EchoStar Corp (SATS) 2016 Q1 法說會逐字稿

Good morning. My name is Kayla, and I will be your conference operator for today. At this time, I would like to welcome everyone to the EchoStar Q1 2016 earnings call.

(Operator Instructions)

I would now like to hand the call over to Mr. Deepak Dutt, Vice President, Treasurer, and Investor Relations Officer. Please go ahead, Sir.

Thank you and good day, everybody. Welcome to our call today. I am joined today 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 of Corporate and Business Development; and Dean Manson, EVP and General Counsel. As you know, we invite media to participate in a listen-only mode on the call and ask that you not identify participants or the firms in your reports. We also do not allow audio recording, which we ask that you request -- that you respect.

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

Thanks, Deepak, and hello, everyone. All statements we make during this call, other than statements of historical fact, constitute forward-looking statements that involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and 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 our quarterly report on Form 10-Q filed in connection with our earnings. All cautionary statements we will make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

I'll now turn the call over to Mike Dugan.

Thank you, Dean. Good morning and welcome, everyone, to our first-quarter 2016 earnings call. You will recall that on our last few earnings calls I did try to focus on the strategic initiatives that we are investing in to drive longer-term growth. These included pursuing the global demand for broadband Internet access, the development work underway on our new set top box platform and in ITT, and finally investing in the numerous satellites that are currently being built to provide capacity for growth.

Our new home security and automation product has been launched and we also continue to invest in a few other initiatives. I am very pleased to inform you that we've made excellent progress on all of these initiatives in the first quarter and the management team will now talk more about this.

So let me first turn it over to Pradman Kaul who will talk about use. Pradman will then be followed by Mr. Jackson on ETC, Mr. Johnson on ESS, and finally, David Rayner will address the quarter's financial results.

Thank you, Mike. Good morning. First, a few financial highlights. The first quarter 2016 revenue was $326 million, slightly more than the first quarter last year while EBITDA for this quarter was $99 million, a growth of 9% over Q1 last year driven primarily by the North American consumer business. In the consumer business we had 3300 net adds despite the fact that many [beams] on Echo 17 are full. We ended the quarter with 1.038 million subs compared to 998,000 at the end of Q1 of last year, an increase of 4%.

Key enterprise orders in this quarter were from IGT, British Petroleum, Spring Leaf Financial, ConocoPhillips, York, (inaudible), Xplornet Communications, Academy Sports, [Aghimata] in Indonesia, Bank of India, State Bank of India, [Delamar] Brazil, and (inaudible). We came into the second quarter with $1.4 billion of order backlog, an increase of 17% over the backlog of the same time last year.

The EchoStar 19 satellite construction is proceeding well and is scheduled for launch in the fourth quarter of this year. We've completed spacecraft thermal vacuum testing and are currently in the final assembly of the feeds (inaudible) solar panels in advance of dynamic testing. We expect to place the satellite into service in Q1 2017, and that will provide capacity primarily for our consumer business in the US, Canada, and Mexico, and help resume the growth rate of the subscriber base.

Our Brazilian consumer broadband project using a hosted payload at the 65 West orbital slot is also proceeding very well. The satellite was launched successfully on March 9. In-orbit testing was completed on schedule, and the satellite has been turned over to us for pre service testing with the ground network. We expect to commence commercial service in July with all gateways in operation.

We also signed an agreement with (inaudible) as a national retail distributor in Brazil and various other regional distributors. We're also in discussion with paid TV operators for being a wholesaler and distribution of our service. We will publish the available plans with applicable details on the Hughes Brazil website prior to service lunch. We are very excited about this service, which will be the first international expansion of our highly successful North American consumer service.

Our release of the KA payload of the Telesat satellite scheduled for launch in the second quarter 2018 at the 63 West orbital location will further enhance our capacity Brazil and other parts of South America. So, with (inaudible), Echo 17 and 19, and the KA payloads on 65 West and 63 West, we will have approximately 360 gigabits of broadband capacity over the Americas.

Our Jupiter ground infrastructure platform also continues its success. In Q1, we announced a series of enhancements to the Jupiter ground system that strengthens our ability to provide enterprise in cellular [back haul] services. The Jupiter system continues to be the [de fact] of choice for broadband globally.

A few recent examples of new orders are now something I want to talk about. Just yesterday we announced that Eutelsat Communications and Facebook have selected Hughes Network Systems to supply its Jupiter system as the technology platform for satellite broadband services that both companies are preparing to launch in sub-Saharan Africa. With the selection of the Jupiter system along with high-gain [K-band] spot beam capacity provided by Spacecom's Amos 6 satellite, Eutelsat and Facebook are assembling a dedicated infrastructure that will extend cost-effective broadband to (inaudible) sub-Saharan Africa beyond reach of fixed and mobile terrestrial networks. The Amos 6 satellite is due to enter service in early 2017.

The Jupiter system configuration being purchased by Eutelsat includes three gateway stations, two centralized data centers, a comprehensive network management system, and an initial number of user terminals. For Facebook, the system will support this express Wi-Fi project. Eutelsat will employ the system as a key platform to drive growth of premium consumer and professional Internet connectivity services in sub-Saharan Africa.

Hughes and Intersat also reached an agreement where Hughes will provide a Jupiter system to offer next-generation broadband services by multiple VNOs. (Inaudible) ordered a significant expansion of the Jupiter system which has enabled them to effectively doubled their service area supported on the (inaudible) 4B satellite. And a major international direct-to-home operator placed an order for a Jupiter system as the 5000 site pilot for broadband services with significant up side. In the (inaudible) area we are making excellent progress on the one [web] project, development work on the ground network, including gateways, has started and we remain very excited about this project.

A few words now on our aeronautical strategies. On the Q4 call, I mentioned the cornerstone of our strategy was to expand our services to Ka-band. Last month we concluded an agreement with Global Eagle where we would deliver connectivity for Global Eagle's next gen multi-band services using our high throughput Ka-band Echo 19 satellite set to launch in the fourth quarter along with the Jupiter aeronautical modem that will deliver 200 Mb per second per aircraft. In addition, we are actively pursuing the development of next-generation HDS satellites and hosted payload opportunities in other parts of the world.

So to summarize, I'm very pleased with our performance in Q1 2016 and we are well positioned for growth going forward consistent with the strategy we have discussed in past calls. Let me now hand it over to Mark.

Thank you, Pradman. So, revenue for ETC in Q1 was $385 million, up 11% from the same quarter last year with EBITDA also up 10%. Hopper 3 and 4K Joey joined the family early this year with features such as Sports Bar mode, a multi-channel view that decodes any four HD feeds and displays them on your TV simultaneously.

To provide DISH customers with even more content options, as of April 8 users can now access the Netflix catalog of ultra HD 4K shows and movies from the integrative Netflix app on the set-top box. Netflix is also incorporated into the Hopper 3's universal search results such that all Netflix titles are populated in DISH's episode list so customers can more easily discover more the content available.

We continue development on the Hopper 3 software features. This includes continued work on YouTube integration along with many other enhancements to the consumer experience which we expect roll out later in 2016. These new features will provide this customers and easier access to the content they want to watch and a more comprehensive user expense overall.

Our Sage by Hughes security and home automation solution had a soft launch in early March. So, Sage is available directly to consumers via our website sagebyhughes.com. Since then, we have been testing a variety of marketing strategies geared towards building brand and product awareness in the market. Our digital and out-of-home marketing campaign including cities such as Denver, Boston, and Philadelphia started rolling out last week.

We are also ramping up our retailer distribution program which will launch later this quarter. Last week we announced the ability to use Sage in connection with (inaudible) products. Our intent is to continue to advance the interoperability and functionality of the overall Sage platform.

In addition, we are continuing to develop other consumer-based products that we expect to roll out later this year. Our [Move Network Group] is the platform provider for DISH's Sling TV service. Our ongoing efforts to enhance the [Move] platform have taken it to a higher level of reliability, including a new benchmark level of peak concurrent users through this year's very popular college football play offs and the NCAA basketball tournament.

We continue our work with Sling TV to deliver new functionality, including the recently announced live beta multi-stream service which has content from Fox Networks group overall. Currently, we are working to add more streaming media devices through the client platform. Overall, our efforts remain dedicated to engineering leading edge hardware and software technologies for our customers.

I'll now hand things over to Anders.

Thanks, Mark. ESF revenue for the first quarter was $103 million compared to $125 million for the same quarter last year. EBITDA was $88 million in the first quarter of 2016 compared to $106 million last year. [EFS] continues to advance the fleet expansion initiatives we discussed on previous calls with four EchoStar satellites scheduled to launch by the end of this year and the EchoStar 18 satellite which we are managing for DISH Network scheduled to launch in early June.

(Inaudible) spoken about EchoStar 19 and the successful launch of the Hughes Brazil payload at 65 West, I'll address the remainder. EchoStar 21, our F-band satellite which will enable EchoStar mobile to begin services across the European Union, completed construction earlier this year. We've received notice from ILS that due to production delays with the launch vehicle, our lunch previously scheduled for the second quarter is now scheduled for the third quarter of 2016. While not ideal, launch delays are not uncommon in the satellite industry and in spite of this delay, we expect to be able to meet all regulatory milestones for the EchoStar mobile MSF service in the EU.

With regards to our regulatory obligations for EML, we received 27 out of 28 MSF authorizations and the European Union. We've received our launch authorization for Echo 21, the authorizations for our Gateway Earth station which is fully built, and many of the required authorizations for our calibration earth stations. We are also working to obtain authorizations to serve the countries within our satellite footprint which are not members of the European Union.

As we announced on our last call, 3 GPP, the global wireless standards body, approved band 65 to standardize additional spectrum for broadband wireless services in Europe and Asia, better positioned in EML to take advantage of the economies of scale from a regionally harmonized frequency band. We continue to progress working with European Union and the member states to establish these MSS CDC harmonization standards on an EU wide basis.

Now for the other two satellites scheduled to launch this year. EchoStar 23, a flexible KUBSS satellite designed to fulfill multiple mission profiles, is slated to launch on a SpaceX Falcon 9 in the third quarter of this year and will be deployed at our Brazilian orbital slot at 45 degrees west. The EchoStar 105 hybrid KUKAC band satellite, which will replace AMC15 at the 105 degrees west orbital position under an agreement with SCS, is on scheduled for launch in the SpaceX Falcon 9 in the fourth quarter 2016. We will be commercializing the KU payload on this satellite expect the capacity to be available in early 2017. As we've said in the past, 2016 is a very busy year for the ESS team.

I'll now turn it over to Dave Rayner.

Thank you, Anders. EchoStar revenue for the first quarter 2016 was $816 million compared to $799 million for the first quarter 2015 with the increase primarily attributable to EchoStar technology revenue offset partially by a reduction in ESS revenue. More about this when I talk about the specific segments.

EBITDA was $223 million for the first quarter compared to $214 million for the first quarter last year, the growth contributors being Hughes consumer business and EBITDA in the all other segment offset partially by lower ESS contribution from the lower revenues. Net income attributable to EchoStar common stock was $50.7 million compared to $33.4 million for the first quarter 2015 and diluted earnings per share were $0.54 compared to $0.36 last year. The increase of net income was primarily due to the higher EBITDA, lower depreciation, and lower net interest expense.

Capital expenditures for the quarter were $211 million, net of certain credits, compared to $178 million for the same quarter last year. The higher CapEx was primarily due to higher spending on satellite contracts. I would expect full-year 2016 spending to be in the mid $800 million range with satellites and related ground infrastructure driving the bulk of the spend. Free cash flow, which we define as EBITDA minus CapEx, was $12 million for Q1 2016 compared to $36 million for the same quarter last year, the change being primarily due to the higher CapEx in Q1 2016.

Turning to the business segments. Hughes revenue for the first quarter of 2016 was $326 million, up slightly from last year. Consumer broadband revenue was up 10% driven by increased subs and ARPU. The increase was largely offset by decreases in the mobile satellite and international businesses. Hughes EBITDA in the first quarter was $99 million, an increase of 9% from last year. Primary contributors to the strong EBITDA growth were the change in revenue mix towards consumer services which has higher margins.

EchoStar technology revenue for the first quarter was $385 million compared to $346 million last year, the change coming from increased sales to DISH Network in DISH Mexico and services billed to DISH with support of sling TV. ETC EBITDA for the first quarter of 2016 was $28 million compared to $26 million last year, increase being driven by the higher revenue somewhat offset by Sage marketing spend. EchoStar satellite service revenue was $103 million for the first quarter compared to $125 million last year where the decline caused primarily by the termination of leases with DISH for EchoStar 1 and EchoStar 8 in the fourth quarter. EBITDA was $88 million compared to $106 million in the same quarter last year with the decline being the result of the reduced revenue offset by a reversal of a reserve for FCC fees. This reserve was recorded in the first quarter last year so has a doubling impact on the comparison between periods.

In the all, other, and elimination segment we recorded gains and losses in the sales, securities, elimination for inter-segment sales and other corporate transactions. EBITDA for the first quarter was $7 million compared to a negative $10 million last year, the increase being primarily due to the termination of release with DISH on EchoStar 15 in the fourth quarter and reversal of similar reserved FCC charges to ESF as well as increased gains in certain portfolio investments. We continue to have a strong balance sheet at the end of the quarter with approximately $1.5 billion of cash and marketable securities, which is approximately the same at the end of 2015.

Finally, about the change control offer. On May 6, HSSC made an offer to its note holders to repurchase its secured and unsecured senior notes at 101% of par. Let me give you some background that led to this action.

In first quarter 2014 we and DISH Network entered into an agreement where in exchange for five satellites and $11.4 million in cash, we issued preferred stock to DISH Network. This preferred stock consisted of tracking stock in EchoStar and HSSC which would track the Hughes retail residential consumer business. We recently became aware of a possible interpretation under which the transaction may be considered to have constituted a change of control under the indentures. The indentures provide that upon occurrence of a change of control, HSSC is required to make an offer to note holders to repurchase the notes at 101% of par.

Although we believe a change control or related default may not have occurred, we have nevertheless determined that with an abundance of caution it would be prudent to make a change control offer for the secured and unsecured notes. Because of this offer in accordance with GAAP, the notes have been reported as current liabilities on our balance sheet as of March 31, 2016, since it is out of our control as to whether bondholders will tender their bonds. Following the completion of the offer, any outstanding notes are expected to return to be recorded as long-term debt. I should point out that since the issuance of the tracking saw, the bonds have traded well above the 101% offering price and continue to do so, so we would be surprised if bonds are tended through this process.

Let me now turn it back over to Mike.

Thank you, Dave. In closing, you have see how we made significant progress in our new (inaudible) strategic initiatives while also delivering solid results for the quarter. Now it's time for questions. Operator, would you please start the process?

(Operator Instructions)

Andrew DeGasperi with Macquarie.

Thanks. First question. You focused a lot on adding capacity over the Americas. I was wondering if you ever considered looking at other regions as well?

Yes, we are obviously looking at other regions, in fact we are looking at all parts of the world. We have significant Jupiter platform equipment sales, as I mentioned, in countries all over the world and we are looking to now expand it into providing capacity and Internet access services also.

Got it. Secondly, can you comment on the mobile satellite international business that was weaker year over year? Thanks.

As we've always mentioned, our mobile satellite equipment business is an opportunistic business that usually ends up where we get major contracts and eventually when the equipment is delivered, if it is not replaced by another major contract then you see a lull in our revenues. So I think that is the effect we're seeing in this quarter.

Should we expect similar type of volatility going forward or you think at this point --?

I think it's opportunistic. So, if we win a major contract, then you'll see a spike. If we don't, then you'll see the lull.

Got it. Thank you.

Andrew Spinola with Wells Fargo.

With 65 west [day] having passed essentially most of the tests, what stands between you -- between now and launching that service? What needs to be done at this point?

We're deploying total ground network with three gateways and many, many remotes, so the testing that's going on basically takes every beam that we have, there are 16 beams on 65 west, and we have to go beam by beam and verify that each beam is operating as per the specs and that the equipment is operating as per the specs. So, as you point out, the major hurdles are out, so it is now just a matter of establishing the baseline in each beam and each gateway.

And is July 1 still the anticipated launch date?

Yes, around them.

Around then, okay. Pradman, actually one of the things I thought was interesting around your recent release about this deal with Facebook in sub-Saharan Africa is, at least everything I've heard, that's supposed to be a pretty aggressive price to contract on the services side and I assume on the terminal side. I always thought of your products as being a little higher end but I guess you are also selling it to Brazil. So, do you have a higher and lower end of terminal that you sell into different markets? Or have you been able to reduce the cost efficiently such that maybe we will start to see benefits to the subscriber acquisition costs in the US?

Yes, we're constantly working on reducing our cost of our terminals. Over the years have always been a leader in the market and can compete not only on technology and features but also on cost. And that effort continues and you are seeing the results in our market share in the world for just selling the terminals and the equipment.

I guess my understanding was --

Sorry, the benefit we obviously get also, the lower cost, is our consumer service business in the Americas.

Got it. Okay. I wanted to ask, maybe one question for Mark. Could you maybe share with us some of your thoughts on the addressable market for the Sage products you have now or what you envision that product line looking like in the future?

So, the market data says about 20% of all households have a home security system. So there's 80 plus percent, in our opinion, that don't have a system. Our system is designed to attack that piece of the marketplace, which is a much bigger marketplace overall. I think I'll get my fair share of the 20% because of the feature set and costs of our platform, but we are really, really aiming for everybody that doesn't have a system. What we understand from all the data and surveys that we've done is, people don't have a system today because they don't see any value in the $30-$50 month fee that they have to pay for a monitored alarm system. So that's kind of what we are doing.

And, what are your thoughts on expanding the distribution? Is it still too early or how do you think you will do that?

Everybody talks about big box, but we're not -- we don't see a lot of potential there. We're certainly going to sell into there, but if you look at what's happening today in the marketplace people are selling direct. That's what we're really focused on. And what we're experimenting right now, before we do our big marketing spend is, which sites do we advertise on to get the best results.

So, today's digital marketing is very sophisticated. You get a lots of data back. We're out there trying the marketplace and sticking our toe in the water to see what works, and then we'll push harder. The other thing that we're doing is we are going to tap the satellite retailers. They just had Team Summit and the satellite retailers are looking for more products to go off and sell and generate revenue basically. We were very enthusiastically received at Team Summit with independent satellite retailers. We're tapping that market, which really helped Charlie get started in the early days with DISH, and he did that instead big box. So we're certainly taking a page from his play book and using that avenue also.

Dave, there's been a couple pretty high-profile acquisitions here in the reseller industry putting together aviation and maritime markets. You've got a pretty big enterprise business and it looks like people are trying to sort of consolidate and leverage the scale versus the satellite providers. I'm just wondering what your general thoughts are on sort of the strategic rationale to ramping up your enterprise business, if you think that would potentially make sense?

I'm going to let Pradman answer that.

The enterprise business in the United States has changed dramatically over the last five or six years from being the VSAT kind of technology that was used for providing access to where we now primarily use terrestrial capabilities. Our value add now in the enterprise business is providing features and applications that customers want but leasing the fiber capacity from the major [Telcos]. And since we've done that, our enterprise business has started rebounding and we continue to be very optimistic with the blue-chip customers that we have in the future of that enterprise business. The big guys to compete with the AT&Ts and the Verizons. I do not think we are going to buy AT&T or Verizon, so I don't see significant consolidation occurring there.

Understood. We've been seeing from the satellite providers, a lot of talk about pricing trends in the enterprise markets internationally down 20% to 30%. I'm assuming you're seeing that, too. Is that benefiting you at all? I know David said that better margin in Hughes in Q1 was primarily just mix as it became more consumer, but are you seeing any lower costs in the international enterprise business? And what are some of the trends in that market that you're seeing?

International market is primarily satellite that are used as the medium as you just pointed out. And bandwidth costs from the major ISS operators have started declining gradually. And I think we'll see some effect of that -- we haven't seen significant impact yet because of our contracts that extend into this year and the next year; but I think over the next two or three years we should see some significant reduction in space segment costs. In addition, we keep driving the cost of our equipment down, so that makes the net result of these service offerings more comparative with the terrestrial competition. So, yes, we haven't seen the effects yet, but I think we will see some over the next two or three years.

Jason Bazinet with Citi.

On the consumer broadband market you guys have been successful, I think, in terms of giving consumers more speed than they could get with the alternatives, but sort of the data caps have been of an impediment in terms of giving the maximum utility to the consumer. Via Sat seems to be hinting that they are going to do something to sort of lift the caps or eliminate them. I'm assuming with Echo 19 there's really no real change in terms of the data cap thinking or maybe there is. If you could just talk about that a bit, that would be helpful.

I don't think we decided at this stage once we launch Echo 19 what we will do with our data caps. I think there's a normal trend where the caps have been increasing over time and the speeds have been increasing over time and I would expect that once Echo 19 is launched we will continue to react to the market by providing people some more capacity and some more speeds; but we haven't firmed that up. We will wait until we are ready to launch the satellite to decide what our new service plans for next year will be.

If you end up do -- if the competitive forces or you decide proactively to lift caps, the implication is what? You just end up serving fewer customers off of a given satellite? It's just sort of a simple mathematical trade-off.

Yes, you have a finite amount of capacity. The more you give per customer, the more obviously -- the less subscribers you will be able to accommodate.

Okay. Thank you.

(Operator Instructions)

Chris Quilty with Raymond James.

I wanted to follow up with a question on the enterprise business. Can you give us a sense, did the business grow in the current quarter and maybe longer term trend of what you've seen in the past several quarters in terms of where the growth of that business is trending?

Yes, I think it has been growing but very slowly in North America, single-digit kind of growth. Internationally, it gets muddled because of the exchange rates that fluctuate all over the place. Some quarters we show good growth, and with the dollar weakening or strengthening it impacts it a little bit, but if you took a longer-term trend, it also has been growing on the single-digit basis.

And does the shift from satellite to terrestrial impact the margins of the business?

That's a good question. Clearly, it does because we are re-selling somebody else's capacity and we don't have the ownership economics of our own satellite or our own bandwidth. But we have been doing a very good job of making up for that by offering additional applications and additional features like quality of service, et cetera, and we are able to command a price for that, which is helping maintain the margins pretty close to what our satellite part of our enterprise business is generating.

Got you. And on the international Ka-band opportunity, what is the primary impediment to rolling forward with that? Is it orbital slots? Is it landing rights? Is it putting in place the distribution agreements? Capital?

Well, first of all, obviously internationally we decided to first put our efforts in South America and Central America, which is close to us in an area where we've been successful. I think with 65 West and 63 West we will have significant coverage and with Echo 19 coverage of Mexico and the Caribbean, we will have a significant coverage in our neighborhood. So, once we have that under our belt, we will then look at other regions, but in general, landing rights and distribution are the two key -- in any new market when you enter you have to solve the problem of landing rates and distribution.

I will define those two as the major tasks. I wouldn't say they are hurdles because I think we can do a good job in many parts of the world, but certainly some parts of the world are out of bounds because of them. For example, Russia and China and even India, to get landing rights for our own satellites are very difficult to get right now, but in other parts of the world it's easier to do that. So, once we solve the landing rates, we then have to have the distribution. I'll say they are the two major problems to be tackled.

Okay. And a question on the hardware side of the business with the Jupiter 2 rollout, where do you stand in terms of terminal development either for [A-6], chip sets, software, or gateway design?

It is done. We are constantly evolving the terminal, but Jupiter 1 terminal and infrastructure have been in the market for the last couple of years and now the Jupiter 2 terminals are being deployed for service in July in many parts of the world. So, that part is all done, not a problem. Working very well. For example, the Jupiter 2 terminals, the current terminals that we are deploying in Brazil for 65 West, are operating at speeds of 100 Mb per second at a subscriber which is a major jump from what the previous iteration of terminals were doing.

You're not offering plans at 100 Mb per second, are you?

No, this is the speed at the terminal.

Okay.

We have the ability to do it if the market or the competition requires, forces us to do it.

Right. The aeronautical opportunity, you announced North America Beachhead. What are you looking at internationally because you do have some Jupiter Gateway deployed, I think with [Yawsat], Avanti, and others. Is there a design to go ahead and start moving internationally?

Well, as you know, our strategy has not been going directly to the airlines. We're working through our partners who are in flight entertainment service providers like Global Eagle, and we are talking to some of the other in-flight entertainment providers. With Global Eagle right now, we have two or three other countries in the world for international airlines. Using our gateways in those parts of the world, so we're already doing it and we look forward to expanding that as we sign up more agreements with other in-flight service providers.

Great. And final question, just any color worth noting on the consumer business? You added some subs which was unexpected but in terms of either SAC or ARPU trends or churn in the quarter, any changes from what we've seen in recent quarters?

No, I think it's going pretty much on plan. Because we drive equipment costs down, it helps reduce the SAC a little bit. ARPU is climbing slightly as they have in the past because of additional services that we provide. Churn is always something we could do better than what we're doing. I don't think we've seen a dramatic change up or down.

So, all in all it is going according to plan. We're very pleased with it. It is generating good margins, as Dave mentioned. That's helping us.

Andrew Spinola with Wells Fargo.

Anders, it sounds like you've got a pretty long getting all the authorizations you need across the EU to launch the S-band service. If you could elaborate on what that service is going to look like in terms of what you're thinking about offering and maybe what the opportunity is on a revenue front for that?

Well, our efforts to date we developed with our colleagues over at HNS an adaptation of a terminal which we refer to as a portable data terminal, which acts as an S-band connected Wi-Fi hot spot, also capable of supporting telephony products. We've got that in production. We've got an inventory of units that will be available for immediate deployment across Europe for testing and then available through wholesale channel through a pre-existing relationship that we have in Europe as a distributor. We're also in discussions with a number of other people about using the product as a feature for other services, which they are developing, where the S-band satellite capacity would act as a gap filler to the extent terrestrial networks are incapable of supporting service at the moment it is needed.

So, we've got to get the satellite in the air. We've got to commission the satellite which, because it's a ground-based beam forming satellite, which uses a number of calibration earth stations for his functionality, we've got quite a bit of work to do once the satellite is in orbit. And then, we will be testing the service across Europe prior to offering it to the marketplace.

As far as revenue expectations, I think it's a little early to be talking about that. Right now, we do have some models which we're discussing with folks as to how to price it competitively with other MSS services that are available across the European continent, but we've not settled that out yet.

Got it. I wanted to follow up on the terrestrial piece. You've made the comment that you'd like the S-band to be integrated into the 5G protocols. I was just wondering, is that simply having the band included so that it can be used for terrestrial or is there something greater than that implied by that statement?

I think we, and some affiliate colleagues, have worked very hard over the last few years at 3GTP in getting the 2 GHz band included in a band plan specifically for terrestrial mobile broadband applications. So, our expectation and hope is that as 5G standards themselves are adopted and agreed that the 2 GHz band will be included overall in the frequencies that will be utilized by those next generation networks.

Got it. Pradman, do you think there's any opportunity in the US for your enterprise business as the Ka-band services get better and better. I saw an announced the other day that EE in the UK is using satellite broadband and I recall conversations we have had in years past where you thought there might be an opportunity for your Ka-band services to start doing some back haul, potentially in developed markets. Do you still think that's an opportunity? Is there any chance that some of that enterprise business comes back to satellite?

Yes, I think cellular back haul, especially when 4G and 5G systems are deployed, there will be significantly large number of [cell] sites. Once those cell sites go into rural America, I think that's going to be a major potential market for cellular back haul because it won't be economical for them to get it via fiber or microwave. So, yes, I think in those applications, public emergency applications or other applications, we see potentially coming. There will be selected applications that should give us an add-on market.

And also backup, which is a very important part, in fact even today in many of our enterprise customers -- in the old days they wanted 99.7% availability. Today, everybody's looking for 99.9% or more availability and the only way that kind of availability can be achieved is if you have two different technologies providing transmission capacity to each site; and satellite is one of the sites. A number of our customers today are using our satellite services for backup.

Got it. Thank you.

Thank you. At this time there are no further questions.

Okay. I guess then will go ahead and finish the call. Thank you for everybody supporting us.

Thank you, ladies and gentlemen that does conclude today's conference call. You may now disconnect.