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EchoStar CORP (SATS)·Q4 2015 Earnings Summary

Executive Summary

  • Q4 2015 revenue was $790.6M ($0.79B) and diluted EPS was $0.71; sequential revenue rose 4% on partial recovery of EchoStar Technologies (ETC) sales to DISH, while YoY revenue declined versus $843.9M in Q4 2014 due to lower DISH equipment sales .
  • EBITDA was $222.7M; Hughes grew consumer revenue and EBITDA, while ETC and ESS were pressured by lower DISH equipment demand and lease changes; net income rose to $66.3M aided by lower depreciation and net interest expense and the reenactment of the federal R&D credit .
  • Hughes posted record enterprise orders of $479M, gross adds of 94k and ~9k net adds; ending subs were ~1.035M, with FCC reporting Gen4 speeds exceeding advertised rates and strong packet loss performance—validating service quality despite capacity constraints ahead of EchoStar 19 (Jupiter 2) in 2017 .
  • 2016 CapEx guided “below $800M” with a step-down expected in 2017; near-term catalysts include Hopper 3 launch, five satellite launches across 2016, Brazil broadband service mid-2016, and EchoStar Mobile’s EU MSS rollout (CGC harmonization progressing) .

What Went Well and What Went Wrong

What Went Well

  • Record Hughes enterprise contract awards of $479M in Q4; Hughes EBITDA up 12% YoY to $100M on mix shift toward higher-margin consumer services .
  • Consumer KPIs: 94k gross adds, ~9k net adds; ending subs ~1.035M, with ARPU increases and churn decline vs Q3; FCC’s 2015 report highlighted HughesNet Gen4 exceeding advertised speeds and low packet loss—supporting brand and retention .
  • Product innovation: Hopper 3 launched Jan 30 with 16 tuners and 4K options; OTT platform (Sling TV) enhancements rolling out in Q1 2016; SAGE home automation launching March—broadening ETC’s growth vectors .

What Went Wrong

  • Consolidated revenue ($790.6M) declined vs $843.9M YoY on lower DISH equipment sales; ETC revenue fell to $325.1M (–$46.3M YoY), compressing segment EBITDA .
  • ESS revenue fell to $116.3M (from $127.5M) on termination of DISH leases (EchoStar 1/8) and AMC-15/16 being treated as operating leases vs capital in 2014, reducing ESS EBITDA to $98.4M .
  • International FX headwinds persisted (≈$7M impact in Q4), and capacity constraints on EchoStar 17 (Jupiter 1) forced beam closures, tempering near-term consumer growth until EchoStar 19 is in service in early 2017 .

Financial Results

Consolidated Results (YoY and Sequential comparison)

MetricQ4 2014Q2 2015Q3 2015Q4 2015
Revenue ($USD Millions)$843.9 $794.0 $761.0 $790.6
Diluted EPS ($USD)$0.59 $0.36 $0.32 $0.71
Net Income ($USD Millions)$54.8 $33.9 $30.1 $66.3
EBITDA ($USD Millions)$229.8 $212.0 $217.0 $222.7

Notes:

  • Sequential revenue +4% vs Q3 driven by partial recovery in DISH sales within ETC .
  • Q3 EBITDA margin was 28.5% (ex-lease change and one-time items, +260 bps YoY); Q4 margin not disclosed .

Segment Revenues

Segment Revenue ($USD Millions)Q4 2014Q2 2015Q3 2015Q4 2015
Hughes$343.6 $335.0 $340.0 $347.1
EchoStar Technologies (ETC)$371.4 $332.0 $295.0 $325.1
EchoStar Satellite Services (ESS)$127.5 $125.0 $124.0 $116.3

Segment EBITDA

Segment EBITDA ($USD Millions)Q4 2014Q2 2015Q3 2015Q4 2015
Hughes$89.7 $103.0 $102.0 $100.4
EchoStar Technologies (ETC)$35.1 $29.0 $26.0 $26.0
EchoStar Satellite Services (ESS)$110.9 $104.0 $104.0 $98.4
All Other & Eliminations$(5.8) $(24.0) $(15.0) $(2.1)

KPIs (Hughes Consumer)

KPIQ2 2015Q3 2015Q4 2015
Gross Adds (Subs)97,000 107,000 94,000
Net Adds (Subs)15,000 11,000 ~9,000
Ending Subscribers1,014,000 N/A1,035,000

Non-GAAP note: EBITDA defined and reconciled in the press release; used by management for operating efficiency and liquidity insights .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital ExpendituresFY 2015Mid-$800M (guided in Q2) $703.5M actual Lower vs prior guidance
Capital ExpendituresFY 2016N/ABelow $800M Initiated
Capital ExpendituresFY 2017N/AStep-down from 2016 Lower trajectory
Hughes Consumer Adds2016N/AAdds constrained due to beam closures until EchoStar 19 in service Q1 2017 Tempered near term

No formal revenue, margin, tax rate, or dividend guidance was provided in Q4 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
OTT/Sling TV platformIntegrated within ETC; expanding with DISH; exploring broader OTT opportunities UI enhancements and personalization rolling out in Q1 2016; continued OTT platform development Expanding capabilities
SAGE home automationPlanning launch; building ecosystem and partnerships Direct-to-consumer launch in March; retail/distributor programs to follow Nearing commercial launch
EchoStar 19 (Jupiter 2)Atlas V secured; launch late 2016; ~3 months to service post-launch Construction proceeding; launch end-2016; in service Q1 2017 On schedule
EU S‑band (EchoStar 21)/CGCMSS license; harmonization effort; launch delays likely from Proton issue 27/28 MSS licenses; 8 CGC approvals; MSS ready (except one country), CGC rollout not near-term Gradual regulatory progress
Set-top box business with DISHSales decline; next-gen products targeted for year-end Q4 ETC revenue down $46M YoY; Hopper 3 launched; R&D spend weighing margins Stabilizing with product cycle
Brazil broadband (Eutelsat 65W)Launch in 2016; consumer broadband only Gateways complete by April; mid-2016 service; additional Ka payload in 2018 (Telesat) On track, expanding capacity
OneWebEquity investment, gateways and terminals supplier; service target 2019 System studies/development work underway; growth opportunities beyond 2017 Progressing

Management Commentary

  • “EchoStar revenue for the fourth quarter of 2015 was $791 million... EBITDA was $223 million... diluted earnings per share was $0.71... The increase in net income was primarily due to lower depreciation and net interest expense” — CFO Dave Rayner .
  • “Q4 revenue was $347 million... EBITDA for Q4 2015 grew 12% over the previous year’s Q4 to $100 million... gross adds of 94,000 and net adds of almost 9,000... ended the year with 1,035,000 subs” — Pradman Kaul (Hughes) .
  • “Hopper 3 features 16 tuners and 4K content options... awards at CES... OTT provider for DISH’s Sling TV... SAGE... available directly to consumers in March” — Mark Jackson (ETC) .
  • “ESS revenue for the fourth quarter was 116 million... termination of the EchoStar 1 and EchoStar 8 leases with DISH... five EchoStar satellites scheduled to launch in the next 12 months” — Anders Johnson (ESS) .
  • “Our free cash flow... was a negative 627,000 not million” — CEO Mike Dugan (clarification) .

Q&A Highlights

  • EU CGC/MSS: MSS authorizations secured in 27/28 EU countries; 8 CGC licenses approved; CGC service requires further member-state harmonization; near-term focus on MSS rollout .
  • CapEx trajectory: 2016 “below $800M”; 2017 step-down expected absent new programs—supports FCF inflection beyond satellite build cycle .
  • Mexico/Latin America capacity: Leased less than half of Mexico capacity to Star Group under ~$200M+ agreements; remaining capacity provides optionality for other partners .
  • Technology roadmap: Hopper 3/Hopper Go; 3GPP Band 65 adoption for S-band aids device roadmap; Ka/Ku dual-mode aero antenna development to enable broader IFC coverage .
  • Consumer growth cadence: Expect near-term adds to slow due to beam closures until EchoStar 19 ramps in early 2017; FX headwinds persist .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2015 EPS and revenue was unavailable at time of request due to API limits; estimate comparisons are therefore not presented [GetEstimates error].
  • Given the lack of consensus data, investors should anchor revisions on company-reported trends: sequential +4% revenue driven by ETC stabilization; Hughes consumer growth; ESS lease impacts; and 2016/2017 CapEx path .

Key Takeaways for Investors

  • Sequential improvement with Q4 revenue +4% vs Q3 on partial ETC recovery; YoY declines tied to structural DISH equipment demand reset—expect Hopper 3 cycle to aid stabilization but not a return to historic levels .
  • Hughes remains the growth engine: record $479M enterprise orders, healthy adds, ARPU up; near-term capacity constraints temper 2016 adds until EchoStar 19 in Q1 2017—positioned for a stronger 2017 subscriber ramp .
  • ESS headwinds from lease terminations and accounting changes weigh on revenue/EBITDA; 2016–2017 satellite launches (21/23/105/19 and Echo 18 for DISH) should drive incremental capacity and revenue opportunities .
  • CapEx discipline: 2016 “below $800M” and 2017 step-down supports medium-term FCF improvement as major build cycle rolls off—monitor execution on launch schedule and ground infrastructure .
  • Regulatory optionality: EchoStar Mobile’s EU MSS is near-term; CGC harmonization could open broader 5G/terrestrial opportunities—track 3GPP progress and member-state licensing cadence .
  • Product catalysts: Hopper 3/OTT enhancements and SAGE launch broaden ETC’s TAM; near-term margin impact from R&D, with potential longer-term monetization via platform services and devices .
  • Trading setup: With estimates unavailable, key narrative drivers are ETC stabilization, Hughes consumer trajectory into 2017, CapEx/FCF path, and execution on satellite launches—headline catalysts (launch milestones, regulatory wins, product adoption) likely to move the stock .