EchoStar Corp (SATS) 2014 Q3 法說會逐字稿

Good morning. My name is Vanessa and I will be your conference operator today. At this time, I would like to welcome everyone to EchoStar's third-quarter 2014 earnings conference call.

(Operator Instructions)

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to Mr. Deepak Dutt, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Vanessa, and good day, everybody. Welcome to our third-quarter 2014 earnings call. I'm joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, EVP, Corporate and Business Development; and Dean Manson, General Counsel.

As you know, we invite media to participate in listen-only mode in the call and ask that you not identify participants or their firms in your reports. We also do not allow audiotaping, which we ask that you respect. Let me now turn this over to Dean for the Safe Harbor clause.

Thank you, Deepak. All statements we make during this call that are not statements of historical fact constitute forward-looking statements that involve known and unknown risks, uncertainties, and other factors that can cause our actual results to be materially different from historical results and from any future results expressed or implied with 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 in connection with our earnings.

All cautionary statements that we make during this call should be understood as being applicable to any forward-looking statements we make, wherever they appear. You should carefully consider the risks described in our reports and you should not place 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.

Thanks, Dean, and welcome to the call. I'm pleased to say that our financials for Q3 were strong and continue to be consistent with our expectations and forecast. EchoStar revenue in the third quarter of 2014 was $896 million, for a growth of 6% over Q3 last year. And EBITDA was $248 million, for a growth of 48% over Q3 last year. Dave Rayner, our CFO, will address our financials in a little bit more detail later in the call.

I would like to turn the call over to the heads of our business units to discuss their operations. We will start with Mark Jackson, President of EchoStar Technologies who will then be followed by Anders Johnson, President of ESS, and then Pradman Kaul, President of the Hughes division. Finally Dave Rayner, our CFO will give you that overview we talked about. Mark? It's up to you.

Thank you, Mike. Good morning everyone. So EchoStar Technologies' revenue in the third quarter of 2014 was $423 million, compared to $456 million last year. EBITDA was $37 million, compared to $43 million in Q3 last year. This quarter we have continued to support our various customers to meet their increased demand during the third quarter. Specifically, we have been working with our joint venture partner, Nextel, on the Dish Mexico service, as they continue to see solid growth to their subscriber base.

We have been able to successfully accommodate a large increase of orders with refurbished set-top boxes and the associated accessories which has allowed us to have a stronger revenue performance in Q3, while meeting the customers' demand generated by the launch of local content last year. In parallel, we are offering many of the higher-end, new generation set-top boxes that are feature-rich, along with new services that position the JV to seek higher ARPU customers.

We also discussed the successful launch of the DVR plus with Channel Master last quarter. Both the flash and the embedded 1 terabyte hardware version in Q2. This quarter has been spent integrating compelling content to complement the over-the-air content already available for their customers. Vudu and Pandora internet radio are a couple that have been launched and we will continue to expand the lineup of content for Channel Master. We are excited to have Channel Master as a partner in this area.

Following on Sling Media's successful launch last quarter of the Slingbox M1 and the Slingbox 500, an exhilarating, sleek experience on your living room TV, Sling Media continues to add features to the lineup of Sling players. Several updates to the iOS, Android, Mac and PC Slingplayers have been added. These additions allow easy discoveries and the navigations of TV shows, movies and sports in an elegant and seamless manner. And if a customer wants to watch their Slingbox experience on a TV at a friend's house or vacation home or even a TV at home that doesn't have a set-top box, but does have a streaming device, Sling Media has added support for Chromecast to the lineup of Roku and Apple TV, which are already there.

Finally, we have had many questions about our home automation efforts that we demonstrated as IBC in Amsterdam this September. We are excited about our mirroring of our video expertise along with our ability to offer customer friendly and technologically enhanced products to the consumer home automation and security market. We are continuing to work through final product development and marketing plans and we will share more specifics in the future, as appropriate, on this product. I would now like to turn it over to Anders Johnson. Anders?

Thank you, Mark. Our financial results for the quarter were very strong with revenue growth of 49% and EBITDA growth of 62% over Q3 2013, driven primarily by incremental lease revenue from the five satellites we acquired from DISH in the first quarter. We are continuing to move forward with a number of initiatives that we mentioned on previous calls. We currently have five satellites under construction at EchoStar, plus EchoStar 18 which we are managing for DISH Network. Three of these satellites are managed within the ESS organization, and Pradman will comment on the other two in a few moments.

EchoStar 21, previously referred to as TerreStar 2, is an S-band satellite claimed for lease by our Solaris Mobile venture in Europe with a planned launch in the first quarter 2016. EchoStar 23, which we announced in the second quarter of this year, is a very flexible Ku-BSS satellite, that is capable of fulfilling multiple missions across the North American arc. Included in the deployment at 45 degree west slot for Brazil, and that is the plan right now for launch in the third quarter of 2016.

We entered into a construction contract for EchoStar 105, also referred to as SES 11, with Airbus Defense and Space in August of this year. We will have a combination of C, KA and KE payloads. We also entered into a contract with SES Satellite Leasing for the procurement of launch services. The contract provides for us in transferring the payload titles to SES after launch. And SES will be providing a service on the KU payload for an initial 10-year term with an option to renew thereafter on a year-to-year basis.

We will account for the KU lease as a capital lease. Launch is targeted for early 2017. While this is a little different structure from the existing transaction it provides us with owner economics on the payloads that replaces AMC 15 at the 105 west orbital location. In conjunction with this agreement, we also extended the leases on AMC 15 and AMC 16. The extension will be accounted for as an operating lease starting in January and February, respectively, versus the current capital leases. While this will obviously impact our EBITDA results, it is an improvement in cash flow.

All of the satellites under construction are progressing according to their original timelines. At this time all the launches for those satellites are nominally on target. Now I'd like to turn the call over to Pradman Kaul.

Thank you, Anders. Hughes had another very strong quarter in all three of our businesses. Q3 2014 revenue was up 12% and EBITDA was up 45% year-to-year. Consumer service revenues showed strong double-digit growth in this quarter, over the same quarter last year. And in the nine months ending September, over the nine months ending September 2013. We had net adds of 25,000 in Q3, up 17% over Q2 of 2014.

It is important to understand the makeup of these net adds. In Q3 2014 we had 49,000 net adds of Gen4 subs, offset by negative 24,000 from legacy subs. In the nine months ending September 2014, we had 174,000 Gen4 net adds, offset by a reduction of 74,000 legacy subs. This pattern is entirely in line with our strategy of focusing on growing Jupiter subs. Churn also showed steady improvement in this quarter, with the month-to-month churn in each month in Q3 also moving in the right direction. Our churn management efforts have obviously begun to pay dividends.

We entered the third quarter with 960,000 consumer and SME subs, a growth of 19% over the subs as of September 30, 2013. Our ARPU and margins continue to be strong and contributed to the strong consumer services revenues and EBITDA. Our enterprise business had another strong quarter for order input. We booked orders in Q3 of $118 million, which follows the record order inputs in Q2.

As a result, we continue to have a healthy backlog of over $1.3 billion going into the fourth quarter, a 21% increase over the backlog at the same time last year. This backlog obviously does not include our consumer business.

Let me highlight now some of the major enterprise orders we booked in Q3. In North America, we booked orders from Chevron, American General Finance, Galaxy Broadband, Yum, Exxon Mobil, the US Air Force and (inaudible). Our defense systems team also won a significant order from Astrium. And in our international business we booked large orders from Turksat, British Petroleum Europe, Grupo Picasso, Pemex, Delamar and Star Satellite.

We've also had significant success in our mobile satellite business. In infrastructure development, current projects due for delivery in 2015 include supplying Mexad the entire ground network for 3G voice, data, and push-to-talk systems. And Thuraya with Hughes will deliver an update to their voice system, and also a brand-new regional data gateway. Our strategy is to provide turnkey ground network solutions to mobile satellite operators in L-band and S-bands around the globe. We are the clear leader in this market.

In the mobile satellite terminal business, we won a major award of $7.8 million to supply Mexad user terminals and for development of maritime land, mobile, semi-fixed and portable GMR-1 3G user terminals. From Thuraya we received orders for mobile and portable user terminals and have seen strong (inaudible) sales especially in the M-to-M and mobility segments. Our terminal strategy continues to be to propose GMR-1 3G solutions for new MSS operators and existing operators looking at next-generation systems. And obviously we are developing the S-band terminal for Solaris Mobile.

Now some highlights on our in-flight Wi-Fi offering. Hughes aeronautical services to Global Eagle Entertainment continued to expand this quarter with the launch of the Nok Air in-flight Wi-Fi service in Asia. Further expansion of the Hughes aeronautical service is expected in support of Global's new agreement with SES to purchase bulk Ku-Band capacity. In support of this agreement, Hughes will continue to provide networking [codependent] services as well as manage operations of their space segment.

Our Ka-band technology and platform are now deployed all over the world with service available through us directly or through our partners. There are a number of other deals that are being worked on and will be announced as soon as we close them. The strategic advantage of being able to offer our customers global service on the same platform is obviously very important.

Now regarding our satellites Jupiter 2, Echo 19, construction is proceeding as planned. The propulsion module is completed and moved to [high-bay] and unit integration is in process. We are on track to launch this satellite in the second quarter of 2016 to augment capacity for our consumer business in North America.

Last quarter I mentioned another key development, which was we had signed a 15-year contact with EUTELSAT to lease the entire Ku-Band capacity connected to the Brazilian service area, on the EUTELSAT 65 West A satellite. Slated to be launched in early 2016 EUTELSAT 65 will host the Ka-band payload with 16 spotbeams, which covers a significant portion of the Brazilian population and generates approximately 25 gigabits of data capacity.

High-througput Jupiter technology from Hughes will be deployed for the ground system and customer premise terminals. EUTELSAT 65 will be our springboard in Brazil of broadband services to consumers and businesses. Satellite construction is on status green from [mars] power and thermal and the gateways and the OSS-BSS systems are on schedule. We expect to be in service in mid-2016. I will now hand the call over to Dave Rayner.

Thank you, Pradman. As Mike mentioned, we are very pleased with our financial performance in the third quarter. EchoStar's revenue this quarter was $896 million, compared to $849 million in the third quarter of 2013, for a growth of 6%. EBITDA was $248 million in the quarter, up 48% over the third quarter last year. Obviously, much of this growth was attributable to the HRG transaction that closed in the first quarter, but even without that our EBITDA would have increased over 20%.

Net income attributable to EchoStar common stock was $64.1 million, compared to $4.3 million in the third quarter 2013. And diluted earnings per share were $0.69 in the third quarter compared to $0.05 last year. EchoStar's capital expenditure for the quarter is $165 million, compared to $107 million last year. Spending increase was primarily related to the satellite construction, of which you heard, we have five in the works. The elevated spending will continue in the near-term as we continue with satellite construction, with a launching schedule from the end of next year into early 2017.

Free cash flow, which we define as EBITDA minus CapEx, was $83 million in the third quarter of 2014, an increase of $22 million, or 35%, over the same quarter last year, driven primarily by the strong EBITDA growth, partially offset by the higher CapEx.

Regarding EchoStar business segments, as Mark mentioned, EchoStar Technology revenue in the third quarter 2014 was $423 million, compared to $456 million last year. The decline is primarily due to lower revenue from equipment sales and services to Dish Network, partially offset by higher equipment sales to Dish Mexico and Bell Canada. EBITDA in the third quarter 2014 was $37 million, compared to $43 million last year. The decline primarily due to lower revenue as well as FX impacts. We expect that these revenue trends will continue in Q4 and into early 2015.

Hughes' revenue in the third quarter of 2014 was $339 million, for a growth of 12% over the third quarter last year. The growth was primarily from an increase in consumer, international, and mobile satellite revenue. Hughes EBITDA in the third quarter was $95 million, an increase of 45% over last year, primarily due to the strong revenue growth and improving margins in most Hughes' business units. The Q3 year-over-year EBITDA margins at Hughes increased over 6 percentage points.

EchoStar Satellite Service revenue was $128 million in the third quarter, a growth of 48% over the same quarter last year, primarily as a result of additional revenue from five satellites, acquired from DISH as part of the HRG transaction effective on March 1st of this year. ESS EBITDA in Q3 was $112 million, an increase of $43 million, or 62% from last year, as a result of that increase in high margin revenue on the satellites.

As Anders mentioned, our extension of the AMC 15 and 16 satellites will be treated as an operating lease versus capital lease. We expect an improvement in cash flow from this renewal, but annual EBITDA will be impacted by approximately $17 million in 2015.

In the all-other segment block, where we will report gains on sales of securities, eliminations for inter-segment sales, and other corporate transactions, EBITDA in the third quarter was $4 million, compared to a negative $9 million last year, primarily due to an adjustment related to a gain from our DISH Mexico investment.

While we have had a 49% equity interest in DISH Mexico since we made the initial investments, we've been accounting for the 24% interest in conception because of an option held by a third-party to acquire up to 51% interest. That option was terminated in August 2014 and as a result of which we reported a one-time adjustment in earnings of $10.3 million in the third quarter. Going forward we will continue to account for the gain or loss from DISH Mexico under the equity method, but based on our 49% interest, instead of the 24% interest.

We continue to have a very robust balance sheet with approximately $1.8 billion of cash and marketable securities, giving us ample resources to pursue our strategic objectives. With that, let me turn it back over to Mike Dugan.

Thank you, Dave, and thanks to the entire EchoStar team for a pretty well done quarter. It's much appreciated. I would like to provide a brief update on some of our business development projects, in summary.

In regards to our Solaris Mobile S venture in Europe, and Anders and Pradman have gone over, the space and ground components of the network are progressing well and we are beginning discussions with potential customers of the service in advance of the 2016 service offer. In the near-term our primary focus is on working with the EU and member states to more clearly define and harmonize the regulations relating to operation of a terrestrially delivered service.

With regard to our Brazil pay TV project, there is no material change in the status. We continue to work towards finding the appropriate local partner to provide a state-of-the-art pay TV platform for the Brazilian market. Our strategy continues to be to expand in international markets through partnership and joint ventures with reputable and established local companies and through acquisitions. We have the best set-top box and satellite product lines in the industry, along with world-class operating platforms that will help us achieve this expansion

Our business development group is very busy looking at opportunities to expand our presence in the international market. I have an outstanding management team in place to execute on these strategies and again they are directly responsible for the quarter's results. It's now time for us to move to question-and-answer. So, operator, would you please start that process.

(Operator Instructions)

Jason Bazinet, Citi.

Yes. I just had an easy technical question for Mr. Kaul.

And in the Q you mentioned that some of the spotbeams have run out of capacity on the Jupiter satellite. Is there flexibility to re-orient those spotbeams? Or are those fixed in position when you launched the satellite? And then secondly, when you launched Jupiter 2, do you have the flexibility to not supply more capacity in the markets where you already have capacity on the first satellite? In other words, can you re-jigger it to add the capacity where you need it in the US? Thanks.

The answer to question one, is no. We can't change location of the spotbeams. They are set and at this stage there is nothing you can do about it but use the capacity as it exists. When we laid out the beams on Jupiter 2, we obliviously took into account the experiences that we have seen on Jupiter 1, and laid the beams both in terms of bandwidth and power, in a manner that was optimal.

We are also trying to meet a certain coverage requirements of our business, which was based on the learning curve we had gone through on Jupiter 1 and some of the newer markets that we want to address. So the beam pattern and the capacity of these beams has been optimized for that business requirement.

Thank you very much.

Andrew Spinola, Wells Fargo.

Thanks.

I was somewhat surprised to see you grow net adds sequentially, considering the results from DISH and the fact that your biggest wholesale customer seems to have seen a sequential decline. Can you walk me through some of the puts and takes in the retail and the rest of your business that you were able to deliver up sequentially?

Well, the main growth in net adds for this quarter compared to previous quarters and relationship with wholesale was the great performance in the retail channels. We were able to provide promotions and sales programs such that the retail channels did a lot better than we had anticipated. And I think that's what resulted in the performance that we've seen in our net adds, overall, driven by our comments in the retail channel.

I'd like to point out, I think Pradman is a little bit careful with his response, but the truth is, they've had a huge challenge to both improve the retail sales while adjusting some of the ways we do business to address churn. And the simple truth is, that they've done a damn good job on that. And, yes, we saw reduction at the wholesale side, but they've worked very hard to maintain their growth through other channels. And they've done a good job.

Great. And Pradman, I'm wondering how, when we think about Q4, Q1 -- typically those have been the seasonally strong quarters for net adds in your broadband business -- and I'm trying to weigh that against the commentary about some of the more highly demanded beams being full at this point. Can we expect seasonality, or is that headwind from lack of capacity too big for that to occur?

Well, we obviously don't do forecasts. So I'd hate to comment on (inaudible). But in general, what we are doing is, we have basically taken all of the beams that we have and classified them into three categories: low fill, medium fill, and high fill. And the opportunity for growth arises in increasing the capacity and increasing the number of subs in the lower and medium-fill beams. So we are in the process of providing promotions and programs that are very aggressively provide a higher rate of growth for subscribers in the low-fill beams.

And what we are hoping for, of course, is that will compensate for the fact that we have a slower growth rate in the higher-fill beams. And that process is going on as we speak, and we will be making announcements in the next two to four weeks on some of these promotions and plans and let's hope for the best.

I hate the fact that we have used the word closed in a couple of instances on the call. Hughes has always taken an approach to balancing need versus capability, and I won't say that any of the beams are actually closed. What they are doing is managing the promotions and so on to ensure we maximize the number of customers in any beam. And from a churn reduction standpoint, if we turn a customer out of a high-fill beam, it gets replaced with a new customer under a different promotion. So the beams are not actually closed, but they are being very carefully managed by the Hughes team.

All right. Thank you very much.

Chris Quilty, Raymond James.

Thanks.

Quick question -- the Hughes Enterprise business seems to have shown some pretty strong strength. Can you tell us about how much growth you saw in the most recent quarter? And are there any special activities going on that are driving growth in that business?

The main reason that we are beginning to see some growth in the North American enterprise business is clearly, as we mentioned in the past, we've built up a managed service network offering which is very aggressive. And the trust there, of course, is to offer customers, not just a connectivity to a satellite network, but a complete managed network service offering, where we offer them the best connectivity solution where the [stress-driven] satellite for each branch and a whole bunch of services on routing and et cetera.

But that has been a big success. And over the last year, we've converted our enterprise business from being a pure connectivity business to a managed network service business. It's very well received in the market. And it's now beginning to be deployed also in some of our international advanced markets like Europe, et cetera. So while the growth has been relatively small, like 3% or so, it's still a lot better than declining 5% to 10% as it used to in the past. And what we are hoping for over the next few years is to continue that growth and improve on that growth as more and more corporations want to get managed network service offerings.

Got you.

A separate question -- the agreement between Global Eagle and SES -- how does that impact you? Is that revenue mutual? Do you take a hit? Or are there growth opportunities with that relationship?

It certainly doesn't hurt us, because we're not really in the business of building space segments for aeronautical services at this stage in the KU band. But what we are hopeful is, that as long as we continue to supply equipment and have services and manage the space segment, that we continue to be a very valuable partner for them in this business and so it generates revenues and margins for us to provide those services.

Okay. I was under the impression that you were actually leasing capacity to them, which seems all that lease activity would shift over to SES. Is that incorrect?

No. We were in for some of the requirements, but for the newer requirements they're going in this way. So we are not really using any of the old contracts that we had for providing services to them. And obviously those contracts are still valid; some of them expire at the end of 2015, maybe some expire in 2016. And then we will have to see how we work with them to continue this business. But as of right now there's no loss of revenues due to it.

Okay. And ViaSat last quarter announced that they were going to introduce freedom plans, where they are offering unlimited capacity to customers in regions where they just weren't seeing demand. Can you give us your thoughts on that type of a business model?

Yes. I think some good stuff there. And we're doing not exactly the same thing, but fundamentally the concept is the same. You have low-fill beams and have promotions we're going to offer in the low-fill beams to fill them faster. That's the objective that ViaSat has, I'm sure. And that's the objective we have. So we are also introducing a whole bunch of promotions, both financial and capacity, in these low-fill beams to help accelerate the growth of subs in these beams. And we'll be providing more of that information publicly in the next two to four weeks.

Okay. And DISH, on their conference call, talked about launching their over-the-top service. Is that part of your original DISH digital agreement that you had with them? And can you refresh my memory on whether -- I think you may have sold your interest in that, or done an exchange offer there for assets?

Yes, this is Mike Dugan.

EchoStar and EchoStar resources have been active in building the OTT service for DISH and actually working on that for years and years, with the acquisition of Move and some of the services they already provided. In August of 2014 we did exchange our third voting interest in this DISH Digital and received a distribution of certain assets, which effectively go down the lines of everything technical and anything to operate the service. And so EchoStar will continue to be the provider of equipment and back-end infrastructure and cloud-based support for the DISH OTT service.

I think the big thing to take away is that it does enable EchoStar to utilize what's been built -- the industry-leading structure that's been built for DISH. And we can utilize that to service other customers in the future, which we're pretty excited about. So it's a natural partition between DISH and their marketing and sales effort and EchoStar in theirs with the technology and systems we already offer, whether it's for Sling or DISH Anywhere, and all of the emphasis we have on the broadcast centers and everything else.

Got you.

And final question, with regard to the set-top box business. Any reasons to get excited about international sales opportunities beyond your existing customers? Obviously, DISH Mexico seems to be heading in the right direction, but prospects for new customers?

Well, we believe, first of all, ETC absolutely has the industry-leading technology on set-top boxes, right? So the good news is that internationally, we do have quite a bit of freedom there to sell set-top boxes, but the feature-rich Hopper and that product is probably not -- is lagging a little bit due to the economy in Europe and so on and so forth. But we are certainly going to continue that product leadership, and as markets need it, I think we will be prepared to move there.

I don't know if you've got anything to add, Mark?

I think the malaise in Europe is certainly affecting us a little bit. And on some of our other partners, we're trying to get them to go upmarket on the products and get them a higher arc with customers, which they seem very open to. So we're working through that. And of course we're trying to get into some new line of business with the ETC group with our home automation efforts.

Okay. And I guess to follow-up on one prior point -- the DISH Mexico, the volumes there in the quarter -- is that sustainable? Or was that a little bit of a channel fill in the growth in the quarter?

Because it's been in lead time, it's certainly not channel fill. Can we totally predict -- I don't know, Mark, I think because of their local channels and so on they are pretty healthy right now, but we can't predict what the Mexican economy might do to that joint venture. But right now were pretty happy.

All right. Thank you, gentlemen.

Tim Quillin, Stephens.

Good morning.

You mentioned that EchoStar 23 is most likely going to be used at the 45 west degree slot for Brazil. Remind me -- on EchoStar 15 what the economics of that lease are right now?

Yes, Tim, this is Dave.

Right now the economics on 15 are a counterpart to the economics on EchoStar 8. Because of the capability of the satellite EchoStar 15, we've got that currently sitting at 45 degree slot and we are leasing it from DISH for the same price that they are leasing EchoStar 8 from us in a backup role for their service. From an accounting standpoint, EchoStar 15 shows up in our all other segment as an expense line item, and EchoStar 8 shows up as revenue within ESS. So I would imagine, upon the launch of 23, EchoStar 15 would be returned to DISH and EchoStar 8 would come back to us to be redeployed.

Yes. That makes sense. And on a quarterly basis, the lease cost and the associated ES8 revenue, is that around $12 million?

A little bit higher than that, but you are in the ballpark.

Okay. Very good.

And then another detailed accounting question around depreciation -- but it sounds like with AMC 15 and 16, as those move to operating leases, should we essentially take $17 million out of depreciation and then put $17 million into cost of sales?

Yes. There's probably some accelerated depreciation impact there. Certainly $17 million goes into cost of sales, but more than the offset is going to come out of the capital lease payment, so from a cash flow standpoint it's essentially going to come out of depreciation (inaudible) P&L out of depreciation and into (inaudible).

Right. Okay.

And then at least I had noted at some point that you might have some satellites that will be fully depreciated about this time. I was thinking EchoStar 7 and maybe EchoStar 8 are fully depreciated. Are there any things like that? And if you don't have it in front of you, I can take it off line. But anything that's fully depreciated that would cause another step down in depreciation expense in the fourth quarter or the first quarter?

Yes. I don't have depreciation schedules in front of me, so I'm not able to answer those questions. We can certainly follow up with Tim and take a look at that.

Okay. That's fair.

And then CapEx plans -- relative to your planned CapEx, you're at a relative -- or have been at a relatively low rate. Does that step up a lot in the fourth quarter? Or where do you expect to come in this year?

I would expect the full year to come in between $7.25 million and $7.5 million. That is obviously a step up in the fourth quarter. We have the purchase option on TerreStar 2, Echo 21 that we will exercise in the fourth quarter. And so that's a fairly meaningful chunk. And obviously, as I indicated earlier, that CapEx spending at that kind of level actually will be a little bit higher than that, I would expect, in 2015 as we continue the satellite constructions.

Okay. And any help on tax rate? Or how we should think about tax rates in the fourth quarter and beyond?

I am hoping not to be paying any taxes. We're obviously still burning through an NOL.

Would you expect to accrue gap taxes but not pay cash taxes?

Yes. And I haven't looked at the fourth quarter tax rate expectation yet.

Okay. And then just lastly -- and maybe, Pradman, if you can talk about this -- you talked about having promotions or adjusting plans on low-fill beams right now, but how about, as you think about the launch of Jupiter 2, is that something that is going to impact the type of plans that you offer? And specifically, where do you think you might be able to go with data caps as you launch Jupiter 2? Thank you.

Yes. There's no question that the fill factor of the beams affects the plans and the caps that we can provide in the different kinds of beams. Jupiter 2's launch of services is at least 18 months away. So a little early for us to figure out what plans we're going to be offering. But it is safe to say, generically, we'll have the ability to offer more higher level of caps than we do today.

Okay. Thank you.

(Operator Instructions)

Walter Piecyk, BTIG.

Thanks.

I wanted to go back to Mike's answer about how you were building all these services for DISH to do their over-the-top services and then you could actually sell those services to someone else.

Can you talk about who the maybe potential customers for that? Is that a, hey we could always do it, but it's not really going to happen? Or is this something you're going to market? And should we be thinking about this as someone who wants to be an over-the-top guy that maybe just wants to focus on a sports package and he could go to you guys and you could give him soup to nuts on enabling that? Is that the right way to think about that? And how big of an opportunity could that be? Thanks.

Let's be clear. We don't have any relationship with programmers and what we're providing is the technology and the back end systems --

Understood --

That support other customers. So when I say we will be able to use the technology for other customers, it would be for their definition of an OTT service. And a lot of that opportunity is probably international. It's possibly with existing set-top box customers. But we all know that's a service that customers are demanding in the US. And you've seen the recent announcements from programmers going directly. But we've got the infrastructure and the capability to do that in a very cost-effective way, and we hope to provide it to more than DISH Network.

And the value -- let's say some guy goes out and gets their own content rights, I get that part. The value add, in going to you guys, is that they would alternatively had to build that's capability themselves? Or are there other companies that they could go to today that would also offer that capability to them?

I'm sure there's other companies. We believe we are a little bit ahead. We think that because of the groundbreaking work that was done by Move Networks before we acquired them, we think that we have a strong patent portfolio on that type of service. And we think that we put a lot of effort into it very early, so we think we are, hopefully, the industry leaders.

But I can't comment as to what other people have available, but we also know that it's -- the bigger the infrastructure, the more cost effective we can be in providing similar services to other customers.

Got it.

And so, before you sell that, presumably you would have to basically -- DISH would launch their OTT product, whenever that is going to happen, I guess later this year or early next, whenever it is -- and then you would use that almost as a reference to customers, saying -- look at what a great job DISH did, and we can do the same thing for you. And again the value proposition, I understand Move and that portfolio and all that stuff. Can you get people to market quicker by using your solution as opposed to doing it on their own?

Absolutely. Not only quicker to market, but we will have gone through the launch process and we will have the systems stabilized. We will have all the pieces put in place, whether it the clone applications and things like that.

Yes. We certainly hope that we can provide a far better solution to -- and quicker solution. And more cost effective solution. That's the plan.

Great. Thank you very much.

Craig Baum, Harvest Capital

Thanks for taking my question. This one's for Mike and Dave.

So I understand that you guys are hard at work looking for a prudent acquisition, but in the meantime, you're significantly underlevered with, I think, half a turn of debt, about nearly $2 billion in gross cash, and you're throwing off material cash even in spite of the increased CapEx. I guess, would your stock trigger around 5 times EBITDA? Unless you guys think that's the right multiple, which I'm guessing you don't -- at what point do you look inward and buy your own stock ahead of Brazil DTH and broadband and then several material satellites launching in the next year, year and a half?

Yes. So obviously, buying back the stock is an option. The Board, at our last meeting, approved a pull to do that, as disclosed in our Q. But it's not something we're focused on right now. If we get to a point where we do not believe that we can deploy the capital effectively and generate meaningful returns, obviously, we'll look to other alternatives. But we continue to see opportunities to invest that capital in ways that grow the business meaningfully for the benefit of shareholders. And that's what our focus is on.

Is a buyback versus other alternatives -- are those mutually exclusive?

They are obviously not, but we believe that there are opportunities out there to utilize the resources that we've currently got on the balance sheet as well as, obviously, other leverage ability to spend the money in that way. Which we think is a better use of our funds and resources.

Okay. Fair enough. Thanks, guys.

(Operator Instructions)

There are no further questions at this time.

Okay, Deepak.

Yes, thank you, and thank you, everybody, for staying on this call. This brings us to the end of today's call. Have a good day.

This does conclude today's conference call. You may now disconnect.