EchoStar Corp (SATS) 2014 Q4 法說會逐字稿

Good morning. My name is Hope, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter 2014 earnings conference call.

(Operator Instructions)

Thank you. Mr. Deepak Dutt, you may begin your conference.

Thank you. Good day, everybody, and welcome. I am joined today by Mike Dugan, our CEO; Dave Rayner, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Ken Carroll, Executive Vice President Corporate and Business Development; and Dean Manson, General Counsel. As you know, we invite media to participate in listen-only mode on the call and ask that you not identify participants by their firms in your reports. We also do not allow audio recording, which we ask that you respect.

Let me now turn this over to Dean for the Safe Harbor disclosure. Dean?

Thank you, Deepak. Good morning, everyone. All statements we make during this call that are not statements of historical fact constitute forward-looking statements which involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by such forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K 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 should not place 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

Thanks, Dean, and welcome to everybody that's joining us on the call. I am pleased to say that our financials for Q4 and full year 2014 were strong and continue to be consistent with our expectations and outlook. EchoStar revenue in Q4 of 2014 was $844 million for a growth of 4% over Q4 of 2013. Revenue for full-year 2014 was $3.4 billion, a growth of 5% over last year. Dave Rayner, our CFO, will address our financials in more detail a little bit later in the call.

I thought it would be good to bring up a few key points about EchoStar that we often don't talk about. EchoStar has evolved into the world's largest satellite-based broadcast and broadband networking products and services Company.

We are currently one of the largest FSS satellite owners, and most of that capacity is used in our broadcast and broadband networks. Our ability to be totally vertically integrated gives us a unique position in the market that we serve, and we are working to get into other markets as well. Obviously, each of our three divisions plays a role in this strategy, and as we go into the future we will make investments to increase our market share in all of these segments.

We now own, lease, and/or manage 23 satellites and continue to add to this fleet. In addition to the Kuka satellites that we have in our fleet now, we have five satellites being built including a satellite for mobility services in Europe in the next few years. We are the largest provider of consumer broadband satellite services in North America, and we dominate the global satellite enterprise markets.

In the United States and Europe, we have evolved into the managed network services business to serve the enterprise market. We have arguably the finest set-top products for video broadcast within ETC.

All of this has been made possible by our engineering and infrastructure capabilities. This makes us a key partner for any new satellite program being contemplated. Our new investments include a broadband consumer business in Brazil, a home automation system called Sage, additions to our satellite fleet for consumer broadband and FSS services in North America, the mobility satellite service in Europe we talked about earlier, and continued opportunities for DTH services in Brazil.

These are all exciting initiatives. In addition, with our strong balance sheet, we continue to look at other M&A opportunities that are consistent with all of these strengths. We are well-positioned to continue our growth in the next few years.

I am now going to call turn the call over to the individual heads of our business units to go over their operations. We will start with Mr. Mark Jackson, President of ETC, whose birthday is today, by the way. He will be followed by Anders Johnson, President of ESS, and then, Pradman Kaul, President of Hughes. Dave Rayner, our CFO, will give you an overview of our financials after which I will come back with some closing comments before we start the Q&A. Mr. Jackson?

Thank you, Mike. EchoStar Technology revenues for the fourth quarter was $365 million, down about 10% compared to 2013. This was driven by lower set-top box sales, primarily to Dish Network. We are at the tail-end of a product cycle with Dish where their inventory returns from customers are at a level where they have lower level requirements from new products. Basically, they need to burn off some of the existing products to get ready for the new products because we're currently in development for the next generation of boxes for Dish, which should be ready to ship later this year. In the interim, we would expect to see lower levels of sales of set-top boxes.

In the meantime, we continue to focus on developing and delivering innovative enhancements to our existing products. On the Dish front, we have enabled them to be the first [DVS] paid-TV provider probably on any MS0 to integrate Netflix directly into the set-top box to give consumers a broader choice of products and also enable more stickiness for Dish.

We also launched the Bluetooth adapter, which provides audio streaming for the Joey family, or for the [Slay] family of products to our customers. They can now use Bluetooth accessories such as headsets and soundbars in their whole home experience. While the Hopper family of products is currently only used by Dish Network, we have received interest from other international customers in using the Hopper technology in their product sets. That includes the whole ecosystem of Hopper, which is very robust.

Changing to the different customer Channel Master. The success of the DVR plus with Channel Master continues with CNET recognizing the DVR plus as one of their favorite products of the year. While already being on CNET's elite list of products having the highest rated reviews and staying power, we continue to make product enhancements.

In Q4, we integrated YouTube into the DVR plus program guide alongside Vudu and Pandora. Consumers will now have a unified TV viewing experience across multiple content delivery sources without needing to switch TV inputs or use a mobile device for casting.

In 2014, we began development of our foray into security and home automation. We recognize that this is a crowded market segment, which is why we have created an incredibly unique feature set which we believe will be disruptive and economically competitive. This is to appeal to the market segment that does not have a security solution today due to its cost or complexity which is about 80%-plus of the market.

Sage will give consumers peace of mind and the convenience they need about what's going on at their home. We look forward to the launch of Sage in mid-2015. I would now like to throw it over to Anders Johnson.

Thank you, Mark. ESS revenue in the fourth quarter was $127 million, a 50% increase over last year, and EBITDA was $111 million, a 61% increase. Much of this increase is attributable to the five satellites we acquired from Dish in the first quarter of 2014. As we've mentioned on previous phone calls, we have five EchoStar satellites under construction plus we are managing the construction of EchoStar 18 for Dish. I will address three of the satellite projects, and Pradman will comment on the other two shortly.

In December, we exercised our option to acquire TerreStar 2 construction agreement from Dish. The satellite, now referred to as EchoStar 21, is an S-band satellite planned for use in part by our Solaris mobile venture in Europe. It is progressing according to schedule with launch planned in the first quarter of 2016. EchoStar 23 is a very flexible [Kubss] satellite designed to fulfill multiple mission profiles, including its initial deployment at the 45 degree West slot for Brazil, is also on schedule with launch planned in the third quarter of 2016.

In August, we contracted with Airbus for the construction of EchoStar 105, also known as SES 11, as a replacement for the AMC 15 satellite and FSS satellite at 105 degrees West. Under an agreement with SES, we will commercialize the KU payload on the satellite while SES will commercialize the KA and C-band payloads.

In conjunction with this arrangement, we also extended our services contracts with SES for the AMC 15 and AMC 16 satellite, continuing our commitment to the fixed satellite services market in North America. Echo 105 is targeted for an early 2017 launch. With the extension of the AMC 15 and AMC 16 service agreements and the contract for the replacement satellite, we are aggressively pursuing revenue growth opportunities on these satellites. In the fourth quarter, Boeing renewed and extended a capacity agreement with us at the 105 orbital location with options through the third quarter of 2024.

With these three satellites and the two that Pradman will discuss, we are scheduled for approximately one launch per quarter on a diversified set of launch vehicles from Q1 2016 through the beginning of 2017. We are excited about the challenge and opportunity these additions will afford us to continue to grow our satellite-related business. I will now turn it over to Pradman.

Thank you, Anders. Hughes had another very strong quarter and full-year 2014. Our Q4 revenue was $344 million, up 10% over last year, and EBITDA was up 14% at $90 million, which increased faster than revenue. For FY14, revenue was $1.3 [billion], up 9%, and EBITDA was $357 million, up 27% year-to-year.

All major segments of our business performed well. The North American consumer and enterprise units contributed significantly to our growth in revenue and margins. Despite a tough economic environment in Europe, Russia, and Brazil and strong currency headwinds, our international division held their own and also showed growth in both revenues and margin. Our sales and marketing efforts resulted in record new orders of over $1.5 billion in 2014 and a record backlog of $1.3 billion, a 10% increase. This backlog does not include our consumer business.

Now, let's focus a little bit on the North American consumer business. Gross adds for the quarter exceeded 95,000 subs. This is an important statistic because it shows that the demand in the market continues to be strong. This is despite the fact that a number of our beams are getting saturated in the high-fill areas.

The high growth that we have seen in subscribers since the launch of Jupiter 1 Echo 17 has resulted in the high-demand beams on the satellite getting saturated. To address this, we have adjusted our marketing strategy to focus on the geographies where we have the most satellite capacity available, and we also made significant enhancements to our Gen4 plans, featuring a new generation of performance-enhancing innovations in downloading, browsing, and data usage management. While we expect to grow the consumer business in 2015, the rate of growth in subscribers will be lower than it was without the capacity constraint.

Consumer service revenues continued double-digit, year-to-year growth in Q4 and 2014. We had 17,000 net adds in Q4 and 117,000 net adds in the total fiscal year. The makeup of these net adds is important to highlight. In Q4, subscribers of the Gen4 platform increased by a net of 51,000 while our legacy subscribers decreased by 34,000. In the 12 months ending December, 2014, Gen4 [sub] subscribers increased by 251,000, and our legacy subscribers decreased by 134,000. So, as you can see, we have been increasing Gen4 subscribers at a nice clip while reducing our legacy subscriber base, which is very much in line with our strategy.

ARPU continues to be strong and rose in Q4 for the fourth consecutive quarter in 2014. Churn was higher than we would like, and we continue to focus on churn management. Our large base of existing subscribers causes a decrease in net adds for the same percentage churn. It trended down in the fourth quarter compared to the earlier quarters, reflecting our ongoing efforts to improve the customer experience.

Of our gross adds in the fourth quarter, two-thirds of them came from our retail channels, slightly more than what we experienced for the full year. So, we ended 2014 with 977,000 consumers and SME subs, a growth of 14% over the subscriber base as of December 31, 2013. This sub count makes us the largest satellite-based consumer service provider in North America with a market share of approximately 60%.

Let us now highlight some of the major enterprise mobile satellite orders we booked in the fourth quarter. In North America, we booked orders from Carter's, National Center Media, Springleaf Financial, Buckeye Pipeline, Young Brands, and Exxon Mobil. Our North American enterprise orders are generally three- to five-year service contracts for managed network services using the best access technology available at each branch. The market likes our offering, and we are optimistic about the future.

In our international enterprise business, we booked large orders from Saudi Aramco, British Petroleum, Telemar Brazil, and Telefonica Brasil. Our three international service companies in Europe, Brazil, and India had good years and continued to grow.

In our mobile satellite business, we secured major orders from Boeing for the MEXSAT project and [Turiya] in the United Arab Emirates. The MEXSAT project with the Mexican government is due for delivery this year and includes supplying the entire ground network for 3G voice, data, [push-to-top] systems, and user terminals. Also, the development of maritime land mobile, semi-fixed and portable user terminals.

Hughes will deliver an upgrade to their voice system also and a regional data gateway in Cyprus and also mobile and portable user terminal production. We are also continuing to pursue a couple of new major international mobile satellite opportunities.

In the aeronautical market segment, we continue to be a major equipment and service provider to Global Eagle Entertainment with Southwest Airlines as their major customer. In addition, we also partner internationally with Global Eagle for international airlines like the Norwegian Air Shuttle, Icelandic Air, [Noc] Air, Transaero, and Air China. We are also continuing to develop new products and services in this exciting segment and will be deploying them in the next few years.

So, overall, our [KMN] technology and platform are now deployed with service available through us directly or through our partners in a large part of the world. I'll estimate that the worldwide satellite capacity over the next few years will double as a result of high throughput satellite technology, and we expect to continue to get more than our fair share of the infrastructure improvement for these through our Jupiter technology.

We have already secured orders for several of these, and there are a number of other deals that are being worked and will be announced as soon as we close on them. The strategic advantage of being able to offer our customers global service on the same platform is one of the keys of our success.

Now, regarding our new [HDS] Ka band satellite Jupiter 2 Echo 19, construction is proceeding as planned. We are on track to launch this satellite in the second quarter of 2016 to augment capacity for our consumer business in North America and to expand our offerings in Central America and Canada. With this additional capacity being available, we expect to increase the growth in our consumer business.

As many of you also know, we signed a 15-year contract with Eutelsat to lease their Ka band capacity connected to the Brazilian service area on the Eutelsat 65S satellite. With an expected launch in 2016, Eutelsat 65 will host the Ka band payload with 16 spot beams which cover a significant portion of the Brazilian population and generate approximately 25 gigabits of throughput.

We'll use Jupiter technology for the ground system and customer premise terminals. Satellite construction and operational planning are on schedule, and we expect to be in service by mid-2016. Eutelsat 65 will be our springboard in Brazil for broadband service to consumers.

So, as you can see, all our major business units are doing well, and we hope to continue our growth in the years to come. I'll now hand the call over to Dave Rayner.

Thank you, Pradman. As Mike mentioned, EchoStar revenue this quarter was $844 million compared to $808 million in the fourth quarter of 2013. EBITDA was $230 million in the fourth quarter, up 43% over the fourth quarter last year. EBITDA margins increased 7.3 percentage points to 27.2%.

Net income attributable to EchoStar common stock was $54.8 million, compared to $4.5 million in the fourth quarter 2013. For the full-year, revenues were $3.45 billion, for a 5% growth over 2013, and EBITDA was $903 million, a 39% increase over the FY13. Full-year net income attributable to EchoStar common stock was $165 million, compared to $2.5 million in 2013.

Capital expenditures for the quarter were $246 million, compared to $127 million last year. For the full-year, CapEx was $680 million, compared to $392 million for 2013. The spending increase was primarily related to the satellite construction that Anders and Pradman discussed. CapEx was not as high as we thought earlier in the year due to delays in some of the satellite programs.

With all of the programs now well underway, I would expect 2015 spending to be in the mid-$800 million range with the satellites and related ground infrastructure driving the increase. Free cash flow, which we define as EBITDA minus CapEx, was a negative $16 million in the fourth quarter primarily due to the ramp-up in satellite CapEx. For the full year, free cash flow was $223 million.

Turning to the business segments, EchoStar Technologies revenue in the fourth quarter was $365 million, compared to $407 million last year. As Mark mentioned, the decline is primarily due to lower revenue from equipment sales to Dish, somewhat offset by higher equipment sales to Dish Mexico. Also, as Mark indicated, we would expect the lower sales to Dish would continue in 2015.

ETC EBITDA in the fourth quarter of 2014 was $34 million, compared to $31 million last year. The increase being primarily due to a $4 million impairment in 2013. So, even with the lower revenue, we have maintained the EBITDA contribution. For the full year, ETC revenue was $1.61 billion, compared to $1.72 billion in 2013. Decline was again primarily due to lower equipment sales to Dish.

ETC EBITDA in 2014 was $152 million, an increase of $16.4 million over 2013. As in the fourth quarter, we maintained and even slightly increased EBITDA margin contribution, even with a significant decline in revenue.

Hughes revenue in the fourth quarter of 2014 was $334 million for a growth of 10% over the fourth quarter last year. For the full year, revenue was $1.33 billion for 9% growth. For the quarter and full-year, the growth has been led by consumer services, but we saw growth across all business units with one exception, that being the sale of wholesale consumer equipment to Dish. Hughes EBITDA in the fourth quarter was $90 million, a 14% increase over 2013, and the full year was $357 million for a strong increase of 27%. Contributors to this growth were a higher mix of service revenue in 2014 with the associated higher margins.

EchoStar Satellite Service revenue was $127 million in the fourth quarter, up 50% over last year, and $484 million for the full year, increasing 47%. ESS EBITDA in Q4 was $111 million, an increase of 61% from the fourth quarter 2013 and $419 million for the full year, an increase of 78%. As Anders indicated, the increase in revenue and EBITDA are primarily due to the additional revenue generated from the five satellites we acquired from Dish as part of the HRG transaction in the first quarter of 2014.

In conjunction with the extension of the AMC 15 and 16 agreements, the accounting treatment will transition from capital leases to operating leases. So, while we expect to see an improvement in cash flow, we also expect that we will have an approximate $17 million negative impact to EBITDA in 2015 as a result of this change.

In the all-other segment where we record gains on sales of securities, eliminations for inter-segment sales and other corporate transactions, EBITDA in the fourth quarter was a negative $4.5 million, compared to a negative $17.2 million last year. The increase in 2014 was in large part due to gain on strategic investment in 2014 and a reserve recorded in 2013. We continue to have a very robust balance sheet with approximately $1.7 billion of cash and marketable securities which gives us ample resources to continue to pursue our strategic objectives.

With that, let me turn it back over to Mike Dugan.

Thank you, Dave. Before we go to question and answers, I would like to make a few closing comments. I'm sure you are looking for them to be short. For our Solaris mobile S band venture in Europe, we exercised our option to purchase TerreStar 2 as Anders talked about. We've now named it EchoStar 21, and it is scheduled for launch in 2016. We are working hard on the ground on terminal components of the network with our Hughes organization, and that's progressing well.

Our team is currently working with the EU and member states to more clearly define and harmonize the regulations related to operation of such a service. Our efforts to build out a high quality satellite video offering in Brazil continues to move much slower than we would like, or even would have expected. We continue to have discussions with existing telecom operators in the region, but the shifting landscape is slowing any meaningful progress.

Finally, our business development group has been very busy evaluating multiple projects and potential acquisition opportunities. We will continue to be diligent in examining these opportunities and will not put ourselves in a position of overreaching or overspending just for the sake of getting a deal done. It's now time for questions and answers, so, Operator, would you please start the process.

(Operator Instructions)

Tim Quillin, Stephens Inc.

Good morning. With Hughes, I think if I did my math correct based on the 95,000 gross additions, it looks like the churn rate was something like 2.7%, is that correct?

Translated in the run rate, that number is reasonable.

I know it impacts the legacy of the satellites up a little bit more.

That is a much larger impact than the good subs that come on our Gen4 plans.

How does the churn rate look like in the wholesale channel versus the retail channel?

I don't think we break our churn rates down into those separate segments.

Maybe just generally, if you could talk about the challenges to getting that churn rate down to a lower level -- down closer to two. And, with Dish, Dish Net going through a litany of reasons on their website of caveats of why somebody might not want to be a subscriber. And, I think your shift is to retail versus wholesale, it looks like they're throttling back pretty well to help reduce churn. Why aren't we seeing that in an overall reduction in churn right now?

First of all, we have got to be careful about wholesale versus retail. I do not think we are dialing back, I think you said dialing back on retail and focusing on wholesale.

He said the opposite.

The opposite. But, certainly, we continue to be extremely focused on the retail channel. The reality of churn in this business is when we first started out and we had an empty satellite, I believe we acquired a lot of subs in fairly competitive markets. We're ended up -- the result of that -- we added a lot of subs, but we're losing some of those subs to competition.

We've refocused all of the efforts in retail, and I think you're seeing that on Dish, as you talked about, to be focused to adding good subs in rural and underserved markets where we have a great product and people are very happy. I think it is as a simple as that.

Would you expect the net additions to stay in plus or minus in the same range that you saw in fourth quarter until you launch Jupiter 2?

We continue to fill the satellite. To be honest with you, the team has done a super job. We have been more successful [intel and beams] quicker than we would have predicted, or we should have started Jupiter 2 a little bit earlier. We are going to continue -- all I can say is I hope things are going to continue to fill up, and that we continue to hold subs. We're going to do our best to optimize the number of subs we get in a beam and the total subs we could have on the satellite as long as we can keep our customer satisfaction at the highest levels.

Very good. On Solaris, could you give us an update on your efforts with regulators in Europe and trying to convince them that the complementary ground component portion of the spectrum license would be applicable to LTE data services. And, is Germany the linchpin to that process?

Thank you.

I think you're getting very complex. I will tell you we're somewhat in the early stages of working with all of the countries, and it's a daunting task. There is a lot of differences in the various countries as to the amount of time they have been able to allocate to us in meetings, and we have got a full team very focused on it. It's premature for us to give you a solid indication of progress there. But, I can tell you, from my perspective, it has gone better than we thought at this point in time. But, we have got a lot of work to do.

Thank you.

Andrew Spinola, Wells Fargo.

I wanted to ask about the impact that you might have seen during the quarter from your initial next gen subs hitting their two-year mark and possibly rolling off? I think there was a little bit of a concern, was --how did that manifest? Was it in line with your expectations?

I think we were certainly surprised. We were hoping -- we were expecting that maybe we would lose a lot more subs when the contracts ended, and I think the results have been better than we expected.

Got it. Pradman, it's interesting that the net adds are slowing a little bit, but the revenue growth rate in the Hughes business is accelerating in the second half of 2014. Can you give us a little thought on why that business -- the non-consumer broadband business is accelerating? And, what your Outlook is for 2015 there?

First of all, the consumer revenues also went up nicely, and the parameter view for that was the growth in ARPU. That has been a big, big element in our success growing the subscriber revenues and the consumer business revenues. That continued to be the fastest growing part of our business.

Having said that, the enterprise business both in North America and internationally, has also been doing well. In the US, we find a strong demand for the managed network services that I mentioned in my talk. People are accepting those offers -- those plans very eagerly. The franchisee -- franchise business -- Pizza Inns, Pizza Huts, the gas stations for Exxon-Mobil, Chevron, they're all signing up at a rate which is very, very nice for us.

Internationally, we had some outside environmental conditions that were tough in the foreign exchange part, Brazil and Europe and Russia being in a recession environment. But, the rest of the world was strong, and we have held our own, and the international business also showed growth. So, we're pleased with that.

What is the primary driver of ARPU? Is it the higher-priced plans with bigger data caps? Or, is it the voice -- ?

That's one element. I think all the elements have contributed. The new services we offer like light VoIP, et cetera. We also offer -- I think one of the best ones is the repair. We give people an option to have their units shipped to us and repair and return very quickly. That adds $1 or $2 to our ARPU.

We also offer these tokens to increase the size of the data caps that when they run out of data. So, each one of these is contributing. We are also finding that people do sign up for higher end plans in some cases. So, if you take a little bit from each of them, we added a couple of dollars of ARPU increase over what we had last year which has been over 1 million subs. That is a lot of revenues.

Got it. I understand that the net adds are slowing going forward as the capacity fills up. From a really high level view, how do you think the Jupiter 2 satellite will help you grow this business going forward? Are you going to use the extra capacity -- obviously, you'll have more capacity on the full beams. But, are you going to use the capacity to increase speeds and datacasts and things like that? Or, are you also planning to start doing more things outside of consumer broadband?

It is a little premature to finalize what plans we are going to offer and do and things that we're going to do. One thing is certain. The high-fill beams is where most of our potential customers are, and we'll have more capacity in those areas to get more customers, more subs. If we offer new services, increase our ARPU. So, all of the above will happen in some form. Exactly what the combination of all of that is going to be is a little premature for us to -- we are a year away -- more than a year away from that event. Times, we will firm up our plans when we get closer to the launch of the satellite.

Got it. Last question for me. For Mark. My -- the way I've always thought of the technologies business is relatively steady business. Maybe a little bit of declines as Dish orders less. The home automation is obviously interesting, and then, some of Mike's comments imply investments across all the segments.

Should we think of home automation maybe as just the beginning of what you are planning to do in technologies? Is this a business that might see more new products over the coming years and possibly return to growth?

We certainly hope so. Our plan right now is to attack it fairly hard. We're going after a market segment that is underserved plus we have a lot of building blocks with all the other organizations.

Hughes is helping out a lot on this project with the back-end systems and other things. It looks very promising to us. We think we have got some unique features, but it's a very competitive marketplace. But, we think we're well poised to go in there and attack it and be innovative and also fairly disruptive.

This is Mike Dugan. I think the thing that is hidden within the realm of Companies that have been integrated under EchoStar is the fact that Mark's organization has huge technology investments to run all of the services that he runs for Dish Online and some of the other -- off Sling. And, Hughes has all this back-end infrastructure for 1 million-plus customers, and what we have recognized is we have got all these great building blocks that no start-up or anybody can put together and bring to market in a cost-effective way.

That is our challenge and between Pradman, Mark, Anders, Dave, and I -- we continue to focus on how the heck do we take advantage of all of this hidden capability within the Company. And, you're going to see some significant attempts to do that going forward, and Sage is the first part of it.

Thank you very much for the call.

(Operator Instructions)

Jason Bazinet, Citi.

Two quick ones for Mr. Rayner.

In the K, if I read it correctly, it implied that you plan to recognize about $180 million more of backlog revenues relative to last year across both Hughes and ESS. My question is are there any special headwinds that we should be aware of that would cause the top line to be more muted than that?

That's my first question.

The backlog -- obviously, we have got significant backlog in both the Hughes enterprise contracts as well as the ESS satellite contracts. So, you've got significant revenues coming through from those. We've had a pretty good year at Hughes on signing new contracts, and obviously, the five new satellites that we have at ESS are going to contribute to increase revenue. We had 10 months of those satellites in 2014. We'll have, obviously, 12 months in 2015.

The headwinds -- I think certainly as we've discussed at ETC, we're going to have some struggles in 2015 until we get the next-generation of set-top boxes to Dish. On an international basis, you've got currency rates that are becoming an issue, and if those continue to struggle -- not that our local businesses are suffering because of that. But, that our revenue recognition because of those exchange rate fluctuations may be impacted.

You've got, obviously, a lot of turmoil on a global basis, and we do -- I think at the last count, Hughes was selling services into 100 different countries. Some of those countries are going to have some political difficulties. Brazil's economy is certainly slowing down. Brazil is a large opportunity for us within the Hughes business. We feel pretty good about the business overall and the direction that we're taking it in, but there are certainly going to be headwinds -- some of which we can see and some of which we really can't anticipate.

Very good. My next question is given the relatively low amount of net debt that you have on the balance sheet and on the heels of the HRG transaction that you did last year, the coupon rates on your two pieces of debt actually seem pretty high to me. Do you agree with that based on prevailing rates and leverage? And, can you just talk a bit about what opportunities you have to refinance, if any?

Neither pieces of debt are callable today. We can certainly go back into the market and look at refinancing those. That has not been a priority for us at this point in time. Something we always keep on the back burner, but the intent right now through all of the efforts that Mike mentioned, as well as the efforts that Ken Carroll is putting forward, is to put that money to work. It's always a possibility, Jason, but I don't think it's our biggest priority right now.

If you took a gander at what the -- if you had to raise more debt today, what your interest rate would be? Do you have a gander at what that would be?

You are probably in a better position to predict that than we are. Just as good a position to predict it.

Chris Quilty, Raymond James.

Pradman, wanted to follow up -- you mentioned that you were losing some subscribers to competition. Is that competition from new terrestrial services coming into your service area? Or, are those churn across to Viasat?

No, we don't really see any churn to Viasat. I think when we lose any subs to competition it's primarily because cable or fiber, FiOS enters that particular area. So, it's primarily due to new, terrestrial cable fiber terrestrial technologies.

Do you know when you sign up new subscribers, whether they had service previously are not? And, has anything changed with that trend line?

What we do know almost by house is what kind of technologies are available for that particular house. So, we try to avoid, for example, selling to a particular residence where we know they have an option to go with FiOS or cable. We try to be as selective as we can. In fact, in our call center, people are trained to if somebody calls in from a FiOS area to tell the customer that they are probably better off going the other way.

And, that's part of this software that they have available to them when somebody punches in the area code?

Yes. Actually, by zip code, there is in incredible database that allows us a lot of inside to what is happening in each neighborhood and in each area.

Got you. The ARPU trend? How sustainable do you think that is on ongoing basis? Or, are you going to eventually plateau out?

Trees don't reach clouds, so eventually we have got to plateau out. It has been going up at a nice steady clip.

Got you. Shifting gears, you mentioned in the 10-K or I think maybe in the script that you are re-purposing the old CMBC star satellite for Latin America, Mexico, Brazil -- can't remember? Two questions. Number one, do you have an S-band license to operate? And, number two, can you give us an idea of what types of services you might be targeting?

Let's get our reference manual out since we have so many satellites. (multiple speakers).

Hi, Chris, this is Anders. I think you're mixing things here. Because CMB star, which was originally configured for an S-band mission in Asia was suspended quite a few years ago and put into storage. What we've done is we've taken it out of storage, taken all of the S-band payload and other S-band-specific equipment off the satellite and are, in essence, reusing the bus, the electrical system and the propulsion system and manufacturing new communications, panels, feed structures, and reflectors for that satellite to become a Kubss satellite.

So, it is a highly reconfigurable satellite once in orbit. So, its initial deployment will be at 45 degrees West in fulfillment of our license obligations to Brazil. Right now, the only as S-band satellite we have under construction is the Echo 21 satellite, formerly TerreStar 2 which is destined for Europe.

Great. Turning back, Pradman. One other question.

When you talked about churn, and the fact that the churn was mostly coming off the legacy subscribers. Are you seeing churn on the Spaceway satellite? Or, are those just the legacy KU band?

Certainly, the legacy KU band and also the subs on Spaceway that are not on our Gen4. That are on the old plans that we had on Spaceway.

Is there any reason you don't upgrade them to Gen4?

Our upgrade program is moving very aggressively. What you're seeing with -- we're working as hard as we can to update as many of them as we can.

But, a lot of those subs are in what we would call the infield, and we can't give them the service on Gen4 on Spaceway that we're able to on Jupiter.

Got you.

Which will also be a help to our Jupiter 2.

Can you remind us what type of either beam power or flexible beams you have in order to provide more capacity to those high demand areas?

On the present Jupiter 1, it's pretty much fixed, right. There is no extra capacity that we can provide that doesn't exist today. Jupiter 2 will just increase the amount of capacity. These are bent-pipe satellites with a fixed beam pattern that can't be moved.

So, no steerable beam or dynamic power that -- are we -- should we suspect that a year after you launch that satellite the same high demand areas are going to tap out again? A high-class problem to have I guess.

It's a high-class problem, but we don't expect that a year will cause it to saturate. Just like Jupiter 1 didn't saturate in a year, it has been 2.5 years.

Final question. The Sling TV effort, which I'm pretty sure does not actually use any Sling technology, but you had a prior endeavor with Dish on the Dish digital side. Any benefit or upside to you? The service has gotten some very positive press.

First of all, EchoStar is a stakeholder in Sling TV, so its success will certainly benefit us. Second of all, EchoStar resources continue to provide the engine that drives Sling TV. That is one of the technology capabilities that we talked about earlier that we are going to bring to bear to allow us to provide other resources and potentially provide similar services around the world, depending on the interest level. So, most of the technology and the apps and everything that are powering Dish Online and Sling TV, and also the Slingback -- the infrastructure that drives the Slingbox technology -- all of that stuff is certainly usable elsewhere in the world. You're very astute to point out that Sling TV doesn't use any of the Sling technology because that [backer].

Great. Thank you.

Andrew DeGasperi, Macquarie Capital.

Thanks. I was wondering -- I know Dish had some programming disputes at mid-December through mid-January. I was wondering if -- I know they haven't reported yet. But, if they had any impact to the video business; does that trickle down to your wholesale business? And, secondly I was just wondering, can you give us comments on any sub growth in Mexico? Is that ongoing?

Obviously, Dish will have their call, I think, either -- Monday. It would be irrational to say that if they have churn related to those take downs, that some of those subs didn't both bundle Dish service from Muse and the video service from Dish. We haven't seen a huge impact that we could point out and say, wow, that has been a big contributor otherwise we would have brought it up. But, I'm sure there has been some of that, and you'll get more insight into that from Dish directly. It is a wholesale deal, and it is totally what they have month to month. So, I can't tell you exactly where their customers are calling -- or coming from. As to Dish Mexico, I don't know -- . Ken, do you want to say anything about -- .

I would say in general that since Dish Mexico has obtained the local -- effectively, the local channels for Mexico which they started marketing and selling in the September-October timeframe, they have certainly seen an increase in net adds on a monthly basis.

Lastly, I wanted to ask on the FX, just to follow up on that. I noticed in the K, it says that your exposure is about 14% of revenues. Can you comment on any regions in particular that you think you're most exposed to?

I think we're going to be mostly -- we're not going to start breaking out revenue by region, but we've got a large presence in euros across Europe, obviously. And, India and Brazil are the biggest overall issues that we have. Certainly as Pradman mentioned, we have got quite a bit of the business into Russia, too. Those are the territories that we would see the biggest impact likely coming out of exchange rate fluctuations.

Great. Thank you.

Andrew Spinola, Wells Fargo.

Thank you. Just one last one for Pradman. Pradman, I saw the news reports about a potential application for a consumer broadband offering in India and the possibility of that. Can you comment on that? Even from a higher level, you're looking at a lot of emerging markets for possible broadband applications -- Brazil, potentially Mexico with Echo 19. You mentioned Central America on the call. India, Brazil.

What makes you confident that you can be successful in these different markets when the consumer just doesn't have the discretionary income? I've gotten this question a bunch, and obviously, Eutelsat has had struggles in Europe where discretionary income is much higher. When you think about it, do you think you can be successful entirely in consumer broadband? Are you going to need to use that capacity in those markets for more enterprise applications? How -- why do you feel comfortable in going after so many emerging markets at one time?

It's a very good question, and we have been moving very carefully and cautiously. We're really not going after five consumer international markets. The first one we are going to do is Brazil.

Like in the United States, when we first entered, we have done a tremendous amount of work in market research. We have set our business plan on the basis, like we did in the United States, that there are about 8 million households that have been unserved and underserved in terms of broadband availability in other technologies. Eutelsat 65, which we are using over Brazil, our capacity will be filled up if we get 300,000 subs. So, for us to think that in two or three years, we should be able to reasonably confident we can get 300,000 subs, or in Brazil and make the Eutelsat 65 business, not just the satellite, but the business successful.

That same kind of analysis is what we are looking at in one or two other markets. We are not really addressing the consumer market anywhere else in the world. We have partners who are and we are supplying equipment and Gateway infrastructure and more terminals to them for those markets. But, Hughes and EchoStar, Brazil will be our first market. We're looking carefully at India. We're looking carefully at one or two other regions in the world. But, we haven't reached the point where we're comfortable enough and make a large investment in those areas.

And, finally, when we look -- the other part of your question was are we going to include the enterprise. We have strong enterprise businesses in all these countries, and that will continue to grow and we're very comfortable with that world because we've been growing in the last five years. But, if we launch our own space segment for our consumer business, we would normally include a small and medium enterprises in that because that is very much in many of these countries, like Internet kiosks, et cetera. That's really blurry as to where it's the pure consumer versus the small and medium enterprise. So, when we say consumer in those international markets, it includes the [smees].

Got it. Thank you.

Tim Quillin, Stephens.

Thank you for taking my follow-up. I just wanted to ask a quick question about intellectual property licensing? And, how that would be handled between Dish and EchoStar? I'm thinking specifically where Rovi -- 11, 12 years ago licensed EchoStar to their TV Guide technology. They have a big renewal coming up. Is that a discussion that EchoStar has? Or, is Dish the one that would handle that royalty?

We always have different discussions with different IP rights holders. It's usually -- it can be contentious sometimes. But, it would be jointly Dish and EchoStar on some of those, and some of them, it would just be EchoStar. I think when that deal was done with Rovi, it was under a different time and place, and a lot of their patents have expired. So, we will just have to see what happens there.

That is fair. Thank you. And then, Dave, do you have any -- I know this is always hard. But, do you have any help for us on trying to calculate a GAAP tax rate in 2015?

This is your favorite question. (laughter) I think as we look at things, we do not anticipate being a cash taxpayer on a federal basis other than maybe some AMT in 2015. So, from a tax standpoint, I think statutory rates are as good an estimate as anything.

Okay. Thank you very much.

Thanks.

There are no further questions at this time. I will now like to turn the call back over to management for any further or closing remarks.

That does bring us to the end of the call. I want to say thank you all for taking the time and have a good rest of the day and weekend.

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