EchoStar Corp (SATS) 2018 Q1 法說會逐字稿

Good morning. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar First Quarter 2018 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to your host, Mr. Deepak Dutt. Sir, you may begin your conference.

Thank you, and good day, everybody. Welcome to our earnings call for the first quarter of 2018. 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 ESS; and [Joe Torres], Associate General Counsel, sitting in for Dean Manson.

As usual, we invite media to participate in a listen-only mode on the call and ask that you not identify participants or their firms in your report. We also do not allow audio recording, which we ask that you respect.

Let me now turn it over to Joe 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 a list of those factors and risks, please refer to our annual report on Form 10-K and 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, Joe. Good morning, everyone, and welcome to our earnings call. I am pleased to note we had a solid first quarter. In aggregate, our 2 business segments, Hughes and ESS, generated double-digit revenue and EBITDA growth in Q1 over the same quarter last year. In addition, we continued to see strong customer adds and solid customer satisfaction with our Gen5 service.

Dave, Pradman and Anders will now give you more specifics on the quarter. And then, as usual, we'll conclude with a question-and-answer segment. Let me now turn it over to Dave.

Thank you, Mike. In the quarter, we adopted the new revenue recognition accounting standard, ASC 606, as well as ASC 321 dealing with accounting for investments and financial instruments, including equity securities. ASC 606 established a new model for revenue recognition and related guidance for certain costs associated with contracts with customers, including sales incentives. The impact of this new standard was a decrease in revenue of $1.2 million and an increase in net income of $1.1 million in Q1 this year.

ASC 321 substantially revised standards for recognition of financial instruments, including all equity investments, except those in consolidated subsidiaries and investments accounting for use in the equity method with changes in the fair value recognized through earnings. The adoption of this new standard decreased the loss of investments and increased our net income by $19.1 million in the quarter. The numbers I'll reference going forward today for 2018 will be reported using the ASC 606 and 321 guidance. Additional disclosures can be found in our 10-Q, including comparable results under previous guidance.

Now, a summary on our consolidated results. Consolidated revenue in the quarter was $502 million for a growth of 16% over the same period last year, driven primarily by Hughes revenue growth of 22%. EBITDA was $166 million. Included in EBITDA are $37 million of net losses on investments. Part of these losses are related to gains on specific investments we recognized in the fourth quarter. Without these net losses, EBITDA would have been 5 -- I'm sorry, $202 million for the quarter, a growth of 10% over last year, driven primarily by the higher revenue at Hughes, partially offset by an increase in sales and marketing costs for the Hughes consumer business and a reduction in earnings from unconsolidated affiliates.

Net loss from continuing operations was $21.2 million in the quarter compared to net income from continuing operations of $30.8 million last year. The primary drivers of the decline were lower EBITDA as just discussed; increased depreciation from satellites placed in service last year, along with the related infrastructure and consumer CPE; reductions in capitalized interest as a result of the satellites being placed in service, which were partially offset by lower taxes and higher earnings on our cash balance.

Capital expenditures in Q1 were $51 million compared to $90 million last year. The lower CapEx was due primarily, once again, to the completion and build -- completion of the build and launch of our satellites during 2017 and reimbursement of certain costs related to Echo 105, partially offset by increased CapEx on rental equipment for our consumer business and spending on our Echo XXIV satellite.

Free cash flow, which we define as EBITDA minus CapEx, increased in Q1 to $115 million, primarily as a result of the lower CapEx this year. Hughes revenue in Q1 was $401 million for a 22% year-over-year growth, driven primarily by the consumer business in North America and Brazil as well as growth in North American and international enterprise business. Hughes EBITDA was $137 million, a 36% growth over last year, primarily from the revenue and margin growth, partially offset by higher sales and marketing costs associated with the HughesNet Gen5 consumer service.

ESS' revenue was down 4% in Q1, primarily due to the Echo XII lease, with DISH ending in September of 2017 and reduced capacity on Echo X. EBITDA was up slightly, driven by the AMC-15 lease termination in December.

Corporate and other EBITDA in Q1 was a negative $55 million compared to a negative $601,000 last year, primarily due to the net losses on investments this quarter as well as lower earnings from unconsolidated affiliates.

Our balance sheet continues to be very strong with $3.3 billion of cash and marketable securities and less than $100 million of net debt, exclusive of capital leases.

Let me now hand it over to Anders.

Thanks, Dave. In January, we retired EchoStar I, our first satellite. Echo I was launched December 28, 1995, and began broadcasting the DISH Network television service in March of 1996. The satellite has been located at many different orbital locations over the course of its life and most recently, had been located at 77 West orbital position as a backup for DISH Mexico. It has not been a revenue generator for us in 2017 or thus far, in 2018.

Our Fixed Satellite Services team continues to make progress with filling the capacity on EchoStar 105, which entered commercial service at the 105-degree West orbital slot at the end of November. Echo 105, in conjunction with the EchoStar IX satellite, provides comprehensive coverage of the United States and expanded reach into the Gulf of Mexico and the Caribbean. In Q1, one of our in-flight entertainment aeronautical customers expanded and extended their service on EchoStar 105, with those services to continue through the second quarter and should possibly run into the third quarter. We are also providing capacity to one of our customers to support critical communication services in Puerto Rico following last fall's devastating hurricane.

Finally, our EchoStar Mobile, or EML, team continues to roll out additional applications and products using IP-based MSS connectivity for voice, data, machine-to-machine and IoT services. The EchoStar Mobile network is currently providing coverage throughout the European Union.

I'll now turn it over to Pradman.

Thank you, Anders. First, I would like to share with you briefly our exciting journey through the broadband consumer business. Over 20 years ago, we pioneered the offering of satellite-based Internet service to consumers, the first to do so worldwide at that time. Then we leased Ku-band transponders from other FSS providers. The big leap from this was when we changed strategy to building our own satellite, Spaceway 3, a Ku-band satellite with onboard routers, also a first in the industry, and began to see the positive impact on profitability that we expected through ownership of the satellite.

Spaceway 3 filled up and was followed by Jupiter 1's launch in July 2012 and Jupiter 2 in December 2016, both high-throughput Ka-band satellites with groundbreaking service plans. We entered into a hosted payload arrangement on Eutelsat 65 West for its Ka beams and commenced service in Brazil in 2016 and Colombia in late 2017. A hosted payload on Telesat's T19V will launch in mid-2018 to provide services to other Central and South American countries.

With the addition of T19V, we'll have the largest scale fleet coverage over the Americas. In terms of subscribers, we now have 1,267,000 retail, wholesale and SME consumers and continue to be the undisputed market leader in the broadband satellite world today.

Looking ahead, our new high-throughput Ka satellite Jupiter 3 is currently being built and will have significant additional capacity to enable us to offer over 100 megabits of download speed to the subscriber. It will support our consumer business as well as enterprises, aero, in-flight WiFi and community WiFi. We expect to launch service on Jupiter 3 in 2021 and continue to explore opportunities to expand our broadband service presence overseas to complement our success in the Americas.

Now to the first quarter. It was another strong quarter for HNS, particularly in our North American consumer business, as the momentum we created in 2017 continued across all sales channels. We have now completed the implementation of HughesNet Gen5 plans across Jupiter 1 beam and now have over half of all our North American subscribers on Gen5. We saw high levels of consumer and customer satisfaction with the new HughesNet Gen5 plans, a clear indicator being that churn continued to go down. Overall, consumer churn in Q1 2018 was the lowest quarterly churn in over 5 years in North America.

During the quarter, we received notifications that we had been recommended for grant awards under the New York State Broadband program and for associated funding through the Connect America Fund, or CAF, program likely for about 50,000 households. We are working through the final details of these awards and the terms and conditions associated with them and will provide updates once these are finalized.

As mentioned earlier, our total consumer base of retail, wholesale and SME subs was approximately 1.267 million as of March 31, 2018 compared to 1,043,000 as of March 31, 2017. We had net adds of approximately 59,000 subs in Q1 compared to approximately 7,500 net adds in the same quarter last year. These metrics do not include subscribers within our partners, Xplornet in Canada and StarGroup in Mexico, provide service to capacity sales, but they do add to our revenue and earnings.

I'd now like to talk about another exciting development this time in the enterprise space, and that is Software Defined Wide Area Network. SD-WAN is rapidly emerging as the next-generation solution to replace legacy networking services like MPLS. Solutions such as SD-WAN are critical as enterprises digitize their operations, with more and more applications being deployed and the rapid shift to cloud services. Hughes SD-WAN is the right solution for distributed networks. It is a fully managed service with integrated transport, strong security and is powered by Hughes proprietary active technologies.

Active technologies consist of 4 advanced interlocking technologies: ActiveQoS, which delivers dynamic QoS over broadband; AactiveClassifier, which automatically classifies traffic-based on flow behavior; ActiveCompression, which increases virtual capacity of broadband links; and finally, ActivePath, which intelligently utilizes multiple broadband paths to improve application availability and performance.

Hughes SD-WAN is available to both enterprise and government customers. In North America so far, we have about 29,000 SD-WAN sites with 19 enterprises across multiple industries, and we look forward to strengthening our already strong presence in the enterprise space with this offering.

Now to the quarter's performance. Our North American enterprise business had a very strong quarter, including the addition of contracts with new customers and expansion with several existing accounts. One of the new customers is Andover, a market leader in the retail petroleum space, who signed a large initial contract for SD-WAN and security services at their locations. Other significant orders in the managed services sector included Beverages & More, IGT and Murphy Oil.

In the energy sector, we extended our relationship with BP Pipelines, Marathon Pipe Line and added Baker Hughes as a new customer in support of their exploration business. In the aero market, we had additional orders for the expansion of the services that we provide at Global Eagle.

Work on the development and production of OneWeb gateways continues, and we've already shipped equipment for the first 2 pilot gateways that will be used to validate the system with the initial satellites. We will commence production shipments in the second half of this year. As announced previously, this work is part of the $300 million order from OneWeb.

In our international business, HughesNet consumer service in Brazil continued to grow nicely and surpassed our expectations for net adds in Q1. Service operations in Colombia and pre-operational activities in other new LatAm markets continues to progress well. We received some major orders from mu Space in Thailand in a partnership deal with SES, and our Jupiter system was selected by a major multinational operator in South Asia to support backhaul of LTE traffic over satellite.

Bharat Electronics Limited, Bharat Petroleum Corporation and Wipro in India; Nextel at Santa Catarina, in Brazil; Telespazio in Europe, Star Satellite in the UAE and MEXSAT also have awarded major orders in Q1.

We continue to enhance the capabilities of our Jupiter broadband platform to include faster throughput, mobility support and faster browsing. Our backlog from enterprise customers was $1.6 billion as of March 31, slightly higher than the backlog at March 31 last year.

At last quarter's call, I highlighted the fact that we have been achieving high EBITDA margins consistently. I'm pleased to inform you that this margin expansion continued in Q1 where our EBITDA margin was 34% compared to 31% in Q1 last year. So we continue to lead the market in terms both numbers of subscribers as well as profitability. I'm very pleased with Hughes performance in Q1, and I'm looking forward to a very successful and exciting 2018 for Hughes.

Let me now hand it over back to Mike.

Thank you, Pradman. Overall, we are very pleased with our results for the quarter. We are showing strong revenue growth and improved operating EBITDA margins. We continue to have the strongest balance sheet in our sector, and we continue to be the industry leader in satellite communication technology. This gives us a unique set of capabilities and tools to be a leader in the industry as we continue to move forward to next-generation networks and services.

Now, let me turn it back over to the operator to start our question-and-answer segment.

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

A couple of questions operationally around Hughes. Obviously, ramping nicely with the Gen5. How should we think about the pacing and the filling of the Jupiter 2 satellite? And also, I think you mentioned the Jupiter 3, you're now expecting to be in service, I think, you said in 2021. So how should we think about pacing and fill in the Jupiter 2?

Yes. We are very fortunate in that the popularity of the service and the -- has been great. And so the different beams are filling up at a faster rate than even we had anticipated. So the nice thing about that is that the pipe is getting filled fast, so the internal rates of return on that investment are obviously significantly better than we anticipated. But it's going to have an effect going forward because the areas where there are a lot of customers are beginning to have beams that are filled up. So we'll probably see some level of slowdown in the next year as these beams start filling up.

Okay. And then as far as we think about the -- you mentioned, I think, gross adds were down, but churn was also at a very low level. Some people are clearly liking it. How should we think about what the competitive dynamic was as ViaSat-2 came into service, and maybe what you've seen in April and May on that front?

Yes. We don't compete directly against ViaSat, even if a subscriber deciding to get a high-speed satellite broadband service, we're not competing directly against ViaSat because the dealers really dictate as to whose equipment they put into a particular site. So I don't think we're seeing much of an impact at this stage from ViaSat.

Okay. And then my final question on the Hughes side is, obviously, nice revenue growth. You called out enterprise a couple of times. How should we think about the revenue growth as far as what the ARPU is doing? You've got, I think, the $49 plan, the now discounted $59 plan and $99 plan for retail. But enterprise seems like it's got good momentum, too. Should we think about that maybe being disclosed in the future?

Ric, are you talking about broadband services on enterprise? Is that what you're referring to? Or are you talking about the managed service business?

Yes, we can do both. But on the retail side kind of what you're seeing maybe as the ARPU trends seems like people are taking the service, liking the service and ARPU maybe is trending up than what we're seeing. And then just as far as enterprise in general, but with those 2 areas kind of what you're seeing.

Let me take the first part of that, then Pradman can answer the second half. Certainly, with the increased speeds, the small and medium enterprise business, we've had -- we were pretty much flat on that for years. With the introduction of the Gen5 service, we've certainly seen an uptick in terms of the number of small and medium enterprise customers. And that's contributed to the growth. We view them very similarly to a retail consumer customer. On the rest of the enterprise, Pradman, you want to comment?

Yes. I think the -- we don't really look at it as an ARPU because we're doing a managed network service for a particular enterprise. So there's not an ARPU number that we are tracking. But in general, the revenue growth in the North American enterprise business has been positive. And even though for many years it was flat to slightly declining, I think in the last year, we have been very encouraged with seeing growth in the revenues for the managed network services.

Yes, I know, I apologize. I wasn't meaning ARPU on the enterprise side. I meant ARPU on the retail side. It seems like it'll be going up, and revenue at the enterprise should be going up. But you guys don't split out into your disclosure, I don't think, enterprise versus retail.

No, we don't. And Ric, just a little bit more color on that. And ARPU is ticking up. It pretty much consistently goes up every quarter. Part of that, as you say, is people taking higher packages. But the other piece is the retail-wholesale mix with about a year ago, DISH stopping selling wholesale. That wholesale component over the course of last year has shrunk as a percentage of total consumer base. So on the consumer business, ARPU is ticking up just because of that mix change, there's nothing else.

Okay. And last question from me, thanks for all the details. You mentioned the New York Broadband and the CAF funding. Are you guys registered for the CAF-II auction as well? Will that be an addition possibly to what you mentioned with 50,000 households?

Yes, we're still actively involved in all of that. And everything's not finalized there, but we're very active in the early process, I'd say it that way.

It looks like the rates you guys might get could be quite attractive.

Yes. It's certainly mixed. It's mixed across the U.S., and we're trying to manage it very carefully. So we do -- we don't take a misstep, and we do the right thing for the company in the long term.

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

Just wanted to start out with a high-level question on the cash. I'm just wondering, now you guys have been contemplating acquisitions for quite some time. But you have a $0.5 billion share repurchase program in place, so I just -- given where your stock is trading, it would be hard to get something, an investment that would be as probably high quality and low risk as buying your own shares. So I'm just wondering if you guys have given any thought to that recently or if you've changed your views at all, maybe doing some share repurchases here.

Well, historically, our intent to expand the business and continue to take advantage of everything Hughes has built and EchoStar's built over the long term. So right now, we're absolutely out working very hard on where we can invest that cash in a better way than stock buyback. I cannot disagree with you that the change in the market makes us have to look at that a little bit closely. But right now, that's not in our plans.

Understood. Pradman, you made the comment about the nice year-over-year improvement in your EBITDA margin in Q1. But it looks to me like it should've been almost 200 bps better except for a negative gross margin on your equipment business. So was there anything onetime in terms of impairments or charges that led to the negative gross margin on equipment? Or is this subsidized hardware in the enterprise business? What drove this?

Look, first of all, let's just make sure that we're looking at things on an apples-to-apples basis. I mean, Hughes, on a year-over-year basis, margin expanded by 350 basis points. And quarter-over-quarter, it was 140 basis points. So we're pretty pleased with the margin expansion. The equipment margin on the quarter was negative, as you note. In that cost of goods sold, we include certain indirect costs such as product line management, quality assurance, deployment support. These costs are mostly fixed in nature. We saw a significant reduction in equipment revenue from Q4 to Q1, which is not unusual. Q4 tends to be a very, very high equipment sale quarter. But we weren't able to react quickly enough to mitigate the indirect costs associated with equipment. The negative margin is certainly not something we expect to continue going forward. I think it's a onetime event for the quarter.

Got it. Staying on that topic, the cost of service was up about $6.5 million sequentially from Q4. I just wonder if you can help parse through that as well. Is this spending in Latin America? Or what's driving that?

I mean, you've certainly got the launch of Colombia that's driving those costs up. It's not entirely associated with Colombia, obviously. But across the board, the costs are continuing to increase, the support costs around consumers, that grows. There's a lot of variable costs associated with the consumer business, and so we're going to continue to see that ramp as the consumer business ramps.

Also, if I can add that we're launching 5 countries in South America this year. So the costs associated with launching service in not only Colombia, but Ecuador, Chile, Peru and more and more in Brazil is going to add to our costs as we get started in these countries.

Got it. You mentioned that Brazil exceeded your expectations for net adds in the quarter. I think you announced that you were at 75,000 back in September at the Paris show. Have you guys exceeded 100,000 yet?

Regardless of what was said at a show, we're not at a point yet we're ready to disclose South American subscribers separately from North American.

(Operator Instructions) Your next question is from the line of Chris Quilty with Quilty Analytics.

David, just want to follow up on the HNS margins. Was there anything in there that was unusual? Or are those margins sustainable on a go-forward basis?

Certainly, we think they're sustainable. I mean, as Pradman mentioned, as we continue to launch new markets, those markets are going to be negative for a period of time after we launch. And that's going to bring things -- have a dampening effect. But as the consumer business continues to grow, it has the highest margins of any of our products once we reach a sustainable level in the other countries. But certainly, North America, as the mix of revenue shifts towards consumer -- continues to shift towards consumers, that's going to push margins up.

Got you. And the fact that you're halfway through the rollout of the Gen5 plans, does that impact mix in any way, either churn or ARPUs or your expenditures as the balance of those consumers shift over and presumably you expect over time everyone to move to Gen5?

Yes. I mean, we think it's a superior product certainly to Gen4. And we would expect that customers continue to migrate. Obviously, all new customers are going on to the Gen5 platform. And customers continue to upgrade. So over time, yes, there will be a natural migration and increase under the Gen5 platform. And that's going to come with -- as Pradman's already spoken to, we see significantly reduced churn. And churn, as you know, has a significant impact on the bottom line.

Great. And the question on the Hughes mobile business. Anders, is there any kind of metrics you can give us around that in terms of number of customers or revenues or expectations of how meaningful that can contribute?

Chris, just for clarification, you said Hughes mobile. Are you referring to EML or the Hughes mobile sat business? EML?

Yes.

Okay. So Anders, you want to take that?

Yes, Chris. We're not at a level of commercial activity where we're going to be sharing customer statistics or anything like that. We'll probably speak in the future about some of the products and other services that we're working on with some partners in Europe that will be going up on the satellite. But I don't think we'll get into that level of specificity.

Got you. David, so you actually haven't given Hughes mobile breakout, I think, since Hughes was acquired by EchoStar years ago. But is there anything substantial happening in that business that's driving growth?

It continues on. I mean, it's a nice little business, and we've got some strong capabilities in that area as we look at what's developing around the globe. But no, it's not by any means a major piece of the business. But it's a nice piece of the business.

Okay. And final question here...

As we've said in the past, Chris, it's an opportunistic business. We don't invest in it as a product line, but we offer our technology and engineering capabilities to build these very large systems. And typically, at any given time, there are 2 or 3 of these large systems being built in the world, somewhere or another. And we have the #1 company in the world building these mobile sat systems. And that's been the mold we've been in for the last 10 years, and it continues going forward.

So Pradman, historically, those were like ATC networks or projects for Inmarsat or others. Is that mobile technology transferable to some of the things happening with LEO constellations beyond the existing OneWeb relationship?

Well, almost all our technologies support other neighboring kinds of systems. LEOs are obviously both fixed and mobile, and the mobile part of the LEO technologies would obviously be supported by some of the technologies that we are developing for people like [Tria] and

[TerreStar] in the past year, and so MEXSAT in Mexico. So we have a number of these systems globally that our stand-alone systems by itself, but the technology is added over to the next generation system that comes up.

Got you. And final question, David, should we be concerned about Brazil, both the growth of the consumer and the legacy enterprise business given the strength in the U.S. dollar? Or are you hedged against that?

Yes. We should always be concerned about foreign currency and most of the business down there. I mean -- and this is true of all of our international service businesses. The revenues and expenses pretty much are in local currency. When we sell equipment to international locations, those contracts are typically denominated in U.S. dollars, so there's no exposure. But clearly, when you've got a currency in flux, you're going to see an impact through FX recognition on the financial statements. It does impact us just because we've got to reflect the assets in place back into U.S. dollars. But I wouldn't be concerned that it's going to destroy our earnings, Chris.

Okay. I wouldn't expect though.

Your next question is from the line of Giles Thorne with Jefferies.

I had 3 questions, please. First question, a very basic question. Be helpful to understand the drivers of the drop in gross adds quarter-on-quarter and get a sense of how subscriber momentum is tracking against your full year budget. Second thing was -- I supposed this is for Anders, do you see anything in the Belgian withdrawal of Inmarsat CDC license to give you pause for thought as to your own ambitions in European mobile services, EML? And then finally, a bit of left field question but Pradman, you floated with the idea of infrastructure investment, historically, certainly, in an interview you have. Is there anything in the DOT accepting TRAI's proposal for in-flight connectivity in India that changes or accelerates any plans that you might have on the backbone there. Because it seems to me that, that's a large continent with a lot of people in planes, but basically hardly any high-throughput capacity up over it. That was it.

Pradman, why don't you take the last question first?

Yes. The -- as you know in India, TRAI is an advisory body and gives the rulings which DOT, may or may not accept. But they've been working on -- I think you're referring to the new telecom policy that they're working on. So I think TRAI has made recommendations but it will be a while before they are either formally accepted or modified at any time.

The way it's been reported is that DOT has accepted TRAI's proposal for an in-flight connectivity service. So everyone's getting...

The in-flight connectivity, yes, right. Yes, there is the -- for in-flight -- I'm sorry, I was looking at the overall telecom policy. On the in-flight connectivity, you're right. There is a GMPCS license that people are going to be getting to be able to offer in-flight services. We are fortunate in that our -- we have overall license for providing services, which includes the GMPCS capability. So we are licensed as far as I can -- as far as I know to offer mobile services in a plane or in-flight services in a plane. But if you're a new operator, you have to apply for this GMPCS license.

There's nothing in these developments that changes your views on putting a satellite up over the continent. That's really what I'm trying to get at. Coming back to the whole uses of cash conversation.

We're still very interested in doing that.

Anders, you want the EML question?

Yes. So I'm not completely familiar with the specifics relating to Belgium's withdrawal of Inmarsat's prior license. But I know that, that is one of the jurisdictions in which ViaSat, and I believe, Eutelsat, have pursued action against Inmarsat for supposed violations of the license terms. My understanding is that, that was the withdrawal of the existing license was done on a procedural note and that certainly, Inmarsat is fully expecting the license to be restored in due course.

We don't see that really as impacting our situation. We currently hold an MSS license in Belgium, but we have not pursued our -- the right to receive a CGC license until we know exactly what it is we're going to do and the schedule upon which we'll roll it out because there's no sense in incurring the cost of having a CGC license until we're ready to use it.

Do you have CGC license anywhere in any jurisdiction?

Yes, we do. There's a number of jurisdictions where we have taken the CGC licenses because there was no incremental costs associated with taking them, meaning that particular member state gave us the latitude to have the license with a fairly broad scope without any incremental costs associated with it until we actually start rolling out products on a CGC network.

And is there any clock ticking on getting CGC -- the CGC license in those other jurisdictions where you haven't yet pursued it?

No, there is not.

Other than the fact that the license expires, when is it, 2025, I think, if I remember.

It's quite a ways out and there is an expectation of renewal.

And then final question. Back to the first question, it was just on gross adds. What are the drivers of quarter-on-quarter drop and how is it tracking compared to full year expectation?

You asked about the growth on the subscriber business quarter-over-quarter?

Well, you -- I mean, you comment in every quarter on how gross adds trended compared to the prior quarter. And in this quarter, it was down. And it just felt unintuitive to me to see gross adds coming down in the quarter given all the tailwinds that you've got across your international business and the Gen5 launch, et cetera, et cetera. So I wanted to know why gross adds dropped quarter-on-quarter.

Why gross adds -- so Pradman, gross adds dropping quarter-on-quarter.

I think from Q4 to Q1, it was primarily seasonality.

Well, that's what I thought it would be. But then you look at the historics and you're usually quite strong in the first quarter. So I'm still scratching my head.

But usually -- I don't have the detail in front of me, but usually, Q1 is less than Q4. Q4 is usually our best quarter.

In Q1 last year was certainly weak. I mean, we had no capacity to sell effectively right before we launched the Gen5 service.

Okay. All right. But all in all, you're happy with the momentum of gross adds, and churn is obviously very strong.

Yes. I mean as Pradman mentioned it in his comments, yes, we're very pleased that we're filling up the satellite ahead of our expectations. And as he commented on, that improves obviously the return on the asset, which is obviously something we always look out. So it is good news that it's filling up faster. But the bad news, if there is such a thing as bad news in this regard, is that we're going to reach a point -- at some point in the future that, that growth is going to slow because beams will start filling.

You have a follow-up question from the line of Ric Prentiss with Raymond James.

A couple quick follow-ups. Appreciate the extra disclosure on the corporate and other EBITDA. Can you talk a little bit about taking the costs out of the business? It looks like you've done a good job from last year, where it was, I guess, $19 million down to this year where this quarter, where it was $18 million. How much more rightsizing do you think you have there? And then a second question is, I think you have some debt maturities coming up middle of '19, maybe in the order of about $1 billion. What are your thoughts as far as what you might do with that maturity?

Yes. The first thing in terms of disclosure, what we disclosed was continuing operations. And so there's a lot of corporate overhead that gets buried down in discontinued operations. So the reduction from an actual cash spend year-over-year was actually quite a bit lower than that. So you've really got to take into consideration when looking at that corporate overhead all the costs that were eliminated. So what you're seeing is a true apples-to-apples comparison, and we're relatively flat. I don't think that there's much cost left to be taken out of corporate overhead as a result of the transaction last year. In terms of the debt maturity in June of 2019, yes, we're aware of it. I mean, obviously, we'll take a look at what happens over the course of the next 12 months from utilization of the cash and whether we need to refinance that and -- or whether we need to do something different. But at this point in time, there's just not a lot to say about that maturity.

So just watch it and figure that's a good run rate on the corporate costs up in the continuing ops.

Yes.

Your next question is from the line of Chuck Goldblum with Hurley Capital.

Just a few questions. First of all, at least the past few quarters, you've given an update on the M&A market. I know a few quarters back or maybe last quarter, you discussed that the conversations having increased. Maybe you can tell us where we are on that now.

The conversations are continuing. I mean, the activity is high. It's just a matter of determining where the industry is going. There's a lot of flux and change going across the entire industry right now. Obviously, we've got LEO networks being built. We've got MEO networks, in some cases being talked about, in some cases being expanded. And so looking for the right strategic fit and making sure that we make the right decisions on where we want to position ourselves vis-à-vis the entire industry is an ongoing priority for us. Beyond that, there's really not much else I can say.

Well, I guess, the only follow up on that is your appetite for doing a deal as high as ever? Or is this sort of flux in the market giving you some pause?

I'd say it's as high as ever. But certainly, if you've been tracking the market you see some of the major players, the values have changed dramatically. And we're moderating that on a daily basis, to be honest with you.

And it also means that there will be fluctuations and especially the decline that some players in the market have seen, frankly, just makes them more reluctant to have a reasonable dialogue about valuations. Yes, obviously, we've seen our own decline, but I don't think we've seen same decline relative to some other players in the market.

All right. And then as it relates to the consumer broadband, how would you guys characterize margin trends going forward when you think about balancing, adding folks and that diminish -- the rate of growth diminishing over time but the [SAC] upfront as well. Maybe tell us how you think the trends of that are going the next few years.

I think the trend's up. It keeps going up because most of the costs are fixed. So every incremental sub that you get, almost all the revenue flows to the bottom line. The only major reasonable cost is the SAC to acquire the sub, but once you get that in an operational basis.

All in all, the country set up costs and what have you, those should be in the rearview as well.

Yes. It's ironic fact of all subscriber businesses where you've got significant acquisition costs, be that cellular, be that cable, satellite or, in our case, broadband. You've got significant costs upfront to acquire that customer. And then as Pradman said, the margins are pretty high incrementally going forward. So as growth slows, margin goes up because you don't have that acquisition cost.

And right now, over the course of last year, we've obviously been in high-growth mode. And so we've been incurring significant acquisition costs. But even with that, you've seen nice increase in our margins. So from that standpoint, as Pradman said, we're pretty optimistic about margin expansions going forward on the consumer business.

All right. And then my last question, as it relates to your ownership in DISH México, any commentary on what the plans for that asset are over time as far as sort of seeing the value in the stock from that?

I think the plan going forward, we will continue to work it with our partner down there. It's a business that continues to operate. It's got its own ups and downs associated with that market. But we've got no definitive plans at this point in time for it other than to continue to operate and have dialogues with our partners as to the long-term strategy there.

All right. So no chance to sort of see the value of it in the stock at any point then until the partner chooses to do something?

Yes. I think that's probably the case. I don't think we're going to force a dissolution, at least not in the near term. So we'll continue to have strategic discussions and dialogues with our partner.

There are no further questions at this time. Do you have any closing remarks?

Well, that's it, operator. Thank you.

Thank you, everybody, for participation, and we'll see you next quarter.

Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.