EchoStar Corporation (SATS) Q3 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the EchoStar Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Deepak Dutt, Vice President of Investor Relations. You may begin your conference.

Thank you, operator and good morning everybody. Welcome to our earnings call for the third quarter of 2018. I am joined today by Mike Dugan, our CEO; Dave Rayner, Chief Operating Officer and CFO; Pradman Kaul, President of Hughes; Anders Johnson, President of EchoStar Satellite Services and Chief Strategy Officer; and Dean Manson, General Counsel. As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants or their firms 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.

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 materially differ from historical results and from any future results expressed or implied by the forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K 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 will now turn the call over to Mike Dugan.

Thank you, Dean. Good morning, everyone and welcome to our call. As a management team, we continue to focus on operating the business in an efficient manner and testing to balance short-term and long-term opportunities. I’m pleased to report that the third quarter was another strong one with increases in revenue, gross margin and operating income. Let me now turn it over to the management team to expand on these specific results before closing as usual for the questions and answers. So here you go, Anders.

Thanks Mike. Good morning. ESS third quarter revenue was $84 million compared to $97 million last year. EBITDA was $72 million versus $78 million last year. The year-over-year revenue decline that ESS experienced in this quarter is based on the previously disclosed termination of the leases on both EchoStar XII and EchoStar VII by DISH. This decline has been partially offset by a year-over-year increase in our non-DISH and government FSS business. Third quarter FSS sales include the extension of services on EchoStar 105 by one of our in-flight entertainment aeronautical customers and several government and commercial opportunities in collaboration with the HNS team. Although we did see an increase in our non-DISH and government FSS business year-over-year, we expect to see continued pressure on rates for U.S. government service opportunities and a difficult environment for our commercial FSS business through the remainder of the year. The EchoStar Mobile team continues to make progress in developing distribution partners throughout the EU. In addition, the team is working to evolve current products to better service end-to-end and IoT applications and continues to develop the pipeline of new products and services. I will now turn it over to Pradman.

Thank you, Anders. Before I get to our quarter’s performance, a few thoughts about our strategy and how the different pieces are falling in place. Our mission is to be the world leader in satellite broadband technology and service, and I’m pleased to say that we have consistently delivered against that mission. From a technology perspective, we continue to enjoy over 50% share of the worldwide market for satellite-based consumer and enterprise systems and services. And we are the technology partner of choice for leading global and regional satellite operators for both the GEO and MEO segments. In services, we lead the market of today. HughesNet has been chosen by two out of every three satellite Internet subscribers. In October, we extended our service footprint in Colombia, Peru and other South and Central American countries with the launch of service on our T 19V hosted payload 63 West. As we enter each new country, we set up a complete operating and customer support infrastructure, while at the same time, leveraging the infrastructure and sales and marketing know-how from our successful North American and Brazilian consumer operations. These additional markets will also benefit from the outstanding network operations capabilities we have developed in North America. This is a challenging undertaking, but I am pleased to report that our team is fully focused on bringing high-quality HughesNet services to unserved and underserved subscribers across South and Central America. In September, we announced the formation of a joint venture with Yahsat to deliver satellite broadband services across Africa, Middle East and Southwest Asia. The asset is a wholly owned subsidiary of Mubadala Investment Company, Abu Dhabi’s sovereign investment fund. The new venture will provide unserved and underserved communities in both regions with high-speed Internet services. Operating Yahsat Al Yah 2 and Al Yah 3 and Ka-band satellites and leverage the capabilities of Jupiter ground infrastructure. It will initially focus on direct-to-premise services to homes and small to medium enterprise and to community centers and schools that are served under local government programs. It will also focus on community WiFi and hotspot solutions. The joint venture with Yahsat allows us to establish a service presence in Africa, the Middle East and Southwest Asia. Developing our service business in Africa is at the same time exciting and very challenging, but we believe the combination of Hughes’ technology and service delivery experience together with Yahsat’s market knowledge will create an extremely powerful force to expand Internet access across Africa, Middle East and Southwest Asia. We have received all the necessary government approvals and expect that the deal will close this quarter. So you can see we are making rapid tangible progress on our mission of becoming the global leader in satellite broadband technology and service. Important pieces have already fallen in place, and many opportunities remain to be exploited in the coming months through our extensive partnerships and assets. We will give you more information in the coming quarters as appropriate. Now some detail on Q3, which was an outstanding quarter for our business. As I had mentioned at the Q2 call, our Ka-band hosted payload of Telesat T 19, referred to as 63 West, was successfully launched on July 22. And I am delighted to inform you that after successful completion of in-orbit and system testing, we brought the capacity online and launched HughesNet service in Peru on October 31. HughesNet will reach 97% of Peru’s population and will enable Internet access to consumers and businesses throughout Peru. 63 West will also provide additional coverage and expansion capacity for our HughesNet services in Brazil and Colombia and will enable us to open new markets for HughesNet in Ecuador and Chile in the coming months. We intend to use this capacity for consumer enterprise, cellular backhaul and community WiFi solutions. Our Jupiter 3 satellite is currently under construction with an anticipated service target of 2021. It will add significant additional capacity, enabling us to offer service plans delivering over 100 megabits per second of download speed to the consumer, maintaining the future of satellite Internet at the high quality and viable broadband technology. Last quarter, I talked about how we run our business with the primary objective of growing revenue and earnings. We continue to achieve and exceed both goals handily. Despite foreign exchange headwinds in Brazil and India, we grew revenue 17% and EBITDA 25% over the same quarter last year, continuing the trend that has resulted in revenue being up 19% and EBITDA up 22% for the 9 months ending September 2018 over the same period last year. Our EBITDA margin percentage has grown consistently and stands at 37% in Q3 of 2018, among the highest in comparison with our broadband service peers. EBITDA and ARPU have now grown for 6 consecutive quarters. We delivered these results while also growing our broadband subscriber base, which stood at a total of approximately 1.332 million at September 30, 2018. While our consumer business continues to power our growth in revenue and earnings, I am equally pleased with the performance of other parts of our business. In our North American enterprise business, we received major orders from Delhaize, Brad’s, Albertsons, Booz Allen, Walgreens, Blackbird Technology and the U.S. government. Major international orders were from Yahsat, Techband, Sterlite Industries, [indiscernible] and Indian Oil. In total, we were awarded $140 million of enterprise orders in the third quarter and entered the fourth quarter with a substantial backlog of over $1.5 billion. Our Jupiter Aero technology is used in over 900 aircraft. Global Eagle recently announced that it received an award to provide in-flight connectivity for 130 Air France Airbus A320 aircraft. And we are pleased to be providing the Jupiter ground gateways and aeronautical modems that will be supporting these aircraft. This is the first deployment of the Jupiter aeronautical system in Europe and positions both Hughes and Global Eagle for expansion in this market. So as you can see, we had another very strong quarter, and I’m looking forward to closing out another successful year with continued growth in revenue and profitability and set the stage for even greater achievements in the future. Let me now hand it over to Dave.

Thank you, Pradman. Consolidated revenue in the third quarter was $533 million, a growth of 11% over the same period last year, driven primarily by the Hughes consumer growth and offset slightly by ESS. EBITDA in the third quarter was $220 million, about the same as last year, with the growth in revenue and margin at Hughes being partially offset by lower gains on investments, a reduction in ESS EBITDA, unfavorable FX impacts and a reduction in equity and earnings of unconsolidated entities. Without the impact of gains and losses on investments in both periods, EBITDA would have increased by 8%. Net income from continuing operations was $16.5 million in Q3 compared to $35.9 million last year. The decrease is primarily a result of higher depreciation expense. Capital expenditures in the quarter were $167 million compared to $192 million last year, with lower satellite-related spending being the primary reason for the decrease. Free cash flow, which we define as EBITDA minus CapEx, increased in the quarter to $53 million from $28 million last year as a result of a lower CapEx. Turning to the segments, Hughes revenue in Q3 was $445 million, a 17% increase year-over-year, driven primarily by growth in Hughes North American retail consumer services and international businesses, offset partially by lower North American enterprise hardware sales and lower wholesale consumer business. Hughes EBITDA in Q3 was $164 million, a 25% increase over last year, primarily from the revenue and gross margin growth, offset partially by higher sales and marketing costs associated with HughesNet consumer service, higher G&A expense and exchange rate losses. ESS revenue was $84 million, down 14% in Q3 from same quarter last year, primarily due to the termination of the Echo VII lease with DISH, which ended in the second quarter 2018; and the Echo XII lease, which ended in Q3 last year; as well as reduced capacity usage by DISH in Echo IX and Echo X. EBITDA was down 8%, driven primarily by the revenue reduction, offset slightly by lower lease expense due to termination of the AMC-15 lease at the end of last year. Corporate and other EBITDA in Q2 was negative $16.1 million compared to positive $9.7 million last year, primarily from lower unrealized gains on investments, lower equity and earnings from unconsolidated entities and FX losses. In addition, we had derivative losses and lower dividends on certain investments. Our balance sheet continues to be very strong with $3.4 billion of cash and marketable securities and approximately $173 million of net debt, inclusive of capital leases. As you are aware, we have $990 million of notes due in June next year. Our intent at this time is to repay them out of current cash. Let me now turn it back over to Mike.

Thank you, Dave, Pradman and Anders. Q3 was another solid quarter, with Hughes once again delivering strong results in the top and bottom lines, positioning us very well for the future. As we think about the industry and the business, in general, we continue to see a lot of changes on the horizon, GEO, NEO, LEO, IoT, 5G, Aero, connected cars, all of which provide for interesting opportunities and their own unique challenges. Our focus continues to be the best global player providing bandwidth, network, support infrastructure and secure services across a wide spectrum of opportunities. While we continue to aggressively review all the opportunities in our industry due to the extremely fluid nature, we will continue to evaluate the risks and rewards associated with specific strategies, investments in order to ensure prudent decisions and long-term results. All of these are challenging times. There is also great opportunities across the industry and we are excited to start pursuing even more opportunities this quarter. We are now ready for the Q&A questions. So, let’s turn it over to the operator.

Thank you. [Operator Instructions] Your first question comes from the line of Ric Prentiss from Raymond James. Your line is open.

Thanks. Good morning. Can you hear me?

Yes.

Hey, good. A couple of questions. First on the Hughes side of things obviously very nice margin expansion as we think about selling the capacity in the different satellites, how should we think about the competitive environment, what you are seeing in the U.S.? Where you think ARPUs might head and will margins still be able to move upward even as you launch these international markets, which might have a little bit of drag?

Pradman?

Yes, a lot of the questions that you are asking, Ric, are stuff being on predict the future but in general, I think it’s reasonable to say that we will see different levels of margins in international countries than North America and it almost varies country-by-country. But the competition is primarily the terrestrial guys in the area. So, that’s why we focus on the unserved and underserved areas of these countries. In the unserved and underserved areas, there is generally very little competition. There is more economic competition in terms of the affordability of the service that we are offering.

Okay. And then Dave you mentioned the corporate other line that thing can bounce around, obviously, with the gains on investment but also, I think you mentioned derivatives and lower dividends how should we think about the negative $16 million that came into the corporate and other line this quarter? And how we should think about run rating that going forward, given corporate costs versus these other kinds of exogenous items?

Yes, I think it’s corporate overhead I mean, year-over-year, we’ve had slight increases there, primarily inflation-driven but I would say, our corporate expenses for the most part are relatively flat I mean, there’s a lot of other things that get included in there and starting with really last quarter, we try to break it out a little bit more on the press release and some of the items that tend to fluctuate on a bigger scale but obviously, there’s still other stuff in that in the overall corporate line you have got a little bit of increased spending over last year, things like EML that are in the corporate segment the dividends on investments and derivative losses, if I had I’d like to try and combine that all into investment gains and losses to the similar category but obviously, it would get us consistent with GAAP and SEC reporting requirements so I think you’re going to see some fluctuation in those things obviously, we have no control over what dividends are issued by the investment portfolio in the companies we’re invested in derivative losses, once again, I think those are a little bit of a one-off but when you look at the variance in certainly in the press release on that corporate and other line, yes, the corporate overhead, as I said, is relatively flat the other things are going to bounce around I would imagine EML spending will ramp up over time so that line may go a little bit more negative from an operating perspective but the investments, yes, it’s just the nature of the new accounting standards that we’ve got to recognize all that stuff now in the current period, whereas before, we had some flexible, not a lot, but a little bit of flexibility on how we recognize that I believe we talked at the beginning of the year that, that line was going to have more volatility because of the investment portfolio and the new accounting standards.

Yes, we appreciate all the excess disclosure you provide for transparency. And last question for me, I think you’ve had some comments in the Q about Maxar and what they are doing as far as their review of the GEO business, but their commitment to still build Jupiter 3 just give us a little update on what kind of discussions you have had and what milestones we should be looking for as far as Jupiter 3 getting constructed and delivered?

Well, we have a typical set of milestones we’ve just completed a significant design review I can tell you, the management team here is totally focused on understanding as much as they’re willing to share with us, though privately, and what they say in the public sector we’ve been meeting with the management team there we are talking to them at least almost weekly, if not 2x a week it’s a heavy focus for us, and we’re going to manage it as closely as we can, although there’s only so much we can do on that right now, the satellite program is exactly where we expected it to be 2 years ago so I can say that we’re pretty happy with the current portfolio.

And the launch date was still, was it ‘21, I heard Pradman say?

Correct, yes.

Brilliant. Thanks for the questions.

Your next question comes from the line of Chris Quilty from Quilty Analytics. Your line is open.

Thanks guys. I was hoping you might be able to give us a little bit more granularity with the subscriber net adds of where they’re coming domestically versus internationally?

Hi, Chris. Morning. Increasingly, the growth is coming out of international I mean, we certainly still have nice growth coming out of North American the North American growth asset has for the last couple of years is somewhat yes, we’re fighting against the current on the DISH wholesale reductions as we discussed previously but we’re still getting nice growth out of North America but increasingly, we are going to be getting more growth a great percentage of growth is going to be coming out of Latin America Brazil, it has done really well obviously, Colombia has been in operation now for a couple of quarters and as Pradman talked about it, in Peru, we are just started, with a couple of other countries, yet to launch so as we look forward, yes, I think you could envision a greater percentage coming out of the net adds coming out of Latin America.

Hello. Are you still in the line? Operator, I think we lost him.

Mr. Quilty, your line is still open. You might be on mute. Okay. I think we lost him.

Operator, let’s go to Giles Thorne.

Sure, your next question comes from the line of Giles Thorne from Jefferies. Your line is open.

Thank you, Deepak. I have three questions, please. First question is Pradman. So Pradman, you’ve said in an interview that you’ve no intention of investing anything more into OneWeb at this point why is that? Simple question second question was regarding the new collaboration with Yahsat can we assume that you’re going to be taking capacity on Al Yah 3 in Brazil at some point? And indeed, given your cooperating in Africa, but competing in Brazil, why didn’t you guys just merge or why didn’t you just buy that asset instead? And then lastly, how again for Pradman, you’ve linked the success you’re seeing on Jupiter 2 to the fact that some of those beams are almost full already and I was curious to know how much how many Jupiter 1 subscribers have been migrating to Jupiter 2 to contribute to those being full? Hopefully that makes sense that was it. Thank you.

I forgot your questions.

Alright okay. I have got to change this system first question was just why you’re not putting anything more into OneWeb right now?

Well, OneWeb has reinvested $50 million initially when OneWeb started and the plan at that time was to limit the investment at that level so, far at this time, we have not chosen to revise that estimate but what we do in the future, who knows but right now, we have no more plans to invest more than the $50 million that we already invested.

What specific milestones are you looking to see before you are willing to change that view? What are you wanting to see out of OneWeb?

Yes, I don’t think we have any current intention to change our view we made a decision on the allocation on how much we are willing to put into OneWeb, and that was the $50 million so there is no current plans to change that number.

Giles, this is Dave. We go through a fairly rigorous process on any investment, and that’s OneWeb or any other strategic investment that we make there’s a lot of factors that go into that and yes, we’ve never discussed specifically what the criteria are other than we’ve got an interest in everything satellite-related but as Pradman said, I mean, the latest fundraising around ahead, we chose not to participate, and we’re not going to go into the specifics of how we reached that decision.

Okay, fine. And my second question please, the one about collaborating with Yahsat and why didn’t you just buy them?

They were not for sale, to the best of my knowledge but having said that, they’re a very good partner we will be as we mentioned a number of times, in our strategy, we want to partner with local players and obviously, Yahsat is very strong in Africa and the Middle East and so our JV with them is focusing on that territory in the case of Brazil, they have space segment, obviously [indiscernible] and sometime in the future, we may choose to work with them in a more collaborative manner but at this stage, we clearly have distribution strength in Brazil and Yahsat doesn’t bring that local know-how in Brazil so it wasn’t a priority for us to welcome them in that region at this stage.

Okay. And why in the JV, why a minority position, why not an equal position or even a majority position? Any color there?

Yes, Yahsat want to was very keen to maintain its majority position in the JV, because obviously, Africa and the Middle East is their area of expertise and strength and we would have we probably wouldn’t have been able to form a JV if we insisted on being a majority shareholder and obviously, the important thing was the consolidation financially, and they were very keen to consolidate the results in Africa and the Middle East.

Okay, understood and then lastly, last question was just on how many stops have come up in Jupiter 1 now as opposed to Jupiter 2?

Well, the way we operate is we have Jupiter 1 and 2 obviously available for our consumers over the United States and depending on the beam and the region and availability, it’s totally interchangeable now, because the platforms are identical over both Jupiter 1 and 2 so we view that as a resource on a combined basis, and we don’t really differentiate anymore between putting a subscriber on J1 or putting a subscriber on J2.

Okay. So I am just coming back to a comment you made in an interview where you’re saying it’s the Jupiter 2 ramp is going far better than expected, and some other beams are full so is that completely brand-new subscribers then, brand new, I don’t know, gross ads as it were?

Primarily yes, but like I mentioned just a few minutes ago, if the if a subscriber depending on the beam and the geographic area, if one is full on one satellite, we put them on the other satellite we don’t really differentiate between being on J1 and J2 the performance, the speeds are all identical.

Thank you.

[Operator Instructions] Your next question comes from the line of Thomas Metscher from Lodbrok Capital. Your line is open.

Yes, hi there. Hello, hi, Deepak and team thanks for taking my question. I wanted to ask wanted to follow on, on the strategic question that my, the previous question was asking, specifically around Inmarsat you provided quite a bit of commentary on your last quarterly earnings call on the asset when I look at your financial statements, could you at least say in what line item on the balance sheet you’re including your holdings of the convertible bond of the company? Is that in marketable investment securities? And I guess, along those lines, have you kind of disclosed whether you have been buying or selling that security? And I guess, from a regulatory perspective, maybe a question for General Counsel actually, if you do buy or sell that security, would you be required to report it? Thank you.

There is a whole bunch of questions there one, yes, all of our investments go into marketable investment securities on the face of our balance sheet we are not going to have any comment on what we’re buying or selling on that specific investment or any others and no, we’ve got no regulatory requirements to disclose our holdings unless they reach certain thresholds, which are set by a regulatory authority.

Understood. Thank you. And could you guys provide a little bit of an update, if possible, along the lines, I guess, that you along which you provided some color on what you’ve thought of Inmarsat as a business, strategic rationale, etcetera for the approach you had made has there been any update? Are you, how are you looking at the company today? I guess, they were pulled [indiscernible] quite a bit I don’t know if that has any impact if you can say anything about that?

No, we’re prohibited from making any comment about Inmarsat so we’re not going to make any comments.

Understood. Thank you very much.

Your next question comes from the line of P.J. Solit from Potomac Capital Management. Your line is open.

One comment and one question I would say the comment is, have you considered giving any more specific guidance to avoid situations like today where you’ve got a really nice quarter in Hughes, yet because there wasn’t more specific guidance, your headlines would say you missed the quarter and the stock is down 5% so I guess, that’s something to think about secondly, you’ve got an equity here, which really does not reflect the value of the assets I think everyone would agree on that you have got Hughes doing an EBITDA number that had industry multiples would put the value 50% or more higher alone, forgetting the other assets and that’s not counting the value of the non-balance sheet assets so I guess, since you guys have been historically pretty savvy on the investment side, in terms of capital allocation, how can you not take advantage with some portion of the capital? I do understand saving capital for strategic opportunities, which we’re all in favor of, but taking some portion to create value through a buyback?

Well, I think we’ve been straightforward we are looking at a ton of opportunities a lot of them would require a significant amount of cash and right now, our strategy is to pursue more aggressively either JVs or potential purchases of various assets and we’ll need the cash so [indiscernible].

I guess, it’s just frustrating, given that on a risk-adjusted basis, let alone an absolute valuation basis, I doubt you’re going to find a business that you know better that’s trading at arguably 3x cash flow but I understand preserving cash for strategic options, but I think it’s not mutually exclusive. Thank you.

[Operator Instructions] And there are no further questions at this time. Presenters, you may continue.

Operator, there is one that you may have missed Chris Quilty has come on again.

Sure, we have a follow-up question from the line of Chris Quilty from Quilty Analytics. Your line is open.

Sorry, guys, not sure what happened last time with the audio there can you hear me now?

Yes, we can hear you, Chris and we were shocked that you’ve only had one question.

Something was wrong so I just wanted to follow up on the question around the domestic versus international and I was saying you’ve had some experience now for more than a year with some of these international markets and when you look at the return perspectives, you’re working against lower ARPUs in some of the international markets and perhaps a little bit more difficult targeting environment, but less competition when you weigh asset deployment, domestic versus international, is it is there a clear-cut choice of which way you should be going in the future or is it a?

I mean, the point you make is valid, right? The space segment asset is similar value, whether it’s in North America, South America so that’s sort of a fixed cost and clearly, in Latin America, the ARPUs are going to be a little bit lower than they are in the U.S. actually still pretty strong, but lower certainly lower than they are in the U.S., but so are the operating costs, so are the marketing costs the entire cost structure is lower so when we look at margins and return on assets, ideally, yes, we can get probably slightly better returns in the U.S. but the returns that we’re getting in Latin America are very attractive and so we continue to believe being in both markets and now as Pradman has discussed, starting to move into additional markets on an international basis we believe very strongly in the business plan and the returns that we can get off the assets that we’re deploying so it’s something where you continue to pursue certainly, we’re looking with Jupiter 3 additional capacity being deployed in a few years down in Latin America, and we expect it to continue to get very, very good returns as Pradman has said, there’s startup costs associated with it we’ve got to set up operating infrastructure and sales and marketing infrastructure and so like any new venture, there’s going to be negative impact in the short term and we’ve learned a lot from Brazil we’ve learned a lot of things to do right we’ve learned a lot of things to do not that way and so we’re very optimistic as we approach these other markets.

Got it. And to circle back to the domestic market, have you seen any changes in churn, ARPU, customer targeting with the entrance of ViaSat-2 into the market?

Pradman?

No, not really we haven’t seen any changes.

Fair enough. And a question on the ESS business I had at one point, been modeling perhaps a little bit of a bump from new capacity it looks like you have kind of lost more business on the DISH side is there any reason as we are modeling that out to expect that business to move in any direction other than downward in terms of the revenue profile absent new capacity that you don’t currently have in the pipeline?

I think we still foresee, Anders indicated on his comments that we’re still seeing a tough market on the traditional FSS side but we believe that there’s upside there in the long term on the DISH side, yes, I don’t think there’s reason to believe that we’ll be building new satellites certainly anytime soon to replace the existing capacity some of the satellites that we’ve taken out of service in the last 12 months were older satellites they were end-of-life or near end-of-life and have been replaced by other capacity a few years back so I think it’s just the natural lifecycle of that business, but as I said, I don’t see a scenario where the DISH-related business is going to return to a growth model it is what it is.

Okay. And any meaningful updates on the European mobile business, I mean, there was a short mention of it early in the script, but in terms of new products or licensing or partnering relationships?

This is Anders. We have staffed up a little bit at the EML team, and we’ve also been focused on developing relationships with partners with whom we’re going to collaborate to exploit the emergence of a lot of the machine-to-machine and in IoT applications, which are very well suited to the S-band capacity in Europe how that ultimately is going to migrate more on to the terrestrial side has yet to be determined, but that’s the focus of our current efforts.

And how attractive is the regional m-to-m type business versus something that has a global footprint?

Well, obviously, a global footprint would be more attractive for certain industries that have global needs but there are regional needs that are currently not being met by both terrestrial and current MSS services so and there’s a lot of stuff in the pipeline under the guise of the emerging 5G environment, and we’re trying to position ourselves so as those development activities occur, we’re aligned with the folks who could utilize our MSS capacity and potentially the complementary ground component as well when that ultimately gets built out for certain applications that are more regionally focused than globally focused.

Okay. And final question, 65 West, it kind of feels like a wasting asset are you still looking strategically at what you can do there on the background?

Chris, are you referring to 65 West or 45 West?

Oh, I mean 45, my apologies.

Yes, 45 West is proving to be a lot more challenging than we originally anticipated, certainly back in 2011 when we initially entered the option environment for the frequencies but we’re continuing to conduct exploratory discussions with those players, both incumbent and aspirational, for the Brazilian market but it’s very challenging, both from an economic and competitive environment point of view the satellite itself is quite healthy and in operation at the 45 West slot pursuing to all of its terms so we’re in a very good position, vis-à-vis the slot it’s the commercial opportunities that’s proving challenging.

Understand. Thank you very much.

We have a follow-up question from the line of Ric Prentiss from Raymond James. Your line is open.

Yes, I appreciate the follow-up I actually want to follow up on one of Chris’ questions on the ESS side, how should we think we get questions about DISH’s subscriber base, obviously, is declining how should we think about the revenues coming from them? I would expect it’s not really tied to subscriber loss obviously, you have to carry the channels maybe it’s more lumpy to the satellite life, is that what you were kind of insinuating there, Dave?

Yes, it’s got nothing to do with the numbers of subscribers there’s no variable component to it it’s really just the life of the satellite and the terms of the lease.

Okay. And then the other question that you guys also mentioned about how you look at the terrestrial market, but I don’t think you participated or won anything in the CAP2 auction in the United States can you share a little bit about what you saw happen in the auctions? And then what maybe was not of interest to you then?

Yes, we carefully evaluated the economics and the other terms and conditions of that auction and felt that it would be better for us to go directly to the market, directly to the consumer it should be a better proposition so based on that analysis, we decided not to participate and continue to address the market directly.

Okay thank you.

And this concludes our question-and-answer session. Presenters, you may continue.

Yes, this does bring us to the end of the conference. Thank you everybody for participating and good day. You may now disconnect.