EchoStar's (SATS) CEO Mike Dugan on Q3 2016 Results - Earnings Call Transcript

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About: EchoStar Corporation (SATS)
by: SA Transcripts

EchoStar Corporation (NASDAQ:SATS) Q3 2016 Earnings Conference Call November 8, 2016 11:00 AM ET

Executives

Deepak Dutt – Vice President, Investor Relations

Mike Dugan – Chief Executive Officer

Dave Rayner – Chief Operating Officer and Chief Financial Officer

Pradman Kaul – President of Hughes

Anders Johnson – Chief Strategy Officer and President of EchoStar Satellite Services

Vivek Khemka – President of ETC

Dean Manson – Executive Vice President and General Counsel

Analysts

Ric Prentiss – Raymond James

Andrew Spinola – Wells Fargo

Andrew De Gasperi – Macquarie

Chris Quilty – Quilty Analytics

Umesh Bhandary – Jefferies

Operator

Good morning. My name is Tammy [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Corporation Third Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Mr. Deepak Dutt, you may begin.

Deepak Dutt

Thank you, operator, and good day everybody. Welcome to our earnings call for the third quarter of 2016. I'm joined today by 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; Vivek Khemka, President of ETC; and Dean Manson, EVP and 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 reports. 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.

Dean Manson

Thanks, Deepak, and hello everyone. 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 those forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q filed in connection with our earnings. 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 report, 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.

Mike Dugan

Thank you, Dean. Good morning, and welcome everyone for our third quarter earnings call. In our last call, I announced that Vivek Khemka, who has been CTO at DISH, is serving as president of EchoStar technologies. Subsequently, we made a few other significant announcements; Anders Johnson has stepped up to the role of Chief Strategy Officer while continuing to serve as President of our ESS division. Also, Dave Rayner, has been appointed as Chief Operating Officer, and will continue to serve as CFO of EchoStar. These new appointments have enabled me to devote more time to assess business growth, while Anders appointment as CFO provides additional focus on pursuing strategic opportunities in the satellite sector.

Let me now turn it over to Pradman Kaul, to talk about Hughes and their performance this quarter.

Pradman Kaul

Thank you, Mike. First a few financial highlights. Q3 2016 revenue for the Hughes segment was $356 million, a 5% growth over the same quarter last year. Hughes EBITDA for Q3 was $112 million, a 10% growth over Q3 of last year. In our consumer business, we ended Q3 with 1,018,000 subs, Echo 17 continues to be at capacity in many beams, thus constraining growth in the North American subscriber base.

The Echo 19 Jupiter 2 satellite is scheduled for launch in little over a month from now, and we expect to place the satellite into service in by the end of the first quarter of 2017. It'll provide capacity primarily for our consumer business in the U.S. as well as additional capacity in Canada, Mexico, and other countries in Central America, and help resume the growth rate of our subscriber base.

We've completed the ground tests on the satellite and ground system, and the satellite is currently at Cape Canaveral. The original specification for Jupiter 2 was to have a total capacity of 162 gigabits, but we now expect that the system will have a total capacity of approximately 220 gigabits of significant increase over Echo 17. This is obviously very exciting because of the additional subs and revenue that this support.

Our North American team is currently developing the new HughesNet Gen5 plans that will be available on EchoStar 19. As you may be aware, subscriber online time and video consumption have continued to increase. And today's subscribers are looking for faster speeds and higher data caps. With HughesNet Gen5 we'll be offering more data and materially higher speeds than we are today, and in addition built-in Wi-Fi, and a range of features to enable our customers to optimize their online experience.

Our target markets will continue to be the geographies not penetrated by cable and fiber, and we believe that the improved service offering will allow us to expand our addressable market of underserved homes. We intend to announce our Gen5 service plans and pricing in January, followed by pre-launch marketing. We are obviously very excited about launching the new Gen5 service on Echo 19 Jupiter 2.

Updating you now on our aero business, our leading customer, Global Eagle Entertainment has grown the fleet of aircrafts they serve with our equipment to over 750 aircraft, and has expanded its client base to include a number of international carriers serving regions throughout the globe. These include, among others, Southwest Airlines, Iceland Air, Norwegian Air, flydubai, and Avianca Brazil. And we are particularly pleased to report that we are on track to launch our next generation of aero services in Echo 19 in early summer of 2017.

As part of this launch, we are on schedule for commercial release of our next generation high-speed aero terminal capable of exceeding 200 megabits into each plane. We have already delivered preproduction units to several of our partners for initial testing and advanced integration into their systems.

It should be noted that while Echo 19 will be a tremendous asset to the North American aero market, this new terminal is fully compatible with both Ku and Ka-band satellites, and thus will enable our clients to operate services throughout this world. As part of this global service strategy we're also bringing to market an advanced new dual-band KUK aero antenna that will give service operators superior capability to serve airlines that have routes that span multiple satellite footprints.

On July 1, we launched our consumer internet service in Brazil, using our hosted Ka payload on the Eutelsat 65 West satellite. This is the first expansion of our successful consumer service outside of North America. I'm very pleased that we were able to launch the service on schedule, and all the beams are now open for business. We have approximately 300 dealers selling our services as of now. The hosted Ka payload on the Telesat T19 satellites scheduled for launch in the second quarter of 2018 will further enhance our presence in Brazil and other parts of Spanish-speaking South America.

Turning to our enterprise business, key enterprise orders in Q3 were from BP, Whole Foods, Dillards, York Telecom, Level 3, Phillips 66, the Oil and Natural Gas Commission of India, IPSTAR, and Boeing MEXSAT. We ended the third quarter with a $1.5 billion of enterprise backlog, an increase of 30% over the backlog at the same time last year. In addition, in October, we had two significant strategic contract wins. One is the large S-band mobile satellite system in Asia, and the other is a significant contract in our defense business. Our work with OneWeb is now in full swing. We continue to be excited about the potential of LEO satellites in both our equipment and service portfolios.

To summarize, I'm very pleased with our performance in Q3, and we're looking forward to strong growth going forward. Let me now hand it over to Anders.

Anders Johnson

Thank you, Pradman. ESS's third quarter revenue was $101 million, compared to $124 million for the third quarter last year. EBITDA in the third quarter of 2016 was $84 million compared to $104 million last year. ESS continues to focus on the fleet expansion initiatives we've discussed on previous calls, with three EchoStar satellites, Echo 19, 21, and 23 scheduled to launch in December. However, two of the launch providers have yet to return to flight operations after anomalies, so there is a risk that some of these could slip into early 2017. In addition, EchoStar 105 is now expected to launch in the first half of 2017.

Pradman has already mentioned EchoStar 19, I will address the remainder. As we announced in September, our S-band satellite, Echo 21, competed construction and was placed in storage pending a launch date from ILS. The launch, originally scheduled for the second quarter of this year, had been delayed while Khrunichev completes analysis of an off-nominal condition which occurred on the last ILS Proton mission. ILS and Khrunichev have currently provided a launch date to us of December 22.

A portion of the EchoStar 21 capacity will be used by our subsidiary EchoStar Mobile to provision its next-generation all-IP-enabled mobile communications network, an integrated mobile satellite service network with its CGC component in the European Union. In light of the delayed launch, the EchoStar Mobile team has been working closely with the EU and individual country regulatory bodies regarding the required regulatory milestones for its mobile satellite services.

We have two satellites that were scheduled for launch on SpaceX's Falcon 9 earlier this year. EchoStar 23, a flexible Ku-band BSS satellite designed to fulfill multiple mission profiles -- excuse me, I lost my place -- will initially be deployed at the 45 degree west orbital position over Brazil. And EchoStar 105, the hybrid Ku/Ka and C band satellites that will replace AMC 15 at the 105 degree west orbital slot.

SpaceX continues to analyze the anomaly that occurred in September during a prelaunch static fire test. Pending the outcome of that investigation, we expect EchoStar 23 to be launched either in late December of this year or early in the first quarter of 2017. And as I stated, EchoStar 105 will be launched in the first half of 2017. For those of you keeping track, if all these launches should occur as scheduled, we'll have two to three launches in a row in the second half of December.

I'll not turn it over to Vivek.

Vivek Khemka

Thank you, Anders, and good morning everybody. ETC revenue in the third quarter of 2016 was $283 million compared to $295 million in the third quarter of 2015. EBITDA was $9 million compared to $26 million in the third quarter of 2015. As Mike stated, I joined EchoStar three months ago, and this is my first earnings call as President of ETC. Being new to EchoStar, I'd focused my last three months on understanding the business, visiting our key customers, meeting critical vendors, and reviewing our product roadmap's engineering and technical operations. And I have been pleased with what I have seen so far.

Based on my review that sets the following goals for the EchoStar team, first, continued support for Sling TV, last quarter, we rolled out the new Sling TV interface to more devices, and improved general performance and stability of the platform. In Q4, we will continue to support the Sling TV product roadmap, and scale the platform to meet Sling TV's growth projections. Second, continue to support the DISH core business with our Hopper product line. We continue to develop new features like YouTube on Hopper that helps DISH meet the needs of its customers, and also offer key [indiscernible] in the industry. Third, leverage our expertise in video to diversify and launch new products in 2017. And last, continue to build and meet this talented team at EchoStar as the industry landscape continues to evolve.

Thank you. And I will now hand it over to Dave Rayner.

Dave Rayner

Thank you, Vivek. EchoStar revenue for the third quarter 2016 was $742 million, compared to $761 million in the third quarter of 2015, the reduction primarily attributable to EchoStar Technology and EchoStar Satellite Services offset partially by an increase in Hughes revenue. EBITDA was $211 million for the third quarter, compared to $217 million in the third quarter of last year. Included in the quarter was $14 million non-recurring charge related to home automation product in our ETC segment.

Net income attributable to EchoStar common stock was $36.6 million compared to $30.1 million in the third 2015, and diluted earnings per share were $0.39 compared to $0.32 last year. The increase in net income was primarily due to lower depreciation and amortization, lower income tax provision from a lower effective tax rate, and an increase in equity earnings of unconsolidated affiliates. Offsetting these items were lower EBITDA and higher net expense primarily from the new notes issued in July.

Capital expenditures in the quarter were $157 million compared to $123 million for the same quarter last year primarily due to higher CapEx and satellites under construction. For the nine months ended September 30, capital expenditures were $510 million compared $480 last year. Given the delays in the satellite launches that I under spoke to, we expect full-year 2016 spending to be around $700 million with once again satellites and related ground infrastructure driving voltage spend. Free flow which we define as EBITDA minus CapEx was $54 million for Q3 2016 compared to $93 million last year, the change primarily due to the higher CapEx this year.

Turning to the business segments, huge revenue for the third quarter of 2016 was $356 million up 5% from last year driven primarily by domestic equipment sales and consumer broadband partially offset by international equipment and services. Hughes EBITDA in the third quarter was $112 million an increase of 10% from last year primary contributor to the EBITDA growth was the higher revenue and product mix.

EchoStar satellite service revenue was $101 million for the third quarter, compared to $124 million last year with the decline primarily caused by the determination of leases with DISH for EchoStar I and EchoStar VIII in the fourth quarter of 2015. EBITDA was $84 million, compared to $104 million in the same quarter last year with decline being a result of the lower revenue.

EchoStar technology revenue for the quarter was $283 million compared to hundred $295 million last year, the change being primarily due to lower equipment sales to international customers partially offset by higher service revenue from DISH.

The ECC EBITDA for the third quarter was $9 million compared to $26 million, the decrease being primarily due to the lower revenue in the previously mentioned charges associated with discontinuance of the home automation products.

In our all other and elimination segment, where we record gains and losses on sales of securities, eliminations for inter-segment sales and other corporate transactions, EBITDA for the quarter was $6 million compared to a negative $15 million last year the increase being primarily due to the termination of our lease with DISH on EchoStar 15 in Q4 last year, as well as an increase in equity earnings of unconsolidated affiliate.

We continue to have a strong balance sheet and ended the quarter with approximately $3 billion of cash and marketable securities. Included in the growth -- included in this are proceeds of bond issue which we launched and closed in July for $750 million in senior secured notes and $750 million of senior unsecured notes both due in August 2026.

Let me now turn it back over to Mike.

Mike Dugan

Thanks, Dave. In closing, I'm pleased with the progress we've made in Q3 and on our numerous strategic initiatives while also delivering solid results in the quarter. As we've discussed previously, we intend to use our strong balance sheet and network and operational expertise to continue to pursue many strategic opportunities. I am sure you like details at this time not ready to discuss any specifics.

It's now time for questions. So operator, would you please start the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Ric Prentiss with Raymond James.

Ric Prentiss

Thanks. Couple of questions, first, can you weigh in a little bit, obviously some delays, but not too bad, what are your thoughts as far as how the delays would affect your financials and your strategic set up and what if the delays were to extend out little further?

Mike Dugan

What delays are you talking about?

Ric Prentiss

Oh, just slipping from 4Q to being late December or early…

Mike Dugan

Yes, you must be talking satellite launch delays, is that what your questions are?

Ric Prentiss

Yes.

Mike Dugan

Okay. Well, obviously, as we all have been open to the news, the launch providers have a number of struggles with some past launches which have delayed things. We're going to continue to be pretty conservative. In returning to flight on somebody's launch providers and we don't have a lot of control over the exact launch date. Right now, I'd say my own personal perspective is we're in better shape than I thought we would be in three, four months ago. Anders, do you have anything to add to that?

Anders Johnson

No, I think all -- obviously all of the business plans related to the various satellites are in lockstep with the launches. To the extent, our launches occur in December. In the case of Echo 21, that would be almost a nine-month delay relative to original expectations, but we've kept all of our regulators and other license issuers apprised of our status with regards to 21 and the EML specifically.

On Echo 19, as Pradman mentioned, the satellite is that the launch site now awaiting the two launches that are ahead of us. So, that one as was mentioned will stand that service up after the first quarter of 2017. Echo 23, which is similarly late relative to our original expectations of a launch in October to the extent we will be get off in December. We believe we still have the time necessary to do all the things we were hoping to do with it including meeting our regulatory obligations in Brazil. And as was mentioned Echo 105 lateness results in our having to continue to lease the AMC 15 satellite at the 105 Orbital location, which remains stable, until the new satellite arrives, but all of the business plans are remaining fully intact.

Mike Dugan

So Rick, a little bit more in terms of specifics on the financial impact, Echo 19, I think is on schedule where we expect to be for some time now. So there's no impact there as Ander describing, 21 and 23, the financial impact of that was expect to be relatively minimal in the near terms. Those are both strategic assets as we've discussed previously, and so the slight delay is more of a regulatory risk than it is a financial risk, but we feel very comfortable that Anders and the regulatory team have that well in hand.

105 will have a financial impact in two aspects. Anders just spoke to the additional lease expense that we will have on leasing AMC 15 for an extended period of time, as well as the delay in ramp of service revenue of 105. So it's yet to be seen exactly how much that delay would impact, but on the expense side it's probably going to run us somewhere about $4.5 million to $5 million a quarter, in additional expense that we would hope to eliminate going forward. And so, we can replace AMC 15 and then obviously the revenue delay with the higher capacity.

Ric Prentiss

Great. That's exactly what I was like looking for, thank you.

Mike Dugan

Thank you.

Operator

Your next question comes from Andrew Spinola from Wells Fargo.

Andrew Spinola

Thanks. I had a question on the U.S. subscribers in the Hughes business this quarter down 12,000, I'm just wondering since you've lost 20,000 subs in last two quarters, do you have enough capacity even before '19 to be adding subs, or is this a function of having so little capacity that you're not actively marketing the services at this point?

Pradman Kaul

No, we are actually marketing, and like I think our gross ads for this quarter was close to 80,000 [ph] subs. And so, what we're doing is ask the beams, and some subscribers churn out of the popular beams that -- fill them back up with new ads. So we're actively marketing. We can't grow, because we don't have enough capacity to grow, but we're trying to be stay as close to the status quo until we get Echo 19 into business.

Andrew Spinola

Got it. I wanted to ask -- could you give us an update on the progress so far in the Brazilian broadband business?

Mike Dugan

Yes, it's been very, very good. We launched the service on July 1 as I mentioned, which is on schedule. The initial uptake has been pretty much likely projected. We have about 300 dealers that are selling and installing our product right now. We expect to grow the number of dealers over the next six months, so we'll get to many more dealers than the 300 we have today. So everything is going like planned. We're pleased that we're getting a good number of calls to our call centers; we're getting good response from the customers on the service. And the system has been operating flawlessly. So all in all, I think everything looks good right now.

Andrew Spinola

Could we get the sub count in that business?

Mike Dugan

Because it's just starting, the numbers are not significant. So at this stage we haven't decided when we'll start giving the sub counts. But the few subs that we have in first few months are included in the total sub counts that we have -- we talk about in the consumer business. But it's very small right now. But the slope is good. It's growing at a nice pace.

Andrew Spinola

Right. And I think on the [indiscernible] call, you mentioned that you'd expect to end the year with 25,000 subscribers. Do you still think you can hit that target in Brazil?

Mike Dugan

It's probably going to be a little less than that because the ramp up is a little slower than we expected. We don't have a wholesale partner yet, which is what's impacting it. But on the retail side we're pretty much on track.

Andrew Spinola

Got it. And what's the visibility to a wholesale distribution partnership down there?

Pradman Kaul

We are talking to one or two major operators, but we don't have a deal yet.

Andrew Spinola

Understood. Question for Anders, just given the change in the ESS business, with DISH, the satellites that have rolled off, a couple of satellites you have that are closer to the end of life. I think historically you guys have said that you expect that business to be roughly flat over the medium term. Can you update us on what your outlook is for that business?

Anders Johnson

Well, our relationship with DISH on the older assets is pursuant to contracts which have in their terms normal expiries. The assets that we got back last year, we did so at the end of their respective contracts. Right now a lot of effort is being put into finding other opportunities to deploy those assets, first and foremost using them strategically for regulatory purposes, but we're also right now in discussions over some deployments that could result in some revenue generation. So the business with DISH is certainly very stable, and very predictable. And we look at other opportunities to work with DISH in satisfying their needs going forward.

Andrew Spinola

Thanks. One last one for me, Dave, the Harris CapRock asset changed hands recently. Just wondering, given you've raised significant capital, I thought that might've been a business that could've interested you. Would you be will to just say that you gave that more than a passing look or most type of businesses at all in interest to EchoStar? Thank you.

Dave Rayner

Yes, as Mike said in his closing comments, at this point in time we're not ready to comment on any specifics around our strategic opportunity initiatives.

Andrew Spinola

Fair enough. Thank you.

Operator

Your next question comes from the line of Andrew De Gasperi with Macquarie.

Andrew De Gasperi

Thanks. The first question, can you maybe tell us what drove the capacity increase in Echo 19?

Mike Dugan

We mentioned that we expect to be able to support 220 gigabits per second. So you can do the arithmetic in terms of number of subs based on the different plans and the capacities that we will assign on a per-sub basis.

Andrew De Gasperi

Was there anything that sort of technologically -- like did you figure something differently that this time that essentially gave you that leap on as far as the capacity?

Mike Dugan

Obviously the engineers have been tracking this as we've gone through the test phase as Pradman has announced where we think it's at right now.

Andrew De Gasperi

Got it.

Pradman Kaul

It's a combination of technology improvements both on the satellite and the ground segment.

Andrew De Gasperi

Got it, okay. And secondly, on the -- it seems your revenue grew slightly in the quarter despite the decline in subs year-over-year. So I was wondering should we assume that ARPU was up nicely in the quarter?

Pradman Kaul

Yes.

Andrew De Gasperi

Got it. And then was this sort of due to mix as far as wholesale/retail?

Pradman Kaul

Yes, that's part of it too, but the ARPU per sub in the retail channel did go up, and has been going up every quarter for the last four quarters, which is not a question of mix, but in both the retail and the wholesale channel the ARPU has been creeping up.

Andrew De Gasperi

Got it. And the last one for me, have you had any discussions with the EU as far as potentially delaying the S-band satellite or is that sort of a conversation you're going to have if and when you're sure you're going to miss the milestone for the December? Thanks.

Mike Dugan

We've been keeping both Qualcomm as well as the member states apprised of our situation pretty much all year. So everyone is aware of what our situation is, what has caused the delays. We don't believe anyone is going to act unpredictably here. So right now we're on track for a launch on December 22, which once the satellite is in orbit and shortly thereafter we get through a series of deployments, we would expect to enter into service and be offering commercial service in the first quarter of 2017.

Andrew De Gasperi

Great. Thank you.

Operator

Your next question comes from Chris Quilty with Quilty Analytics.

Chris Quilty

Anders, on that last point of delivering service beginning in the first quarter, have you defined better what those services will be and what sort of revenues we might be able to project from those services?

Anders Johnson

Well, as far as technically the services themselves, we've worked over the last almost three years with our team at Hughes in developing a product. We have a product called -- we refer to it as a portable data terminal, it is a device which over the satellite would create a Wi-Fi hotspot in areas that are not connected terrestrially. And that's a device which we currently have in production, and we have a small but growing inventory of them which we will be offering into the market. We have a distribution arrangement with a European telecommunications service provider that's going to be distributing the unit. But that's a particular product.

We also have a number of other applications. In fact, one of them is currently being tested across our existing payload, the W2A payload on the Eutelsat satellite, as well as in discussions for just the provisioning of power and bandwidth for other applications which we won't necessarily own. So as far as revenue expectations of those, I'd say let's get in the air, and get the system qualified. And then we will start selling the product, and see where it goes. I don't know if Dave wants to create any expectation as far as revenue.

Chris Quilty

Got you. And would these services be mutually exclusive of work that you're doing with OneWeb, which is also looking to provide mobile Wi-Fi access on a global basis. Is it the fact that it's a regulatory service that would keep it protected from other proposed services?

Mike Dugan

I'm not quite sure I understand the question, but it's a strategic initiative for us that we've been developing, not necessarily in coordination with other investments we have in other developing companies.

Chris Quilty

Okay, fair enough. A question for Pradman, you had mentioned two strategic wins. And I think that was on the Enterprise VSAT with a defense customer. And I think it was an Asian S-band deployment. Can you give us any additional details on the size and scope of those?

Pradman Kaul

The Asian S-band mobile sat system is a contract worth about $69 million. So that's significant revenues and EBITDA margins. It's a system that is very similar to the system we've delivered to MEXSAT in Mexico. I can't tell you the name of the customer yet but I am sure in the next couple of months we'd be able to name the customer. The second one was very, very important strategic win in our defense sector. And again because of the nature of that contract we can't disclose what exactly that system is and what the customer is.

Chris Quilty

I understand. And on the Echo 19 with the technical changes that you've made on the satellite system how comfortable are you that all of the components both ground equipment, terminals and satellite will be coordinated at launch or are there additional investments or upgrade that you need to do with the gateways in order to launch that service.

Mike Dugan

The system has been developed for the lat three years and no changes were made at the last minute. It's just that the performance of both the satellite and the modulation and date recording that we use has resulted in performance which was better than what we had originally specked. So, all that then, all that's being testing on the ground. We've integrated it with the necessary components so I don't expect any changes in launching the service of where the system is today.

Chris Quilty

And Dave I missed your updated forecast for the CapEx for this year?

Dave Rayner

I am glad Chris to hear that you missed that but I didn't give one, oh I am sorry for this year, we're right around $700 million as where we're expecting down a little bit from what we had said previously because of the satellite delays. As result next year's CapEx is probably going to be a little bit higher than we had previously indicated. We're in the middle of a budget process and probably next year we'll probably be similar between $350 million and $400 million before we start any new projects.

Chris Quilty

And if you strip down any of the satellite CapEx, can you remind us what's just your maintenance CapEx?

Dave Rayner

The biggest component after the satellite in group infrastructure is Hughes consumer equipment and that's the biggest component. We've got ETC maintenance CapEx in both the uplink as well as starting what we call maintenance CapEx and continue to build out move network sort of those two items combined. The two biggest other components and that's going to probably run call it $200 million on an annual basis.

Chris Quilty

Got you and just for reporting purposes on a go forward basis you are going to have some growing subscriber counts in your international markets. Do you intend to disaggregate maybe domestic versus international or are we just going to get a consolidated sort of gross net add for the Hughes on a global basis?

Dave Rayner

I think as Pradman indicated for now we're going to combine and once Brazil and other international markets become more significant I think we'll probably end up giving it separately but for right now as Pradman said the numbers aren't significant enough to really warrant separate disclosure.

Chris Quilty

Perfect. Thank you.

Operator

Your next question comes from Umesh Bhandary with Jefferies.

Umesh Bhandary

Hi guys. Thanks for taking my question. Maybe the first one, you have relationship with DISH and you sort of alluded that revenue streams have remained stable. Maybe just why was the last two satellites not renewed. Was this kind of out of life or what happened to that particular contract.

Mike Dugan

Yes, both of the assets were at the ends of their natural fuel lives so we had managed them pretty much to the end of their station kept capabilities and immediately after we received them back from DISH we put them into incline orbit to extend their lives.

Umesh Bhandary

And then that capacity from these two satellites how did that fit, did it go into some of you other satellites or how did that get managed.

Mike Dugan

In the case of both of those satellites were at the time they were returned to us in a back up deployment meaning that the actual traffic that had previously been on them when they were younger has already transferred on to more modern satellites that we had launched and put into service with DISH. So those assets have been acting as backups if something anomal were to occur to one of the operating satellites.

Umesh Bhandary

Got it. And then are there like similar sort of end-of-life satellites coming here in the next couple of years. How should we think about the trajectory of that revenue stream?

Mike Dugan

There is only one other satellite currently that I would characterize as being in a similar point in its life which Echo 12 but otherwise the other assets that we have with DISH and anticipated to remain with DISH.

Umesh Bhandary

Got it. And just maybe a little bit of more industry question then for you. As sort of some of the content to move over to top, sort of the Sling TV or whatever have you and how does that sort of change DISH's kind of requirement for satellite capacity. Does that necessarily reduce the satellite capacity, satellite need or that is really more incremental what it is coming through over the top?

Mike Dugan

Yes, this might have driven obviously over the top programming options, or the way they launch, that has almost nothing to do with satellite capacity. That's all delivered over internet although a few of those channels probably start at the same place and they are broadcast. So it's all before they move to satellite. So there absolutely is no interaction between the two services.

Umesh Bhandary

Okay, so maybe it's not. I guess what I was trying to understand was then they move through the internet they are not really necessarily being taken out from the satellite transmission world?

Mike Dugan

Well, channels are delivered to our over-the-top service in a number of ways. I am sure a few of those come off or above their satellite capacity. It has nothing to do with finish. Again any channel that shared the time the DBS services versus the Sling TV for instance that channel is typically different than what's on DBS and where it isn't it's taken off and made available to some TV customers before it goes to the DBS service. So again I am not sure…

Vivek Khemka

This is Vivek here. The question is does the over-the-top reduce the need for satellite service, the answer is no, there are millions of customers on the DISH satellite service that has no access or will never be able to access that process go at the top. So as long as any customers still seem to use the DISH satellite DBS service their need for satellite capacity will continue be there.

Umesh Bhandary

Okay, that's actually what I was going after. Thanks for that clarification, very helpful. One final question from me, just in terms of your levers philosophy I know you are sort of looking at various sort of growth opportunities. As we look at those opportunities what is sort of this general philosophy and where you want to keep your leverage target at?

Mike Dugan

I mean certainly the leverage right now is a little bit on a gross basis is probably at a comfortable level. We're not -- I should say we're not uncomfortable with it. We could take it higher for the right opportunity. On a net basis the leverage ratio is minimal. Certainly we need to put the money to work and we need to generate returns off the cash that we have but the leverage ratio. While we don't have a specific target in mind it more depends on what we use the funding for and how quickly if we level up further from here and how quickly we could de-lever it.

Umesh Bhandary

Got it. Thank you very much. Those were all my questions.

Operator

[Operator Instructions] And there no further audio questions.

Deepak Dutt

Thank you, Operator. I think we've come to the end of the conference, so let me just say thank you all for participating in the conference today, and good day.

Pradman Kaul

Thank you.

Mike Dugan

Thanks everybody.

Operator

Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.