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Hughes Communications (NASDAQ:HUGH)

Q1 2010 Earnings Call

May 5, 2010 11:00 am ET

Executives

Deepak Dutt - VP, Treasurer & IR

Pradman Kaul - President & CEO

Grant Barber - EVP & CFO

Analysts

James Ratcliffe - Barclays Capital

Jennifer Fritzsche - Wells Fargo

Chris Quilty - Raymond James

Larry Harris - C.L. King

Matthew Barnett [ph] - Jet Capital

Operator

Good day, ladies and gentleman, and welcome to the First Quarter 2010 Hughes Communications Incorporated Earnings Conference Call. My name is Michelle and I’ll be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Deepak Dutt, Vice President, Treasurer and Investor Relations Officer. Please proceed.

Deepak Dutt

Thank you, Mitchell and good morning everybody. Welcome to our first quarter 2010 earnings call. Before we begin I would like to remind everyone that this call including the question and answer session may contain statements that are forward-looking as that term is defined by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management’s current beliefs as well as assumptions made by and information currently available to management and are subject to risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements and we refer you to the documents we file time to time with the SEC, specifically our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our periodic 8-K filings including the 8-K to be filed with this press release and our registration statement on Form S-3.

Let me now introduce the management team joining the call. It’s Pradman Kaul, President and CEO and Grant Barber, who’s Executive Vice President and CFO.

Let me now hand it over to Pradman for his opening comments.

Pradman Kaul

Thank you Deepak, good morning. I’d like to start with a few highlights on our performance in the first quarter and then get to specifics for our different businesses. First, we once again delivered strong growth in adjusted EBITDA driven largely by outstanding performance in the consumer business. The adjusted EBITDA for the first quarter was a record $43 million, a 30% growth over Q1 of 2009.

Secondly, our strategy of leveraging combined service and hardware offering continues to enhance our competitive positioning and fuel strong service revenue growth. Our total services revenue grew by an impressive 16% over Q1 ‘09. And if you excluded the revenues from Telematics for ’09, the growth was actually even better at 21%.

Third, the company once again delivered positive net cash from operations enabling us to end the quarter with a healthy cash and marketable securities position of $253 million.

Now I would like to give some highlights of our businesses. Our consumer business once again led the way this quarter with over 57,000 gross adds while churn improved to a record 1.98% the first time that it has dropped below 2%. This resulted in record first quarter net adds of 27,000 a growth of 19% over Q1 ‘09. Consumer ARPU increased to $72 versus $68 in Q1 ‘09. And as a result total revenue from the consumer business grew by 15% and service revenue grew by 42% over the first quarter of last year. We added a record net of 48,000 subscribers onto our Ka-band SPACEWAY 3 satellite and we ended the quarter with nearly 292,000 subscribers on SPACEWAY and over 530,000 total subscribers. As in the past, this business continued to be our premier growth and our strategy of activating new customers on SPACEWAY and releasing leased Ku transponders continues to expand our margins and adjusted EBITDA as evidenced by the first quarter results.

Enterprise revenue declined marginally once again due to enterprises delaying the decision to refresh their hardware and we believe due to the lingering effect of the recession. However our enterprise services business remained strong globally with a growth of 16% in North America and 22% in international services revenue, with strong performance from our international service subsidiaries, mostly notably Brazil. We were awarded new orders of $238 million in Q1, a growth of 10% over the same quarter last year.

Key North American enterprise orders included a major platform upgrade from Lowes, orders from the lottery operator GTECH for the New York and New Jersey state lotteries and follow on orders from T.J. Maxx, Conoco Phillips, and Denny. Internationally, we were awarded $20 million follow on order by a leading Brazilian cellular operator for backhaul services for their cellular network and an $18 million follow on order from Avanti Communications for advanced Ka-band networking infrastructure for their HYLAS 2 satellite.

We also received major orders from Telefonica in Brazil, SREI in India and Bentley Walker in Europe to name just a few. In our Telecom Systems business we received a follow-on order from Globalstar and signed a contract for supply of an initial 350 satellite terminals for a major utilities field force automation system.

We expect to receive additional expansion orders from the utility in the coming quarters. At our Q4 call, I had also mentioned that we have started penetrating the US government market, both civilian and military and that our initial efforts have met with good success. As an example, in this quarter, we received a $2.6 million order from the Government Education and Training Network. We expect to see significant revenues in the next few years from this part of our business.

Let me now turn it over to Grant and I will come back with some closing comments.

Grant Barber

Thank you, Pradman, and good morning. As Pradman mentioned in his comments we are pleased to have completed another strong quarter continuing the trends that we highlighted and delivered on previous calls and ended Q1 in strong financial shape. Our key operational metrics of orders, revenue, adjusted EBITDA all showed improvement over the first quarter of last year. At Hughes, revenues for the first quarter of 2010 were $243.2 million, an increase of $3 million or 1.2% above the first quarter of 2009. Adjusted EBITDA for the quarter was $42.6 million, an increase of $9.9 million or 30.2% above the first quarter last year.

Notable here is that these gains were once again driven by record performance in the consumer business and strong overall services revenue enabling gross margins to expand by 270 basis points.

Note that excluding the Telematics loss following the Chrysler bankruptcy last year, our revenue for the first quarter of 2010 increased $9.7 million or 4.2% above the first quarter of 2009. Since we don’t expect any significant revenue in 2010 from the Telematics business, we will continue to show year-on-year comparisons including and excluding Telematics revenue.

Overall, our North America broadband business continues to be the primary growth driver as revenue for the first quarter of $174 million was up $8.4 million or 5.1% above the first quarter last year.

This increase was once again led by record performance in the consumer business which grew revenues by $14.6 million in the first quarter to $113.4 million or 14.8% above the same period last year. Multiple factors contributed to this positive result. Substantial growth in the number of subs, targeted higher price service plans coincident with higher broadband capacity, improvements in customer retention as evidenced by the reduction in churn, and more value added services which yielded higher ARPU. Our North American enterprise business at $60.6 million was $6.2 million below the same period last year, primarily due to lower hardware sales as a result of the unfavorable condition of the overall economy.

Additionally, changes in product mix and emphasis on managed services led to lower up front hardware and an increase in recurring service revenue. Our International Broadband segment revenue of $43.5 million was $1.4 million or 3.2% below the first quarter of 2009, primarily reflecting the completion of the terminal shipments on a multi-year contract for a large lottery operator in the UK.

The decrease was mitigated by the continued growth in services and solutions to enterprises and government organizations primarily in Brazil and Africa-Middle East region, and the favorable currency impact of the stronger international currencies versus the dollar.

The underlying service revenue continues to be a strategic focus for us as the international service revenue for the first quarter of 2010 was up by 22% above the same period in last year. Excluding the Telematics revenue in both years, our Telecom System segment delivered revenue of $24.4 million, $2.2 million or 9% above the first quarter of last year. The increase reflected gains in both of our Mobile Satellite Systems and Terrestrial Microwave businesses.

Gross margins increased 2.7 percentage points to 27.4% of revenue as compared to 24.7% in 2009. This increase reflected strong growth in services revenue in our consumer, North American enterprise and international broadband businesses, which carry on average higher margins than our hardware business which declined versus the same quarter last year.

This margin improvement is the evidence of the increase profitability of subscribers on SPACEWAY 3 versus those on leased transponders and continues to improve as we expand our Ka consumer service.

Services revenues increased $25.6 million above the first quarter of 2009 to $187.9 million or 77% of revenue, more than offsetting the hardware declines. The North American and International Enterprise Services revenues continued to grow as a result of an increase in our managed services business where a larger proportion of the overall customer revenue reflects lower up front hardware revenue and higher recurring services revenue.

Hardware revenues in the quarter were $55.3 million, a decrease of $22.6 million below the first quarter of 2009. This was primarily due to the consumer rental effect where consumers are choosing a lower upfront hardware payment in return for higher ongoing service payment.

Additionally, the decrease reflects the 2009 terminal shipments to the UK lottery operator and lower initial hardware shipments to our North American enterprise customers. Operating expenses for the first quarter of 2010 were $56 million, an increase of $5.1 million above the first quarter of last year. This increase reflects increased targeted spending for our consumer business which was instrumental in driving the increased subscriber gross adds in the quarter.

Operating income for Hughes was $10.6 million for the first quarter of 2010 or 4.3% of revenue compared to operating income of $8.4 million or 3.5% of revenue in the first quarter of 2009.

Adjusted EBITDA was $42.6 million or 17.5% of revenue in the first quarter of 2010 compared to $32.7 million or 13.6% of revenue in the first quarter of last year. This increase of 30% over the last year was primarily due to increased margins and prudent control of operating costs. Excluding the Telematics contribution, the adjusted EBITDA increase would have been 37% above last year.

For Hughes Network Systems LLC, our principal operating subsidiary, adjusted EBITDA for the quarter was $43 million, an increase of $10.5 million or 32.5% above the first quarter of last year. A table on reconciliation of adjusted EBITDA for both Hughes and Hughes Network Systems are attached in the press release. And we believe that these non-GAAP measures provide useful information by excluding specific items that are not indicative of our core operating results.

Net income attributable to Hughes stockholders for the first quarter of 2010 was a loss of $6.1 million or $0.29 a share as compared to a loss in the first quarter of last year of $4.7 million or $0.22 a share. This increase reflects the improved operating income discussed earlier, offset by increased net interest and income taxes of approximately $2 million each.

Moving to Hughes Communications cash and balance sheet, we generated net cash from operations of $12.6 million in first quarter of 2010. Capital expenditures for the first quarter including expenditures for capitalized software were $66.8 million which included expenditures of $27.8 million towards the Jupiter program.

In the quarter, we entered into a new revolving credit agreement with JPMorgan Chase and Barclays Capital. Here we replaced our existing revolver that was set to expire in April of next year with a new revolver which among other things extended the maturity to March 2012 and maintained the availability at $50 million and was priced at a very favorable adjusted LIBOR plus 3% per annum.

We ended the quarter in a strong financial position with a balance of cash and marketable securities of $253 million and this achievement reflects our continued focus on working capital management, prudent CapEx investment and OpEx control. In summary, we continue to execute on our plan and deliver strong operating performance in capital management.

At this time, I would like to the turn the call back to Pradman for further comments.

Pradman Kaul

Thank you Grant. Some observations now as you look ahead, our strategy of targeting the estimated 10 million households and 3.5 million small businesses in North America who are un-served or underserved by terrestrial broadband technology continues to pay off as consumers continue place high priority on broadband access.

A recent survey that we commissioned with over 23,000 HughesNet subscribers confirmed that the internet plays a vital role for the majority of these subscribers, by helping them communicate more frequently with family and friends and feel better connected to the world and that a positive change has taken place in their lives. We expect the consumer business to continue its growth and we will continue to invest in this business to fuel subscriber acquisitions. We continue to improve also our positive bottom line results as a fully integrated service provider now approaching 300,000 subscribers on our SPACEWAY 3 satellite.

In Q1, 2010 we added approximately 50,000 net subscribers on to SPACEWAY. As I mentioned earlier our strategy of activating new subscribers on SPACEWAY while concurrently releasing leased Ku-band transponders is having the desired effect on our profitability as evidenced by the continued margin and adjusted EBITDA expansion.

As many of you are aware, we offer broadband services and access to the internet in over 100 countries through our own service companies in the US, Europe, Middle East, India and Brazil and through a rapidly growing network of independent service providers in other parts of the world. Collectively, this global service operates over 100 Ku-band leased transponders on more than 20 satellites plus of course the Ka-band capacity of our own SPACEWAY 3 satellite and is enabled by the 2.2 million plus cumulative satellite terminals that we have shipped to date, representing a greater than 50% market share as recognized by the 2009 Comsys VSAT report. This global combined service and equipment leadership sets us apart and we expect to build on that strength in the foreseeable future.

Looking to the future, construction of our new Jupiter high throughput Ka-band satellite commenced in the third quarter of 2009 and is progressing on schedule, Jupiter’s design to provide over 100 gigabits of capacity, 10 times greater than SPACEWAY 3 enabling us to augment capacity and expand high speed service offerings for our North American businesses.

I am also very pleased to inform you that we signed an order with Arianespace for the launch of Jupiter in the first half of 2012. In addition, Coface, the French export-credit agency has provided a commitment to support financing for up to 85% of the launch contract value at very attractive terms.

We expect to add about 1.5 to 2 million consumers subscribers in Jupiter in the United States and Canada. As mentioned earlier, we have signed a contract with Avanti to build the ground network infrastructure for the two Ka-band satellites HYLAS 1 and HYLAS 2. These satellite have beams covering Europe and the Middle East.

In addition to providing the gateways and terminals, we’ve also leased space segment on both satellite for our own service offerings. It’s expected that HYLAS 1 and 2 will be able to accommodate approximately a million subscribers. And we are also continuing to explore partnerships in other part of the world. Though not growing as fast as the consumer business, there are encouraging signs of a possible rebound in our enterprise business.

In Q1, we received very significant follow-on orders from a number of international customers and coming to the second quarter with a solid order backlog of $812 million excluding orders from the consumer business. A number of large enterprise opportunities in North America and internationally for hardware refreshes, service expansion and new services are in advanced stages of their decision cycles.

We believe these orders and opportunities are a result of the gradually improving economic climate coupled with some pent up demand and we’re cautiously optimistic about the growth potential in this segment.

As we’ve been saying in past calls, our opportunistic Telecom Systems business will continue to be under some pressure in 2010 because of the completion of MSS contracts and the termination of the Telematics contract, although we saw opportunities crystallize in Q1 with the award for supplier satellite terminals for a large utility and a follow-on order from Globalstar.

And we will continue to pursue additional MSS opportunities in 2010. We also expect to see growth in our US government business both at the Federal and State levels.

Finally, we continue to work on a number of strategic opportunities and are also strengthening our position in certain niche areas to fuel growth in our broadband business in the year ahead.

In conclusion, I am very pleased with our first quarter performance and believe we are well positioned for continued success and growth in the remaining quarters of 2010 and beyond.

I’ll turn it over to Deepak now.

Deepak Dutt

Okay, we are now ready to start the question-and-answer part of the call. If there is any follow-up question from the financial community please direct them to me through our Investor Relations line. Members of the media should contact Judy Blake. Contact information for both is available on our website hughes.com. We’ll take a few moments to get the Q&A process started after which the operator will take over and coordinate the session. Michelle?

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from the line of James Ratcliffe of Barclays Capital. Please proceed.

James Ratcliffe - Barclays Capital

Good morning gentlemen. Couple of questions. First off can you talk about how are you thinking about managing your consumer business next year during the window between the ViaSat 1 launch and the Jupiter launch? WildBlue has made it pretty clear that they are planning to significantly ramp the service speeds once they have the ViaSat 1 capacity available. Would you have the capacity on SPACEWAY 3 to match that at least as a [ph] plug period until you get Jupiter in here?

And secondly if you could just talk about the trends in consumer SAC both on the equipment and services side.

Pradman Kaul

Okay, let me take the first question and then Grant can follow-up on the second question. Obviously the point that you make James is of concern. We are working hard on multiple strategies; one, using our existing capacity, augmenting it maybe with some extra capacity, some technology improvements, but we are confident that during this GAAP period, six months or nine months or 12 months, somewhere in that range, that we will be able to respond effectively in the market. We obviously don’t have any announcements at this stage and we will wait till early next year as we see the competition unfolding to make our announcements.

Grant Barber

And James on the cash SAC, while we don’t specifically disclose the amount, I have commented in the past on trends and Q1 did not show any meaningful increase or decrease in our cash SAC first off compared to where we ended the third and fourth quarter last year, so still in line.

James Ratcliffe - Barclays Capital

And one follow-up if I could. You talked about transponder cost coming down as you transition capacity. Can you give us an idea of the magnitude of the decline year-on-year and your US transponder lease spend?

Grant Barber

Well we had commented earlier that we’ve been rolling back throughout last year about one transponder a month. And that was still in our plan throughout most of last year and we’ll obviously watch the sub growth as we had seen this year and moderate that plan accordingly. But if you look on a year-over-year and you would expect us to be in that 10 to 12 transponders less this quarter than we were in the similar first quarter last year.

Operator

And our next question comes from the line of Jennifer Fritzsche of Wells Fargo. Please proceed.

Jennifer Fritzsche - Wells Fargo

Just some color on enterprise trends here, it seems like the first quarter, if I am right in saying it’s the fourth straight sequential decline in North American enterprise, and given the double-digit growth and order flow, can we expect to see North American enterprise start posing positive sequential growth beginning in the second quarter? Just any color there would be helpful?

Pradman Kaul

As I mentioned in my remarks, the economy obviously has impacted our enterprise segment both here and abroad. And we are beginning to see positive signs as evidenced as you pointed out with the order and what we saw in Q1. So we are hopeful to start seeing that period of decline and then start seeing some modest growth in the quarters coming up.

Jennifer Fritzsche - Wells Fargo

Then just one more follow-up question and I’m not even sure I am pronouncing it right but Coface, the French export credit agency that provided 85% commitment letter. When do you have to let them know? Are you talking to other parties for possible better terms, or it sounds like can you give any color on these terms.

Grant Barber

We’ve been in discussion with Coface with two banks we’ve selected BNP and SocGen out of France to work with us, we’ve worked with them over the last four or five months in conjunction with the launch operators. And the process is we’ve received a commitment or promise letter from Coface that specifies terms subject to review and due diligence with the banks. The process initially started once we signed last week the launch services agreement with Ariane and now we will work with the bank over the next 60 to 90 days to flush out term sheets. But we have a broad view and promise from Coface that will put a financing rate at around 5% which is very cheap money in our view and something that we are very aggressively going after. We expect to be able to close that in the next two to three months and then we’ll comment further on that.

Operator

Our next question comes from the line of Chris Quilty of Raymond James.

Chris Quilty - Raymond James

Just to follow on that line questioning I think Ariane five launches are running in the ballpark of around $120 million and you would get the full 85%, so it should be around $100 million of lending correct?

Grant Barber

That’s correct; it’s in the right range.

Chris Quilty - Raymond James

Switching topics, the churn rate was really good in the most recent quarter and I was hoping you could provide us some color there. Were there potentially one time issues that benefited you in the current quarter or is it just a mirror reflection of two year leases and the shift to SPACEWAY and you think something closer to a 2% churn rate is sustainable on a go forward basis?

Pradman Kaul

Yes, Chris, we have done a lot of things to improve the churn rate and mainly focusing on customer satisfaction. Obviously the more subs that we get on SPACEWAY, the better our churns going to be because SPACEWAY giving them more speed and more bandwidth. And that improves the customer satisfaction. So based on the fact that larger and larger percentage of our total subscriber base will be on SPACEWAY going forward, we are very hopeful that we can maintain a churn rate of around 2%. There was nothing extraordinary that happened this quarter. That was a one-time adjustment; this is something which is a result of multiple efforts that we have been making to bring this churn rate down because as you know it obviously has a big impact on all our financial parameters for this business.

Chris Quilty - Raymond James

Right, with regard to the gross adds in the quarter, are you seeing particular demand that you can characterize either by geography or any other metric that might be insightful?

Pradman Kaul

Not really. We periodically publish these charts that show where our subscribers are, and generally it follows the population. And we haven’t seen the shift in that the regions that have always had high number of subscribers continue to be the regions that generate new growth adds to and a higher percentage but that’s spread out pretty much in the same way as our total base is spread out.

Chris Quilty - Raymond James

And have we seen any update on $100 million funding from the stimulus broadband plan or is that more under the wire September 30 dateline that we’ll finally see?

Pradman Kaul

Well, the latest input we’ve got is that the request for proposals is coming out from the government tomorrow or day after, sometime in the next few days. And we’ll have like 30 days I understand to respond to it and then the government would issue their list of winners in another 30 to 45 days after that. That’s the schedule we’ve been told, so we’re waiting with a lot of anticipation that we’ll get the RFP in the next few days.

Chris Quilty - Raymond James

And given the nature of how you’re going to sign up contracts, I’m assuming this is going to look very different than the standard RFP where you get $20 million, do an Eskimo village [ph] type thing, is it more on a customer-by-business basis?

Pradman Kaul

We don’t really know, we’ve obviously made recommendations and in the past we haven’t succeeded getting the US government to follow our recommendations. So we will just wait with keen anticipation to see how they’re going to pick winners and how they’re going to give out the awards.

Chris Quilty - Raymond James

And final question here, the hardware gross margin in the quarter, first time I think we’ve seen a negative gross margin. What should we expect on a go forward basis there, Grant, should that move back more towards a breakeven or at some point with higher volume should we actually see a positive and improving gross margin.

Grant Barber

I think what we look at Chris is, we drive the overall margins. And with the introduction of rental plan now almost a year and half ago, there is a significant percentage of that revenue that is manifesting itself in the service revenue. You know the consumers pay about $200 less upfront for hardware and then have an extra $10 monthly recurring which we show as service. So naturally as we sign up more of the rental plan, you have a bigger negative hardware margin on those consumer subs and then more than make that up by their recurring service revenue and you see that in our numbers. So what we are trying to and we are very successful in it in the fourth quarter of last year and the first quarter of this year of reducing our overall cost and improving those overall margins. But you will see, if you were able to break it down, recurring negative hardware margin in the consumer business, that was a phenomena all through last year.

The encouraging thing from our insight is the enterprise margins continue to hold up and both the international and the telecom systems businesses as well are still delivering similar margins to where they did last year. So the negative hardware in summary is strictly summary of the consumer rental plan taking off as planned.

Operator

(Operator Instructions) And or next question comes from the line of Larry Harris of C.L. King, please proceed.

Larry Harris - C.L. King

Hey guys, thank you. Just looking at the international broadband business, the operating income, it was negative for this quarter. Is that function of reduced volumes compared with prior quarters or is there something driving that number for this quarter?

Pradman Kaul

I think it’s a combination of the lower volume that we had in the first quarter of 2010 versus ‘09 and then the allocation of the fixed cost that we have in total across the North America and the International and Telecom Systems businesses.

Larry Harris - C.L. King

As volume increases, is that number likely to reverse and then we start going back to profits again?

Grant Barber

Especially if you see when you look at the volume increases on the services business which is profitable for us.

Larry Harris - C.L. King

Understood. And in terms of the signing of Ariane to the launch provider, when would your outlays to them, your cash outlays start to pickup prior to your launch in 2012?

Grant Barber

It’s typical milestone payments, and while we don’t disclose the individual, you will see those over approximately the next 22 to 24 months prior to launch in the first half of 2012.

Larry Harris - C.L. King

Okay.

Pradman Kaul

And remember Larry, we only pay 15% of each others payment, 85% of it would come from Coface financing.

Operator

And our next question comes from the line of Matthew Barnett [ph] of Jet Capital, please proceed.

Matthew Barnett - Jet Capital

Hi, I had a couple of question which you may have answered that and I may have missed them but how much did the extra growth that you are seeing on the consumer drive down margins in terms of your subscriber acquisition costs being up?

Pradman Kaul

Actually I commented that the subscriber acquisition cost per sub are not up but they are actually trending the same trends as we had last year, similar numbers to that. And the overall margins are actually up year-over-year rather than down which is driven by the strong growth in the consumer business and that’s continuing to roll back transponders on the leased business.

Matthew Barnett - Jet Capital

But if you are essentially paying the upfront fee for some of those hardware and you are seeing more consumers, wouldn’t that impact your margins in terms of the people they are releasing?

Grant Barber

Not following you, on the upfront cost on the hardware?

Matthew Barnett - Jet Capital

Yes.

Grant Barber

Yes, what we do is we amortize that cost to the hardware over the life of either internal, an indoor and outdoor unit. So part of that upfront subsidy is amortized over the life of that contract.

Matthew Barnett - Jet Capital

And then in terms of foreign currency, how much will that impact revenue wise?

Grant Barber

So obviously it impacts the service businesses that we had in Brazil and Europe and India. That was about $4.2 million impact, most of it driven by Brazil.

Matthew Barnett - Jet Capital

And then just if you exclude the amount that’s going to be financed by Coface, how much is remaining to be paid on the Jupiter satellite?

Grant Barber

So we paid from cash payments at the end of Q1 about $68 million to Loral and that’s of the $252 million that we disclosed as the full amount of the Loral payment and the balance of it will be milestone payments depending on timing et cetera between now and the launch. And you could factor in the launch and insurance payments on similar plans including what we fund, as Pradman said, we fund about 15% of the launch and 85% will be provided by Coface.

Matthew Barnett - Jet Capital

And if you subtract all that out what’s remaining, how much do you have left in terms of the value spent on some of these strategic items that you’re focusing on? I mean is that a $50 million number, $100 million…

Grant Barber

You’re saying of the cushion that we have? Remember when we raised the $150 million in the middle of last year, we said that absent that raise, we had enough to fully fund the Jupiter bill.

Matthew Barnett - Jet Capital

Okay.

Grant Barber

The entire view of the proceeds of $100 million to $135 million net would all be available to fund other M&A activity and we’re still on track with that.

Matthew Barnett - Jet Capital

Okay, and I guess a question, I mean you obviously raised that money a year ago, are you going any closer or you changed your plans, what’s taking the amount of time that’s taking?

Pradman Kaul

Well, we’ve come close in a couple of strategic opportunities, we haven’t yet found one that we think is compelling and we’re continuing to work hard at that. When we find the right one, we’ll spent the money.

Matthew Barnett - Jet Capital

Would you find buying HUGH stock compelling, I mean the valuation…

Pradman Kaul

The answer is no. Our objective is to invest it in growing our business.

Grant Barber

And one other comment we get Matt when we are out on road is the actual lack of liquidity in the stock given the concentration in the holding by several of our large holders that made initial investments and continue to hold. So I think all in all when you look at our cap structure for us to go back and buy stock in the market would reduce the float and liquidity which a number of investors have highlighted as a concern. We think there is a better return for us to continue on the M&A path and look for strategic investments to add to our portfolio.

Matthew Barnett - Jet Capital

And then just the last question on the government funding, do you guys think that the lack of a satellite in the sky right now for VSAT would impede their ability to participate in some way?

Grant Barber

No, the government is more and more looking to commercial satellites and commercial networks and that’s what we are hoping to get some business and we are getting business today offering our existing commercial networks and services to the government. So we will continue to expand that going forward.

Operator

This concludes the question-and-answer portion of today’s conference call. I would like to turn the presentation back over to Mr. Dutt for any closing remarks.

Deepak Dutt

Thank you, Michelle. And I just want to say thank you everybody for participating. This brings to an end our conference call today. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude your presentation. And you may now disconnect. Have a great day.

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