EchoStar Corporation (SATS) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Second Quarter 2017 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Deepak Dutt. Sir, you may begin your conference.

Thank you, operator, and good day, everybody. Welcome to our earnings call for the second quarter of 2017. I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; and Dean Manson, Executive Vice President and General Counsel. As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants on the phones in your report. We also do not allow audio recording, which we ask that you respect. Let me now turn this over to Dean for the safe harbor disclosure. Dean?

Thank you, Deepak. All statements we make during this call other than statements of historical fact, constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by those 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 with the SEC. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. I'll now turn the call over to Mike Dugan.

Thank you, Dean. Good morning, everyone, and welcome to our earnings call. We got off to a great start this year in the first quarter, and that's continued through the second quarter. We commenced consumer service in North America on EchoStar XIX, known as Jupiter 2, which was launched successfully in December. The EchoStar XXIII satellite was launched successfully in March, and it's in operation at our 45-degree slot. We launched EchoStar XXI in June, and we are now awaiting the launch of EchoStar 105. Finally, we have recently approved the construction of our next-gen satellite for broadband service. Pradman will give you much more detail on this shortly. Now let me hand this over to the management team to give you some details before we get to question-and-answer. First up is Anders Johnson. Anders?

Thank you, Mike. After a delay of more than a year due to technical issues with the launch vehicle, the EchoStar XXI S-band satellite was successfully launched on a Proton M Breeze M from the Baikonur Cosmodrome in Kazakhstan on June 8. It will provide capacity to our EchoStar Mobile subsidiary for connectivity throughout Europe. The satellite located at the 10.25-degree East orbital position has passed several critical milestones since launch, including successful deployment of the 18-meter reflector and completion of in-orbit testing at the end of July. We continue to be in regular communications with the European regulators regarding EchoStar Mobile licenses and anticipate the launch of commercial services across the European Union in the fourth quarter, following end-to-end integration of the satellite and terrestrial network. As we previously announced, we've selected Bentley Walker, a Hughes partner for more than 10 years, as the first European distributor for this service, and we are also collaborating with Thales to develop an advanced mobile satellite voice and data service for the public safety community in France and throughout Europe. We now have one remaining satellite launch slated for 2017, that of EchoStar 105, the hybrid Ku, Ka and C-band satellite also known as SES-11 that will replace AMC-15 at the 105-degree West orbital location. We are currently scheduled in the SpaceX manifest for an early fourth quarter launch subject to nominal performance of the two Falcon 9 missions ahead of us. As we've previously announced, we experienced an anomaly involving our EchoStar III satellite. While completing a repositioning of the spacecraft to a different orbital location, the spacecraft experienced a loss of telemetry and command. We've subsequently reestablished communication with the satellite and are working with the manufacturer to restore sufficient command to move it into a retirement orbit. This was a fully depreciated and non-revenue-producing asset. I'll now turn it over to Pradman.

Thank you, Anders. I'd like to start off by sharing some exciting news about our plans for the next-generation satellite for broadband data. As I mentioned in previous calls, we've been working on coming up with a design that will take into account costs, speed, data handling capacity, coverage, technology risk and spectrum availability risk. In addition, we solicited proposals from major satellite manufacturers to evaluate the state of the art. After almost a year of hard work, we believe we have come up with an optimum design for an ultrahigh-density satellite, and were awarded a contract to SSL to build this satellite which will be called EchoStar XXIV, Jupiter 3. This new satellite will provide a dramatic increase in capacity in our key markets in the Americas at a very competitive cost per bit. It will enable us to offer speed of 100 megabits per second and higher to the subscriber. The coverage will be optimized to cover where we anticipate demand rather than uniform blanket coverage. All our traditional markets, including consumer, enterprise, aeronautical, cellular [ backhaul ] and community WiFi will be served. Satellite launch is planned for early 2021. The decision to make this investment was largely influenced by the success we've had in the U.S. and Brazilian consumer businesses as well as the continued growing demand for high-throughput satellite capabilities. We continue to be the market leader with over 60% market share in the Americas, and we intend to sustain this position going forward. And our new satellite will be the engine that powers our future growth. On March 16, we launched our new HughesNet Gen5 consumer service on Echo XIX. HughesNet Gen5 offers significant enhancements to HughesNet Gen4 and a range of exciting upgrade options for existing subs. I'm delighted to inform you that the market has responded very well to this offering, and we already have over 200,000 Gen5 subscribers currently. While it's admittedly early, the consumer satisfaction has been very high on the Gen5 service, and churn has been lowered. It is the first ubiquitous coast-to-coast Internet service that meets the FCC 25/3 broadband standard. We ended Q2 with 1,085,000 subscribers, a nice increase from Q1 of this year. Our Brazilian HughesNet service has also been a significant contributor to the subscriber growth. As you may be aware, in addition to the United States, Echo XIX has beams over Canada, Mexico, Colombia and other Central American countries. Our partner in Canada, Xplornet, started offering service on this system in Q2; and our partner in Mexico, StarGroup, commenced services all across Mexico in Q3. We expect to start service in Colombia in the second half of this year, followed by service in the remaining countries. We are very excited about the prospects of these new markets and with increasing their capacity with the upcoming launch of our hosted payload on Telesat T19 in mid-2018. Our target markets continue to be those that are unserved or underserved by cable and fiber, and the new HughesNet Gen5 will be a strong and viable alternative for the many millions of households across the Americas that are limited today to unreliable, slow-speed DSL or have no cable or fiber access. Now to our aeronautical business. We continue to expand our sales with our partners and now have our equipment in service on approximately 950 aircraft. We announced our next-generation Jupiter high-speed aero terminal capable of exceeding 400 megabits per aircraft. The terminal will be fully compatible with both Ku and Ka-band satellites and together with our recently announced dual-band Ku/Ka aero antenna, we'll enable our customers and partners to offer aero service throughout the world. Last quarter, I also talked about our agreement to provide Jupiter Ka-band aeronautical services to SES for use on Thales FlytLIVE in-flight connectivity service. I'm pleased to tell you we're proceeding on plan with our network build-out and we are in final preparation for service launch later in 2017. Our enterprise business also had a strong quarter in terms of new orders both domestically and abroad. Key domestic orders are from JCPenney, Xplornet and Halliburton in North America. Internationally, we were selected by Global-IP to provide all of the ground infrastructure for the GiSat-1 satellite using the Jupiter platform for Africa and the Middle East. They ordered 11 gateway stations to be installed in Europe. Camelot, a U.K.-based lottery [ source ] service provider, signed an extension of their service contract through 2023. In addition, we received orders in Brazil from TelePlaza and Telefónica and from Reliance and State Bank of India in India. We ended the quarter with $1.6 billion of enterprise backlog, an increase of 6% over the backlog at the same time last year. As you may know, we do not include the consumer business in our backlog number. Our work on the large development contract with OneWeb continues in full swing. We are very pleased with the progress and see a clear role for LEO satellites in our radius markets. A number of development ideas to integrate geo and NGSO networks are underway. Finally, we are proud of having shipped a total of 6 million VSAT terminals worldwide, a new milestone. To summarize, I'm truly pleased with our accomplishments in Q2 and look forward to more exciting accomplishments in the Hughes business. Let me now hand it over to Dave.

Thank you, Pradman. Great quarter. As a reminder, on February 28, we closed on the agreement to exchange our equity interest in certain companies that held substantially all of our EchoStar Technologies businesses and certain other assets for DISH's interest in Tracking Stock, which represented 80% of the economic interest in the Hughes Retail Group. As a result of the exchange, we no longer operate the EchoStar Technologies business, and the Tracking Stock was retired. The EchoStar Technologies businesses have been presented as discontinued operations in our current financial results. Also, following the exchange transaction, we changed the way we present our segments. Historically, the costs of all corporate functions were allocated to each of the business segment and will reflect in their EBITDA. Under our new presentation, these costs are no longer allocated to the operating segments and are now reported and analyzed as part of the corporate and other segment. We filed an 8-K in June with restated quarterly segment EBITDA for 2016. In regards to our financial results for the second quarter, revenue was $465 million, a 5% growth over the second quarter of 2016. EBITDA was $185 million for the second quarter compared to $190 million in the second quarter last year. More on these variances when I get to our segment financials shortly. Net income from continuing operations was $6.6 million in the second quarter of 2017 compared to $44.3 million in the second quarter of 2016. The decrease in net income was primarily due to an increase in interest expense from the issuance of the bonds in the third quarter of 2016, a reduction in capitalized interest as a result of the EchoStar XIX and XXIII being placed in service, which also resulted in increased depreciation on those satellites as well as depreciation related to the Brazil consumer service that started in July last year. Partially offsetting these was a reduction in income tax provision and higher interest on the higher cash balance this year. Capital expenditures from continuing operations for the quarter were $128 million compared to $132 million [ in ] the same quarter last year. Free cash flow, which we define as EBITDA minus CapEx, was $57 million for Q2 2017 compared to $58 million last year. Our CapEx estimate for 2017 is in the $500 million range, which is an increase from previous indications. It includes CapEx for the just announced Echo XXIV/Jupiter 3 satellite but does not include any CapEx for any other new satellite programs we may pursue. We continue to have a strong balance sheet and ended the quarter with approximately $3.3 billion of cash and marketable securities. Now to the segment results. Hughes revenue in Q2 is $363 million, an increase of 7%, primarily due to the higher equipment sales to domestic customers and higher revenue from domestic and international consumers. This was partially offset by lower revenue from the wholesale consumer services and equipment. EBITDA in Q2 was $110 million compared to $118 million last year, due primarily to the increase in sales and marketing expenses connected with the increased consumer service activity in North America and the launches -- launch of services in Brazil last year. ESS revenue decreased by $3 million in Q2 due primarily to lower FSS lease revenue. EBITDA was lower by $3.8 million, primarily from a lower revenue and an increase of cost of certain services from DISH resulting from the transaction earlier this year. As we have indicated previously, DISH has told us they don't expect to renew the lease on EchoStar XII satellite, which expires at the end of Q3. This will have approximately $9 million annual impact on ESS revenue. EBITDA in the corporate and other segment decreased by $6 million over last year, primarily due to the lower net cost as a result of the ETC transaction. Let me [indiscernible] turn it back over to Mike.

Thank you, Dave. In closing, I think we're all very pleased that our many initiatives have begun to generate financial benefits, and I'm looking forward to things growing in the future. Let me now turn it back over to the operator to start our question-and-answer session.

[Operator Instructions] Our first question comes from the line of Ric Prentiss with Raymond James.

One longer-term question and then a shorter-term question. Obviously, now [ you ] signed a contract for Echo XXIV/Jupiter 3. How should we think about the CapEx involved there and the timing of it?

Yes. I think, obviously, from what I indicated for 2000 -- the rest of 2017, yes, we'll be spending about $100 million additional this year, and that's going to continue for the next couple of years. So you're going to see some CapEx roll off after '17 due to the 105 satellite retiring. But as we continue to increase activity in the consumer side, we're going to see consumer CPE spend, which we obviously capitalize, continue to grow over the course of this year and likely into next year. So I think probably that $500 million number that I indicated [indiscernible] 2017 is probably at this early stage a reasonable estimate for 2018 also, short of any other programs being initiated.

Right. That makes sense. You mentioned -- obviously, a lot of coverage in North America, Central America, South America, also aeronautical and enterprise. What are your thoughts -- I know in the past you've also been interested in penetrating deeper into government and maritime. Any thoughts on initiatives in those regards?

Well, I think Pradman talked about aero. And certainly, we continue to look at maritime as a potential. We are always working hard on the government segment within Hughes and I can only say we have strong interest there and would like to do better as we go forward.

Okay. And then a short-term question. Obviously, a lot of interest in the U.S. market. Can you talk a little bit about where you see adds and ARPU kind of going? And where do you see your most direct competition? You mentioned the unserved or underserved markets, but just trying to think as you attack that market what we might think of as far as adds and ARPU trends.

Pradman, do you want to take that?

Sure. Yes, if you look at the U.S. market, our focus is on the unserved and underserved. And right now, we estimate there are probably about [ 18 million ] households that meet that criteria. So we are continuing to focus our marketing and sales campaigns to attack that market, and it's still significantly underpenetrated. So we view that, that will be more than adequate for us to harvest over the next few years to fill up the -- our available capacity.

And as far as kind of the ARPU levels that we should be thinking about...

The ARPU levels continue to trend slightly upwards, and we expect that trend will continue. Our strategy always has been as the time progressed and people needed more and more bits, to give people the extra bits but keep the price up at the right levels -- at the same levels. And now that is being augmented by extra services that we are offering that allow the ARPU to creep up. And I think over the last 5 years, you've seen the ARPU climb, and we expect that trend will continue.

And Ric, in addition to that, I think Pradman's comments were pertinent to the retail customer base. Obviously, with DISH converting from a wholesale to a sales agency relationship, the blended wholesale/retail mix will also drive the blended ARPU up.

[Operator Instructions] Our next question comes from the line of Andrew Spinola with Wells Fargo.

Pradman, can you clarify the comment you made on the 200,000 Gen5 subs? Was that as of today? Or was that as of the end of Q2?

It's actually more than 200,000 as of today. At the end of Q2, it was slightly less than 200,000.

Got it. Now I know you had -- and I think that's sort of indicative of this, but you had quite a bit of sort of pent-up upgrades coming into the launch of this service. Did you get most of those done in Q1? Or is there still quite a lot of upgrade activity into Q2?

Well, there was very little. Well, most of the upgrades that we've had so far have been obviously in Q2 and is continuing in Q3 and the rest of this year. So we will be continuing to upgrade a lot of our legacy subs during the rest of 2017.

Got it. Is there -- I mean, is there a meaningful step-down in Q3 -- I'm sorry, I meant Q2 and Q3, not Q1 to Q2. So into Q3, is there a meaningful step-down in upgrades? Can we see a bigger gross add number in the U.S. business in Q3 as upgrades, I guess, at least take a step-down?

I don't think so. I think we'll probably continue at the current pace for the next few quarters.

Okay. I guess, the higher-level question that, that raises for me is if I look at your results in this quarter, and I'm estimating maybe 25,000, 30,000 net adds and I look at ViaSat losing 34,000 last night, even with new capacity, the industry didn't add any net adds in the second quarter. And so when I look at you increasing your investment by committing to Jupiter 3 and I'm trying to think about how you guys are going to grow, is there enough demand for consumer broadband? What makes you comfortable to commit to that, given what am I seeing in Q2 that is not telling me or showing me the demand that you're seeing?

Well, I think you've got 3 complex things that you're mentioning in your question, right? One is combining the negative net subs that ViaSat had versus our positive subs. So we've got to leave ViaSat out of the formula. And in our business, the reason the net subs went higher was clearly this conversion of wholesale to retail that we're having with DISH has created a phenomenon where the net adds on the DISH side of the formula were significantly lower than what we had in our retail business. So I think once we complete the transition of the role of DISH from a wholesale to a sales agent approach, we should see our net adds increase correspondingly. So we are very comfortable that over the next 4 years as we are constructing Jupiter 3 that we will not only fill up Jupiter 2 but we'll probably end up with many [ beams ] on Jupiter 2 being full and having to go into a managed mode like we had to do with Jupiter 1 for a while.

Andrew, let me add to that because I think there's a couple of important points that Pradman made there. I would not use Q2 as a surrogate for the demand for satellite broadband in the U.S. I mean, ViaSat has announced they're shedding subs, trying to get ready for a ViaSat-2 conversion and their own upgrade program, not dissimilar to what we did in Q4 and Q1. Both of us experienced conversion pain with DISH as they shut off their wholesale sales and tried to ramp their sales agency model. And as Pradman has already spoken to, the very first part of our Q2 activity, there was a lot of upgrade activity that wasn't resulting in net adds. So I think Q2 is a little bit of an anomaly as it pertains to the entire satellite broadband infrastructure and growth curve. I think you'll see more going forward as we transition out of some of those anomalies.

Makes sense. I appreciate that color, Dave. Can I just follow up on the DISH issue? ViaSat did say they don't expect DISH to ramp their activities until the fourth quarter of their fiscal year, which I guess is ViaSat-2. Have you -- have they converted your relationship already? And are they actively acting on the agency basis already? Or is that process still ongoing?

Pradman, do you want to give them the status on that?

Yes. I think yes, we're already acting in -- they're already acting in a sales agent role with us and the conversion is in process, obviously.

Yes, the other thing you have to understand we went through -- because of that change, it is complete. But because of that change, we had to requalify a number of their dealer distribution channels to convert them to basically selling new subs. And that did slow us down a bit in the quarter. We've got to be honest about that.

Yes. And in regards to the ViaSat, yes, I mean, it's hard for DISH to go sell something that doesn't exist at ViaSat. So Mark's comment that it's probably going to be fourth quarter before DISH ramps up is really when they're going to -- you have capacity to sell.

[Operator Instructions] Our next question is a follow-up from Andrew Spinola with Wells Fargo.

I guess if no one else wants to get involved, I've got plenty. Pradman, ViaSat last night made a comment -- I'm sorry, I'm just trying to figure out what's going on in this business. And they actually -- there was extremely helpful color on DISH. I think it makes sense that there's some transition going on there. But they also made a comment last night. Mark made the comment that they're seeing pressure from LTE. And I've always thought that the [ wireline ] pressure was real to the extent that they could upgrade that. But the usage-based issues of wireless would make LTE less of a threat longer term. Are you -- I mean, to the extent that you can even see where -- what people are turning off for, are you seeing an increased threat from LTE -- or how do you think of wireless in these underserved markets?

Yes. No, it's a good question. But by LTE, you mean 4G and 5G, I presume?

Yes, yes.

So if you really look at what's happening in the 5G world, which is obviously what everyone's talking about these days, you have 2 pieces of spectrum that are being used in implementing new 5G networks. You have the low-frequency stuff, the 600 megahertz that was recently auctioned, which will be used in areas where -- in more of our market areas, rural and semi-urban areas, where you can have large cell sizes. But the problem with that is the amount of bandwidth available at that -- in that spectrum is not broadband, right? So it's really smaller pieces of bandwidth. So they won't be able to -- they won't be competing with us directly because we're going to be going up to 100 megabits per second, as we mentioned earlier. So in the low ends of the spectrum that 5G will be using, that's not our competitor. Then you go to the millimeter-wave spectrum, the 28-, 30-, 37-gig pieces. And there, the cell sizes are very small. They'll be focused in the urban areas where we don't compete, which are really not in our unserved and underserved markets. So we don't -- [ and with it ] even in the high-end spectrum or the low-end spectrum, really competing directly with 5G, there will be pieces -- there will be at the fringes certain amount of competition, but that's okay because we still see this market of 18 million households, only 10% penetration today, being in the very viable market for us and our businesses.

Got it. Could you possibly expand on the comments you made on Brazil? It sounds like you saw similar strength in Q2 as you saw in Q1. Any commentary on how the ramp continues to proceed in that market?

Yes, it's doing very well. We're, I think, very pleased with the growth of the business. It's developing at probably a slightly better pace than we had anticipated, and we look forward to seeing the rest of the year. Now because of our belief in the Brazilian market, we're going to be augmenting the capacity of our space segment availability in that market by next year, launching T19. The hosted payload will have a certain amount of capacity over Brazil, so that will give us more bandwidth there. And then with Jupiter 3, we will add again a significant amount of bandwidth in Brazil. So we are a big believer in that market and are growing it nicely, building up our distribution chain, hiring, getting more dealers. So very, very optimistic.

On the aero business, I noticed that Thales got its STC for the FlytLIVE product the other day. I think back in March at the satellite show, you said you'd had, I guess, at least one unannounced aero customer. Is that still the case? And when is that customer going to be announced? Or when are you going to begin actual shipments?

Well, we're actually shipping products -- beginning to ship products to Thales, and we're selling -- we're going to be providing space segment -- Ka-band space segment through SES. Obviously, as you know, the market is being addressed directly by Thales, and we are a supplier to Thales. So we're not actively engaging with the end customer ourselves. So we'll leave it to Thales to announce when they expect to sign these customers.

Fair enough. Maybe just one last one for me. Pradman, it seems like with the next-generation satellites, these ultrahigh-throughput satellites, there's a substantial amount of investment that's being put, at least by ViaSat, into the ground networks to enable enough of the gateway capacity to enable these 500-gigabit sort of downlink satellites. But it seems like they're spending quite a bit of money. And you talked about sort of spending quite a bit of time designing this new network. Is there going to be an investment on your part to possibly innovate and create some of these new gateways for Jupiter 3? Or is that something that Loral will do? Or how is that being paid for?

Yes, we're probably taking different approaches than ViaSat, and the focus is obviously the optimization of uplinks and downlinks and the amount of bandwidth you provide in each of those links. We then dictate how many gateways you deploy and the investments that you make at the gateways. I think we have come up with a pretty optimum design. We're not just going in for providing a significant amount of bandwidth from the uplinks from gateways and then not being able to convert it to downlinks to use at terminals. So it's probably a different approach. But whatever the investments we make at the gateways will be made by Hughes and EchoStar, and we'll be deploying them just like we did for Jupiter 2 and Jupiter 1.

Remember, Andrew, the design of these terrestrial networks is one of the core strengths of Hughes networks, which is why they have the advantage of selling those networks on a global basis, which obviously helps subsidize our own development and deployment of those networks.

Our next question is a follow-up from Ric Prentiss with Raymond James.

I wanted to ask a couple. One follow-up to Andrew's. Not just the 5G thought of what competition means, but ViaSat last night was also seeming to imply that the just previous quarter's subscribers were impacted by unlimited plans with 4G LTE today. Are you seeing any of that impact from wireless in your market?

Well, I think the one thing you guys are missing is ViaSat's at a different stage than Hughes because Jupiter 2 is already up there providing much higher capability plans and so on, whereas ViaSat-2 is still a little bit away. And so for him to talk about his competitive situation and us to talk about our competitive situation, they're different. If we were still just servicing subscribers with Jupiter 1, I'm sure we'd be talking about a bigger impact from wireless than what's the reality today with Jupiter 2. Instead, [ that's going ] upgrade and people are getting bigger plans. So it's not quite fair for -- you try to do a one-on-one comparison of ViaSat and their offerings and HughesNet and its offerings at this moment in time. That -- in a year from now, I'll bet Mark will be talking about different competitive nature. So...

That makes sense. I just want to make sure you weren't feeling the same impact they were. It makes sense that you've gotten now, obviously, higher-speed throughput to users. But it's just a concern in the marketplace, and it's like we had kind of dismissed...

Yes, I think one point also that you -- Mike made a very good point. And today, when we compete with 4G, we have a very competitive offering, both in terms of performance and price. So it's not that wireless [ just has a walk over us ]. Now when we get to 5G, as I mentioned, and the different frequency bands, we'll compete in different markets. But the point is very valid. We are offering a different set of offerings than ViaSat can offer today because they don't have the bandwidth.

I would also think your in-building penetration is going to be way better than a 4G LTE signal would be, so...

Absolutely.

Yes. Two other quick ones for me, and I hate to keep doing the tag team with last night, but ViaSat also mentioned that they expect a change in their accounting for their commissions, commissions they're going to start capitalizing in the future. Still a couple of quarters away. Are you guys looking at any change in the expense versus capitalizing of commissions?

No, we're not planning on any changes. And I mean, just so that everybody is on the same page, when we look at our components of SAC, we do capitalize the consumer equipment plus the install. We don't capitalize the commission cost, but we do defer them on the balance sheet and amortize them over the contract term. And then we expense in the current quarter any direct marketing expense.

Okay. That helps. And then just to clarify again on the DISH comments. So it sounds like as you were trying to requalify dealers on the distribution channel, gross adds slowed from the DISH as they moved away from the wholesale to the agency role. Can you help us quantify what that impact was in 2Q? And have you seen it already pick up in the third quarter?

No, we're going to stay away from any specific sort of breakdown of where the gross adds are coming from.

But have they finished going through that dealer requalification?

We're close to being through it, but there's certainly some stragglers. It's not easy. We have to do some retraining. [ Jupiter 2's differ ], so we really have to get out there and retrain the entire distribution channel to make sure we properly supported the installation. And then on top of that, we have training on the sales side because the Jupiter 2 capabilities and plans are different. We wanted to make sure we were properly qualifying customers for their needs. So it was pretty complicated, and they had to be done in a very short time.

Makes sense. And last one, Dave, can you update us kind of on the overhead costs? When you shifted ETC away, you mentioned how much overhead cost that you would have and you'd have the right size over time. Obviously, the corporate other line is really hard to forecast from the outside. But just trying to understand where you're at in that process of getting the cost down and where we think you might be exiting the year at.

Yes. I don't -- we're not done eliminating all those costs. There's still some transition activity going on. And so I would expect those costs to continue to trend down over time, probably over the next couple of quarters. And by the end of the year, we should be into a more stabilized run rate.

There appear to be no further questions at this time.

Yes. I think I see one on my screen. [ Keith Goodman ], are you there?

Dave, I know that -- I think you guys said this, but I just wanted to clarify it. It sounded like initially you guys had said that we should expect similar net adds in the quarters going forward. But then I think you talked about both upgrade activity and the DISH wholesale shift having an impact on Q2. So that would make it sound as if we should expect the net adds to improve in the quarters ahead. Can you just clarify those comments?

Yes. I'm not sure. I am confident I didn't say it. Pradman may have said or alluded to that. But I would expect some increase in net adds going forward. As Pradman said, even -- we've got churn moving in the right direction. And the gross adds. Yes, we can get the DISH sales channel in full gear. We should see some improvement.

I believe we have come to the end of the queue here, so let me just close the meeting now and before that, thank everybody for calling in into our call. Okay. So good afternoon.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.