EchoStar Corp (SATS) 2018 Q2 法說會逐字稿

Good day, everybody, and welcome to our earnings call for the second quarter of 2018. I'm joined today by Charlie Ergen, our Chairman; 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 Joe Turitz, Associate 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 firms in your report. We also do not allow audio recording, which we ask that you respect.

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

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. First, I want to apologize. We've had some technical difficulties, and we hope the quality of the call is okay for you guys.

We did have a soft second quarter. Once again, our 2 business segments, Hughes and ESS, in aggregate generated double-digit revenue and EBITDA growth in Q2 '18 over the same quarter last year.

Let me now turn over to Anders Johnson and then Pradman Kaul, who will talk about their segments, followed by Dave Rayner for a quick financial overview. We'll close as usual with questions and answers. So here's Anders.

Thanks, Mike. Good morning. ESS revenue for the quarter was $95 million compared to $98 million last year. EBITDA was $82 million versus $80 million last year. Our Fixed Satellite Services capacity business is encountering some of the same pressure on Ku-band transponder rates that has been expressed by other operators. And for the remainder of 2018, we expect to see pressure on rates for U.S. government service opportunities as well.

For our commercial FSS business, including our enterprise, media and broadcast and mobility customers, we also expect a difficult environment for the remainder of the year.

Second quarter sales include the extension of services by one of our in-flight entertainment aeronautical customers on EchoStar 105. DISH terminated their lease of EchoStar VII at the end of June 2018. In addition, they terminated 4 Ku-band transponders on EchoStar IX effective May 1, 2018. These will result in a negative impact on our revenue going forward.

Now on to developments with our EchoStar Mobile business. EML has placed MOUs -- has MOUs in place for distribution of MSS-enabled services in the EU with a few major European communications companies. We are also conducting technical discussions with a number of potential partners to broaden EML's distribution base throughout the EU. In addition to these discussions, the EML team is excited about a pipeline of new applications and products for M2M and IoT services throughout Europe.

I'll now turn it over to Pradman.

Thank you, Anders. First of all, I'm delighted to inform you that our Ka-band posted payload on Telesat T19, usually referred to as 63 west, was successfully launched in July 22. Over the next few weeks, we completed in-orbit and system testing to bring the capacity online in the fourth quarter of 2018.

63 west provides additional coverage and capacity for our HughesNet services in Brazil and Colombia and will enable us to open new markets for HughesNet in Peru, Ecuador and Chile. We intend to use this capacity for consumers, enterprise, cellular backhaul and community WiFi solutions, and are targeting service commencement in Peru in the fourth quarter, followed by other countries thereafter.

We continue to consolidate our position as the #1 broadband and satellite Internet provider worldwide, with the largest fleet of high-throughput satellite assets in the world. Our Jupiter 3 satellite is currently under construction with an anticipated in-service target of 2021. The design and development of the satellite is proceeding satisfactorily. It will have significant additional capacity, enabling us to offer over 100 megabits of download speeds to the consumer.

A few words before I get into our performance for the second quarter. We run our business with the primary objective of growing revenue and earnings. We do track and measure ourselves against several other supporting metrics, but top and bottom line growth are our overriding goals. We have achieved both goals handily in the first 6 months of this year.

Despite FX headwinds in Brazil, we grew revenue 18% and EBITDA 38% in the second quarter over the same quarter last year, continuing a trend that has resulted in revenue being up 20% and EBITDA up 37% for 2018 through June 30 over the same period last year.

We delivered these results while growing our subscriber base across multiple geographies and satellites. These exciting results are primarily driven by our growing high-margin consumer business, where since we launched our Gen5 service in the U.S. last year, we increased ARPU by 16% and decreased churn by 20% in our North American consumer business, leading a great path to the financial results I just mentioned.

In our enterprise business, we received major new orders from Global Eagle, IGT, T.J.Maxx, ConocoPhillips, Thales, American General, Yum! Brands, Baker Hughes, PSN Indonesia, Oi Brazil and TSI Canada. Also noteworthy were new orders from Save Mart for digital signages at their 200-plus locations, and from Bank Rakyat Indonesia for our Jupiter system to power an enterprise-grade band connecting tens of thousands of banking sites. Our enterprise business continues to deliver steady growth, providing us with a strong order backlog going forward.

Another exciting opportunity for us is in cellular backhaul and community WiFi. To-date, we have provided equipment for over 10,000 cellular backhaul sites across Africa, Asia and Latin America. Northern Sky Research estimates that there are over 45,000 satellites-based cellular backhaul sites currently serviced, and project this will triple by 2022.

Community WiFi is where an operator uses WiFi access points to enable Internet access to the consumers. Today, we and our partners have deployed over 20,000 hotspots of community WiFi in Mexico, Russia and Brazil. These fast-growing opportunities are an important part of our growth strategy in the enterprise sector.

We also continue to expand our presence in the aeronautical WiFi business with our partners Global Eagle, SES and Thales. Our technology is used in over 900 aircraft, and we recently completed the installation of the first network-based on a Jupiter Aero technology for Global Eagle. We also signed an extension of the operation of the networks for Global Eagle and received an additional initial order from Thales to support Spirit Airlines.

So in conclusion, we had another very strong quarter, and I'm looking forward to continued growth in revenue and profitability. Let me now hand it over to Dave.

Thank you, Pradman. Consolidated revenue in the second quarter was $526 million, a growth of 13% over the same period last year, driven primarily by Hughes' revenue growth. EBITDA on the quarter was $286 million, an increase of 55% over last year, driven primarily by the higher revenue and margin at Hughes and unrealized gain on our investments. Without the investment gains, EBITDA would have been $220 million, an increase of 19% over last year.

Net income from continuing operations was $77.7 million in Q2 compared to $6.6 million last year, driven primarily by the higher EBITDA. Capital expenditures in the quarter were $120 million, with satellite-related spending and consumer CPE being the biggest components. Free cash flow, which we define as EBITDA minus CapEx, increased in the quarter to $166 million from $57 million last year as a result of a higher EBITDA and lower CapEx.

Turning to the segments. Hughes' revenue in Q2 was $426 million, an 18% increase over -- year-over-year, driven primarily by growth in Hughes' consumer service, partially offset by a reduction in equipment sales. Hughes EBITDA in Q2 was $152 million, a 38% growth over last year, primarily from the revenue and gross margin growth, offset partially by higher sales and marketing costs associated with HughesNet consumer service as well as exchange rate losses.

Since launching Jupiter 2 at the end of the first quarter last year, Hughes' quarterly revenue and EBITDA have increased by $97 million and $51 million, respectively, primarily a result of services related to the satellite.

ESS revenue was $95 million, down 3% in Q2 compared to the same quarter last year, primarily due to termination of the Echo XII lease with DISH last year and reduced capacity usage by DISH on Echo IX and X, offset partially by increased revenue on EchoStar 105. EBITDA was up 2.5%, driven by the AMC-15 lease termination in December, offset partially by the revenue reduction.

Corporate and other EBITDA in Q2 was $51 million compared to a negative $5.6 million last year, primarily from the unrealized gains on strategic investments as well as a settlement with a vendor, offset partially by a decrease in earnings of unconsolidated affiliates and exchange rate losses.

Our balance sheet continues to be very strong with $3.4 billion of cash and marketable securities, and less than $200 million of net debt, inclusive of capital leases. All in all, a very positive financial quarter.

Let me now turn it back over to Mike.

Thank you, Dave. Again, I think we've summarized everything to the best of our ability for you. I think it was a strong quarter. But we've got a lot of work to do as always. I hope the conference call works correctly now, so I'm going to turn it back to the operator to start our question-and-answer session.

(Operator Instructions) Your first questions are from the line of Mr. Ric Prentiss from Raymond James.

Charlie, on the DISH call last week, you talked about the narrowband IoT network, $0.5 billion to $1 billion, and ultimately moving to the 5G network. I think at the Tower show, you said might cost $10 billion and a focus at DISH on debt maturities. The question we got a lot on the EchoStar side of things is, is there a need or desire for the EchoStar, really great business and great balance sheet, to help DISH out? So how do you think about DISH and EchoStar and how they might need to cooperate?

Well, I don't think any differently. We've thought about it for a long time. I mean, I think they cooperate already. But I think the businesses are run completely different, so they have independent boards that look at their company, what's best for their particular company, and that they'll continue to do. I think the one thing that going forward is, obviously, both companies are in the connectivity business. DISH is primarily in the United States, but with satellite, obviously, you have the ability to be in the connectivity business around the world. So as you look at things like IoT and things like that, I think that's opportunity. And certainly, I encourage EchoStar to look at those kind of opportunities that might connect a Hughes satellite and where we see things going in terms of connectivity in that world, which we obviously, in particular Hughes, do a pretty good job of today.

So we have the business swap like 1.5 years ago with the set-top box business for the Hughes exchange. Is there any thoughts that anything needs to happen in the next year or 2 as far as any other movement of assets between the 2 companies?

Well, they're not -- I think the board's always looking at those things, but I think that the major assets, the -- satellites got to go together in engineering kind of, ultimately, with set-top box not being a particularly growth business. Obviously, there's opportunity for EchoStar to move in a different direction, but satellite need to go together.

Okay. And my final question is also on the DISH call last week, you mentioned how, given the balance sheet, DISH was probably not going to be a material player in some of the upcoming auctions in the United States. Should we think about EchoStar looking to participate in the auctions in the United States or elsewhere? Is it really EchoStar we should think of that more as being your global play?

Well, I don't know if that I could -- that's part of your question for the guys at EchoStar whatever they discuss within auctions that the -- I know that they had looked at the CAF auction at EchoStar. So I think they've looked at auctions from time to time. And so that might be a place they should look, but you'd have to ask -- I don't know, Mike, whether you want to add anything to that, I don't know.

Well, obviously, I think the type of auctions that EchoStar is interested in is those CAF auctions we just -- we looked at. And also, I think I don't know exactly what auctions DISH may be looking at going in the future, but we certainly have the balance sheet to allow us to participate in things, we'll just have to see what aligns with the current business structure at EchoStar. But we're always interested in opportunities like that.

Your next question comes from the line of Mr. Jason Bazinet from Citi.

I just had a question on the consumer broadband business. Because most of the companies -- I think all the companies don't really give a SAC or a churn number, it's pretty hard for us to sort of figure out if the business creates sort of economic value. In other words, right about the time when you think you generate some cash flow, you guys launch another next-gen satellite. What would you suggest for investors that they could look at or the math they can do to sort of confirm that there's economic value that goes with a lot of the satellite launches and subsequent subscriber growth? Because we don't really see the free cash is the reason I asked.

I think one of the things you need to look at is certainly the EBITDA growth. A piece of the SAC does go onto the balance sheet in the form of CapEx, principally the CPE, which is then obviously amortized over time. But as I mentioned, I mean, we've seen on an annualized basis $200 million worth of EBITDA growth at Hughes after we launched the service last year. And so that goes a long way towards the economic return that we're seeing on the investments. You're right, I mean, we're in a growth mode, and periodically, we're launching new satellites. And the building of those satellites does consume the free cash flow coming off the existing business. But we're quite confident that those investments are returning very, very adequate returns. I'm not going to get into the specifics of where our model is, but certainly, adequate returns well above any cost of money that we would ever incur.

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

I wanted to have a follow-up question on the in-flight connectivity business. I think this is the first time you've mentioned that you'll be working with Thales on WestJet as a customer. Presumably that means you will be using your Jupiter capacity to fulfill that contract until SES-17 is launched in a couple of years. And then at what point -- at that point, is it fair to assume a transition over to that satellite?

Yes, you're right, we're using the Jupiter capacity. And there's no plans to move them back to SES-17. The traffic will continue to grow, and they may move the new planes onto SES-17 when it's available. But currently, we're going use Jupiter for that application.

But that's assuming, of course, that Thales is successful in winning back some customers, which they basically lost most of their existing customers to-date. And at this point, you've got overlapping satellites with same frequency, same coverage patterns. Does that create, in a way, a competitor in the IFC market for you?

Well, remember we are not in the in-cabin market, right? We're providing connectivity from the plane to the Internet, and so there's really no conflict there directly between the 2 networks. They're just 2 different networks that will continue to operate separately.

Okay. Fair enough. And I guess, a question for Charlie. I mean, obviously, you mentioned that EchoStar is more focused on the satellite end of the business. Does that mean that you might be interested at some point in divesting your satellite assets and, presumably, EchoStar would not be a buyer for those assets since they just swapped them -- half of the fleet back to you?

I'm not sure question as to the question.

Chris, are you talking about the DISH satellites?

From the DISH side of the equation.

I think that DISH looks at their balance sheet and their business plans from time to time. And if there's tweaks to be made to it. But there's a bond indentures and tax issues and things like that, and where they're utilizing the satellite. I think they make decisions based on taxes, cash flows and long-term kind of decisions. I think EchoStar does the same thing. So I think from time to time, we have bought assets or shed assets on both companies. But that's something that -- every day, you wake up, you have a theory about what to do in business and you test that theory every day. And if something changes, you need to be -- as management, you need to be able to change quickly with that and not being concrete in a particular business plan if things change. Fortunately, for the most part, at least my experience has been that most of our long-term plans have been pretty on point, and they haven't changed that much. More -- it's more that the industry has kind of caught up with our thinking and moved in some of the directions that we're having. In satellite, I will say, that I think our thinking is evolving now kind of as LEOs and MEOs suddenly become more -- and small satellites become more the satellite equation from the -- to take over some of the market share from geosynchronous. And geosynchronous have gone to high-throughput satellites where Hughes is one of the world's leaders. I think that our thinking evolves on those lines for sure, and whether there's opportunity in terms of growth in those areas.

Understand. One final question. Both companies, DISH and EchoStar, have somewhat complementary S-band spectrum, different use cases in different geographies. Is there an opportunity to use that spectrum in a complementary way?

Not -- perhaps with some creativity, you could do that. And there might be ways you could do that. But they're different geographies, they're both -- they're still running with, both, geosynchronous satellite, but they're different geographies, so they cover different areas. So I think that S-band is a good valuable spectrum. And maybe there's things creatively you could do to build an ecosystem around S-band. It's maybe not there today, but that would be pretty tough to do given regulatory.

Your next question comes from the line of Mr. Giles Thorne from Jefferies.

I had 3 questions. First question was for Charlie, and then the second couple of questions for Pradman. I'll be interested to hear the extent to which Inmarsat's participation in the Ligado situation was part of your thinking around the Inmarsat approach. And then the second 2 questions for Pradman come to investment, financial investment from here. The first one is, ISRO in India has now basically signaled that it wants to make India a national market with the exclusion of all commercial satcom. Do you see that as an area for investment that's now off the table? And the second question was SES has been quite clear in their O3b mPOWER investments that they have the rights within the contract with Boeing to direct the sale of assets to a third party. And at the same time, they've also spoken about mPOWER being a much more holistic system with a deep level of integration between the ground segments, the antenna, the modem and the space segment. It feels like you're an obvious candidate for co-investing around mPOWER, and have you ever thought about that?

Okay. This is Charlie, I know the question was about Inmarsat. I didn't understand of specific question about -- so maybe I'll just answer the question generally. Did you -- was there a specific part of Inmarsat? I think (inaudible) -- yes, go ahead.

It will be interesting to hear you talk in general about the Inmarsat situation. And then the specifics of the question was how much was Inmarsat's involvement with Ligado to the cooperation agreement part of your rationale for the approaches?

The cooperation agreement, Giles? Okay. Okay, he seems to want to know -- I don't know -- I'm not -- I don't know what the cooperation -- maybe I didn't understand -- hear the question. But is that related to Ligado?

Yes.

Yes.

Okay. Sorry, Giles, you're really jumbled. The audio is not very good, but I apologize. But the general approach is first -- the first is Ligado is only one part of Inmarsat. Obviously, we don't have any more insight into that than what's public. Obviously, potentially some -- we thought there's some potential value in the contract if Ligado get their approvals. And if not, there's still probably some value -- if the spectrum reverted back to Inmarsat, there's probably still some value. So we valued some portion of that and are probably more The Street gave -- the investors gave Inmarsat. The Inmarsat bid was one where we saw a little bit more synergy maybe than analysts do in the 2 companies, both in connectivity, both in satellites, both in -- we have different frequencies, we don't really compete. Their technology, I believe, would benefit from Hughes' technology. I think their systems would be well served in some of the things that Hughes has gone on from their -- both their ground and space segment. They -- certainly, there's things like -- we both have S-band in Europe. We have some of the lowest-cost Ka-band capacities for in-flight over North America. Inmarsat, obviously, with their Global Xpress, has very good global coverage, but capacity constrained. So a lot of things that make some sense. We like the management team at Inmarsat, we've known that company for a long period of time. So it's was a good company. The U.K. takeover laws, unfortunately, required our discussions to become public. Normally, we have those kinds of discussions in private. If companies can find a way to put some assets together or work together, we took -- we like to do that in private. Many times, companies have honest disagreements as to valuations or -- and so things don't happen, but at least it's not in the public eye. I think that was probably detrimental to the -- the public nature of that was probably detrimental to the area. But we made a real offer, it was a 40% premium -- over 40% premium to where Inmarsat had been trading on an average basis. It was further complicated by the convertible stock that has a high premium take they actually paid, so there was another -- they really -- when you take into consideration, it was really more than 50% offer where Inmarsat had been trading. So it was an aggressive offer from our perspective, but not enough. But we don't have the inside information the Inmarsat management has. And obviously, when they looked at the value of their company with the knowledge that they have, they still felt that was an inadequate offer to allow due diligence. And on the other side of the coin, Inmarsat shareholders would have gotten a piece of EchoStar, which we thought if they went through due diligence, they would be pleasantly surprised as to the value they would be getting here. So we thought there might be something there. It turned out there wasn't in terms of the value that we believed based on the information we had, the value of Inmarsat. We don't really have any inside information there. So that was the thought process. We really thought the total company was nothing specific about Inmarsat, but that the entire company was attractive. And we thought what they had done as a management team was good. We think the way they position themselves strategically is good. We think it's a -- we still think highly of Inmarsat. And we hope that there's things -- outside of -- putting the company together, hopefully, there's things we can do together for the benefit of both our companies.

And Pradman, you want to address India?

Yes. Because, again, the problem with the line, I couldn't hear the question. Would you mind repeating the question?

Yes. The 2 follow-up questions, putting them much more succinctly were that ISRO in India has decided to make India a national market. So it'll be a market that's serviced solely by Indian-owned satellites, to the exclusion of all the commercial operators. So does that close the door? And the second question was would you coinvest in O3b mPOWER?

Okay. Let's talk about India first. The domestic national telecom policy requires an Indian-owned satellite for any satellite to be used in India. And our premise always has been that we would -- if we were successful in getting all the regulatory permissions, we would be an Indian-owned satellite and would meet that requirement. And we've been pursuing that for the last few years and continue to pursue that. And hopefully, one of these days, we'll succeed. But that's not a new policy, that's been there for over 9 years or 10 years. On the investment in mPOWER, that's something as I think Dave and Mike have mentioned a number of times. We constantly look at opportunities, and I'm sure that's one of the opportunities that, in the normal scheme of things, we have a business development organization that looks at that.

Your next question comes from the line the of Mr. Arun Seshadri from Crédit Suisse.

A couple of things from me. First, in terms of subscribers net adds in the quarter, just how satisfied were you generally? And if you could give us some color in terms of the makeup of the net adds and where you see net adds going in the near term?

Yes. It's -- as our satellites fill up and the beams fill up, our growth in net adds will flatten out. But as we mentioned earlier in the call, our focus is to grow revenues and grow EBITDA. And we're doing -- I think we are achieving good results in that. And I think going forward, we'll continue to show good growth in revenue and EBITDA, and that's what we'll focus on. The net subscribers will probably continue to flatten out in the next few quarters, again, because most of our very -- high fill beams are filling up.

Got it. Understood. And then as far as uses of cash, you discussed this in prior calls, you obviously have near-term debt maturities. Are you -- I mean, I guess, should we think about the base case being that you use cash on hand to retire the 2019 maturities? And then separately, potentially, a question for Charlie is in terms of the ownership, do you continue to own the converts and the equity of Inmarsat? And sort of what is your thought on that near term?

Let me take the first half of that question in terms of the maturities. We've got a maturity about 10 months out at this point, $990 million. And our intent at this point would be to use cash on the balance sheet to repay that. Obviously, we're still looking for meaningful investments across the board. So the situation may change. That we may decide to refinance that debt versus repaying it. But as we sit here right now, the plan would be cash on the balance sheet.

Yes, as far as investment, I think we've -- I think it's public now. We've been a long-term investor in Inmarsat for some time.

Understood. Can I ask one additional follow-up? And that is at the time you made the investment or at least was public knowledge, did the lower trading levels of, I guess, EchoStar's stock at the time the bid was out there, was that an influence at all in terms of thought process? And then in terms of like the discussion with Inmarsat, how deep did it go? In other words, was there a lot of back and forth? Or was it just sort of -- it just stopped with the offer made and that was that?

Yes, the -- I think we -- I think at EchoStar, we're really challenged in the sense that obviously multiple at EchoStar is much lower than the multiple of Inmarsat. So because EchoStar's stock was in our, at least, initial bid, that was challenging for us to be too much higher. And the other challenging part was the semi poison pill nature of the converts, where you -- the higher -- more you pay, the more premium you pay for that particular piece of paper. So again, I think the offer was $7 for Inmarsat. There was about another cent -- in my recollection, it was something in the neighborhood of $0.70. The real offer was around -- the way we looked at it, it was more like $7.70, it's just the $0.70 went to the convert holders not to the stockholders of Inmarsat. So again, in total, it was over a 50% premium. But they just have a capital structure that's not -- that was problematic from our perspective. And there wasn't a lot of discussion. I mean, based on U.K. takeover laws, unless they allow you to do due diligence, you don't really have much discussion. So we don't really have -- we have the same information of Inmarsat as people on this call do. We've just known the company for a long time, and think highly of them.

Your next question comes from the line of Mr. Walter Piecyk from BTIG.

Charlie, just what was the catalyst for Inmarsat? Was it just -- because you know the company for a while. Was the catalyst just the stock price was very low and it just looked like a very inexpensive asset to grab? Obviously, you have the synergies and all that, that you have known about for years. But what was the kind of catalyst for the offer?

I think the -- look, there's always been those kind of synergies, so we'd looked at the company over the years. But obviously, the catalyst was that the -- we believe that there was more value than the market was giving -- or more value in conjunction with EchoStar than the marketplace was giving to the company. So I mean, obviously, in -- at least where we are today, the marketplace is taking a fresh look at Inmarsat and seen some of the value that we saw there. So maybe the marketplace got a little too negative on the company, and they may be articulated -- done a better job of articulating where they're going. But we thought there was a fair -- more synergy than people thought by putting the companies together. And another thing, the other impetus was that I do think scale matters in the satellite business, and I think that virtually every operator out there today is subscale. And so if there's an opportunity for like-minded companies that have pretty good -- have good cultural fit, that there's opportunities for companies to get scale. And there are a ton -- there are a lot of business opportunities for satellites going forward. But most companies are kind of going off in their own directions. And most LEO guys are LEO guys. Most MEO guys are MEO. Most geo guys are geo. Most small satellite guys are satellite guys. People have different frequencies. It's all kinds of IT regulations that are difficult -- and yet -- and you've got a declining business as we knew satellite years ago, where you had big geo satellites with FSS frequencies that get big video customers, and that business has been in a decline for a while. So there's opportunity there for companies to work together, to get scale, to latch on to where I think a lot of the things and satellites are going. And I'm very positive about where satellites can go. But not any one company, in my opinion, gets there very well by themselves, including EchoStar. And so I think the board of EchoStar encouraged EchoStar to look at different things, and they continue to look at -- Inmarsat was one thing, but there's other opportunities out there.

You also mentioned in an answer to the prior question that hopefully there was things you can do that is a benefit of both companies. So I assume that the way these European laws work is you don't have to -- I mean, if you're not trying to buy the company and you're trying to do something, whatever, JV, maybe on the S-band or whatever on the network side, that those are a -- that's dialogue that can continue. And has that continued with Inmarsat? Or is that just kind of hopeful for the future?

Again, I -- somebody correct me if I'm wrong. I know we're prevented from talking to Inmarsat for 180 days from when our offer was rejected, start making another offer -- except under special circumstances. But I don't think there's anything that prevents us from talking about business things that would benefit both companies. Short of merger, I mean, if something were just normal course of business, where you're talking about things that we should do together. So I think that -- I think we know the company well enough that there are probably a few things we could talk about that makes sense.

Is there any progress that you've had on the regulatory front in terms of the S-band? Or is there anything you've learned from what they've done in the S-band that you think makes sense to try and replicate in Europe?

This is Anders Johnson. I think the 2 -- the path the 2 companies have taken in Europe are very different. The network that Inmarsat has developed for deployment of their S-band is for a very narrow use case, which has yet to be launched. Whereas, the path that we've gone down is a much broader opportunity for us. It allows us to develop multiple networks to ride on the platform, which is really what our intention was. While we have focused on the development of the MSS activities to-date and have not focused a lot of energy on the development of CGC, the hybrid network or the air-to-ground network that they have developed more heavily relies on the terrestrial component, which at this point, my understanding is fully built out. So while we have certainly kept an eye on what they're doing and the status of their regulatory licenses, we haven't necessarily seen anything in there that's a lesson learned from our standpoint.

Your next question comes from the line of Mr. Andrew Spinola, a private investor.

Charlie, there is a lot of optimism in the industry about satellites, opportunity in 5G. Some people feel that satellite missed 3G and missed 4G, but 5G is so complicated that satellite will play a big role. And given you have a well-articulated vision and are building this 5G network, both the narrow band and then the wideband, I guess, for lack of a better term, do you agree with this? Will satellite be playing a bigger role in your 5G networks on the DISH side?

Well, I guess -- I think 5G is a bit maybe of a buzzword. But certainly, satellites should be on some 5G protocols or just to be some scale there that's helpful. But the 2 big things I think satellites -- sorry, 3 big things a satellite can do in the future, including in the 5G world, is certainly connectivity. So Internet of Things, if you want to connect things, assets and move around the world, satellite is really the only economical way, I think, you can do that. Second is, I think that as broadband -- the satellite continue to improve on high throughput, and I think satellites can play a major role in bringing broadband to 3 billion people who don't have access to broadband today. And I think only satellite can get you there quickly in the next decade. And then I think there's things, as Pradman mentioned earlier, where there's satellite backhaul for cellular networks, particularly in more rural areas of the world where you can immediately -- you need to backhaul. And if you guys need a big backhaul, things like O3b make some sense. And if you've got lesser needs, things like the geo satellites can make some sense. So satellites have a way to -- have a big part to play in how you connect the world. And I think you have to have a broad view of the technologies that are necessary. And again, no one company has kind of not all the little pieces together today. And at EchoStar, we have some of the pieces, but not all.

And Charlie, you did mention video distribution. And one of the things that we've always struggled with on this call is trying to understand where the ESS business is going long term. And obviously, EchoStar usually can't comment on what DISH's plans are. But can you maybe help us understand what the long-term plans are for capacity on the DISH side and how that's going to translate to ESS?

Well, I mean, I think I'd answer the question generally. I think that video -- broadcast video, which has been kind of the mainstay of satellites for a long time, is a declining business for satellite. It's less -- it's become super competitive. There's excess capacity. And the world of television is not going away from broadcast, but it becomes alternative methods of terrestrial OTT that take away some of the needs of satellite capacity, right? So they're -- that's kind of the bad news, right? So I think EchoStar, we encourage EchoStar to look at that as a declining asset or a declining demand asset. And to -- but on the other hand, there's other things that are increasing in demand. And so you just -- you have to make your financial decisions and investments accordingly, which is why, at EchoStar, we're investing in high-throughput satellites, but I don't believe we have a broadcast satellite under construction. So -- and we're not -- we don't have too much legacy in that -- in the broadcast area. At least that hasn't been pretty heavily depreciated and been a solid return. So the key is not -- the key is to get -- is to be on the forward edge of where satellites are going and the best in those things. But where you see the next growth phase, and I think those are the things that the EchoStar team look at and are well positioned for, particularly with the balance sheet because they've got one of the strongest balance sheets in the industry. So to the extent that there's opportunities in satellite communications, EchoStar is very well positioned. We probably haven't been as good -- we've looked at a lot of things, right, and we're patient. And if we can't -- Inmarsat, which is one example, where there just wasn't the meeting of the minds of the 2 companies. But that would have been, in my opinion, a phenomenal merger of 2 good companies. So there other things, I think, that EchoStar

(technical difficulty)

and adjust particularly their balance sheet and the technology. So not too much -- they don't have too much legacy that's not helpful, and they've got lots of technology for the future.

Fair enough. And one last question from me. It's always been a little bit -- this question has been asked a million times from investors. But it's always been a bit of a head scratcher as to why you issue debt before you actually had a transaction ready to execute. And I just wanted to ask that, obviously, you have a long track record of capital -- good capital allocation, being a good steward of capital. But people have really questioned this balance sheet for a long time. And I think you also have a reputation for obviously being very cost-conscious as well. And there's been a huge cost to carry on this balance sheet. And I just wanted to understand the thought process behind that and why you would have done that.

Yes, that's a -- it's a good question. And from what you can see, I would probably -- if I wasn't on the inside, I'd probably have to same opinion. We issued debt because we did have a transaction in mind that was not public and ultimately didn't come to fruition. And that's -- and so we did have something in mind when we issued the debt, and the markets were -- took the opportunity in the markets to be prepared for that kind of transaction. It didn't materialize. Probably in hindsight, it was okay that it didn't. But -- and then at that point, we had -- our balance sheet was our balance sheet, and then we've had several other things that we try to do, we just haven't been able to get it done. So this isn't management team that's been sitting still on the corporate development side. But you have to have fair evaluations on both sides, and a lot of times you get into disagreements and then it becomes regulatory issues and things there that maybe you didn't foresee and tax changes and all kinds of things that may lead you -- may lead one company down a different direction. But -- and so, yes, we probably have left some money in the table from the capital structure, but we have made -- but sometimes, the best decision you make is the decision you don't decide to proceed with, and we haven't made any mistakes either.

But that would seem that...

I would challenge this team to go -- if there's something out there that makes sense, to go find it.

I appreciate that. Just one quick follow-up on that. Not to get into who that other acquisition was. But just if we're understanding your strategy, is the strategy primarily driven -- I mean, I think we understand it's value across the board. But it is it primarily driven by this view that there's a big opportunity in satellite, the global operators are all subscale? Or is your primary strategy in satellite driven by the underlying value in the spectrum that can be converted to terrestrial? If you can expand on that.

I would say at this point that I believe satellite is going -- satellite communications is going through a pretty fundamental paradigm shift. And that paradigm shift is the fact that launch costs are much lower now, which moves things like LEOs and MEOs, and to a lesser degree geos, into more economic models that years ago just didn't make sense, right? So that's a big piece of where I think -- so how could you structure satellite to take advantage of the advantages of the -- the advantages of LEOs and minimizes the disadvantage to the LEOs and same with MEOs and geos and those other platforms, so those things work together as opposed to separately, right? And obviously, with digitization and connectivity, there's lots of things that satellites need to do. So it's pretty complex, but there's lots of opportunity out there for reminding the management team to -- can think long term and take some risk. That's difficult for a lot of the operators because they either have challenged balance sheets or their shareholder base is more conservative or they're geographically limited or they got a lot of legacies that they have to protect. So we don't have those disadvantages at EchoStar, and it's really up to us to grow the business organically, which I think Pradman, in particular, and his team are doing. And then see if there's other ways to grow inorganically. If that's -- I don't know if that's a word.

Sounds good. (inaudible)

Our last question comes from the line of Mr. Chuck Goldblum from Hurley Capital.

So just wanted ask, Charlie, you'd mentioned considering EchoStar was issuing -- was going to issue stock as part of Inmarsat proposal, that they could benefit from the growth of the value. I guess the question would be here, any thoughts on being a bit more -- I don't want to say promotional, but a bit more out there as far as what you could see the values is in EchoStar and the value of the underlying stock. And as much as if the stock were higher, perhaps you could have offered more in the Inmarsat deal and the deal might have happened.

Well, I would say that -- I don't think there's any downside to EchoStar spending time in the street and making sure you understand the company, right? That's not my particular role, so that's really a question for management. But we're not promotional. Look, we're a low-key company. We're not -- we don't spend a lot -- we spend a lot of time running the company, we spend less time going to conferences and tell you about -- telling people about what we're going to do. And we're highly disciplined. And we -- the value of the company is going to be -- no matter what you do, whether you promote something and go up in price for a while, you're going to seek your level at the end of the day. But yes, there's no question that the multiple of EchoStar is materially lower than some of the others in the business. And that was a hurdle that we couldn't get over with Inmarsat. Otherwise, it would become detrimental to our shareholders, right? So there's only so far that EchoStar could go on that bid.

Well, yes -- look, I guess I understand. I'm okay with you guys not being promotional generally. But the point of the non-promotion perhaps hurt here. And here, you have a situation where EBITDA is growing great, yet the stock is down whatever it is this year. There's obviously a disconnect between what's happening in the real world and what's happening at EchoStar's stock. So there's a benefit and maybe the EchoStar management wants to respond. But there's a benefit in stepping up the promotional. And promotion implies something that it's not, but in short, really showing the value of the company on an ongoing basis to avoid missing out on value opportunities you could have had otherwise.

Yes. I mean, I think at the end of the day, I would have thought Inmarsat might have come back and said we want more cash than stock. EchoStar might have looked -- the board might have looked -- EchoStar's board might have looked at that and said that might have made some sense. So I think -- I don't think it was -- at the end of the day, became a hurdle. I think the ultimate economics that the Inmarsat board and management believe they have as a company, we just didn't offer enough to -- we didn't -- based on what we knew, we didn't think it was worth more than the offered. And they have inside information, they believed it was worth more. And that's -- those deals -- that's the way deals don't happen sometimes. And somebody will be proven right in the future and somebody will -- somebody missed an opportunity on one side or the other, but that doesn't mean that we shouldn't be still working together and looking it with them and looking at other opportunities. And EchoStar's management has to decide how much time they spend with their resources explaining -- I mean, I would imagine most of the people in this call are further capable of analyzing EchoStar and what the valuation might be.

Thank you, everybody. We're ready to wrap up the call. Appreciate everybody participating today. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.