Ladies and gentlemen, thank you for standing by, and welcome to the EchoStar Earnings Conference Call for the Second Quarter of 2020. I would now like to hand the conference over to your speaker for today, Mr. Terry Brown. Thank you, sir. Please go ahead. Thank you, operator. Good morning, everybody, and welcome to our earnings call for the second quarter of 2020. 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 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 other firms in your report. We also do not allow audio recording, which we ask that you respect. Let me now turn this over to Dean for the safe harbor disclosure.

Thanks, Terry. 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 the 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 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 very much, Dean. Thanks, everybody, for joining us in the call today, and we hope you and your family are still safe and healthy. With the COVID complexity, it was an unusual quarter for the EchoStar team. When our customers need us the most, we kept them connected to vital information, entertainment, social, service, medical, education, and business applications. Although the demand for our services continued to remain very strong, we also had to implement cost savings initiated to help preserve our margins during these uncertain times. We are placing top priority on protecting the safety and health of our employees while effectively maintaining productivity, keeping up our pace of engineering innovation, and also keeping all of our customers happy. Let me now turn it over to the management team. First, Pradman, you're up.

Thank you, Mike. Despite all the uncertainty driven by the COVID pandemic, foreign exchange headwinds, and the bankruptcy filings in Q1, we grew Hughes adjusted EBITDA by 20% over last year. The adjusted EBITDA margin for the second quarter was 41% compared to 34% last year. Our HughesNet subscriber base grew by approximately 26,000, ending Q2 with 1.542 million subscribers, including approximately 321,000 subscribers in Latin America. Much of our US network is operating at full capacity. We continue to stay focused on providing an outstanding customer experience while also managing churn. With the expiration of the FCC pledge on June 30th, we will resume more normalized U.S. sales activity with continued strong ARPUs in the second half of the year. We expect to continue subscriber growth in our international consumer markets. Regarding the Jupiter 3 program, we still expect the satellite will be launched in the second half of 2021, and we are in active discussions with launch providers. Switching to our North American enterprise business, Q2 saw lower than normal installation activity in April and May due to the impact of the COVID-19 on our customers, but activity was recovering by June, and we are currently engaged in catching up on activity that had been delayed. We've also had a lot of new contract activity recently, including a multi-brand restaurant company and a retail chain, each with thousands of sites. In addition, customers in the retail petroleum space are upgrading their networks to accept credit cards with chip technology at the pump. We also secured a contract to sell network operation center systems to Telesat to upgrade two of their existing hubs with Jupiter technology. On the international enterprise side, we are pleased to announce several new awards in India with large customers in the petroleum, banking, and communication industries. We've deployed a regional KU broadband maritime service along the Indian coastline. Initial contracts for that service have been signed with four shipping companies. As many of you know, the Jupiter System is already the world's de facto standard for satellite broadband systems, and today, we are pleased to announce that Cignal TV in the Philippines has selected us to enable satellite broadband service to its 2 million subscribers. Also in the Philippines, SpeedCash is using the Jupiter System to add 2,000 locations to their community Wi-Fi hotspot project. We continue to build momentum in our Government & Defense business. We have significant activity with partners in addressing opportunities with the social security administration. We also had two very successful demonstrations of our through-the-rotor blade HeloSat capability aboard the Black Hawk helicopter. We announced last week that we have agreed in principle 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 and 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 significantly increase the size of the market we can address.

Thanks, Pradman, and good morning. In Q2, ESS continuing operations revenue was $4 million, up slightly from Q2 of last year. We continue to pursue opportunities to lease our excess capacity during these challenging economic conditions. On the global S-band front, the launches of our first pair of new satellites for our EchoStar Global subsidiary, delayed due to the pandemic, have been rescheduled for the third quarter of this year. Business development activities are continuing, and we are gratified to see a lot of interest from a range of vertical players supporting the EchoStar Global mission. Our European subsidiary, EchoStar Mobile, continues to see strong interest in its new products and services as pandemic travel restrictions have eased. Our proof-of-concept activities are ramping back up, and we are seeing a lot of appetite for the application of MSS technologies to emerging verticals such as autonomous platforms and 5G integration. As always, full integration of S-band satellite services into 5G networks remains our longer-term strategic goal, and we continue to explore ways to integrate our complementary ground component authorizations into these and other developments. I'll now turn it over to Dave.

Thank you, Anders. As in previous quarters, I will be speaking to our adjusted EBITDA measurement. The measurement excludes from EBITDA certain nonrecurring items as well as gains and losses on our investments and unrealized gains and losses on foreign exchange. More details are in the GAAP to non-GAAP reconciliation in our earnings release. We believe that adjusted EBITDA more closely represents our operating efficiency and financial performance. Consolidated revenue in the second quarter was $459 million, relatively flat compared to the same period last year. Hughes revenue was $453 million, slightly higher than last year despite a negative foreign exchange impact of approximately $12 million. The strong growth in Hughes consumer service was offset by lower equipment sales, primarily driven by the impact of the OneWeb bankruptcy and lower domestic and international enterprise services. ESS revenue in Q2 was $4 million, up slightly from the same period last year, while corporate and other revenue decreased about $3 million due to certain real estate being transferred to DISH in Q3 last year as part of the BFS transaction. Consolidated adjusted EBITDA in the second quarter was $161 million, an increase of over 19% from last year. Hughes adjusted EBITDA in Q2 was $186 million, an increase of $31 million from last year. The margin associated with the growth in consumer revenue, lower sales and marketing spend on our domestic consumer service, and lower G&A spend were the main contributors to the large increase. Corporate and other was slightly lower as a result of the reduced revenue and increases in losses in equity of affiliates. Our net loss from continuing operations was $15 million in Q2 compared to a $30 million loss last year. The largest components of the change were an increase of $39 million in operating income, offset in part by lower gains on investments of $19 million and a higher income tax provision of $6 million. Capital expenditures in the quarter were $92 million compared to $107 million in Q2 last year. The decrease was primarily due to lower satellite-related spend, partially offset by higher spend on CPE, driven by growth in our consumer business. Free cash flow, defined as adjusted EBITDA minus CapEx was $69 million during the quarter versus $28 million last year. We ended the quarter with $2.5 billion of cash, cash equivalents, and marketable securities. We feel very good about our cash balance given the uncertainty in the current economic conditions. It affords us the flexibility to explore investment opportunities that foster growth, both organic and inorganic. And with that, I'll turn it back over to Mike.

Thank you, Dave. I'm very proud of everything that was talked about earlier. During the second half of 2020, we will remain focused on operating our existing business in a prudent manner, carefully managing the construction and delivery of the Jupiter 3 satellite, and looking for additional growth opportunities. We continue to adapt to the challenges of the COVID-19 pandemic, which has affirmed the need for global connectivity and communications. Let me now turn it back to the operator to start our Q&A session.

Our first question comes from Ric Prentiss with Raymond James.

Thanks. Good morning, guys. I'm glad to hear you're doing well through the COVID-19 pandemic, both personally and business-wise. Question is for Charlie. I appreciate you being on the call today; I think it's maybe been two years since the last time on an EchoStar call, when you talked about the Inmarsat offer, a lot of progress at DISH moving beyond pay TV into wireless, 5G. But maybe you could take the opportunity to update us on your vision for EchoStar? How you see things playing out and how it fits into your future.

Okay. Thanks for the question. I mean, the big picture is that, obviously we've been primarily a satellite company. In that, we're related to connectivity, and that's a place where the world needs to go. The pandemic has shown us all that connectivity and broadband access is a necessity. That's around the world, and so EchoStar is well positioned. The big picture is, we will continue down that path, but I think there may be a greater emphasis on the broadband side as well, and we're well positioned to do that. We've been patient, almost to a fault, but now with $2.5 billion of cash, no net debt in the company, and in a world where at least within some of the satellite community, some of the businesses are going to be challenged for several years. We're well positioned, with a strong balance sheet, to move forward and take advantage of opportunities. To the extent that opportunities don't exist, we can internally grow our business through a variety of methodologies. You see a little bit of that when Anders talked about S-band, which is an opportunity to connect the world through low frequency. Our continued interest in OneWeb, which will come out of bankruptcy as a much stronger company. It was always a challenging business plan to start with because of bankruptcy; most companies come out stronger, and we think it will come out in a strong position.

And so, when you think about the hybrid spectrum and hybrid network, how do you view where that's playing out, and do you envision EchoStar being able to help DISH in the U.S. as well?

Well, a lot of the stuff that EchoStar and DISH do, because of my involvement in both, normally we look at things that might be advantageous, as an example, the next Jupiter satellite has tremendous capability for wireless backhaul. As it builds out more rural sites, maybe even inside places where people aren't today. Satellite backhaul can make that economical in a way that maybe hasn't been there before. Part of the Jupiter design is to be able to do that. There are things that we look at between the two companies, if they make sense. And of course, there are things that don't make sense, and the companies go their separate ways. But when you look at S-band and how that might affect wireless play around the world, it certainly is a frequency that you can make the case that you can go from a very small low-powered device, including perhaps your phone, to a satellite. We think that the things that Anders are working on have potential for wireless carriers around the world.

Great. And last one for me. Obviously, you've got a great balance sheet here at EchoStar. What is it that would be of interest in the M&A world as far as what you would want or need to kind of make the EchoStar strategy play out?

Yes. I think anything where there might be synergy, particularly in the connectivity broadband world with what EchoStar is doing and companies that can make positive cash flow in the long-term are the things you'd look for. Those are the things, you'd look for synergies, potential for an increase in cash flow business, do they shore up? Do they build on strengths we already have? Do they shore up weaknesses that we have? Those are the kind of things you'd look for out there. There are a lot of great companies out there. Some are going to struggle in the short-term, just based on the nature of the customer base. As you said, with a strong balance sheet, it's a good spot to be, and we've been patient. We'll continue to be patient, but if there's opportunity, we certainly would take advantage of it.

And maybe that's why not a lot of stock buybacks because clearly the stock has been undervalued in our opinion, but keep the cash on the balance sheet, looking for opportunities rather than stock buybacks?

Well, I always challenge management. We look at stock, we look at dividends, we look at stock buybacks, but to the extent that we do that, that means our management hasn't found a place to put capital to grow capital for a better return for our shareholders. I keep challenging management to find a better use of our capital, but to the extent that we come to the conclusion that perhaps that's not something we're able to do in the foreseeable future, then I think stock buybacks can make some sense. So, our Board has given us the authority to buy back, I believe, $500 million of our stock, and that remains a possibility.

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

Thank you. I want to follow-up a little bit on that question of just focusing on the M&A first and then get back over to internal investment. When you look across the company's portfolio and you've got international operations, you've been growing in Latin America; you've got India; you've got a LEO opportunity; you've got your traditional GEO. Is there any one of those that stands out to you as an area where, with the capital on hand and given the fact you've got struggling competitors, that it makes the most sense to step out and maybe perhaps do a bolt-on or find something that's additive to your business in a faster growth path?

Who's that question addressed to?

To Charles, I'm sorry.

I don't know if there's any one thing that stands out. The ideal situation is some synergy somewhere in the satellite connectivity business. It doesn't have to be satellite, but that’s been the connectivity of broadband business and something that can generate cash flow in the long term even if it needs investment to get there. So, it's an interesting time. Patience, I hope our patience will be rewarded. It hasn't been the last three, four years, but from my Poker days, you have to hold out for a while and you win a few crucial hands. The pandemic has certainly changed people's business plans and things are beyond people's control; some industries are going to be changed for a while.

And maybe just a follow-up, and I'll throw out a specific example. With the in-flight connectivity market, you guys fortunately have taken sort of an arms-merchant approach to that industry, which was the right approach as it turns out. But things are happening right now, obviously the industry is hurt pretty badly, but I think most people believe there's going to be assets available. Is that a market that you believe in as a growth market? And is that something that you'd take a look at, maybe a more fulsome stake in the supply chain of what's going on in the aviation market?

Well, it's certainly a long-term business. Companies that are well positioned there, the EchoStar approach has been, and I think this is to Hughes and Pradman and his team. We have chosen to partner with people who need our technology or capacity rather than compete with them. As a general rule, our preference has been to partner with others rather than to duplicate existing assets. So, we've been there to help those companies through thick and thin, and I think we'll continue to try to do that because we have strong relationships with those companies.

Understand. And final question for Charlie. The consumer broadband business has been a great steady grower for Hughes. And yet if I look back over the last 10 years, the pace at which you guys have acquired and built new satellites has continuously lagged the actual demand in the market. Has that happened with both Hughes and Viasat? When you look at that market, is this a time to perhaps step up the pace at which you replace those satellites? And do you still see a path for improved performance on GEOs, or is it a better time to kind of step back and see what happens with LEO?

It’s a good question. One of the things we've built in the United States is we knew exactly where we needed our capacity, and we had DISH and DIRECTV that has infrastructure to get to rural customers that we didn't have to totally duplicate. The North American market is kind of a unique market for us. Internationally, we’ve chosen to partner with people on the international side because there’s all sorts of government regulations. We’re pretty gung-ho in the international market. But we don’t want to go necessarily alone. We do want strong local partners as those; we find people who are willing to commit to that. We're certainly willing to invest money there. On the future satellite side, we've been prudent because there are technologies that are starting to compete with GEOs. We've been prudent in how we do it because there are two technologies, MEOs and LEOs, and terrestrial. We're confident that our next-generation satellite will meet demand in North America.

Great. Thank you for the responses and don't be a stranger. Hope to see sometime sooner than the next...

I promise I'll be around once a year. I don't have anything to do due to the pandemic, so they felt sorry for me and invited me.

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

Thank you. My first question was back on the topic of OneWeb. I'd be interested to hear Pradman's comments on why the previous business plan didn't work and why the new business plan will?.

Yes. I think the focus of the new business plan is to do it for the mobility market, the enterprise market, and the government markets, as I said in my earlier comments. One common element in those markets is the cost of the consumer antenna is not a big factor, unlike the consumer market where you need a phased array antenna. By bringing them out of bankruptcy, obviously you're a much stronger company because the investment in the old stuff is no longer hurting your balance sheet. The two major partners are also completely different. You've got the United Kingdom government with an infinite size balance sheet and Bharti, one of the largest wireless service providers in the world.

So just picking up on that. If I remember correctly, OneWeb pivoted pretty hard from consumer to enterprise and government mobility a long time ago. That's not a new phenomenon. It happened, I want to say 18 months or maybe two years ago. I don't really understand that comment. Could you give a bit more color on what the antenna side is doing?

Right. The point is that previously, the current business plan had a significant focus on the consumer market because they lacked a phased array antenna. The previous business plan could not have acted upon that.

Okay. Understood. Just sticking with the antenna, if I think about side panel antenna development, what do you see coming from that? Can you give us your color on antenna development because you have better visibility than I do?

There are probably five to ten companies spending a lot of energy on trying to develop a phased array antenna at the cost points that we need to. Each of these two markets has different cost points. The consumer market would want a phased array antenna perhaps at $100 to $150 maximum. The aeronautical market antennas go for $150,000. When you move to mobility and government markets, the pressure to have an antenna at the lowest possible cost is not as strong as it is in the consumer market. For those other markets, the technology is there for the price points we need. We are in a position to have the right economics for those areas, but we have to wait a few years for consumer markets.

Yes. And just to add a couple of things on OneWeb, we know that the technology works. We've been heavily involved in testing the current satellites that are up. The second point is that as it comes out of bankruptcy, you would expect it to have a strong balance sheet but also potentially revenue because of the UK government's involvement. OneWeb remains having a high priority in the ITU for the use of thousands of gigs of frequency. They're well positioned from a regulatory point of view as a company that is first in line for regulatory approval as long as they continue to launch more satellites.

Your next question comes from the line of Michael Rollins with Citi.

Hi. Thanks for taking the questions. Two, if I could. So first, as you think about the S-band spectrum holding, is it more likely that you can create value from those holdings through an operating model that EchoStar controls or partners with? Or is it more likely a monetization strategy of finding alternative purposes for that spectrum?

Anders, do you want to take that one?

Well on the S-band side, it's certainly early days. Right now, our efforts are focused on getting our initial LEO satellites launched, to crystallize our rights, which overlay the existing GEO rights. Once we have that in hand, we're already in meaningful discussions with several potential customers that would be anchor partners in developing a non-geostationary S-band service, which we intend, once the business plan makes sense, to invest in. I don't see us just monetizing the spectrum rights to third parties; I think we'll pursue developing the MSS opportunity in some unconventional ways.

Just taking a step back, as EchoStar evaluates investments for the satellite business for IoT and 5G, can you share how you're sizing the addressable revenue market, given that a lot of these services and applications don't exist today?

I don't think we have an exact size for the market; it is potentially very large. You certainly have billions of things that need to be connected that aren't connected to terrestrial or fiber networks. You can look at maritime and geography and how those things might want to connect. It's in the first inning of where that's going to go.

Okay. Guys, we're out of time here, so we're ready to conclude the meeting. Thank you very much for calling in.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.