SATS - Echostar

[heth247]

I thought Q1 was good.. Hughes EBITDA up 18% y/y and some good strategic partnerships announced.

 

Re capital allocation, I agree with you about the share buyback.  Its been a constant frustration of SATS shareholders that they are not willing to more aggressively buyback stock.  It has been noted that Charlie is storing dry powder for upcoming opportunities that he thinks will be very compelling but that argument gets worse with the lower share price increasing the ROIC on repurchases.

 

I don't mind the debt repurchase as the they are repaying the 2019s this summer.  If they can buy those now at a small discount, I am fine with that.  Repaying the 19s should be positive as it will make the balance sheet less inefficient (currently >3bln of both debt and cash but that will decrease by 900mln post repayment).  This balance sheet inefficiency was a result of the company raising debt in advance of an acquisition that didn't pan out. 

 

The repayment will be very accretive to FCF due to having ~64mln lower interest expense.

 

Not exactly $64M because they also loose some interest income, the net should be less than $64M,  right?

 

What do you think of the FSS part, will the revenue decline stop at some point?

[whistlerbumps]

Agreed.  Not sure what they earn on their cash but you can remove that and taxes from the interest expense number I quoted to get a net figure.

 

FSS is still lapping the removal of Echo VII last Q3.  Q/Q FSS was effectively flat but will decline y/y again in Q2 and then less in Q3 as they lap Echo VII removal. 

[Sombunall]

I agree with whistlerbumps. The quarter was a good one in my view. I thought it was interesting that they broke out the Latin American broadband customers for the first time ~150,000.... Hughes enjoyed an 18% increase in EBITDA, also nice.

 

The balance sheet inefficiency is a crusher, but will alleviate itself a bit as the June notes are due. The downside to the release was -- no surprise -- no buybacks.

 

There is a lot going on at Hughes -- I highlighted the following from the call -- which should translate into many more quarters of such growth for Hughes:

 

Pradman P. Kaul, EchoStar Corporation - Director and President & CEO of Hughes Communications Inc [6]

 

Thank you, Anders. It's been such a long time since we've seen excitement about the space industry. In a recent report, Morgan Stanley estimates that the global space industry could exceed $1.1 trillion of more revenue in the year 2040. And that the most significant short and medium-term opportunities may come from satellite broadband Internet access. And that satellite broadband will represent 50% of the projected growth. Satellite broadband is precisely the sweet spot that we operate in.

 

At Hughes, our business is growing at a healthy rate because these opportunities existed in every market sector, consumer enterprise and government. And while much headroom for growth exists, I'm proud to say that we have the largest satellite-based Internet service provider in the world and we continue to be the #1 global VSAT provider. Our award-winning Jupiter system is the world's most deployed satellite development platform powering services we operate in the Americas, Europe and India as well as those of leading operators around the world from enterprises and government networks to community Wi-Fi hotspots to cellular backup.

 

 

[whistlerbumps]

Echostar sold the BSS business to Dish for ~800mln in DISH stock which will be distributed to SATS shareholders.  Provides some value for an asset not highly regarded by SATS shareholders and removes a headwind on SATS revenue and EBITDA growth.  Hopefully is the first step to shrinking the massive multiple gap that SATS (now almost entirely Hughes) trades to VSAT...

[Sombunall]

Anybody have any idea why Echostar was up 9% on Friday?

[heth247]

Anybody still following this one? It seems not participating the broad market bounce, priced for terminate decline, yet it's revenue is flat, and has a strong balance sheet, no net debt.

[formthirteen]

New 52-week low. Is this "a gift from the market gods"? Don't growth investors know the TAM of "the global space industry could exceed $1.1 trillion of more revenue in the year 2040" and that "satellite broadband will represent 50% of the projected growth"? Is everyone expecting SPACeX to go public? :P

[lnofeisone]

New 52-week low. Is this "a gift from the market gods"? Don't growth investors know the TAM of "the global space industry could exceed $1.1 trillion of more revenue in the year 2040" and that "satellite broadband will represent 50% of the projected growth"? Is everyone expecting SPACeX to go public? :P

 

I started doing some work here. Starlink definitely has good numbers in beta that should have SATS and few others (GoGo) be worried from a tech point of view. I'm still trying to figure out how that would square up in production.

[formthirteen]

I started doing some work here. Starlink definitely has good numbers in beta that should have SATS and few others (GoGo) be worried from a tech point of view. I'm still trying to figure out how that would square up in production.

 

Here are some variables I've researched:

 

• Upfront costs - Starlink's "UFO on a stick antenna" $500-1500 vs. zero to $100
  
• Monthly cost - Starlink $99 vs. $60
  
• Latency – Starlink is aiming for ~20ms and faster than fiberoptic with lasers vs. 600ms
  
• Bandwidth - Starlink is aiming for 1Gbps vs. Hughes' up to 100Mbit
  
• Reliability (jitter, etc) - The "UFO on a stick antenna" is complex and will have reliability issues that need to be solved. I'm not aware of any reliability issues with GEO other than capacity.
  

 

My guess is that the market is big enough for both GEO and LEO. GEO works really well for things such as video while LEO is definitely needed for internet services in general.

 

Q3 2020 Investor Presentation:

 

GEO provides targeted high capacity at a low cost per bit while LEO provides ubiquitous coverage and supports low latency applications

https://ir.echostar.com/static-files/3948c78e-eaa5-42df-9741-6a563c133b81

 

Q3 2020:

 

As you can see from the recent offering, their basic offering requires the customer to put up $500 upfront and then the base plan has $99 per month as the cost. As you compare that to our base offering, we charge somewhere between zero to $100 upfront for the customer, and the base offering is at $60 per month. So economically, we are significantly at an advantage over Starlink. Now the reason we have that is the cost of the phased array antenna. Our antenna in Jupiter, it costs $40 to $50. I think most people would agree that, today, the phased array antenna costs are around $1,400, $1,500. So the economics just going to not be a big advantage for them. In fact, it's going to make our offerings much more attractive.

 

Now in terms of speeds, the Jupiter 3 will be able to have clients that offer 100 megabit per second speeds which is the maximum speeds that Starlink is talking about. And in terms of capacity, we will be adding another 500, 550 gigabits of capacity over this region in -- with the launch of J3. And I think, if you look at the -- and analyze the capacity that Starlink will add, people have talking about 1.3, 1.2 terabits per second, assuming that they have full usage of the Ku-band spectrum, the 2 gigahertz spectrum to the user terminal. But remember, the OneWeb guys have the priority in Ku-band to the user terminal. So let's assume they share the spectrum with Starlink, they're not going to get the full spectrum that has to be. They'll have to work out coordination between the two.

 

So all in all, for the markets that we are in, I think we are not very concerned. We always respect the competition. We never discount them. But I think in this case for the markets we are in, I don't expect to see a significant impact on the size of the market or competitive posture in that market.

https://www.fool.com/earnings/call-transcripts/2020/11/07/echostar-corp-sats-q3-2020-earnings-call-transcrip/

 

Q2 2020:

 

We announced last week that we have agreed in principal to join the consortium of the UK Government and Bharti Enterprises purchasing OneWeb from bankruptcy. We are excited about continuing our involvement in OneWeb as an investor as well as a technology and distribution partner. We see many strategic synergies ahead for our business as complex hybrid networks become the norm of our industry with GEO satellites complemented by LEO and MEO satellites as well as terrestrial connectivity.

 

In this hybrid structure, LEOs can deliver ubiquitous coverage and low latency, while GEOs bring high capacity at the lowest possible cost wherever needed, especially in areas of limited or low terrestrial access. The combination will increase the size of the market we can address significantly. GEO satellite high-speed services continue to be the most viable technology for cost effectively serving customers in low-density areas. We believe the near-term focus of LEO networks will initially be on enterprise verticals, including cellular backhaul, aero, maritime and government applications in unserved and underserved markets. We also expect GEOs to maintain its significant cost edge in markets where the lowest possible latency is not a top priority.

 

https://www.fool.com/earnings/call-transcripts/2020/08/07/echostar-corp-sats-q2-2020-earnings-call-transcrip.aspx

 

 

Arabsat's CEO:

 

VIA SATELLITE: Can operators survive just being standalone GEO operators going forward, or will they be forced to launch satellites into other orbits?

 

Balkheyour: The competitive advantages of the GEO arc are unparalleled and unmatched. GEO satellites are here to stay; this is a certainty. No other orbit can deliver services with the simplicity and efficiency of GEO systems. Having said that, nothing stops GEO operators from exploring other orbits. Some operators have already done that to complement their GEO offerings, others are exploring and investing.

 

This does not have to be a zero-sum game by any means. The rise of non-GEO systems does not mean a loss of the GEO competitive advantage. On the contrary, as I said earlier, it will probably be an enabler rather than a threat. In fact, some industry experts believe that once the GEO systems crack the code of delivering broadband connectivity at cost effective pricing points, then the burden will be on LEO systems to weave their offerings into the GEO services landscape.

 

https://www.satellitetoday.com/innovation/2019/12/04/arabsat-ceo-talks-potential-leo-plans/

[formthirteen]

I imagine reflexivity plays a really big role here, even more, if SpaceX goes public or when Starlink launches its product world-wide.

 

S-band might play a big role as well:

 

One major advantage of this frequency is its power to transmit easily through rain or other bad weather, helping ensure strong service without interruptions. For IoT services, S-band transmission sharply cuts costs compared to other methods.

 

Fujitsu Laboratories in Japan developed a transmission converter that turns short-range, high-data C-band signals, such as 8K streaming video, into a compressed format. This signal can then be transmitted quickly and efficiently over long distances via S-band transmitters – such as EchoStar's satellites. Once at their destination, a second converter would decompress the S-band transmission back into C-band information, returning it to a usable format without much data loss.

 

EchoStar's high security standards and experience in maintaining maximum reliable uptime in the business satellite communications sector will likely serve it well in handling the IoT.

 

https://www.fool.com/investing/2019/11/08/echostar-snags-s-band-spectrum-at-a-steal.aspx

 

Currently, IoT is in the through of disillusionment according to Gartner:

https://www.primekey.com/gartner-report-hype-cycle-for-the-internet-of-things/

 

In my mind, it looks like SATS is well-positioned compared to competitors, but I don't see any near-term catalyst. With the help of Starlink, 5 to 10 years from now you might get 10 to 100 years of returns in 6 months :D

[concerto]

Been looking into this business for the past few days. Biggest hurdle for me is cash flow generation - obviously building Jupiter-3 is currently a big drain on cash flow, but wouldn't they need to build Jupiter-4 after Jupiter-3, then -5, -6, and so on? Especially as Starlink (and all the other LEO contenders) scales, I'd imagine satellite construction costs will only go up for the foreseeable future (likely the gaps between satellite launches will need to be shortened). Is there a point at which this company actually generates substantial amounts of cash on a "normalized" basis?