EchoStar Corp (SATS) 2017 Q1 法說會逐字稿

Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Corporation First Quarter 2017 Earnings Conference Call. (Operator Instructions)

At this time, I would like to turn the call over to Mr. Deepak Dutt, Vice President, Treasurer and Investor Relations Officer. Please go ahead, sir.

Thank you, Lisa, and good day, everybody. Welcome to our earnings call for the first quarter of 2017. I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; and Dean Manson, Executive VP and General Counsel.

As usual, we invite media to participate in a listen-only mode on the call, and ask that you not identify participants on the phones 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.

Thanks, Deepak, and hello, everyone. All statements we make during this call, other than statements of historical facts, constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by those forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q filed with the SEC.

All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our report and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

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

Thank you, Dean and Deepak. Good morning, and welcome, everyone, to our earnings call. We got off to a great start for the year in the first quarter. To name a few of the highlights, we commenced consumer service on EchoStar XIX satellite, which was launched successfully, fully tested and put into service in that time frame. We will provide capacity to resume growth in our HughesNet consumer business in North America with the Gen5 service. The EchoStar XXIII satellite was launched successfully in March, and is also now available for service. We are awaiting the launch for EchoStar XXI and 105. I think he -- Anders is going to talk about that in a minute, and we closed on the share exchange transaction with DISH Network.

Our 2 business segment presidents will share with you details and highlights of their own businesses. So let me start it off by handing it over to Anders Johnson, who will talk about our ESS business unit. He'll be followed by Pradman Kaul on Hughes, and Dave Rayner will follow Pradman with a financial overview, before we get to any questions and answers. Anders, take it on.

Thank you, Mike. ESS' first quarter revenue was $100 million compared to $103 million for the first quarter of last year. EBITDA in the first quarter of 2017 was $83 million compared to $89 million last year. The successful March 16 launch of the EchoStar XXIII satellite on SpaceX's Falcon 9 from Kennedy Space Center was the highlight of the quarter. The satellite entered service at the 45 degree West orbital location at the end of April following the successful in-orbit testing.

We have 2 additional satellites that are now slated for launch in 2017. We have been working closely with ILS and its parent, Khrunichev, since the Proton launch vehicle was effectively grounded by the Russian government just prior to the scheduled launch of Echo XXI on December 28 of last year, which was in turn delayed from its originally scheduled launch in the second quarter of 2016. That launch is now scheduled for the end of this month. Echo XXI is an S-band satellite that our EchoStar Mobile subsidiary will use to provide MSS services throughout the European Union, and we have been in regular communication with most of the European regulators to whom EML's licenses are answerable to keep them abreast of the developments around the launch of the satellite and EML's launch of services across the European Union.

EchoStar 105, the hybrid KU, KA and C-band satellite that will replace AMC-15 at the 105-degree West orbital location, could potentially launch in the third or fourth quarter of 2017, but is paced by SpaceX, both on the hardware and manifest assignments.

I'll now turn it over to Pradman.

Thank you, Anders. First, a few financial highlights. Q1 2017 revenue for the Hughes segment was $329 million, a small growth over the same quarter last year. EBITDA was $101 million in Q1 compared to $110 million in the same quarter last year. You'll recall the growth in our North American consumer business had stalled most of last year because the EchoStar XVII satellite beams were full. We launched a new satellite, Echo XIX in December, and I'm pleased to inform you that on March 16, we inaugurated our new HughesNet Gen5 service ahead of schedule.

HughesNet Gen5 offers significant enhancements to the Gen4 service, including download speeds of 25 megabits per second, upload speeds of 3 megabits per second and data allowances of up to 50 gigabytes per month for consumers and up to 250 gigabytes per month for business users. All plans include a free bonus zone, allowing an additional 50 gigabytes per month of off-hours usage and soft data limits permitting access beyond the contracted levels.

Also available is the new HughesNet mobile app, which will give subscribers more visibility and control of their data from a convenient personal device, and the new HughesNet modem includes a built-in, dual-band, high-performance Wi-Fi router. We also offer a range of exciting upgrade options for existing subscribers. HughesNet Gen5 is the first ubiquitous coast-to-coast Internet service that meets the FCC 25/3 broadband standard, and Hughes continues to be the market leader in providing satellite-based Internet access. According to a recent SEC survey, HughesNet continues to be the leading Internet service provider for meeting advertised speeds.

We ended Q1 with 1,043,000 subs, a slight decrease from Q1 and Q4 last year. With the launch of Gen5, our initial focus was on existing subscribers that expressed a desire to upgrade to the new service. I'm very pleased that we now have activated all of our sales channels, and we've been seeing strong subscriber growth since. Our Brazilian HughesNet service has also been growing at a nice pace, and we are very happy with the growth in that subscriber base and the reception from the markets that we are serving.

As you may be aware, in addition to the United States, Echo XIX has beams over Canada, Mexico, Colombia and other Central American countries. Our partner in Canada has already started offering service on the system, and our Mexican partner is expected to do so very soon. We expect to start service in Colombia in the second half of this year, followed by service in the remaining countries.

We are very excited about entering these new markets and expect to add additional capacity in some of these markets with the launch of our hosted payload on Telesat's T19 in mid-2018.

Our target markets continue to be those that are unserved or underserved by cable and fiber, and the new HughesNet Gen5 will be a strong and viable alternative for the many millions of households across the U.S. that are limited today to unreliable, slow speed DSL or have no cable or fiber access.

During the first quarter of 2017, we transitioned our wholesale arrangement with DISH to a sales arrangement relationship with DISH, under which DISH will market and promote our HughesNet service and related equipment. We will make certain payments to DISH for each service activation generated and installation performed by DISH. Going forward, as is typical for our other retail arrangements, we'll have a direct relationship with the subscriber, billing the subscriber directly for hardware and the monthly service and will incur the subscriber acquisition costs. As part of this new arrangement, subscribers sold by DISH's sales channel will have an opportunity to receive DISH TV service as an attractive bundle discount.

Additionally, together with DISH, we've been able to create an attractive upgrade offer for existing DISH net subs who are currently on HughesNet Gen4. This offer allows them to upgrade to the HughesNet Gen5 service and transfers them to a direct relationship with us. I'm confident that these changes represents a strong value for DISH net subs, while also improving the economics for us.

Now to our aeronautical business. Our equipment is now in service on approximately 840 aircraft. And during the quarter, we continue to expand our sales both domestically and internationally. We announced our next-generation Jupiter high-speed aero terminal capable of exceeding 400 megabits per second per aircraft. This terminal will be fully compatible with both Ku- and Ka-band satellites. And together with our recently announced dual-band Ku, Ka aero antenna, will enable our customers and partners to offer aero services throughout the world.

In Q1, we also announced our first major agreement for the new Jupiter Ka-band aeronautical service. We'll be sporting Thales flight live in-flight connectivity solution by providing network services and Ka-band capacity in North America on Echo XIX to SES. We're also selling Jupiter aeronautical terminals directly to Thales.

Our enterprise business also had a strong quarter in terms of new orders, both domestically and abroad. Key orders are from Jack-in-the-Box, Sherwin-Williams, Sonic, Xplornet, and OneWeb. Our international enterprise business was also awarded significant new orders, the first from a multinational organization to implement, support and manage a global IP base network of more than 300 geographically diverse and remote monitoring sites in a large number of countries around the world, and an order from Reliance Jio of India for Hughes India to be its turnkey satellite communications partner to set up a nationwide cellular backhaul network to extend 4G LTE services to over 400 remote and rural locations using the state-of-the-art Jupiter system.

Hughes India's role ranges from planning, design and operations of the entire satellite-based cellular backhaul net. Reliance has one of the largest cellular infrastructures in the world, with a subscriber base of almost 100 million subscribers, and Reliance views this backhaul network strategically as being the key technology enabler to complete its region of providing ubiquitous and seamless connectivity all over the country.

We ended the quarter with $1.6 billion of enterprise backlog, an increase of 11% over the backlog at the same time last year. As you may know, we do not include the consumer business in our backlog number.

Our work on the large development contract with OneWeb continues in full swing, and we continue to be excited about the potential of LEO satellites in our radius markets.

So we've been very pleased with Jupiter 2, Echo XIX's initial performance and customer acceptance. We have been designing the next generation Jupiter 3 for a potential 2021 service launch with significant additional capacity in the Americas. This design includes several new technologies, and we expect to make a final decision in the next few months.

To summarize, I'm very pleased with our accomplishments in Q1 that position us very well for continued growth in the short and long term, and we are truly excited about these developments.

Let me now hand it over to Dave.

Thank you, Pradman. On February 28, we closed on the agreement to exchange our equity interest in certain companies that help substantially all of our EchoStar Technologies' businesses and certain other assets in exchange for DISH's interest in the Tracking Stock, which represented 80% of the economic interest in the Hughes retail group. As a result of the exchange, we no longer operate the EchoStar Technologies businesses and the Tracking Stock was retired. The EchoStar Technologies businesses have been presented as discontinued operations in our current financial results. Discontinued operations disclosure is subject to a very specific GAAP rule, and as a result, the financial results of the impacted operations are disclosed in a single line, net of tax, on our P&L. We also present EPS for both continuing and discontinued operations. The prior year numbers are presented in the same manner.

Following the exchange transaction, we've also changed the way we present our segments. Historically, the costs of all corporate functions were allocated to each of the business units and were reflected in their respective EBITDAs. Under our new presentation, these costs are no longer allocated to the operating segments and are now reported and analyzed as part of the corporate and other segment. Prior period segment EBITDA has also been restated to reflect this change. We believe that this gives a clearer view of the results of the business segment without being clouded by allegations of corporate overhead.

Now to our consolidated financials in the first quarter. EchoStar revenue was $433 million, about the same as the first quarter of 2016. EBITDA was $183 million for the first quarter compared to $186 million in the first quarter of last year. More on these variances when I get into our segment financials shortly.

Net income attributable to EchoStar common stock was $39 million in the first quarter of 2017 compared to $51 million last year, and diluted earnings per share were $0.41 compared to $0.54 last year. The decrease in net income was primarily due to an increase in interest expense from the issuance of the 2026 notes in the third quarter of 2016 and the decrease in EBITDA, as discussed, an increase in depreciation as a result of EchoStar XIX being placed in service in Q1, and a decrease in income from discontinued operations. Offsetting the decrease was a reduction in income tax expense.

Capital expenditures for continuing operations for the quarter were $90 million compared to $206 million for the same quarter last year, primarily due to reduced capital -- reduced expenditures on satellites.

Free cash flow, which we define as EBITDA minus CapEx, was $93 million for Q1 compared to a negative $20 million last year, the increase being primarily due to the lower CapEx in the current quarter. We expect CapEx to be in the $375 million to $425 million range in 2017, which includes the impact of amounts deferred from last year due to launch delays as well as increased SAC-related CapEx as a result of the conversion with DISH sales arrangement that Pradman spoke of. This amount does not include any CapEx for new satellite programs we may pursue.

We continue to have a strong balance sheet and ended the quarter with approximately $3.2 billion of cash and marketable securities.

Now to the segment financials. Hughes revenue in Q1 increased by $3 million primarily due to higher equipment sales, domestic enterprises and Brazil consumer revenue, somewhat offset by reduced sales and service to DISH net and a reduction in international enterprise revenue. EBITDA was lower by $9.5 million due to a decrease in gross margin from our international equipment sales, an impairment loss on certain strategic equity holdings and an increase in sales and marketing expense related to consumer business in Brazil, which began in the third quarter of last year. ESS revenue decreased by $3 million in Q1 2017, primarily due to the termination of the ANC lease in the first quarter last year.

EBITDA was lower by $6 million primarily from the lower revenue as well as a positive nonrecurring item last year. EBITDA in the corporate and other segment decreased by $13 million -- I'm sorry, increased by $13 million in Q1 over Q1 2016, due primarily to gains on strategic investments, partially offset by a positive nonrecurring item in Q1 2016. As we have previously indicated, we expect to have decreased corporate expenses going forward as a result of the share exchange transaction.

Let me now turn it back to Mike.

Thank you, Dave, Anders and Pradman. In closing, I must admit that I'm very excited and optimistic about some of the many initiatives that are finally coming to fruition, like Echo XIX and some of the launches that we have going on with the other satellites. I am looking forward to seeing the financial benefits of these take effect the remainder of this year.

Let me now turn it back over to the operator so we can start the question-and-answer session.

(Operator Instructions) Your first question comes from the line of Jason Bazinet with Citi.

I just had 2 quick questions. I guess it started back in 2014 when you originally set up the Hughes retail group structure, when people first started talking about M&A. And I think, when you did the debt raise in 2016, and then unwound the HRG transaction more recently, that M&A narrative hasn't really changed, but you guys are still sitting with north of $3 billion of liquidity on the balance sheet. So has anything changed? Or is your historic commentary regarding M&A still intact? And I just had one follow-up.

Well, I think that Dave may contribute to that, but the fact is, it's a very step-by-step process, we believe. We're excited, and we think that the transaction recently with DISH streamlines us to better approach M&A and I'm pleased with the progress there. But I'm sorry, we don't have anything specific to announce at this time. I don't know if you have anything else to add?

No, I think you captured it, Mike. Strategic M&A activity, I think, as Mike alluded to, it is ongoing. We have taken multiple steps to position ourselves better, but we're not prepared at this point in time to discuss or announce any sort of imminent transaction.

Makes sense, okay. And then, one, I guess, this is the last couple of times you've spoken about your CapEx that has that caveat in there around new satellite project. Is that sort of just sort of typical boilerplate sort of caveats? Or are there things out there that you think are likely to get spent in terms of new satellite programs?

I think as Pradman alluded to, we've been looking at Jupiter 3. We have not made any decisions regarding next-generation satellites. But between Pradman and Anders, we are constantly evaluating potential new satellite builds, but we will announce those when those plans are finalized.

Your next question comes from the line of Ric Prentiss with Raymond James.

Following up on a couple of those questions. You mentioned the final decision on the Jupiter 3 might be a few months away, with a 2021 service date. Walk us through what kind of those next steps are as you kind of make that decision process. What are you in particular trying to look at? That sounds like maybe by next quarter or earnings call we might have an answer.

I think we've said about everything we want to say about Jupiter 3, except we're very serious about the satellite business. We're very, very serious about satellite broadband. We've streamlined the company to focus specifically on ESS and Hughes activities. And as Pradman mentioned, there's new technologies and so on and so forth. I'm very pleased we took the time we did on Echo XIX and made -- I mean, Echo XVII, and made the right decisions there. And then Echo XIX, we got that into orbit. We got it into service much quicker than people predicted. A lot of those things have to be clearly considered as we look at bigger, more powerful satellites. I don't want to launch and come back and tell you, well, it'll be another year before I can get into service because we've got to do electronic orbit raising. That's one of the things that also complicates this. So I can only tell you we've got the best crew working it and we'll have an announcement as soon as we can.

That helps. It might be an interesting question also, if you look at the satellites you own versus the satellite DISH owns, what's the logic -- and obviously, we haven't covered the stock a lot of time on my team, but what's the logic as far as EchoStar XV and XVIII being owned at the DISH side versus the other satellites owned by you? Is there a possibility, given the asset swap that you did in February, for more asset swaps with DISH?

That's obviously a potential. The reality is we are trying to focus more and more on broadband and some of the EML stuff and so on and so forth. And DISH needed those assets, and so it's just the way we chose to allocate the assets. But certainly, if some of that could make sense for both companies, we'll explore.

Okay. And my final one is, just any update -- you mentioned a little bit in the Q about the different regulatory milestones between Europe and Latin America. Can you give us anymore granularity on the call as far as what you guys are doing on the different milestones?

Anders, you want to take that?

Yes. Well, certainly regarding EML, we've kept both, the European Commission in Brussels as well as the member states apprised of our situation vis-à-vis waiting for our launch vehicle. In the meantime, we've established all the necessary terrestrial infrastructure and hired people and created devices to use the network once it's up and operating. And all of the regulators are working with us through this delay, knowing that eventually, our launch will occur and the network will be created. So from an EML standpoint, hopefully, the end of the process is in sight. As to Latin America, I'm not quite sure which specific question you're asking.

I think, there was some discussion about some of the Ka -- let's see, sorry, I pulled my notes out here, some of the Ka, Ku and S-band on Echo XXIII. You had met the Ku regulation, but there were some others that were still open.

Yes, we've been in a dialogue with the Brazilian regulator, Anatel, regarding the component parts of the milestones that are fundamental to our license. And first and foremost, the license was a Ku BSS license at the 45-degree orbital position, which we have now brought into use and are actively flying the satellite from our new spacecraft operations center located in Brazil. We continue to have a dialogue with Anatel relating to the milestones relative to our Ka-band and S-band authorizations, and they are working very actively with us and in support of us, of seeking some clarifications as to what exactly Brazil's status is from an ITU priority standpoint, because we're hard-pressed to launch the construction of new satellites for using those frequencies at that orbital location until a number of fundamental coordination matters are settled vis-à-vis filings of higher international priority. So they're working very actively with us in understanding those details as well as giving us some relief from what the original license milestones specified in those 2 bands, and giving us some more breathing room until these issues might be resolved.

Your next question comes from the line of Andrew DeGasperi with Macquarie.

I wanted to ask first on your subscriber trends. I just wanted to know how many people have been moving from Gen4 to Gen5? Can you also maybe let us know how you view the markets you're expanding in like Canada, Mexico and Colombia? Like what do you think the potential subscriber opportunity is? And lastly, can you just give us an update on competition? What are others doing in response to Gen5 right now?

Pradman, you want to take that? There's a number of segments in there.

Okay -- yes. Right. So let me just take some of the second and third question first. In Canada and Mexico, we are basically working through partners, where we're offering the retail service and we're selling wholesale capacity and network operations to them. So the Canadian partner has started service, as we mentioned earlier, and we expect the Mexican partner to start service very, very soon. Colombia, we are going to be offering retail services on our own and we expect to launch that service by the end of the year. So as we add each of these new markets, it's obviously good for us because we'll continue to get new subs. In terms of the upgrades, we don't really break out the number then tell you how many sites were upgraded. But our focus for the initial was to upgrade as many of our customers as we could. We give that a priority. But it's running pretty much even between upgrades and new subscribers. So that's going very well and we'll now focus on new subs in the next 2 quarters.

So, Andrew, this is Dave. Just as a point of clarification on Canada and Mexico, with those partner arrangements. The users of the service in Canada and Mexico, we will not include and have not included historically in our subscriber counts. As Pradman indicated, that's a capacity sale. As they become more successful, we get to sell them more equipment. So the benefit there really comes through the enterprise side of the business, not through the consumer.

And on the competition, has anything changed after the launch starts?

No, nothing's changed. We really have one competitor, ViaSat, as you all know, and they're going to be behind us with the launch of ViaSat 2. And -- but that's about the only competition in the markets that we are in.

And just a last question from me. As far as the arrangement with DISH, I was just wondering, how should we think about the impact of financials? I mean, obviously -- it seems that, obviously, you did incur a SAC more OpEx, more CapEx than you did previously. But as far as the bumbles are concerned, I mean, should we be thinking of ARPU difference? And also thinking about the marketing effort there?

Andrew, I think, as you think about that arrangement, it's really a transition from wholesale to retail. So we'll be paying DISH a sales commission, just as we do to our others sales agents. They will fulfill the order themselves, and so we'll be paying them an installation charge just like we pay third-party installation charges. And from an ARPU standpoint, this will -- you'll see an increase in ARPU going forward as we transition away from the wholesale to the retail base. So it really becomes more of a retail economic picture where we're incurring the SAC and we get the full benefit of the revenue as well as the margin on that.

(Operator Instructions) Your next question comes from the line of Andrew Spinola with Wells Fargo.

I'd like to ask that last question in a slightly different way. I think there's 2 ways you can look at this new relationship with DISH. On the one hand, if you can fill those subscribers and capture more of the economics, that's obviously a good thing. I think the second way to look at it is maybe DISH is viewing this as less of a long-term opportunity and wants less exposure to this opportunity. And I'm just -- those are sort of hypothetical viewpoints. I just wanted to hear sort of your views on how you view this opportunity and what the change in DISH's behavior means to you?

Well, we're excited about the change. I think, both DISH and EchoStar/Hughes had some issues with the wholesale agreement. It wasn't as effective as either one of us would've liked. We think the change is a very positive one, where we're taking responsibility for our own destiny, to a certain extent. We're taking over the customer interface and making sure they're getting the kind of support that they need, just like all of the other subscribers. And we think it's a bit of a simplification process, and I see no indication that DISH is less focused on satellite broadband going forward. So if anything, I think they'll be more motivated under the new agreement. But we'll just have to see if that's true or not. That's just my perspective.

Fair enough. And then, sort of as we think about the ramp of Echo XIX, there's obviously not a lot of history to focus on, but there was a ramp of Echo XVII in 2013, where we saw you add something like 50,000 subs a quarter, about 225,000 for the full year. Obviously, you're off of a bigger base now, but you have less competition at the current moment. Do you think that's a ceiling for you? Or do you think you can achieve that number or even do better in 2017?

Well, I think, you've got to realize that XIX has better infield coverage. So it doesn't just have the West Coast and East Coast, so that certainly expanded coverage. As we launch -- we did have some launch delays on '19 that we had to predict to get our channels in order. And I don't know if you have anything to add, Pradman, but I think we're pretty excited about it.

We're seeing a good ramp. I don't know how to compare it to the ramp we saw in Echo XVII, but all the indicators at the early stages are good.

And I think, Andrew, what you correctly point out, operating off a bigger base, and so you've got churn coming off that larger base. So while gross adds, I think, could be comparable or conceivably better than historical positioning, but the net growth will be harder because of that churn on the larger base, as you correctly point out.

Perfect. On Brazil, I was wondering, I think, you hit 40,000 at the end of February. Any update you can give us on that business? And particularly, especially now that you're considering or clearly going to Colombia and some of the other Central American countries. Now that this business is approaching a year or something like that, has -- can you tell us -- give us some color on the churn or anything you're starting to see in that market now that you're starting to see some aging of those initial subs? That'll be helpful.

Yes. We're seeing -- we're very, very pleased with the Brazilian business. We obviously are not breaking out the numbers yet, so -- but in general, I would say all the indicators are positive. I think, we're doing better than that -- in terms of subscriber acquisition, better than our plan. We're -- obviously in a new service, you have some problems. We have them but we are resolving them as they occur. And I expect that we'll be very pleased with the results of our Brazilian business at the end of the year.

On the Echo XXIII satellite, I know we're waiting for that to get into service before maybe some customers could take a look at it and consider either leasing the capacity or thinking about a joint venture. Do you have any customers or potential joint venture partners that are trialing that satellite, where we might hear something on what you're going to do with that satellite in the near term?

We don't have anything we can talk about on the call. But certainly, we continue to try to work through the complexities in the Brazil market. As you note, things have been very challenging down there. And although I can't guarantee somebody's trialing anything, we certainly are exploring a number of options. We haven't shut down any activities in Brazil right now as far as looking at that.

Got it. One last one from me, for Anders. Anders, now that XXI is going to go up, the way I think about that business evolving is the satellite will be launched, tested, goes into service, and then you've got a partner there that's going to sell some sort of service, mobile hotspot throughout Europe. Can you explain to me what happens on the -- with a terrestrial piece with that spectrum? With the countries where you have the CGC approval, is there a customer who's ready to go and maybe deploy something terrestrially or something that could generate revenue? What can I expect to happen in the year following the Echo XXI entry into service?

Well, I think for the first year, much of our activity will focus on the MSS roll out. And while we have, as you cited, a distributor relationship with a U.K.-based company that will be our initial distributor of that device, we also have a number of other uses for the satellite, which we're developing with third parties, where other capacity on the satellite will be used for other purposes in the MSS modality. I don't envision there to be meaningful roll out of a CGC application in the first year of service. But certainly, once we have the MSS service in place and operating, and we get a little further down the development path to what 5G is going to look like from a standard standpoint, I think, then, we will have more meaningful conversations with potential partners of the use of the CGC portion of our license in the European Union.

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

A question for David. Just as a clarification, your existing wholesale subs with DISH stay wholesale? They're not going to be converted?

Yes. The plan is that they stay wholesale. As Pradman indicated, we do have an arrangement for DISH. If those customers want to be upgraded, we will upgrade them and migrate them to a retail customer arrangement.

Okay. And speaking of which, DIRECTV/AT&T kind of fell off the tree quite a while ago. Is there any talks about bringing them back in as a wholesale partner or a retail partner for you?

No, they have always been a retail partner. They've been a sales agent for us. I don't know what you mean, Chris, by they fell off. They continue to be a partner as a sales agent, and that relationship continues today. A very strong relationship.

Okay. Good. Another question. David, it looks like you did an 8-K that restated the annual numbers. Are you going to give us something with quarterly, other than -- we've got the comparables on Q1, but not for the balance of Q2?

Yes. I think what you're referring to is the 8-K gave pro forma and its interest. And the GAAP rules, for pro forma are actually different than the GAAP rules for discontinued operations. So it's not a smooth, clean preparation of those financials, but I recognize the need for investors to see sort of the historical track record, and we're working on that.

Got you. And for Anders, it looks like the Echo VIII was retired in the quarter, and I assume that's being put into an inclined orbit. Are there any opportunities to potentially sell that, like some of the transactions we've seen recently with SES and Global Eagle? Or does that just maintain as an inclined orbit for the time being?

Echo VIII is not -- was an inclined orbit. It's now been fully retired, so it's actually been turned off and ejected from its position. So it adds no further opportunity for any uses or sale or anything like that.

Got you. And on that same vein, Anders, what opportunities do you see with some of the older satellites in the fleet for additional monetization? And obviously, you've got AMC-15 that has a Ka-band capability, and you've got a new relationship with Thales. Are there opportunities to sell capacity there?

Well, with regards to our owned assets, which we have a small fleet of assets that are in our possession that we are positioning for what I'll characterize as strategic development activities, and in certain instances, actual deployment, where there will be the generation of revenue with a partner more on an opportunistic basis to validate some new products and services that we've been developing specifically for the use of these older assets. In so far as AMC-15, in AMC-15 continues to be located at the 105 West orbital location until such time that Echo 105/SES-11 is launched. At which time, at least the Ku-band portion of AMC-15 will be replaced by Echo 105. As to what SES is going to do with AMC-15 and the Ka-band payload on that asset, it's really in their hands because we contractually returned the asset in so far as the Ka-band payload. We returned that back to SES some time ago. So their onboard deployment or use of that asset with regards to the Thales LiveTV transaction is really theirs and theirs alone.

Got you. And I guess this is a joint question regarding the aviation market. Obviously, there's a new relationship with Thales, and they have some existing customers that they're serving here in the U.S. Are you looking at international opportunities, given the fact that you're offering a Ka, Ku solution?

Yes, absolutely. And in fact, with the other partner, we have a bunch of international airlines that are using our equipment and ground-based services, and we continue to chase them with LiveTV, and Thales, and SES together.

Got you. So entirely through partner relationships? No intent to do anything direct?

Yes. No. We won't be -- our strategy in the aeronautical market is to work through these partners.

Got you. And final question, Pradman. You mentioned that the ARPUs should trend up on a go-forward basis as you see the shift at DISH from wholesale to direct. But independent of that, have there been any changes in either the ARPUs or gross adds that you've been seeing in the last couple of quarters?

Well, the ARPU has trended to from -- ever since we started in the business for the last 5 years, has trended up every quarter, not significantly, but slightly. So -- but the gross adds, as we pointed out till the end of Q1, most of Q1, we were still severely limited in the capacity available in the beams. So we really -- the gross adds didn't go up, but we hope that now, with the additional capacity of Echo XIX, that we'll be able to reverse that trend and have the gross adds increase nicely over the next remaining part of this year.

Your next question comes from the line of Arun Seshadri with Credit Suisse.

Most of them have been answered. Just one from me. Has there been any impact to your relationship with OneWeb since, I guess, over the last couple of months, either in terms of commercial arrangements or future plans? Sort of how do you view them as a partner today versus maybe a couple of months ago?

No. We have a great relationship with OneWeb. We are obviously an investor in OneWeb. And in addition, we are a major vendor for them. We are doing the development of the Gateway infrastructure, and we have significant development contracts at this stage with them. In addition, we're also developing the modem card for the user terminals, and we expect to be a service provider using their network. So all aspects of our relationship with them are still in place and in a very positive mode.

Got it. And so you're not really seeing any impact of their sort of discussions for with Intelsat or anything? And you don't -- it sounds like you don't really visualize any future impact either?

No, I think it's all complementary. We have a good team of partners and working very well together.

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

One follow-up for Pradman. Pradman, the best I can tell from some of the assumptions in my model the international enterprise business was down again year-over-year. I think that was described in the Q as well. I was just wondering if you could give us an update on what you're seeing in those markets? There was the pricing pressure and the currency in the prior years. What are you seeing now? And what's your outlook for that business?

Well, the international environment is something difficult to predict. And clearly, it's a major element in the revenues that we recognize internationally. And obviously, some of the markets that we serve have seen significantly the currency problems or political problems. For example, Russia used to be a good market for us, and in the last year and a half or so. We were pretty much lost a significant amount of our Russian business. And to make the international business grow at any good level, you have to have all the engines firing at the same -- all the cylinders firing at the same time. Now if you look going forward, I think our -- with the currency improvement and the economic improvement in South America, I expect we're going to see good results in Brazil, especially with the addition of our consumer business there, over the next couple of years. In addition, I think, we're seeing some very encouraging signs in India, and we're beginning to see some good signs in the Middle East and Africa. So hopefully, we'll see some recovery in these markets. But it's very difficult to predict because we don't control the environment.

Understood. Real quick specific question. Is there any seasonality to renewals and enterprise? Is there any large number of renewals at the very end of the year, such that any step downs tend to occur in Q1?

Well, usually, in our business, Q4 is always the best quarter in the enterprise business. And there are a number of reasons for it. In the sense, budgets get redone for the next year. People tend to spend their money. So from their hardware sales point of view, the Q4 is always our best quarter and we always see that. But from the service part -- or point of view, it doesn't matter. Once you get the service in backlog, it tends to flatten out the seasonality in the revenues and margins. But certainly, the hardware sales part, Q3 and Q4 are usually the best quarters.

And there are no further questions at this time.

Okay. Deepak?

Thank you, operator. We've come to the end of our conference today. So thank you, everybody, for participating, and have a good day.

This concludes today's conference. You may now disconnect.