EchoStar Corporation (SATS) Q1 2018 Earnings Report, Transcript and Summary

Good morning. My name is Sheryl, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the EcoStar First Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host, Mr. Deepak Dutt. Sir, you may begin your conference.

Thank you, and good day, everybody. Welcome to our earnings call for the first quarter of 2018. 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 ESS; and Joe Torres, Associate General Counsel sitting in for Dean Manson. As usual, we invite the media to participate in 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 it over to Joe for the Safe Harbor disclosure.

Thank you, Deepak. 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 those forward-looking statements. For a list of those factors and risks, please refer to our Annual Report on Form 10-K and 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, Joe. Good morning, everyone, and welcome to our earnings call. I’m pleased to note we had a solid first quarter. In aggregate, our two business segments, Hughes and ESS, generated double-digit revenue and EBITDA growth in Q1 over the same quarter last year. In addition, we continue to see strong customer adds and solid customer satisfaction with our Gen5 service. Dave, Pradman and Anders will now give you more specifics on the quarter, and then as usual, we will conclude with a question-and-answer segment. Let me now turn it over to Dave.

Thank you, Mike. In the quarter, we adopted the new revenue recognition accounting standard ASC 606 as well as ASC 321 dealing with accounting for investments and financial instruments, including equity securities, ASC 606 establish a new model for revenue recognition in related guidance for certain costs associated with contracts with customers, including sales incentives. The impact of this new standard is a decrease in revenue of $1.2 million and an increase in net income of $1.1 million in Q1 this year. ASC 321 substantially revise standards for recognition of financial instruments, including all equity investments, except those in consolidated subsidiaries and investments accounted for using the equity method, with changes in the fair value recognized through earnings. The adoption of this new standard decrease the loss of investments and increase our net income by $19.1 million in the quarter. The numbers I reference going forward today for 2018 will be reported using the ASC 606 and 321 guidance. Additional disclosures can be found in our 10-Q, including comparable results under previous guidance. Now summary on our consolidated results. Consolidated revenue in the quarter was $502 million for a growth of 16% over the same period last year, driven primarily by Hughes' revenue growth of 22%. EBITDA was the $166 million. Included in EBITDA are $37 million of net losses on investments. Part of these losses are related to gains on specific investments we have recognized in the fourth quarter. Without these net losses, EBITDA would have been $202 million for the quarter, a growth of 10% over last year, driven primarily by the higher revenue at Hughes, partially offset by an increase in sales and marketing cost for the Hughes' consumer business and a reduction in earnings from unconsolidated affiliates. Net loss from continuing operations was $21.2 million in the quarter compared to net income from continuing operations of $30.8 million last year. The primary drivers of the decline were a lower EBITDA, just discussed, increased depreciation from satellites placed in service last year, along with the related infrastructure and consumer CPE, reductions in capitalized interest as a result of satellites been placed in service, which were partially offset by lower taxes and higher earnings on our cash balance. Capital expenditures in Q1 were $51 million compared to $90 million last year. The lower CapEx was due primarily once again to the completion of the build and launch of our satellites during 2017 and reimbursement of certain costs related to Echo 105, partially offset by an increased CapEx on rental equipment for our consumer business and spending on our Echo-24 satellite. Free cash flow, which we define as EBITDA minus CapEx, increased in Q1 to $115 million primarily as a result of the lower CapEx this year. Hughes’ revenue in Q1 was $401 million or a 22% year-over-year growth driven primarily by the consumer business in North America and Brazil as well as growth in North American and international enterprise business. Hughes' EBITDA was $137 million, a 36% growth over last year, primarily from the revenue and margin growth, partially offset by higher sales and marketing cost associated with the HughesNet Gen5 consumer service. ESS’s revenue was down 4% in Q1, primarily due to the Echo 12 lease with DISH ending in September of 2017 and reduced capacity on Eco-X. EBITDA was up slightly, driven by the AMC-15 lease termination in December. Corporate and other EBITDA in Q1 was a negative $55 million compared to a negative $601,000 last year, primarily due to the net losses on investments this quarter as well as lower earnings from unconsolidated affiliates. Our balance sheet continues to be very strong with $3.3 billion of cash and marketable securities and less than $100 million of net debt, excess exclusive of capital leases. Let me now hand it over to Anders.

Thanks, Dave. In January, we retired EchoStar I, our first satellite. Echo I was launched December 28, 1995, and began broadcasting the Dish Network television service in March of 1996. The satellite has been located at many different orbital locations over the course of its life and most recently have been located at the 77 West orbital position as a backup for Dish Mexico. It has not been a revenue generator for us in 2017 or thus far in 2018. Our fixed satellite services team continues to make progress with filling the capacity on EchoStar 105, which entered commercial service at 105 degree West orbital slot at the end of November. Echo 105, in conjunction with the EchoStar IX satellite, provides comprehensive coverage of the United States and expanded reach into the Gulf of Mexico and the Caribbean. In Q1, one of our in-flight entertainment aeronautical customers expanded and extended their service on EchoStar 105, with those services to continue through the second quarter and should possibly run into the third quarter. We are also providing capacity to one of our customers to support critical communication services in Puerto Rico, following last fall's devastating hurricane. Finally, our EchoStar Mobile, or EML team, continues to roll out additional applications and products using IP-based MSS connectivity for voice, data, machine-to-machine and IoT services. The EchoStar Mobile network is currently providing coverage throughout the European Union. I'll now turn it over to Pradman.

Thank you, Anders. First I’d like to share with you briefly our exciting journey through the broadband consumer business. Over 20 years ago, we pioneered the offering of satellite-based Internet service to consumers, the first to do so worldwide at that time. There we leased Ku-band transponders from other FSS providers. The big lead from this was then we changed strategy to building our own satellite SpaceWay-3, a K-band satellite with onboard routers, also a first in the industry, and began to see the positive impact on profitability that we expected through ownership of satellite. SpaceWay-3 filled up and was followed Jupiter 1’s launch in July 2012 and Jupiter 2 in December 2016, both high throughput K-band satellites with groundbreaking service plans. We entered into a hosted payload arrangement on EUTELSAT 65 West for its K beams and commence service in Brazil in 2016 and in Columbia in late 2017. Our hosted payload on Telesat T19V was launched in mid-2018 to provide service in other Central and South American countries. With the addition of T19V, we will have the largest K fleet coverage over the Americas. In terms of subscribers, we now have 1,267,000 retail, wholesale and SME consumers and continue to be the undisputed market leader in the broadband satellite world today. Looking ahead, our new high throughput K satellite Jupiter-3 is currently being built and will have significant additional capacity to enable us to offer over 100 megabits of download speed to the subscriber. It will support our consumer business as well as enterprises aero in-flight Wi-Fi and community Wi-Fi. We expect to launch service on Jupiter 3 in 2021 and continue to explore opportunities to expand our broadband service presence, to complement as success in the Americas. Now to the first quarter, it was another strong quarter for HNS, particularly in our North American consumer business. That's the momentum we created in 2017, continued across all sales channels. We have now completed the implementation of HughesNet Gen5 plans across Jupiter 1 beam and now have over half of all the North American subscribers on Gen5. We saw high levels of consumer and customer satisfaction with the new HughesNet Gen5 plans a clear indicator being that churn continue to go down, overall consumer churn in Q1 2018 was the lowest quarterly churn in over five years in North America. During the quarter, we received notification that we have been recommended for grant awards under the New York State Broadband Program and for associated funding through the Connect America Fund, or CAF, program likely for about 50,000 households. We are working through the final details of these awards and the terms and conditions associated with them, and will provide updates once these are finalized. As mentioned earlier, our total consumer base of retail, wholesale and SME subs was approximately 1.267 million as of March 31, 2018 compared to 1,043,000 as of March 31, 2017. We had net adds of approximately 59,000 subs in Q1 compared to approximately 7,500 net adds in the same quarter last year. These metrics do not include subscribers that are partners, Xplornet in Canada and StarGroup in Mexico, provide service through since these are capacity sales, but they do add to our revenue and earnings. I'd now like to talk about another exciting development this time in the enterprise space, and that is Software-Defined Wide Area Networks. SD band is rapidly emerging as the next-generation solution to replace legacy networking services, like MPLS. Solutions such as SD-WAN are critical as enterprises digitize their operations, with more and more applications being deployed and the rapid shift to cloud services. Hughes SD-WAN is the right solution for distributed networks. It is a fully managed service with integrated transport, strong security and is powered by Hughes' proprietary ActiveTechnologies. ActiveTechnologies consists of four advanced interlocking technologies: ActiveQoS, which delivers dynamic QoS over broadband; ActiveClassifier, which automatically classifies traffic based on flow behavior; ActiveCompression, which increases virtual capacity or broadband lengths; and finally, ActivePath, which intelligently utilizes multiple broadband paths to improve application availability and performance. Hughes SD-WAN available to both enterprise and government customers. In North America, so far we have about 29,000 SD-WAN sites with 19 enterprises across multiple industries, and we look forward to strengthening our already strong presence in the enterprise space with this offering. Now to the quarter's performance. Our North American enterprise business had a very strong quarter, including the addition of contracts with new customers and expansion with several existing accounts. One of the new customers in Endeavor, a market leader in the retail petroleum space, who signed a large initial contract for SD-WAN and security services at their locations. Other significant orders in the managed services sector included Beverages & More!, IGT and Murphy Oil. In the energy sector, we extended our relationship with BP pipelines, marathon pipelines and added Baker Hughes as a new customer in support of their exploration business. In the aero market, we had additional orders for the expansion of the services that we provide, Global Eagle. Work on the development and production of OneWeb gateways continues, and we've already shipped equipment for the first two pilot gateways that will be used to validate the system with the initial satellites. We will commence production and shipments in the second half of this year. As announced previously, this work is part of the $300 million order from OneWeb. In our international business, HughesNet consumer service in Brazil continued to grow nicely and surpassed our expectations for net adds in Q1. Service operations in Columbia and preoperational activities in other newer LATAM markets continues to progress well. We received some major orders from news space in Thailand in a partnership deal SES, and our Jupiter system was selective by a major multinational operator in South Asia to support backhaul of NPE traffic over satellite. Bharat Electronics Limited, Bharat Petroleum Corporation and Wipro in India; Nextel in the state of Santa Catarina in Brazil; Telespazio in Europe; Star Satellite in the UAE; and Nexsat also awarded major orders in Q1. We continued to enhance the capabilities of our Jupiter broadband platform to include faster throughput, mobility support and faster browsing. Our backlog from enterprise customers was 1.6 billion as of March 31, slightly higher than the backlog at March 31 last year. At last quarters call, I have highlighted the fact that we have been achieving high EBITDA margins consistently. I’m pleased to inform you that this margin expansion continued in Q1, that our EBITDA margin was 34% compared to 31% in Q1 last year. So we continue to lead the market in terms of both numbers of subscribers as well as profitability. I’m very pleased with Hughes’ performance in Q1 and I'm looking forward to a very successful and exciting 2018 for Hughes. Let me now hand it over back to Mike.

Thank you, Pradman. Overall, we are very pleased with our results for the quarter. We are showing strong revenue growth and improved operating EBITDA margins. We continue to have the strongest balance sheet in our sector, and we continue to be the industry leader and satellite communication technology. This gives us a unique set of capabilities and tools to be a leader in the industry as we continue to move forward to next-generation network and services. Now let me turn it back over to the operator to start up question-and-answer segment.

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

A couple questions operationally around Hughes, obviously ramping nicely with the Gen5. How should we think about the pacing and the filling of the Jupiter-2 satellite? And also I think you mentioned the Jupiter-3, you are now expecting to be in service I think you said in 2021. So how should we think about pacing and fill on the Jupiter-2?

We are very fortunate in that the popularity of the service has been great. And so the different beams are filling up at a faster rate than even we had anticipated. So the nice thing about that is that the pipe is getting filled fast, so the internal rate of return on that investment are obviously significantly better than we anticipated. But it's going to have an effect going forward because the areas where there are lot of customers are beginning to have beams that are filled up. So we’ll probably see some level of slowdown in the next year as these beams starts filling up.

And then as far as we think about the, you mentioned I think gross adds were down but churn was also at a very low level, so people are fairly liking it, how should we think about what the competitive dynamic was as ViaSat-2 came into service and maybe what you’ve seen in April and May on that front?

We don’t compete directly against ViaSat. Weather subscribers deciding as to get a high-speed satellite broadband service, we’re not competing directly against ViaSat because the deal is really dictated to all the equipment they put into a particular site. So I don't think we've seen much of an impact at this stage from ViaSat.

And then my final question on the Hughes side is: Obviously a nice revenue growth. You called out enterprise a couple of times. How should we think about the revenue growth as far what the ARPU is doing? You've got, I think, the $49 plan, now discounted $59 plan and $99 plan for retail, but enterprising seems, I guess, got good momentum too. Should we think about that may be deemed as closed in the future?

Ric, are you talking about broadband services on enterprise? Is that what you’re referring to? Or you’re talking about the managed service business?

We can go both, but on the retail side kind of what you're seeing may be as the ARPU trend it seems like give or taking the service, liking the service and ARPU may be certainly up and what we're seeing. And then just as far as enterprise in general but with those two areas kind of what you are seeing?

, :

Yes, I think the -- we don’t really look at it that’s an ARPU because we are doing the managed network service for a particular enterprise. So there is none an ARPU number that we are tracking. But in general, the revenue growth in the North American enterprise business has been positive. And even though for many years it was flat to slightly declining, I think in the last quarter we have been very encouraged with seeing growth in the revenues for the managed network services.

And I apologize. I wasn’t meaning ARPU on the enterprise side, I mean ARPU on the retail side seems like it would be going up and revenue at the enterprise should be going up. But you guys don’t split out into your disclosure, I don’t think, enterprise versus retail.

No, we don’t. And, Ric, just a little bit more color on that. I mean, ARPU is ticking up. It’s pretty much consistently goes up every quarter. Part of that as you say is people taking higher packaged, but the other pieces the retail, wholesale mix. With about a year ago DISH stopping selling wholesale, that wholesale component over the course of the last year has shrunk as a percentage of the total consumer base. So on the consumer business, our ARPU is ticking up just because of that mix change and nothing else.

And last question really tweaking all those details. You mentioned the New York Broadband and the CAF funding. Are you guys registered for the CAF 2 auction as well? Would that be an addition possibly to what mentioned with 50,000 households?

We are seeing actively involved in all of that and everything is not finalized there, but we are very active in the early process. I’d say it that way.

It looks like the rich you guys might get, it could be quite attractive.

It’s certainly mixed. It’s mixed across the U.S. and we are trying to manage it very carefully. So we do -- we don’t take a misstep and we do the right thing for the company long-term.

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

Just wanted to start out with the high-level question on the cash. I’m just wondering now you guys have been contemplating acquisitions for quite some time, but you have $0.5 billion share repurchase program in place. So I just -- given where your stock is trading, it would be hard to get something -- the investment that would be is probably high quality and low risk is buying your own share. So I’m just wondering if you guys have given any thought to that recently or if you’ve changed your views at all and maybe doing some share repurchases here.

Well, historically our intent to expand the business and continue to take advantage of everything uses as built and EchoStar built over the long term. So right now we are absolutely out, working very hard on where we can invest that cash in a better way than stock buyback. I cannot disagree with you that the change in the market makes us have to look at that a little bit closely, but right now that's not in our plans.

Understood. You made the comment about the nice year-over-year improvement in your EBITDA margin in Q1, but it looks to me like it should've been almost 200 bps better, except for a negative gross margin on your equipment business. So were there anything onetime in terms of impairments or charges that led to the negative gross margin on equipment? Or is this subsidized hardware in the enterprise business? What drove this?

First of all, let’s just make sure that we’re looking at things on an apples-to-apples basis. I means, Hughes on a year-over-year basis, margin expanded by 350 basis points. Quarter-over-quarter it was 140 basis points. So we’re pretty pleased with the margin expansion. The equipment margin on the quarter was negative as you note. In that cost of goods sold, we include certain indirect cost such as product line management, quality assurance, deployment support. These costs are mostly fixed in nature. We saw a significant reduction in equipment revenue from Q4 to Q1, which is not unusual. Q4 tends to be very, very high equipment sales quarter. But we weren't able to react quickly enough to mitigate the indirect costs associated with equipment. The negative margin is certainly not something we expect to continue going forward. I think it's a onetime event for the quarter.

Staying on that topic, the cost to service was up about $6.5 million sequentially from Q4. I just wonder if you can help parse through that as well. Is this spending in Latin America? Or what's driving that?

I mean, you've certainly got the launch perform that's driving those costs. It’s not entirely associated with Columbia, obviously. But across the board, the costs are continuing to increase to support cost around consumers that grows. There is a lot of variable cost associated with the consumer business. And so we’re going to continue to see that ramp as the consumer business ramps.

And also if I can add, we are launching in five countries in South America this year. So the cost associated with launching service in not only in Columbia, but Ecuador, Chile, Peru and more in Brazil is going add to our cost as we get started in these countries.

And you mentioned that Brazil exceeded your expect expectations for net adds in the quarter. I think you announced that you were at 75,000 back in September at the Paris show. Have you guys exceeded a 100,000 yet?

Regardless of what we said at a show, we're not at a point yet we are ready to disclose South American subscribers separately from North American.

[Operator Instructions] Your next question is from the line of Chris Quilty with Quilty Analytics.

David, just wanted to follow up on the HNS margins. Was there anything in there that was unusual? Or are those margins sustainable on a go-forward basis?

Certainly we think they are sustainable. I mean, as Pradman mentioned, as we continue to launch new markets, those markets are going to be negative for a period of time after we launch and that’s going to bring things have a dampening effect. But as the consumer business continues to grow, it has the highest margins of any of our products, once we reach a sustainable level in the other countries. But certainly in North America, as the mix of revenue shifts towards consumer -- continues to shift towards consumer, that’s going to push margins up.

And the fact that you are halfway through the rollout of the Gen5 plan, does that impact mix in any way either churn or ARPUs or your expenditures as the balance of those consumer shift over and presumably you expect over time everyone to move to Gen5?

Yes. I mean, we think it’s a superior product certainly to Gen4, and we would expect that customers continue to migrate. Obviously all new customers are going on to the Gen5 platform, and customers continue to upgrade. So over time, yes, there will be a natural migration and increase under the Gen5 platform. And that’s going to come with -- as Pradman has already spoken to, we see significantly reduced churn and churn, as you know, has a significant impact on the bottom line.

A question on the Hughes Mobile business. Anders, is there any kind of metrics you can give us around that in terms of number of customers or revenues or expectations of how meaningful that can contribute?

Chris, just for a clarification, you said Hughes Mobile, are you referring to EML or the Hughes Mobiles app business? EML?

Yes.

Okay. So Anders you want to take.

Yes. Chris, we are not at a level of commercial activity where we're going to be sharing customer statistic or anything like that. We will probably speak in the future about some of the products and other services that we are working on with some partners in Europe that will be going up on the satellite, but I don't think we'll get into that level of specificity.

You actually haven't given Hughes Mobile breakout I think since Hughes was acquired by EchoStar years ago, but is there anything substantial happening in that business that’s driving growth?

It continues on. I mean, it’s a notable business and we got some strong capabilities in that area as we look at what's developing around the globe. But no, it’s not by any means a major piece of the business, but it's a nice piece of the business.

As we have said in the past, it’s an opportunistic business. We don’t invest in it as a product line but we offer our technology and engineering capabilities to build the very large systems. And typically at any given time, there are two or three of these large systems being built in the world somewhere or the other, and we are the number one company in the world delivering mobile SaaS systems. And that’s been the mode we’ve been in for the last 10 years and continues going forward.

So, Pradman, historically those who were like ATC networks or projects for Inmarsat or others. Is that mobile technology transferable to some of the things happening with Leo constellations beyond the existing OneWeb relationship?

Almost all our technologies support other neighboring kinds of systems. Leos are obviously both fixed and mobile, and the mobile part of the Leo technologies would obviously be supported by some of the technologies that we are developing for people like ThriA and Kenstar in the past year, and so MEXSAT in Mexico. So we have a number of these systems globally that are standalone systems by itself but the technology is added over to the next-generation system that comes up.

And final question, David. Should we be concerned about Brazil about the growth of the consumer in the legacy enterprise business given that the strength in the U.S. dollar? Or are you hedged against that?

We should always be concerned about foreign currency and most of the business down there -- and this is true of all of our international service businesses, the revenues and expenses are pretty much are in local currency when we sell equipment to international locations, those contracts are typically denominated in U.S. dollars. So there is no exposure. But clearly when you've got a currency influx, you are going to see an impact through FX recognition on the financial statements it does impact us just because we've got two reflect the assets in place back into U.S. dollars.

But I wouldn’t be concerned that it's going to destroy our earnings, Chris.

Your next question is from the line of Giles Thorne with Jefferies.

I had three questions, please. First question a very basic question. You sort of understand the drivers of the dropping gross adds quarter on quarter and get a sense of how subscriber momentum is tracking against your full-year budget. And second thing was -- do you see anything in the Belgium withdraw of Inmarsat CTC license to give you closer thought as to your own ambitions and European mobile services, EML? And then finally a bit of a [Indiscernible] question. But, Pradman, you've floated with the idea of infrastructure and investment historically you said in an interview you have. And is there anything in the DOT accepting the TRAI’s proposal for it’s connectivity in India. The changes or accelerates any plans that you might have on our backbone of the both of that? Because it seems to me that the large container with the lot of people in plane so basically hardly any high throughput capacity up?

Yes, the – No, in India, TRAI is advisory body and gives the rulings which DOT may or may not accept. But they have been working on -- I think you are referring to the new telecom policies that they are working on. So I think TRAI has made the recommendations about BOL – they are either formally accepted our modified [multiple speakers]

The way as [indiscernible] CTAT has accepted TRAI’s proposal for an in-flight connectivity service. So everyone is getting a …

The in-flight connectivity, you’re right. For in-flight -- I’m sorry. I was looking at the overall telecom policy. On the in-flight connectivity, you are right. There is a GMPCS license that people are going to be getting to be able to offer in-flight services. We are fortunate in that are -- we have overall license for providing the services which includes the GMPCS capability. So we are licensed as far as I can – as far as I know to offer mobile services in a plane or in-flight services in the plane. But if you are a new operator, you have to apply for this GMPCS license.

There is nothing in these development that change your views on putting a satellite up over the continent? That’s really what I’m trying to get at. Coming back the whole uses of cash competition.

We are still very interested in doing that.

Anders, you want to chime with the EML question?

Yes. So I’m not completely familiar with this specifics relating to Belgium’s withdrawal of Inmarsat’s prior license, but I know that that is one of the jurisdictions in which ViaSat and I believe Eutelsat have pursued action against Inmarsat for supposed violations of the license terms. My understanding is that that was the withdrawal of the existing license was done on a procedural note and that certainly Inmarsat is fully expecting the license to be restored in due course. We don't see that really is impacting our situation. We currently hold an MSS license in Belgium. But we have not pursued our the right to receive a CGC license until we know exactly what it is we're going to do in the schedule upon which we’ll roll it out, because there is no sense in incurring the cost of having a CGC license until we're ready to use it.

Do you have CGC license anywhere in any jurisdiction?

Yes, we do. There is a number of jurisdictions where we have taken the CGC licenses because there is no incremental cost associated with taking them, meaning that particular member state gave us the latitude to have the license with a fairly broad scope, without any incremental cost associated with it until we actually start rolling out products on a CGC network.

And is there any clock ticking on getting CGC license in, and there is other jurisdictions where you haven’t yet pursued it?

No, there is not.

Other than the fact that the license expires, when is that? 2025 I think, if I remember?

And quite a ways out and there is an expectation for renewal.

And then final question back to first question it was just on growth type of the drivers of the quarter-on-quarter drops and how that tracking compared to full-year expectations?

You are asking about the growth on the subscriber business quarter-over-quarter?

Well, that you -- I mean you comment in every quarter on how gross adds trended compared to the prior quarter, and in this quarter it was down and it just felt unintuitive to me to see growth that's coming down in the quarter given all the tailwinds that you've got across your international business and the Gen5 launch, etcetera, etcetera. So I wanted to know why gross adds stopped to quarter-on-quarter.

Gross adds? So, Pradman, gross adds drop in quarter-over-quarter?

I think from Q4 to Q1, that is primarily seasonality.

Well, that’s what I thought it would be. But then you look at the historic and you are usually quite strong in the first quarter. So are they still scratching my head?

But usually -- I don't have the details in front of me, but usually Q1 is less than Q4. Q4 is usually a best product.

In Q1 last year, we’re certainly weak. I mean we had no capacity itself effectively like before we launched the Gen5 service.

But all in all, you are happy with the momentum of gross adds and churn is obviously very strong?

Yes. I mean, as Pradman mentioned in his comments, we are very pleased that we are filling up the satellite ahead our expectations, and as he commented on that improves, obviously the return on the asset, which is obviously about something we always look at. So it's good use that it's filling up faster, but that's the bad news if there is such a thing as bad news in this regarding. It is that we're going reach at point at some point in the future that growth is going to slow because beams will start telling.

You have a follow-up question from the line of Ric Prentiss with Raymond James.

Couple of quick follow-ups. I appreciate the extra disclosure on the corporate and other EBITDA. Can you talk a little bit about taking the costs out of the business, it looks like you've done a good job from last year what was I guess $19 million down to this year -- this quarter where it was $18 million. How much more right sizing do you think you have there. And then a second question is, I think you have some debt maturities coming up in the middle of 19 maybe and they are over about $1 billion. What are your thoughts as far as what you might do with that maturity?

Yes, the first thing in terms of disclosure, what we disclose was continuing operations. And so there's a lot of corporate overhead that gets buried down in discontinued operations. So the reduction from an actual cash spend year-over-year was actually quite a bit lower than that. So you really got to take into consideration when looking at that corporate overhead all the costs that were eliminated. So what you are seeing is a true apples-to-apples comparison and were relatively flat. I don't think that there is much cost left to be taken out of corporate overhead as a result of the transaction last year. In terms of the debt maturity in June of 2019, yes, we’re aware of it. I mean, obviously we’ll take a look at what happens over the course of the next 12 months from utilization of the cash and whether we need to refinance that in or whether we need to do some different. But at this point time, there’s just not a lot to say about that maturity.

So just watch it and figure that’s a good run rate on the corporate costs up in the continuing ops.

Yes.

Your next question is from the line of Chuck Goldblum with Hurley Capital.

Just a few questions. First of all, at least for past few quarters you have given an update on the M&A market. I know a few quarters back or maybe last quarter you discussed it in the conversations to having increased. Maybe you can tell us where we are on that now?

The conversations are continuing. I mean the activity is high. It’s just a matter of determining where the industry is going. There is a lot of fluxing and change going across the entire industry right now. Obviously we've got LEO networks being built. We have got MEO networks in some cases being talked about, in some cases being expanded. And so looking for the right strategic fit and making sure that we make the right decisions on where we want to position ourselves vis-à-vis the entire industry is an ongoing priority for us. Beyond that, there’s really not much else I can say.

Well, there is only follow-up on that is, is your appetite for doing a deal as high as ever? Or is this sort of the flux in the market giving us some price?

[Indiscernible] high lever, but certainly if you can track in the market to see some of the major players, the values have changed dramatically and we are moderating that on a daily basis, to be honest with you.

And it would also makes -- I mean, those fluctuations, and especially the decline in some players in the market have seen, frankly just makes them more reluctant to have a reasonable dialogue about valuations. Obviously we have seen our own decline, but I don't think we have seen the same decline relative to some other players in the market.

And then again, as it relates to the consumer broadband, how would you guys characterize margin trends going forward when you think about balancing, a, adding folks in that diminish -- the rate of growth that diminishing over time, but the sack up front as well. Any maybe tell us how you look the trends that are going in the next few years.

I think the trend’s up. It keeps going up because most of the costs are fixed. So incremental sum that you get almost all the revenue flows to the bottom line. The only way the major reasonable cost is sack to acquire the sub. But once you get better [indiscernible] basis.

All in all, the country setup costs and what have, those would be in back -- in the real view as well.

It’s a ironic fact of all subscriber businesses where you have got significant acquisition costs. Be that seller, be that cable satellite or in our case broadband, you have got significant cost upfront to acquire that customer. And then as Pradman said, the margins are pretty high incrementally going forward. So as growth slows, margin goes up because you don't have that acquisition cost. And right now, off course the last year we’ve obviously been in high growth mode, and so we've been incurring significant acquisition cost. But even with that you've seeing nice increase in our margins. So from that standpoint, -- we're pretty optimistic about margin expansions going forward on the consumer business.

And then my last question is, as it relates to your ownership in DISH Mexico, any commentary on what the plans for that asset are over time as far as sort of seeing the value in the stock from that?

I think the plan going forward, we will continue to work it with our partner down there. It's a business that continues to operate. It’s got its own ups and downs associated with that market. But we've got no definitive plans at this point in time for rather than continue operate and have dialogues with our partners as to the long-term strategy there.

So no chance to sort of see the value of it in the stock at any point in time until the partner sees this to be something?

Yes, I think that's part of the case. I don't think we're going to force a dissolution at least not in the near term. So we will continue to have strategic discussions and dialogues with our partner.

There are no further questions at this time. Do you have any closing remarks?

We thank everybody for participation, and we will see you next quarter.