reserves of these service offerings, they are more competitive with the terrestrial competition. So yes I think, we haven’t seen the effects but I think we will see some over the next two or three years

Okay thank you very much.

Thank you. Your next question comes from the line of Jason Bazinet with Citi.

On the consumer broadband market you guys have been successful, I think, in terms of giving consumers more speed than they could get with the alternatives, but sort of the data caps have always been of an impediment in terms of giving the maximum utility to the consumer. Via Sat seems to be hinting that they are going to do something to sort of lift the caps or eliminate them. I’m assuming with Echo 19 there’s really no real change in terms of the data cap thinking or maybe there is. If you could just talk about that a bit, that would be helpful.

Yes, I don’t think we have decided at this stage, once we launch Echo 19, what we will do with data caps. I think there’s a normal trend where the caps have been increasing over time and the speeds have been increasing over time. And I would expect that once Echo 19 is launched we will continue to react to the market by providing people some more capacity and some more speeds, but firmed that up. We will wait till we are ready to launch the satellite to decide what our new service plans for next year will be.

Okay. If you end up do – if the competitive forces or you decide proactively to lift caps, the implication is what? You just end up serving fewer customers off of a given satellite? It’s just sort of a simple mathematical trade-off.

Yes, you have a finite amount of capacity.

Okay.

The more you give for customer, the more obviously, the less subscribers you will be able to accommodate into those beams.

Okay. Thank you.

[Operator Instructions] Your next question is from line of Chris Quilty with Raymond James.

Deepak. Sorry, I wanted to follow-up with a question on the enterprise business. And can you give us a sense, did the business grow in the current quarter and maybe longer term trend of what you’ve seen in the past several quarters in terms of where the growth of that business is trending?

Yes, I think it has been growing but very slowly in North America, single digit kind of growth. Internationally, it gets muddled because of the exchange rates that fluctuate all over the place. So some quarters, we show good growth then the dollar weakening or strengthening, it impacts it a little bit. But if you took a longer-term trend, it also has been growing in the single-digit basis.

And, does the shift from satellite to terrestrial impact the margins of the business?

I think – that’s a good question. Clearly, it does because we are re-selling somebody else’s capacity and we don’t have the ownership economics of our own satellite, on our own bandwidth. We have been doing a very good job of making up for that by offering additional applications and additional features like quality of service, et cetera. And we are able to command a cost – a price for that which is helping maintain the margins pretty close to what satellite, part of our enterprise business is generating.

Got you. And on the international Ka-band opportunity, what is the primary impediment to rolling forward with that? Is it orbital slots? Is it landing rights? Is it putting in place the distribution agreements capital?

Well, first of all, obviously we have – internationally we decided to first put our efforts in South America and Central America, which is close to us in an area where we’ve been successful. So, I think with 65 West and 63 West, we will have significant coverage and Echo XXI coverage of Mexico and the Caribbean we will have a significant coverage in our neighborhood. So, once we have that under our belt, we will then look at other regions. But in general, landing rights and distribution are the two key in any new markets when you enter you have to solve the problem of landing rights and distribution. I would define those two as the major tasks. I wouldn’t say they are hurdles because I think we can do a good job in many parts of the world, but certainly some parts of the world are out of bounds because of them. For example, Russia and China and even India to get landing rights for their own satellites are very difficult to get right now. So once – but in other parts of the world, it’s easier to do that. Once we saw the landing rates, we then have to have the distribution and obviously they are the two major problems we tackled.

Okay. And a question on the hardware side of the business with the Jupiter 2 rollout, where do you stand in terms of terminal development either for A6 chipset software or gateway design?

Yes, it’s done. We’re constantly evolving the terminal. But the Jupiter 1 terminals and infrastructure have been in the market for the last couple of years and now the Jupiter 2 terminals are being deployed for service in July in many parts of the world. So that part is all done, not a problem. Working very well with a lot of – for example, the Jupiter 2 terminals, the current terminals that we are deploying in Brazil for 65 West are operating at speeds of 100 megabits per second at a subscriber, which is a major jump from where the previous generation of terminals were doing.

You’re not offering plans at 100 megabits per second, are you?

No, no. This is the speed in each terminal, so we are not going to…

Okay.

But we have the ability to do it. We have the ability to do it if the market or the competition requires – forces us to do it.

Right. The aeronautical opportunity, you announced North America Beachhead. What are you looking at internationally because you do have some Jupiter Gateway deployed, I think with Yawsat, Avanti, and others. Is there a design to go ahead and start moving internationally?

Well we’ve already been doing – as you know, our strategy has not been going directly to the airlines. We’re working through our partners who are in flight entertainment service providers like Global Legal and we’re talking to some of the other in-flight and service [ph] providers. And with Global Legal right now we have in two or three other countries in the world for international airlines. So using our gateways in those parts of the world. So we’re already doing it and we look forward to expanding that as we sign up more agreements with other in-flight service providers.

Great. And final question, just any color worth noting on the consumer business? You added some subs which was unexpected but in terms of either SAC or ARPU trends or churn in the quarter, any changes from what we’ve seen in recent quarters?

No, I think it’s going pretty much unplanned, the SAC because we drive equipment cost down, it helps reduce the SAC, a little bit. ARPUs are climbing slightly as they have in the past because of additional services that we provide. Churn is always something we could do better than what we’re doing. I don’t think we’ve seen a dramatic change up or down. So, all in all, is going according to plan. We’re very pleased with it. It’s generating good margins as Dave mentioned. And that’s helping us.

Awesome. Thank you.

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

Anders, it sounds like you’ve got a pretty long getting all the authorizations you need across the EU to launch the S-band service. If you could elaborate on what that service is going to look like in terms of what you’re thinking about offering and maybe what the opportunity is on a revenue front for that?

Well, our efforts to-date, we developed with our colleagues over at HNS an adaptation of the terminal which we refer to as a portable data terminal which acts as a S band connected Wi-Fi hotspot also capable of supporting telephony products. So, we’ve got that in production. We got an inventory of units that will be available for immediate deployment across Europe for testing and then available through the wholesale channel through a pre-existing relationship that we have in Europe as a distributor. We’re also in discussions with a number of other people about using the product as a feature for other services, which they are developing where the S band satellite capacity would act as a gap filler to the extent terrestrial networks are in capable of supporting into service at the moment that’s needed. So a lot of – we got to get the satellite in the air. We got a commission the satellite, which because it’s a ground-based beam forming satellite, which uses a number of calibration earth stations for its functionality. We’ve got quite a bit of work to do once the satellites and orbit and we will be testing the service across Europe prior to offering it to the marketplace. As far as revenue expectations, I think it’s a little early to be talking about that. Right now, we do have some models, which we’re discussing with folks as to how to price it competitively with other MSS services that are available across the European continent, but we’ve not settled that out yet.

Got it. I wanted to follow up on the terrestrial piece. You’ve made the comment that you’d like the S-band to be integrated into the 5G protocols. I was just wondering, is that simply having the band included so that it can be used for terrestrial or is there something greater than that implied by that statement?

Well, I think we and some affiliate colleagues have worked very hard over the last few years at 3GTP in getting the 2 gigahertz band included in a band plan specifically for terrestrial mobile broadband applications. So our expectation and hope is this as 5G standards themselves are adopted and agreed that the 2 gigahertz band will be included overall in the frequencies that will be utilized by those next generation networks.

Got it. Pradman, do you think there’s any opportunity in the U.S. for your enterprise business as the Ka-band services get better and better. I saw an announced the other day that EE in the UK is using satellite broadband and I recall conversations we have had in years past where you thought there might be an opportunity for your Ka-band services to start doing some back haul, potentially in developed markets. Do you still think that’s an opportunity? Is there any chance that some of that enterprise business comes back to satellite?

Yes I think cellular back haul especially when 4G and 5G systems are deploying there will be significantly large number of cell sites. And when once those cells sites go into rural America, I think that’s going to be a major potential market for cellular back haul, because it won’t be economical for them to get it via fiber or microwave. So, yes, I think in those applications public emergency applications or other applications, we see potentially coming. So there will be selected applications that should give us an add-on market. And also backup, which is a very important part, in fact even today in many of our enterprise customers, in the old days they wanted 99.7% availability. Today, everybody wants – is looking for three nines [ph] or more availability. And the only way that kind of availability can be achieved is if you have two different technologies providing transmission capacity to each site; and satellite is one of the sites. So a number of our customers today are using our satellite services for backup.

Got it, thank you.

Thank you. And at this time there are no further questions.

Okay. I guess then will go ahead and finish the call. Thank you for everybody supporting us.