EchoStar Corp (SATS) 2018 Q4 法說會逐字稿

Hello, and welcome, everyone, to the EchoStar Fourth Quarter 2018 Earnings Call. (Operator Instructions)

I would now like to turn the call over to VP, Investor Relations, Deepak Dutt.

Okay. Thank you, operator, and good morning, everybody. Welcome to our earnings call for the fourth quarter and full year 2018.

I'm joined today by Mike Dugan, our CEO; Dave Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Office and President of EchoStar Satellite Services; and Dean Manson, 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.

So 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 facts, constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by the forward-looking statements. For a 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 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 reports and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

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

Thank you, Dean. Good morning, everyone, and welcome to our earnings call. 2018 was another good year for EchoStar, although our solid financial results are somewhat masked by a couple of noncash items in the fourth quarter. Dave Rayner will discuss these items in more detail during his comments.

I'm convinced that we are well positioned to take advantage of the sweeping changes taking place in the satellite industry. We intend to be the leading global connectivity provider for people, enterprises and things. We have already made great progress in enabling connectivity for people and enterprises and believe that we are best positioned to provide connectivity for the evolving Internet of Things.

Let me now turn it over to the management team to expand on their specific business segments. And before closing, as usual, we will have questions and answers. So here, Anders, please take over from ESS.

Thanks, Mike. Good morning. ESS fourth quarter revenue was $82 million compared to the $96 million last year. EBITDA was $69 million versus $73 million last year.

ESS 2018 revenue was $358 million compared to $392 million last year, and EBITDA was $308 million compared to $315 million last year.

As we mentioned last quarter, the year-over-year revenue decline that ESS experienced is primarily based on the previously disclosed termination by DISH of the lease for the EchoStar 7 satellite. We expect a difficult environment for our commercial FSS business and pressure on rates for U.S. government service opportunities will continue through 2019.

On the EchoStar Mobile front, the team continues to make good progress in bringing innovative MSS products to market and in preparing to build out our next-generation hybrid network for IoT and 5G services in European Union. With primary focus on expanding MSS operations in the EU, over the last year, we have grown EML commercial team, broadened MSS distribution relationships and evolved our MSS products and services, including the development of a new lower-cost mobile terminal optimized for M2M and IoT services that we will launch later this year.

We're also making significant progress in the development of new platforms and services to empower our distribution partners to rapidly expand their offerings in the mobile M2M and IoT verticals. Looking further down the road, we are hard at work in developing new technologies to integrate S-band satellite services into 5G networks and dramatically reduce the cost of satellite IoT services. We also plan to leverage technology developed by our affiliate DISH network to enable exciting new hybrid services, utilizing our complimentary ground compartment -- component authorization.

Over time, we expect that EML products and services will be integrated into new global hybrid networks leveraging multiple satellite and terrestrial technologies.

I'll now turn it over to Pradman.

Thank you, Anders. I'm delighted to say that financially, Hughes had a solid fourth quarter and fiscal year 2018.

Q4 revenue was up 10%, and EBITDA was up 12% over the same quarter last year. In full year 2018, revenue grew 16%, and EBITDA was up 27% over 2017.

The strong performance consolidates our leading position in terms of both market share and EBITDA. Dave will present more financial information in a few minutes.

We focus strongly on consumer satisfaction, and I'm pleased to report that satisfaction levels remained high in the fourth quarter.

For the fourth consecutive year, HughesNet was ranked #1 among all ISPs in meeting or exceeding advertised download speeds in the latest FCC's Measuring Broadband America report, which was published in December.

As another indication of customer satisfaction, we managed to keep churn low and ARPU remained high. This allowed us to continue to grow revenue and earnings, despite many beams on Jupiter 1 and 2 turning up.

We ended the year with approximately 1,361,000 HughesNet subscribers, an increase of 153,000 subs over fourth quarter 2017 and 29,000 sequentially over the third quarter of 2018. Increasingly, much of our subscriber growth is coming from South America, and we expect this trend to continue.

Jupiter 3 satellite is currently under construction, with an anticipated in-service date in 2021. It will add significant additional capacity and enable us to offer service plans delivering 100 megabits per second of download speed to the consumer while maintaining the high quality and competitiveness of our service for unserved and underserved regions of the country. The new satellite will leverage the latest satellite and system technology to lower our costs a bit and maintain pace with the increasing usage from our customers.

In consumer services, we lead the market in the U.S., where today, HughesNet has been chosen by 69% of satellite broadband subscribers. With the launch of the Hughes 63 West hosted payload, we expanded our service footprint in Colombia and Brazil and launched service in Peru and Ecuador, leveraging the knowledge, experience and infrastructure that we built in North American and Brazil. We also plan to launch service in additional countries soon.

In the Aero IFC business, we've continued to make good progress. Our global leader partner has over 1,100 aircraft outfitted with our terminals. In the fourth, SES ordered additional gateways and some of our Jupiter 2 capacity over Mexico to initiate service for routes over Mexico and the North Atlantic for expansion of Thales in-flight IFC service footprint. With this expansion, combined with the earlier Global Eagle Jupiter Aero awards, the range of our Jupiter aeronautical platform has now increased significantly and covers routes from Mexico to Canada, the North Atlantic Europe and Russia.

Based on the success of our Jupiter aeronautical platform, our partnerships and ongoing activities in this segment, we expect both the scope of Jupiter Aero coverage and the number of Jupiter-equipped airport -- aircraft deployments will continue to grow throughout the year. We believe there's continued growth opportunity in this segment in the years to come.

A key to the strategy behind our leadership and margins and market share is our use of a single broadband platform, the Jupiter platform, that enables all of our applications in any region of the world. If you want broadband connectivity in India, Brazil, Chile, Colombia, Peru, Mexico, U.S., Canada, Europe, Russia, Indonesia, Malaysia, et cetera, et cetera, you can use the same platform. This broad coverage reduces recurring and nonrecurring costs and, thus, improves our margins. In addition, the same platform serves various applications and market segments from consumer to government to mobility and enterprise.

As we continue to innovate, any enhancements for one segment become available to the benefit of all segments. For example, our aeronautical terminal relies on the same Jupiter platform that enables fixed residential and enterprise applications.

From a technology perspective, our Jupiter platform continues to be the de facto worldwide standard for satellite broadband operators. Innovations we've introduced in the Jupiter system includes wideband DVB-S2X and our powerful System on a Chip, both of which enables very high overall efficiency, fast packet processing rates and high data throughput.

It should be noted that our competitors talk about having this type of ubiquitous infrastructure by 2022, '23. We [agree]. And a few examples of the acceptance of the Jupiter platform are recent orders from Botswana Telecommunications Corporation, SatCoNet Tanzanian VSAT operator, PSN in Indonesia and the Russian Satellite Communications Corporation.

Our Indian subsidiary has been giant strides in the petroleum industry with the Jupiter system. It won long-term contracts from all 3 state-owned oil marketing companies in India for a total of 19,000 sites. Under separate contracts, Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum chose the Jupiter platform to upgrade network connectivity nationwide to increase transaction speed, monitor oil tanks, reduce pilferage and deliver accurate real time data.

In addition, the largest private oil marketing company in India, Nayara Energy, awarded Hughes with 3,000-site contract for retail automation connectivity using the Jupiter platform.

Another exciting market that we have penetrated very excitingly is community WiFi hotspots. This is an approach to reach rural and unserved customers by means of a broadband VSAT installed at very remote locations. These hotspots allow governments to bridge the digital divide and to allow local retailers to sell byte size data packs at an affordable price. We and our partners have deployed over 32,000 VSAT-enabled hotspots in Brazil, Mexico, Russia and Indonesia.

From a service provision perspective, we're looking beyond our current operations in the U.S., India, Brazil, South America and Europe, and we're looking for opportunities for commercial and strategic alliances with local partners and to expand the list of service providers using our platform.

At the end of the year, we commenced our joint venture with Yahsat to provide services in Africa and the Middle East. The initial focus of the JV is on direct-to-premises, services to homes and small-to-medium enterprises, service to community centers and schools under local government programs and community WiFi and hotspot solutions. We continue to actively explore other similar JV opportunities elsewhere in the world.

So as you see, we have made a significant progress in our vision of being the leader in connectivity. We are leaders in market share, revenue, earnings and geographic market coverage. All in all, we had a very strong quarter and year, and I'm looking forward to another exciting year in 2019.

Let me now hand it over to Dave.

Thank you, Pradman. Before I get into our quarterly results, I want to highlight 2 items that significantly impacted the results. First, consistent with the new accounting provisions relating to investments, which were adopted at the beginning of 2018, we are required to mark our investments to market and record the resulting gains and losses. As expected, this has created volatility in our financial results throughout the year. As you know, the market experienced significant swings recently, especially in December when there was a downward movement in the broader market prices. Our investments were also impacted negatively, resulting in a loss of $46 million in Q4, more than offsetting gains earlier in the year. Those investments have recovered so far in 2019 and are currently recovered to the point that they exceed the full year 2018 losses of 8 -- $12 million and more.

The second item has to do with the valuation of our 45 West orbital slot over Brazil. As you know, for several years, we attempted to identify a partner for development of this BSS slot. We determined that plan will not be successful and, accordingly, have recorded an impairment expense of $65 million in Q4. We intend to redeploy EchoStar XXIII, which is located in that slot to a revenue producing role.

Now the quarter's results. Consolidated revenue in the fourth quarter was $531 million, a growth of 5% over the same period last year, driven primarily by the Hughes consumer and international enterprise growth, offset partially by ESS.

EBITDA in the fourth quarter was $85 million compared to $207 million last year, with the growth in EBITDA at Hughes being more than offset by the unrealized losses on investments and asset impairments on the 45-degree slot as well as a reduction in ESS EBITDA.

Net loss from continuing operations was $112 million in Q4 compared to net income of $312 million last year, once again, driven primarily by the items mentioned above.

As a reminder, Q4 last year included a $304 million positive impact related to Tax Cut and Jobs Act.

Capital expenditures in the quarter were $140 million compared to $156 million last year, with lower satellite-related spending and lower spending on consumer CPE being the primary reasons for the lower CapEx.

Free cash flow in Q4 2018, defined as EBITDA, excluding the noncash investment losses and impairment minus CapEx, was positive $56 million.

Turning to the segments. Hughes revenue in Q4 was $445 million, as Pradman said, a 10% increase year-over-year, driven by growth in the Hughes retail consumer service and international business, offset partially by North American enterprise and the wholesale consumer business.

EBITDA in Q4 was $148 million, a 12% growth over last year, primarily from the revenue gross margin growth, offset partially by certain reserves against bad debt.

ESS revenue in Q4 was $82 million, down 15% from same quarter last year, primarily due, as Anders mentioned, to the termination of the lease on Echo 7 in June of 2018.

EBITDA was $69 million in Q4 compared to $73 million last year as a result of the lower revenue, partially offset by the termination of lease on AMC-15 and certain impairments in Q4 last year.

Corporate and other EBITDA in Q4 was a negative $133 million compared to a positive $0.6 million last year due to the higher unrealized losses on investments, the asset impairment, lower equity and earnings from unconsolidated entities.

Our balance sheet continues to be very strong with $3.2 billion of cash and marketable securities as of year-end and approximately $322 million of net debt, inclusive of capital leases. In the quarter, we repurchased in the open market $69 million of our secured notes that mature in June of 2019. Our intent at this time is to repay the remaining outstanding balance in these notes out of current cash.

In addition, during the quarter, we bought back 953,000 shares of our stock in the open market.

Let me now turn it back over to Mike.

Thank you, Dave, Pradman and Anders. As I indicated at the start, 2018 was a solid year, and myself and the team are looking forward to an exciting 2019.

We are now ready for the question-and-answer session, so let me turn it back over to the operator.

(Operator Instructions) And our first question comes from the line to [Chris Lytle] from North Sound.

[Chris Lytle] here. Just a quick question. The talk around ESS and Europe, that's the first time you all have talked about integrating with DISH in terms of providing connectivity from a device standpoint and not necessarily a consumer. Could you expand on that a little bit in the sense of where are you spending money now to develop that and where do you see that going in terms of ultimately integrating with DISH and what they're trying to do from a connectivity standpoint?

Well, this is Anders Johnson. I think given the strategy that DISH is pursuing regarding their NB-IoT here in United States, a collaboration at the device and applications level seemed obvious to us. So as many as standards necessary for those products to be produced, we're doing it in a coordinated fashion looking more at the global opportunity as opposed to a regional opportunity to share in both the costs at the development stage as well as a rollout to as a large market as possible.

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

Couple of questions. First, I appreciate that the Hughes segment grew year-over-year, but obviously in a recurring revenue model, there's a lot of focus also on quarter-over-quarter. And it looked like the Hughes revenues were basically flat quarter-over-quarter, and EBITDA was actually down quarter-over-quarter. Can you help us understand what might be going on there, consumer versus enterprise, U.S. versus international? There's probably a lot of moving pieces there that are maybe masking what is growth markets versus new markets.

Yes, Rick, let me try and address that. As you well know, there are a lot of moving pieces and a lot of components. It's not as straightforward as it might appear. Certainly, on the consumer side, both in North America and South America, we continue to grow that business. Sequentially, we had -- I got to be careful here, certain customers that we have contracts for development and equipment that we either slowed down or stopped work in Q4 because of their financial -- or concerns that we had about their financial ability to pay us. That also, obviously, impacted EBITDA as a result, and it also impacted bad debt on one of those customers specifically. In addition, as we started up in new countries in South America, startup costs that we incur, clearly, the first customer that we sign up is not a positive-margin customer, and those businesses are going to scale just as Brazil has scaled and, eventually, contribute to the bottom line. But in the near term, those are investments in those new markets and they're startup costs, both operationally and from a lack of scale standpoint. So this is -- for the most part, those costs in South America we view as very positive, they're investments that we're making in future revenue and margins. On the enterprise customers that we're concerned about, we think those will be -- some of them will be resolved, others not so much.

And when you mentioned the reserve for bad debt, was that taken as a contra revenue? Or was it an expense item? And can you kind of put a magnitude on that for us?

Yes. Well, it was more than 5, less than 10. It was -- there was absolutely increase in bad debt overall [as the size] of the consumer business. So I don't want to say the consumer business was excluded from bad debt. Obviously, bigger revenue, more bad debt there, and it is flowing through G&A. On the enterprise customer, it also flows through G&A and really related to revenue that we recognized in prior periods.

Okay. And obviously, this tees up the natural question of more disclosure. Have you thought about are these businesses getting large enough at some point to break out U.S. versus international? Or some more clarity there to help us kind of peel back the onion to get at -- actually see the growth versus the startup business?

Yes. We constantly discuss that, and we've decided not to this quarter, because, frankly, it raises more questions than it does answers. As you start looking at the dynamics on a smaller scale, if you will, between Brazil -- let's say, between South America and North America. I think we'll get there -- as we've said previously, we think we'll get there, but it's got to have meaning before we put it out.

Okay. And then last question for me is in the 10-K, there was a new language in there about the S-band that you're looking at seeking additional licenses or opportunities to align with other licensees. Can you share with us kind of what your thoughts are there as far as what you need to own, how could you maybe align or partner with people? Just kind of help us understand what that new language might be suggesting to us.

Well, this is Anders again. I think it's reflective of us identifying a broader opportunity, and a lot of that opportunity is going to be dimensioned by the footprint. So we don't necessarily need to own everything. But we want to make sure that we're aligned with parties that will give us the greatest reach possible as some of these new commercial markets develop.

And as far as time line, I know the world radio congress is coming up this year or late this year. But how should we think about the opportunity to kind of put some more meat on the S-band bones over the next 1 or 2 years?

Well, I think we've had our S-band licenses now for the most meaningful one for 5 years. So it's certainly taking a long view of the opportunity. I think to recognize your point, the world radio conference and, equally important, the release of some new standards early in 2020 will probably stimulate the actual manufacture of devices and the rollout of products associated with it. I'd look at it more in the intermediate term of 2020 being the start and '21 and '22 being the more meaningful periods of development.

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

I just had a question on Hughes. When I go back and look at the launch of EchoStar XVII or EchoStar XIX, you were either a few quarters ahead or a few quarters behind ViaSat's launch, but candidly, you can't even really see in the net adds of the financials you guys put up that there was sort of any implication of that at all. And my question is, as we get ready for ViaSat-3 launching in 2020, and you guys said you're going to launch your next satellite in 2021, do you think it's the same dynamic? Or do you think we're hitting a point where it becomes a little bit more 0 sum or there's not enough incremental capacity for you guys to sort of meet latent demand, if you will, that's out there?

Yes, I'm not sure, Jason, that I understand your question. But fundamentally, the dynamics of the market I don't expect any difference in the sense that as you use up all the beams, you saturate the amount of subscribers that we can handle with those beams and those satellites. So the curve starts flattening, and then when you launch the next satellite, you will pick it up again for a couple of years and, hopefully, we order the next satellite at the time so that we don't necessarily have the period of flattening be as long as it -- as it has been [reaching] Jupiter 2 and Jupiter 3.

I guess, my question is...

And numbers should remain the same. Sorry, go ahead.

No, no, that's okay. So does that mean you think you'll see even more unit growth or the financials will just work out because you'll end up having a higher-priced product? We may not see as many subs, but you'll just get more ARPU as they buy higher-end products?

No, I think you should see more unit growth, definitely, because you'll have more capacity. And the market -- as we have mentioned, the penetration so far has only been about 10% of the available market. So plenty of room to grow number of subs.

Okay. The reason I -- It just seems like -- if indeed the penetration rate is only 10%, it just seems like all of your capital should just be thrown towards the North American market where the ARPUs are high and there's this huge pent-up opportunity. I mean, every time you launch a North American satellite, it seems to work for you, and it seems like you're spending quite a bit of capital going to Latin America. We're talking about Europe and, I don't know, if it really is 10%, just let's focus on the North American untapped market. Why is that not the right answer?

Yes, because we are not limited by capital, right? We are addressing the market in Brazil, for example, that's growing very nicely. Yes, the ARPU is lower than North America, but it's still a very good market. We make good margins. So I think we'll continue to address all these markets. We have, for example, capacity available in Latin America, which we don't have now in North America, where we are saturating. So the advantage of that is that for the next couple of years, till we get Jupiter 3 launched, we'll see much more growth in Latin America than you'll see in North America. So the diversity of the marketplaces is an important element in our strategy.

Okay. Jason, this is Dave. Let me just add one more piece to that. We've conceded previously that we underestimated how quickly Jupiter 2 would sell, and we were probably a little bit late on starting Jupiter 3. You can build more capacity, throw it on earlier, I mean, once again, remembering that this is a long build cycle on these satellites. But the reality is if you do that, you're going to be disadvantaged in the long term because the cost per gig on these satellites comes down dramatically with each generation. So we can go spend CapEx and go build, yes, 2 Jupiter 3 simultaneously and have that capacity available longer. But the reality is that a subsequent satellite is going to have better technology, better economics and so you want to try to stage things appropriately so that you're getting the best returns on the capital investments. Ideally, Jupiter 3 would be sooner than what we're going to realize, but we conceded that now for some time.

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

Giles here from Jefferies. I had a handful of questions, too. The first one was around Mexico. And seeing DISH Mexico strike terms with Hispasat full capacity for residential broadband service didn't make any sense to me. I didn't understand why you weren't in the frame for that. So if you could fill in the gap of my knowledge there, that would be useful. Yes, that would be one question at a time.

Okay, this is Mike. Obviously, we don't directly control DISH Mexico. We certainly have capacity in Mexico that could be used. We constantly work with them on what we have to offer and so on, but they've made that decision, and we're okay with it. So we're pursuing other options for the capacity we have in Mexico. We actually have, part of it already, been producing revenue with a customer for a part of it, and we're working very hard to include the rest of that. Whether DISH Mexico will be part of that is yet to come.

Okay. But there was definitely a conversation around that?

Oh, absolutely. I mean, Yes, you can have confidence. We work with DISH Mexico on a daily and weekly basis. And sometimes people do at least financially that we find we can't do because we manage things a little bit closer than other people do. So the Hispasat probably made a little better offer to them than we were willing to do. Our capacity is very valuable, and our equipment is high quality. And that's about all I can say.

Understood. Turning to Africa and Yahsat and the JV there, you've put $100 million -- well, that's my first question, $100 million, was that an amount of money you put into the JV in return for equity? Or was that an amount of money you gave to Yahsat to buy a stake from them in the JV? I'm guessing it was fresh money into the JV. Was that right?

Yes, yes, it was put into the JV.

Okay. So there's $100 million cash sitting in that JV. And presumably, that's going to fund a large marketing and distribution campaign. Is that right? And if that is right, what early conclusions are you coming to about distribution?

Actually, there's more than $100 million because there's about $160 million of cash in the JV because of some of the insurance payments on Yahsat-3. But having said that, this money allows us to have some ambitious expansion plans in Africa. We hope that we'll buy more capacity either hosted payload or new satellite, and we just kicked it off on January -- early January. So it's only been a month since the JV has been in operation. But we're very optimistic that we'll rapidly start filling up the capacity available in Yahsat-2 and 3 and start our expansion planning.

And Yahsat has been operating that for years and years. So what are you bringing that's going to be different?

Well, one of the reasons they were interested in doing the JV with us is to use our expertise in marketing and distribution and to see if we could repeat the success in North America. We will use some of the same knowledge and techniques of distribution. So hopefully, we have reset the marketing plans and distribution plans and let's hope the experience that we bring to the party will allow us to grow that business in Africa.

And Giles, the other thing that's also different is the introduction of Yahsat-3, the new satellite, into the market with new capabilities.

Understood. Coming back to the question of the S-band. Anders, if you could define -- I mean, we ask most quarters what's the latest and what are you doing and so on. But if you could kind of top-down define your ideal setup for the deployment of that license, what is it? Define that vision for us. Yes, very open question.

Well, I think as previously stated, our initial focus here has been to focus on the MSS development of the opportunity. And given what's happening in the evolution of networks overall and the opportunity that the whole 5G environment will create the MSS opportunity for us, we certainly consider significant. How that eventually will carry through in the development of CGC portion of the licenses we hold in Europe has yet to be fully defined. But for right now, we're definitely focused on the MSS components and the opportunity there and have not really focused on CGC yet, although I would expect that naturally will follow as the definition of some of these 5G hybrid capabilities becomes clearer.

This is kind of what I'm coming to, which is everything you've said, you've said before, and it's perfectly understandable. But here is your opportunity to define what you would like to see be the outcome.

We have a lot of thoughts regarding that. We're not just sharing it right now.

Okay. Fair enough. Last question is then, obviously, it's a very lazy question, so do forgive me. But -- and the window [from my side's] opened up again. It feels like that business and that equity story hasn't done much to reduce its candidacy as a target. I'm not going to ask you if you're going to bid again, but I am going to ask you what could be a catalyst for bidding again? I mean, that was a situation you walked away. What could be the catalyst for reengaging?

Yes, Giles, as you can certainly understand, we don't have any comments regarding that.

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

Dave, I just want to follow up on the Hughes margin question that Ric was asking. They were sequentially down about 350 basis points and understand there was a lot of stuff thrown in there with bad debt and startup cost. But just as we model out into 2019, I assume both of those issues should resolve to a degree. And are we looking at the margins continuing on the prior trend kind of the 36 moving to 37 level? Or should this impact drag on for another quarter or 2?

I think you can probably expect a dampening impact from the startup, and a lot of it really factors into how successful we are in South America. If we're growing subscribers aggressively and we're meeting a lot of success in these new markets, we're going to be incurring subscriber acquisition costs upfront. And as you know, that's going to have a dampening impact on margin. So it's sort of damned if you do, damned if you don't, right? We all want to have constantly increasing margins, but investing in new markets and new subscribers comes at a cost and, frankly, I hope we do have a little bit of a dampened impact on margin because that bodes very well for the longer term.

And that should also show up in the net adds continuing to rise then?

Yes, we will show up in net adds, and it should also show up in revenue.

Okay. And just a specific question on Telstar 19V. I know you kind of -- you bought the entire payload there, but you're not fronting the entire -- or are you fronting the entire cost of that on day one when the satellite turned on?

Yes, we -- the hosted payload that we are using, which is not the whole satellite, we're fronting the costs of the hosted payload upfront.

That was also reflected in the Q4 step down, correct?

Step down in CapEx, yes.

Right. But I mean, in terms of margins.

Yes, I mean, there will be a little bit of operating costs with that and, certainly, there are gateways and other ongoing OpEx associated with operating a satellite, certainly.

Okay. A question on EchoStar XXIII because it's a little bit of an unusual satellite with Ka and S-band, again, but also it's a broadcast satellite, if I remember correctly. And that somewhat limits the utility or, I guess, the orbital slots you may choose. Have you made some determination or are you still in discussions with who might want to use that capability because it's not a native capability you can deploy in terms of to the end customer?

Yes. I mean, just to be clear about the spacecraft, it's a Space Systems/Loral FS-1300X. So it's a very large powerful DTH spacecraft. It's strictly a Ku BSS frequency space station. So it does not have any S or Ka capabilities on board. And in fact, when we designed it, we contemplated future deployments of it. So from a capability standpoint, it's pretty much a Western Hemisphere Region 2 Ku BSS spacecraft. So it's capable of performing missions both into North America as well as South America. So we're obviously going to be in discussions with the usual suspect about onward deployment opportunities.

I understand. David, question for you. I mean, I was surprised that the buyback was not larger, given where your stock is trading here. Is there some reason that you're not deploying cash quicker?

The buyback, which we have -- best to my recollection, we've never done. We might have done some [spins] back in 2008, 2009 type, right, but certainly not recently. So this is our first buyback of any size that we've done. And it's being done under parameters based on Board of Directors' guidelines.

And if the stock remains at these levels, is the board perhaps more motivated to get more aggressive with the buyback?

I don't think I want to discuss what motivation the board may or may not have or what our plans would be in that arena.

Got you. And so final question, back to Anders, on the IoT and M2M side of the market. Can you just clarify the type of service because it can range from very narrow band, low cost type of IoT service to more of a high bandwidth application for trucking and transportation. Where exactly are you looking to position the service with your customers? And have you established distribution channels for going to market?

Yes, I think it's a little too early, Chris, to talk about the products and services themselves, but I -- I mean, just to give you some guidance, I'd focus more on the lower end, given it is MSS spectrum. We've got 15 megahertz in theater up and down. So it's certainly not heading towards a medium or broadband capability. But I think the market is going to emerge here, and there will be the need for a meaningful satellite component for many of the applications and services that people are talking about. So that's where we're trying to position ourselves to capture those opportunities.

One more question if I can circle back to something David said earlier about the rate of technology progression with the staging of satellite acquisitions. You haven't given a throughput or any type of capability around Jupiter 3. But as you look at developments and onboard processors and beam forming in other technologies, I mean, do you expect the rate of improvement that we've seen over the past decade to improve -- to continue for the next decade? Or are we starting to see either due to size of satellite or available spectrum the rate of growth starting to slow in terms of the satellite improvements for your Jupiter 4 [call it?]

I'm going to turn that over to the engineering expertise of Mr. Pradman Kaul.

I think the rate of technology improvement is pretty steady. And so I would expect that Jupiter 3 will reflect that growth in capacity, cost of that, the speeds, the various parameters that are very important to us. We've said previously that, for example, the capacity of the satellite will be greater than 500 gigabits. And that's a good measure because that drives not only the capacity, but then the rate at which each receiver receives. So we expect that we'll have over 100 megabits download speeds into each terminal. So all of those will get reflected in the various parameters that dictate what kind of services we'll be able to offer and the fact that when you have that much capacity in a satellite, the cost a bit goes down also. And so all of them contribute to the quality of the service that we will be offering.

Your next question comes from the line of Nitin Sacheti with Papyrus Capital.

So I guess, almost everything's been asked at this point. But just wondering in terms of a follow-up on the beams and Jupiter 2 being full, can you just give us a sense as to whether or not they're full in the sense that they are maxed out fully? Or is there sort of a conscious decision for even in certain beams not to fill them up totally with consumer broadband capacity and will reserve some of that for maybe other uses in the future? And then just in terms of -- I know that, Pradman, I was in interview with you late last year on India-related opportunities for building and deploying a [Ka-band] satellite. Is there anything there? And finally, Dave, I just wanted to make sure I understood correctly what you said earlier. Are you paying off the sort of full balance $990 million of the 2019 debt when it comes due or are you'll refinance it?

Let me answer that piece, and I'll turn it over to Pradman for the first 2 parts of the question. Yes, our intent would be to repay the 2019 maturity, not refinance it at this point. I think we've got lots of capabilities to refinance it if we wanted to do so, but at this point in time, we'll just repay it.

Yes, let me address the question on India. We are very keen to -- and we're working hard with the Indian government and ISRO to get a license to put a [Ka-band] broadband satellite over India. I think we are in a good position when and if the Indian government makes a decision to issue such a license. We're in a good position to be right upfront on the list of companies that will get that license, but at this stage, we have not crossed the final hurdle. So we're working at it and, hopefully, one of these days we will succeed. What was the first question again, Nitin?

It was around just beams filling up on Jupiter 2.

Yes, yes, yes. So basically, we tend to fill beams up to capacity. But then there's always churn that creates a little capacity, and then we fill it up again. So it is a constant filling action going on, but essentially, the beam is full. The only area where we reserve a little capacity is for our aeronautical business in certain beams. And -- but for practical purposes, when the beam is full, it's full.

Right. And Pradman, we ought to add, as we manage capacity within the beams, customer experience is very key, and we do our very best to make sure the full position for beams still supports what the customer expects, and I think our constant awards for that service and best expectations by the customer, I think, we're doing the right thing. We value every bit, and we try to deploy it in a right way. And we will not say that every beam being full is set at the same points because that's just not the way it works.

Okay. Just one additional follow-up. Just looking at Hughes equipment revenue, should we infer that OneWeb might not be deployed as quickly as people have originally expected? They might be having any sort of problems there?

I don't think we would infer anything regarding OneWeb or any other specific customer.

Our next question comes from the line of Jonathan Jacoby with Tabor.

Just 2 quick follow-up questions. One, I think we all understand that sort of margin, call it, in the near to somewhat midterm are going to be under some pressure. But what are the long-term margin targets for the business as you sort of work through the investment cycle? And then secondly, do you have any monetization plans for DISH Mexico?

In terms of the sort of long-term margins, yes, a lot of that really is driven by the mix and the distribution methods. What we have in North America, for instance, incremental margins on a consumer retail subscriber are very high, about 50% incrementally. And so as we grow that business, obviously, there is very, very strong opportunity for margin expansion. There's other aspects to our business, the equipment sales, the development efforts with specific customers. We don't see those kind of margins, which is why we're so excited about the consumer business and shifting more to a recurring revenue. South America incremental margins, we're approaching from a margin standpoint those kind of numbers in Brazil right now as we started to achieve scale. Obviously, it'd be smaller markets, such as Colombia, Ecuador, Peru and other countries we launch in. Yes, realistically, I don't expect to be able to get to those margins because I don't think we'll be able to achieve the same kind of scale that we see in North America. So hopefully, that gives you a kind of indication without giving you specifics. As we start looking at other joint venture kind of markets, be it Africa, be it other places, really, the distribution methods are going to be different. If we're selling capacity, if we're selling equipment and letting our partner run the local operations, it's going to give us a different margin mix than if we were running it ourselves. But obviously, we wouldn't have the same kind of capital investment in those markets. DISH Mexico, yes, I would say, just like any of our investments, opportunities to monetize versus continue to operate them, we would always evaluate that, but we don't have any specific plans at this point.

Operator, I think that brings us to the end of the call today. So let me close by saying thank you, everybody, for participating. Good day.

This does conclude today's conference call. You may now disconnect.