EchoStar Corp (SATS) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the EchoStar Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Deepak Dutt, Vice President, Investor Relations. Sir, please go ahead.

Thank you, Liz, and good day, everybody. Welcome to our earnings call for the fourth 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 Vice President 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 or their phones in your report. We also do not allow audio recording, which we ask that you respect.

Let me now turn this over to Dean for the safe harbor disclosure.

Thank you, Deepak. All statements we make during this call other than statements of historical 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 from any future results expressed or implied by those forward-looking statements. For list of those factors and risks, please refer to our Annual Report on Form 10-K filed with the SEC. All cautionary statements 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 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. Great job on the safe harbor, as usual.

Good morning, everyone. Welcome to our earnings call for 2017, and we had a very successful year financially and very busy and productive year operationally.

Before I turn it over to the management team, let me recap the most significant events of this -- last year. We launched our HughesNet Gen5 consumer service on EchoStar XIX/Jupiter 2 last year. We also launched Echo XXI, XXIII and 105 successfully.

We also contracted with SSL to build the ultrahigh-density Echo XXIV or Jupiter 3 satellite as a follow-up on to our Echo XIX Jupiter 2 satellite that we used for our consumer service.

We also launched consumer service in Colombia, while, of course, continuing to grow the rest of our businesses. Anders Johnson and Pradman Kaul, will provide much more color on these items, and Dave Rayner will follow them up with the financial review.

Let me turn it over to Anders.

Thank you, Mike. Good morning. For European subsidiaries, EchoStar Mobile launched commercial service throughout the European Union on our EchoStar XXI S-band mobile satellite in December 2017.

As we've noted on previous calls, we've been in regular communications with the European regulators to whom EchoStar Mobile licenses are answerable and have kept them apprised as we've now met all of our regulatory milestones.

The EchoStar Mobile team continues to work with Thales to develop a next-generation public safety communication service initially in France and hopefully, throughout Europe.

Additionally, the team continues to explore opportunities with other European partners, and we are excited about the potential for the satellite-based network that offers reliable IP-based MSS connectivity for voice, data, machine-to-machine and IoT services throughout the 28 member states of the European union.

EchoStar 105, the hybrid Ku and C-band satellite also known as SES-11, were successfully launched on October 11 awarded space (inaudible) from Kennedy Space Center in Florida. The satellite completed its in-orbit testing and entered commercial service at the end of November. EchoStar 105 replaces the capacity previously leased on AMC-15. That operating lease with SES was terminated upon the successful transition of customers to EchoStar 105 in late 2017.

Current agreement with SES, EchoStar 105 payload titles were transferred after (technical difficulty) will be providing us a service on the Ku-band payload for an initial 10-year term with the year away option to renew thereafter. We will account for this as a capital lease.

The commercial Ku capacity, the high powered EchoStar 105, joins that of EchoStar IX providing comprehensive 50-state coverage of the United States and expanded reach into the Gulf of Mexico and the Caribbean. Our Fixed Satellite Services team has made good progress on filling the new capacity.

I'll now turn it over to Pradman.

Thank you, Anders. As our prior earnings call, I mentioned that we awarded a contract to SSL to build an ultrahigh-density satellite Echo XXIV Jupiter 3. To recap, the new satellite is being designed for a dramatic increase in capacity, allowing us to provide over the 100 megabits per second of download speeds to the subscriber in the Americas at a very competitive cost per bit. The beam coverage will be optimized to where we anticipate demand rather than uniform blanket coverage.

All our traditional markets, including consumer and enterprise, aeronautical, cellular backhaul and community WiFi will be served.

We are currently in the preliminary design phase of the satellite, and that is a phase that the design review milestone will be completed in the first half of 2018.

Service on Jupiter 3 is expected to launch in 2021 and will complement our Jupiter 1 and 2 satellites in addition to the Eutelstat 65 West satellite and the Telesat 19V hosted payload from a capacity as well as coverage standpoint.

Now to our consumer business. In Q4, we saw strong and increased demand for the service in North America. We continue to see high levels of customer satisfaction with the new HughesNet Gen5 plans and as a result, churn continue to go down. Q4 was the fourth consecutive quarter with lower retail churns in our North American consumer business.

We now support Gen5 on Jupiter 1 and Jupiter 2 satellites and currently, approximately half of all our North American subscribers are on Gen5.

Our Brazilian consumer business using the Eutelsat 65 West satellite has also been growing very well, and we launched service in Colombia in September. We're now actively working on setting up consumer businesses in other Central and South American countries when Telesat 19V is launched later this year.

Our total subscriber base of retail, wholesale and small and medium-enterprise subscribers was approximately 1.2 million subscribers as of December 31, 2017, compared to 1,036,000 as of December 31, 2016.

We had net ads of approximately 68,000 subs in Q4 2017 compared to approximately 18,000 net ads in the same quarter last year and 55,000 in the third quarter.

Our North American Enterprise business also had a strong year from a revenue perspective, with consistent growth in all our market sectors.

In managed services, we continue to advance our suite of SD-WAN technologies, and believe that we now lead the market in developing SD-WAN services to distributed enterprises.

We concluded an excellent year for orders in the energy sector and ended the year with contract extensions at Shell Pipeline, Kaneb Pipeline and National Oilwell Varco.

Our Franchise business primarily addresses the gas stations and quick service restaurant, casual dining markets also saw continued bookings from operators with ConocoPhillips, Exxon, Denny's and Yum Brands.

After the devastation from Hurricane Maria in Puerto Rico and the Virgin Islands, we were able to support FEMA in the provision of emergency communication services and through our installation teams and dealers, we're able to install or restore communications links to key enterprise customers and to over 2,000 small businesses and consumers in the impacted areas.

In our international enterprise business, our Jupiter ground segment technology continues to power satellites broadband for operators globally. Hughes was selected by Eurona Wireless of Spain to supply Jupiter ground system technology, to enhance services to several thousand households and SMEs initially in Spain.

In addition, Jupiter ground technology continues to power satellite broadband through operators in Thailand, Philippines, Indonesia and Bolivia.

We also received a 2-year renewal of services from a global financial giant, a major order from one of Brazil's power utilities and our Indian subsidiary continue to grow its market share in the ATM and bank branching sector with an order from Punjab National Bank, one of India's largest multinational banking and financial service companies.

Our backlog from enterprise customers was $1.6 billion as of December 31, approximately $100 million or 7% higher than the backlog at December 31, 2016.

Echo XIX, Jupiter 2, also provides capacity for services in Canada, Mexico, Colombia and other Central and South American countries.

Our partners in Canada, Xplornet, offer services on Jupiter 2 as they're the partner in Mexico StarGroup. These are capacity sales which are not included in our subscriber accounts but certainly add to our revenue and returns.

The hosted payload Telesat, T19V satellite is scheduled to replace some services in the middle of 2018 and will augment the capacity currently being provided by Eutelsat 65 West and Jupiter 2 to enable continued growth in the Central and South American markets.

Regarding our Aero business, since our last call, we were awarded a contract from Global Eagle Entertainment for Jupiter Aero base band to be deployed in Europe and Russia as well as 100 aeronautical terminals to support a significant new European-based airline customer.

With both Thales and now, Global Eagle, adopting our Jupiter Aero platform, we feel this is a strong endorsement of the technical and economic strength of the solution.

Meanwhile, Global Eagle is also gearing up to support significant bandwidth expansion for one of their major existing customers.

On the antenna side, last time, we mentioned the successful demonstration of our dual-band antenna at the Dubai Airshow. The antenna is now going into DO-160, the FAA-mandated environmental certification process, and we expect that to complete by midyear, paving the way for STC, the supplementary type certification by FAA of the antenna for specific airline projects.

We also recently supported in conjunction with Thales and ThinKom successful integration and test of our Jupiter system with ThinKom's low-profile electronically steerable Ka-band antenna. And our Jupiter Aero and Jupiter 2 satellite.

Because this is a single-band antenna, it addresses different requirements and applications than our dual-band system. So these are complementary solutions. So having yet another antenna system to work over the Jupiter system as well as our key satellites will expand the scope and reach of where and how our Jupiter aeronautical system can be deployed.

We mentioned at the Q3 call that we received a large order for $190 million from OneWeb for gateway equipment for their ground network, which will include gateway sites each with multiple tracking satellite access points to support operation and handoff a high-speed user traffic between satellites.

This order builds on the original development order, bringing the total contracted amount to over $300 million.

We continue to work on the development and production of the gateway equipment that will be deployed in many locations throughout the world and will commence production shipments in the second half of this year.

Finally, I want to highlight something that should be meaningful to you as investors, and that's our profitability. Hughes EBITDA margins in the fourth quarter of 2017 was approximately 33%. We are achieving high EBITDA margins consistently and expect to continue doing so primarily from growth in our high-margin consumer business, combined with continued proven cost and expense management.

So in addition of being the market leader in the consumer subscriber business, we are also a market leader in profitability management.

To summarize, I'm truly pleased with our performance in Q4. And let me close with a few comments on our goals in 2018 and beyond. We want to continue to grow our North American consumer Internet access business. It remains live in 18 million households and current satellite penetration is less than 2 million, thus leaving a lot of headroom to grow.

From a capacity standpoint, the new EchoStar XXIV Jupiter 3 satellite, which is currently being built, will provide growth capacity beyond Jupiter 2.

We want to expand our consumer SME business in Central and North -- South America using capacity from Eutelsat 65 West, Telesat T19 and Jupiter 2 and 3 satellite.

We want to continue to strengthen our relationship with OneWeb and grow our presence as the ground system provider as they grow their LEO-based service around the world. We want to expand our presence in the aero market through our current relationships with Global Eagle, SES and Thales. We want to continue to grow sales of our successful and market-leading Jupiter ground infrastructure to operators worldwide. And we want to continue leading-edge technology and development to maintain and enhance our market leadership.

We have the leading market share in the consumer enterprise satellite broadband access market. And we continue quarter-after-quarter to win the market share battle by signing up more sales and gross ads than any of our competitors.

In addition, we keep driving churn down in our North American consumer business so that our net subs are at market-leading high. We've also shipped cumulatively 6.6 million VSAT terminals worldwide. I believe a combination of all these elements and our profitability make us the premier company in this market. I'm looking forward to a very successful and existing future for -- exciting future for Hughes.

Let me now hand it over to Dave.

Thank you, Pradman. First, a quick summary of EchoStar's consolidated results. Consolidated revenue in the fourth quarter of 2017 was $506 million for growth of 6% over the same period last year, driven by Hughes' revenue growth, partially offset by a decline in ESS.

EBITDA in Q4 was $207 million, a growth of 11%, driven by the revenue growth and gains on investments in our corporate and other segment, partially offset by sales and marketing costs at Hughes.

For the full year 2017, revenue is $1.89 billion and EBITDA was $795 million, increases of 4% and 6%, respectively.

Net income attributable to EchoStar common stock in the quarter was $313 million compared to $38 million in the same quarter last year. Primary driver of this large increase was the new tax law passed in December. As a result of the lowering federal tax of 21% in 2018 and beyond, we recorded provision of $304 million onetime tax benefit in 2017 from a remeasurement of our net deferred tax liabilities.

Going forward, we expect our effective tax rate to be approximately 25%, and we do not expect to incur any material federal cash tax -- taxes -- income taxes in 2018.

Net income in the fourth quarter normalized for the tax cut impact was $10 million, where the increase in EBITDA being offset by increases in depreciation and lower capitalized interest.

CapEx for the full year was $566 million compared to $629 million last year. The reduction in 2017 was due primarily, the completion in build of our satellites here in 2017, offset partially by increased CapEx on rental equipment for our consumer business.

Free cash flow, which we define as EBITDA minus CapEx, increased in 2017 to $228 million as a result of the higher EBITDA and lower CapEx.

In 2018, we expect the total CapEx spending be somewhat lower than 2017, where we will see more CapEx on the consumer rental plan consistent with expected subscriber growth, and we'll be incurring costs related to the Echo XXIV Jupiter 3 satellite.

Now let me spend a minute on our segments. Hughes revenue in Q4 was $406 million, a 9% increase over the prior year, driven by the consumer service in North America and Brazil, as well as the North American enterprise business. These were partially offset by a drop in the international enterprise business.

EBITDA in Q4 was $133 million, up 7% over the last year, primarily from the revenue growth, partially offset by higher sales and marketing costs associated with the HughesNet Gen5 subscriber growth.

ESS revenue was down 5% in Q4 compared to last year, primarily due to the Echo XII lease with DISH ending in September of 2017, and EBITDA was down 13% due to the revenue decline as well as an impairment of certain intangible assets.

Corporate and other EBITDA in the current quarter was a positive $598,000 compared to a negative $22 million last year. This increase was primarily due to unrealized gains on various strategic investments.

Obviously, our balance sheet remains very strong with over $3.2 million of cash and marketable securities and only a little over $100 million of net debt exclusive of capital leases.

In regards to our adoption of the new revenue recognition standards, we expect minimal net impact in our revenue going forward.

In regards to our contract and customer acquisition costs, we were expecting increase in cost recognition from previously expense cost that will be amortized over future periods, but we expect that to be more than offset by 2018 cost that will be amortized over a longer period than in the past. Net-net, we expect a slight positive, though not material, impact to our EBITDA in 2018 as a result of the new revenue recognition standards.

Now let me turn it back over to Mike for his closing comments.

Okay. Thank you, Dave. The team's overview is very clear that you can see we've closed out a successful year, with lots of opportunities for growth ahead of us.

We launched 3 new satellites after a lot of hard work and great teamwork, jump-started growth, again, in our North American consumer business, expanded internationally in the consumer and enterprise markets and managed to a high level of profitability while maintaining a strong balance sheet.

As we look across our industry, it is shaping up to be a very interesting and an exciting future. The technology and service offering changes will provide for considerable opportunity for companies that are well positioned to take advantage of these changes. We strongly believe that EchoStar is one of those companies. We have the premier balance sheet in the industry, which allows us to be extremely flexible and responsive on how we pursue other growth opportunities, both organic and nonorganic.

With the technology and engineering resources within the Hughes organization, we have the capabilities and know-how to be a major player as network development and integration play out.

I must admit it's been a bit frustrating how slow the pace has been for strategic alliances taking place in the industry, but we remain convinced that these alliances are absolutely necessary to enable the creation of the next generation of global satellite communication networks.

With that, let me close by saying, I'm looking forward to a very interesting and exciting 2018.

Let me now turn it back over to the operators to start our question-and-answer session.

(Operator Instructions) Our first question comes from the line of Ric Prentiss with Raymond James.

Couple of questions, if I could. Appreciate the color on the EchoStar XII lease, but you mentioned an impairment of an intangible asset. Let us know how much that was? Also, there was some comments, I think, on DISH's side and your side about the EchoStar VII. Let us know how much revenue that is, and what do you think might be happening there?

Yes. On the impairments, there were actually a couple of small impairments on the ESS side. It was about $6 million. There were also a few impairments that actually were in the corporate group that totaled about $4 million. So between those two, about $10 million of total impairments in the quarter.

Okay. And then EchoStar VII?

EchoStar VII, right now, the current historical lease, as you know, is set to expire in June of 2018 and as of this date, it hasn't been renewed with -- by DISH.

Is there an order of magnitude or kind of ZIP code that we should think about what might be involved if they don't renew that one?

Yes, I think it's too early to start talking about that. Yes, let's see how it plays out.

Okay, that makes sense. And then obviously, we all hear your frustration in the slow pace of strategic options out there. Help us understand what's been the hurdles that you've seen? Obviously, don't want to talk anything specifics, but just kind of what hurdles have there been out there? And what might be the catalyst to kind of unlock some of these strategic ones that would make great sense and help the industry and returns?

I think the industry itself is in transition, and so we have to be careful about where we invest. We've got a great balance sheet, but I think history has shown over the last couple of years that some of the things we looked at investing in, and we ended up not getting, have declined in value. So we want to be very careful as we go forward. Anders, you can add some color to that if you want?

No. I think there is a -- right now, the traditional FSS industry is sort of at a standstill because of the uncertainties involving spectrum access going forward as well as what the impact of some of the developments going on in terrestrial networks will have upon the traditional geostationary businesses. Certainly, the soon to be launched NGSO networks will themselves have meaningful impact on some of the growth opportunities in the market, but it's really how those networks will be integrated into terrestrial networks as well as the GSO networks that cause us to be quite excited about the future. Because the opportunity is ultimately to consolidate the industry and consolidate the capabilities and have a meaningful role in the definition of what satellites role will be in the converged terrestrial networks is really the big opportunity for us.

Makes sense. And some other people I've looked at may be expanding beyond consumer broadband. What are your thoughts about the attractiveness of government, enterprise and different geographies?

Yes. We're, obviously, very active in the enterprise markets, and have been doing well globally, not only in the United States, but also in the most regions of the world. The government segment is a segment we had not focused on for a long time, but over the last few years, we have entered the market, and we're trying to build up our presence in there. Still very small, but we're optimistic that a few major programs might be something that we can win. And if we do, I think we'll continue to grow the government business, too.

Our next question comes from the line of Jason Bazinet with Citi.

I just had a couple of questions on Latin America. You called out on the consumer broadband side, the strength that you had in North America and the launch in Colombia. Would you say Colombia was material at all in terms of the net ads that you put up in the quarter or it's still sort of too early? And related, I think, in the K, there were some language around Anatel blocking or declining your request to extend some of those milestones. Can you just elaborate on what that -- if anything means in terms of penalties?

Yes, let me address the subs. I mean, In Colombia, no, the sub-ads and activity in Q4 were relatively minimal. That's a start-up operation we expected to ramp, just like we did in Brazil, get off to a slow start and a cautious start. But we expect more progress in that going forward. But clearly, the numbers were not material for Q4. Anders, you want to talk about Anatel?

Well, as far as Anatel, I mean, we -- back in the 2011 auction, we were awarded or a subsidiary of ours was awarded the Ku-band, Ku BSS license as well as licenses for Ka-band and S-band. We worked in the following years to try and coordinate and otherwise clear the Ka-band and the S-band, and we're not completely successful in the time given. Anatel had an ultimate requirement that we bring the slot into use, but we have not taken any action for lack of having a clear path to being able to utilize both the Ka and S-band spectrum. We petitioned Anatel for an extension of a 5-year milestone, they were not willing to give us that extension so in essence, we forfeited the Ka and the S-band licenses back. However, the core license there is the Ku BSS license, which we successfully brought into use when Echo XXIII arrived at the 45 degree slot last year.

Our next question comes from the line of Giles Thorne with Jefferies.

I had -- well, 3 questions. The first question -- actually, I'm sorry, it's a bunch of questions, but they're all very discrete and short answers. It comes back to the March 27 agreement you signed with Thales and SES for the FlytLIVE service in the states. How does that network now gone active? But some of you would signal that we go at it towards end of 2017?

Yes, it's active now.

Okay. So will the enterprise revenues that you've been getting under that agreement starts to run off from here?

It's in the -- yes, the answer is yes, but it's not significant at this stage, but over the next few months, we expect to get our first customer on it.

Okay. And then from a healthy capacity element going live? That was part of the deal was capacity in '17 and '19? When did that go live from (inaudible)?

Yes. The answer is yes.

And when did that go live from?

Just a couple of months ago.

And does that get switched off when SES-17 gets launched in 2021?

No, I don't think so, no.

So SES-17 will augment the capacity leased on Echo XVII and Echo XIX?

That's right.

Okay. And then finally very boring, I'm sorry, but just help understanding. Do you have any concerns around the lack of customer progress for the Thales FlytLIVE, especially given some of those legacy LiveTV customers are indexing to shifting to WiFi?

No, I don't think so. I think like any new network, it takes a while to ramp up. We're pleased to have 2 guys, Global Eagle and Thales as people who use our equipment and our services. And we expect that they have enough opportunities in their background that I think we're very, very optimistic that things will work out.

Okay. And then I'll ask my second question, then I'll get back in the queue and wait to try for the third. But coming back to the point, the project that you're doing with Eurona. If you speak to European resellers, there's definitely a push to roll up some of these distributor assets behind the Eutelsat and ViaSat JV. So do you worry that ViaSat is going to suffocate the market for consumer broadband equipment in Europe?

I don't think so. We compete with ViaSat very effectively all over the world. And I would say at this stage, we are winning more than our share.

Okay, all right. So as distributors gets consolidated within a massive distributor, that's aligned with the JV, you feel okay?

Yes, that's fine. We compete with them, we have been competing against them in different corporate structures. And I think our market share exceeds 50% in the enterprise world all over the world.

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

Pradman, last quarter when we talked, I think you sort of expressed the view that the fourth quarter was typically seasonally soft, and you would expect subscribers to be down in the fourth quarter. It appears that the subs were up in North America. And I'm wondering what is -- was a function of in your opinion? Is this just sort of the distribution channel sort of maturing and starting to operate at a higher level? Or was it just greater marketing spend? What would you attribute it to?

Generally, what we've found is the fourth quarter is the second best quarter. First quarter is the best and then the second and third fall behind it. So the fourth quarter is an important quarter for us because it's also the end of the fiscal year, and we tend to pull out all of the stops to maximize the number of subs. I think the delay in the ViaSat pick-up -- launch of their ViaSat-2 postpone the potential competition from there also. But the guys -- the team did an excellent job and I think our Gen5 offer was particularly attractive to the market. The result of all that work that the churn also went down because the customer satisfaction with Gen5 was very high. So combination of the gross ads, lower churn and the delay in the ViaSat launch as a competitor, I think all of them contributed to us having a bang-up quarter.

Got it. I guess, there's a lot of companies reporting earnings today, and I haven't gotten entirely through the 10-K yet, but your stock is down over 2% on what looked like a good quarter at least from my vantage point. And I'm wondering, as I pull apart this 10-K, am I going to find that your spending was very high? Was your stock unusually high this quarter? Is there anything that you can call out at this point? And maybe explain that, that might help me understand just the weakness in the stock but without having gone through all your numbers quite just yet.

Andrew, that's usually a question I would ask you as to why stocks down. But I don't think you're going to find anything surprising or unusual in the K that we have not already called out. I mean, certainly, sales and marketing costs were higher principally because of subscriber growth. They go hand in hand. But other than that, I don't think there was anything unusual that we haven't really called out.

Right. If you'd followed us for a long time, you know that, it's just not like us to not highlight something that we should be pointed out in the Q. We don't hide information, but we're as astonished as you are.

Fair enough. I'm just still working through the K, so just unsure what's in there.

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

Wanted to start with the ESS segment. And Anders, I know, with the new satellite coming online, you've been in, kind of, a constant slide for the past couple of years since you assumed the old DISH satellite. Does Q1 become the first quarter where we, kind of, see a sequential uptick? I mean, do you have -- I know you have incremental capacity, but do you have incremental revenue that might, kind of, reverse this slide?

We certainly on -- as Echo 105 is now -- will be fully in-service for the first quarter, we're expecting to see an uptick, because the satellite offers greater capability than spacecraft it replaced. Unfortunately, the FSS market is very soft right now, has been for a while, because there's some bad actors out there that are managing the cash, but we do have an expectation that there will be a lift in the first quarter, but that, of course, is going to be subject to our ability to fill the satellite up. We are on track from a percentage utilization standpoint, we actually -- we're able to fill it a little faster than we expected to, because we were able to move on some opportunities that presented themselves in December.

Got you, but then you may hit some headwinds midyear with the EchoStar VII coming off of lease? Is that fair?

We could. I mean, obviously, we're still in discussions with DISH as to their willingness to continue to lease that spacecraft from us, but were they not to take it, we have a few other deployment opportunities, because certainly, we would seek to earn revenue with it because it's still a relatively modern and station-kept satellite.

Got you. And is there any expectation that you'll see any, kind of, a material revenue contribution from Echo XXI and Echo XXIII in 2018? And if you can elaborate on where you're at in terms of the Brazilian DTH opportunity.

Well, in Brazil, we continue to talk to the potential partners that we have down there. I mean, Brazil right now is a very difficult place from a Pay-TV standpoint. And with the bankruptcy of one of the larger operators down there and some toing and froing as to their ability to re-emerge from bankruptcy is certainly causing some delay to what we hoped to be some discussions. But I wouldn't create -- I wouldn't want to create an expectation around XXIII, there's going to be meaningful revenue generation in 2018. On the Echo XXI side, we're, obviously, in business now. We've got some very interesting discussions going with third parties who are interested in procuring just raw power and bandwidth on the satellite in addition to the businesses that we've already mentioned. I wouldn't consider that be a material revenue opportunity for 2018, but one never knows.

Got you. Pradman, a question for you, just now that you've, kind of, seen what ViaSat is launching with their service plans, how do you feel your Gen5 service plan stack up? And is it fair to assume that record quarterly ads in Q4, even with a stronger Q1, that new competition, we shouldn't expect that level of net ads?

Chris, as you know, we don't give future projections, so I'd hate to comment on that. But all in all, we're very pleased with the trends in our business, and quarter-upon-quarter, comparisons will look attractive, but we, obviously, are not giving any numbers out of this.

Okay. And can you just comment generally on how you feel that Gen5 plans stack up against the competition?

I think very, very nicely. If you follow the numbers, we should have a cost advantage. And considering that our profitability is also still very good, we think we can maintain the pricing advantage that we have. The customer satisfaction, the Gen5 is -- continues to be very strong, which is resulting in lower churn, so I think all in all, they're in good shape.

Got you. And Dave, can you remind us whether there's a -- whether you intend to, at some point, give a little bit more of a breakout on aviation and the contribution it's making within the Hughes segment? And I'm assuming that all the contribution at this point is within Hughes?

On the aeronautical side, that would be correct. It's all contained within our enterprise business unit there, and we've got no plans at this point in time to break out that business separately.

Got you. And 2 final questions for Pradman. I think there was a mention about -- you're excited about the integration of LEO into existing markets and opportunities. Is there any -- I mean, when I think about it, you're selling terminals. Is there an opportunity beyond selling hardware that I'm missing in the broader picture there?

Oh, yes, absolutely, we're selling services. We're really more and more -- about 80% of our revenues tend to be more service-oriented than hardware. So we will continue to offer services in using our geo satellites, but then once the LEOs are up, with OneWeb, we are very hopeful of integrating our service offerings with their LEO constellation and our geo constellation and continuing the significance of offline service centers.

Okay. And I don't recall the details of that arrangement (inaudible) bundle services and we got an echo on the line.

I'm sorry, I couldn't hear you because we had an echo.

(technical difficulty)

Yes, I couldn't hear myself. So my question was, do you have the -- as part of your agreement with OneWeb, do you have the ability to resell services from OneWeb and bundle them in certain ways? Or is the arrangement right now more hardware-centric?

The arrangement right now is essentially hardware-centric, but we are hopeful of -- and working on getting the rights to offer services on their network.

And we have a follow-up question from Giles Thorne with Jefferies.

It was a follow-up on comment Anders has made around the idea of our converged terrestrial and satellite networks, and it would just be interesting to hear in an ideal world, what would your -- what is the vision that you're aspiring towards exactly?

Well, I think as 5G gets defined, right now, all the activities are recurring more at the regulatory level is -- the terrestrial interest seek to gain access to various bands that here Q4 they've not had access to. But as 5G becomes more defined especially as in with regards to machine-to-machine and Internet of Things applications, it's really going to be -- there'll be a requirement for ubiquity and satellite is really the only gap filler because terrestrial networks will never be built out to exist everywhere. So it's how those satellite networks will converge with all the new applications and all the new functionality that 5G will facilitate that creates the opportunity for us to both be a player in the space-based network site but also be the integrator of how some of those hybrid architectures are going to work.

What's the role for regional geostationary infrastructure operator? Because there's only one IoT placed so far in this sector, and that's been done by AMOS, who've invested in activity and you can see the play for global coverage, low throughput, high reliability application, but what's -- how -- what's your play?

Well, I am of the opinion that the geostationary business will be redefined because its contribution will not follow sort of the historical configurations. I think as networks of the future are defined and the technologies that are now available to us to be built into both geostationary as well as NGSO platforms, I think that there will be a role for satellite in a lot -- certainly in the machine-to-machine and IoT arena. And it will be up to us to define that and also realize the opportunity. I think looking at the business through historical lens is not a good view, because the geostationary business is right now, other than specific applications, is proving to be obsolete.

And I'm not showing any further questions at this time.

Well, we will go ahead and finish the call then. Thank you.

Yes. Thank you, everybody, for tuning in today, and good day.

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