EchoStar Corporation

to complete all the gateways in 2023 scheduled. As of the end of the first quarter of 2023, we have produced and shipped more than 16,000 subscriber, satellite subscriber core modules for inclusion in OneWeb user terminals. We are also seeing significant interest in our Hughes LEO terminal, which includes our electronically steered antenna, and we are very pleased to have been awarded another large contract from a customer for a version of this terminal. We will begin deliveries of terminal products later this year, also enabling sales of our managed LEO services to the enterprise and government markets featuring OneWeb connectivity. In our defense and government systems division, we secured numerous service renewals, including follow-on orders from Boeing for PTAS, the Navy for additional work on 5G, and one of our digital signage products for the Social Security Administration. We are pleased to participate in the ribbon-cutting ceremony for our standalone, open-RAN, secure 5G network deployment at Whitby Island Naval Air Station in Washington State on March 30th, which helped demonstrate the potential of 5G services in DoD applications. We look forward to growing our 5G capability at Whitby Island Naval Air Station, as well as on other DoD installations in the near future. Now to our international operations, we continue to allocate satellite capacity to address various enterprise applications in Latin America. As one great example of this effort, we announced a project with Star Group to provide sailor backhaul services to hundreds of locations in Mexico. In other parts of Latin America, we continue to develop enterprise opportunities and are running pilots with several operators. As for our HughesNet service in Latin America, we remain focused on adding high-value subscribers which is lowering churn and optimizing the yield in our existing Latin American capacity. In Brazil, we want a significant expansion of 800 vehicles for a fleet automation customer. In India, we received an initial order for cellular backhaul services in support of the operator's universal services obligation services. And we were recognized in India by the Economic Times as best managed service provider, a prestigious recognition of the role Hughes plays in the Indian market. In terms of the Jupiter system equipment sales, we continue to win orders around the world. This includes a significant number of remote terminals for deployment on the Eutelsat Connect VHTS satellite. Additionally, as we announced, Miasat selected the Jupiter system to enable broadband services on the Miasat 3D satellite, which will help connect the unconnected across Malaysia. And we announced that UziSat chose the Jupiter system to help bridge the digital divide in Uzbekistan. Now let me focus on Horizon 2 activities. These include our efforts to bring Jupiter 3 into service for expansion of our offerings in North and South America, as well as growing and diversifying our global enterprise business. I'm pleased to report that the Jupiter 3 satellite is in the final stages of assembly. Maxar continues to work diligently and expects to complete and ship the satellite to the launch site in June. We are coordinating with SpaceX to schedule the launch of Jupiter 3 at the first window that SpaceX can allocate to it, which is subject to preemption by certain higher priority government launches. Once launched, Jupiter 3 will deliver new broadband service in North and South America and quickly allow us to focus on growth by addressing the continued demand for high-speed broadband throughout the region. In preparation for the launch of Jupiter 3, the team is focused on developing service plans with higher speeds and more data, along with higher speed HughesNet fusion plans, creating the ultimate high-speed, low-latency satellite internet experience to rival any LEO satellite internet service. We believe the market is eager for these robust offerings, and we plan to have a highly competitive suite of services to meet a variety of our customers' needs. Horizon 2 also has a strong focus on expanding our global enterprise business, including the government sector. We plan to leverage our managed services portfolio, hybrid LEO-GEO business solutions, and our manufactured products to pursue growth. Nascent signs of Horizon 2 direction can be seen in the large enterprise orders and 5G activities reported here today. Increased participation in this vast market segment is a key element of our diversification strategy, as is improving our operational scale through potential small acquisitions, which we continue to explore. Now let me turn the call back over to Hamid.

Thank you, Paul. That was a good summary of our Horizon 1 and 2 activities from the first quarter of this year. I want to reiterate that while we are in Horizon 1, we are working on our other work streams, Horizon 2 and 3, in parallel. And to that end, we have had a busy quarter. Let me now focus on Horizon 3 and our longer-term strategy to expand into new markets through both organic innovation as well as potential acquisitions. While we continue to evolve acquisition opportunities, we are also evolving our S-band prospects. As we announced during the first quarter, we have begun construction of what we are calling the Echostar Lyra constellation of 28 LEO satellites. We are moving quickly to launch the first of these satellites to begin offering the store-and-forward Internet of Things machine-to-machine and other data services starting in 2024. At the same time, we are pursuing many avenues of exploration for our global S-band assets. For instance, we continue to bring on new customers in Europe for our Echostar mobile LoRa-enabled IoT service, and we have recently demonstrated our direct-to-smartphone capabilities in Europe using NTN IoT over our Echostar 21 satellite. We are testing similar services in North American markets using two DISH network satellites, and we are actively working to expand our services into additional global markets. With what we are learning from these deployments, we continue to refine our plans for bringing the Lyra constellation to market. These activities are not the only business development initiatives we have undertaken in service of bringing our global S-band network. We continue to actively engage with companies across the 5G NTN ecosystem to leverage the opportunities of the 3GPP Release 17 in developing a truly global 5G non-terrestrial network for real, anytime, anywhere device connectivity that is ubiquitous and transparent. Let me now turn it over to the operator to start the Q&A session.

If you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our first question comes from the line of Rick Prentice with Raymond James.

Yeah, good morning, everybody. Can you hear me okay? Yes.

Yeah.

Okay. Thanks. Hey, I want to start with, obviously, EBITDA came in a little better than we were looking for. And one of the areas that we noticed was cost of service seems a little light year over year and quarter over quarter. Were there any one-time benefits in cost of service? And associated with that, when should we think about costs coming in ahead of the J3 launch that might cause cost of service to go up to a new level?

Well, I guess... First off, what I think you can see there is there's been a focus on cost savings, efficient spend, and that's true in the operation of the systems as well as trying to be more efficient with how we spend our sales and marketing dollars. So across those two elements, that's the primary pickup for the quarter. We believe that's a continuing trend until we get to the Jupiter 3 satellite.

And when you get to Jupiter 3, how should we think about incremental cost levels to kind of layer in that new infrastructure and support costs?

Well, two things. One, we already have ingested a lot of the costs since the ground network has been in place now for over a quarter. So you kind of see that already in the cost. Where we'll see additional spend will be in sales and marketing as we ramp up subscribers. And you'd expect it's the same sort of growth you might see from the previous satellite launches.

I'm glad you finally have Maxar getting ready to ship in June, it sounds like. How should we think about how long from launch to when service will it take? And is there any indication from SpaceX on where in the manifest you might be possibly as we monitor the J3 going up?

Well, in terms of the actual launch of service, we expect that in the fourth quarter, and it would depend on exactly, you know, when we get the satellite in place and so on, but we would expect to be in full service in the fourth quarter.

At the moment, Rick, at the moment, we are in August's schedule for launch at a SpaceX as... So June shipment, our satellite will remain at the SpaceX site. Currently, we are on a manifest for an August timeline as... As Paul mentioned previously, because there's not that many launch systems in the world right now other than SpaceX, some of the military and government projects, as they call DX and DO projects, take precedence. What we know so far with all of those projects, we are still on the schedule for August.

Okay, good. That helps. Last one for me, obviously, Horizon 1. hopefully almost done then as you look for Horizon 2 in service in fourth quarter. How should we think about Horizon 3? You gave us some color there, some of the direct-to-smartphone you're doing demos in Europe, testing in the U.S., but how would you think about the opportunity unfolding and when you can publicly kind of help us see the roadmap, particularly in that direct-to-device space, which seems, could be quite vast, but it might take some time.

Yep. So I'll focus on that one. Well, before I focus on that one, listen, the S-band opportunity is not the only thing we're working on for Horizon 3. You have seen how actively and aggressively we are pursuing enterprise business, and our backlog is growing at an incredible pace, and we expect that to continue. So Horizon 3 is very promising for us in the enterprise sector. So I'll leave that for now on the side. I'm coming back to the S-band and direct-to-device, we couldn't be busier. You know, we have already, you know, mentioned the Lyra constellation, which will give us a global coverage using the S-band, a global coverage of, you know, IoT services and direct-to, not smartphone, but other devices, and we see a lot of demand for that, and this is something as a result of our early trials in Europe of last year using our geo satellites. But we are in the design phase and design and engineering phase of a larger system, which we expect to come into service just a couple of years later after Lyra. We have not disclosed the exact timing for that and exact specifics of that simply because that's still in development and some of the strategic to our business. We don't want to disclose that to you. We have secured certain additional gains before we come to market with additional information. But you should expect that in the second half of this decade, we'll have 5G, what we call wideband service, based on a new constellation, much larger constellation that we're working on. As time goes on, hopefully not too distant future, we'll disclose all the details of that, but we're not able to do it today.

Makes sense. Thanks a lot. Stay well, guys.

Thanks.

Our next question comes from Michael Rollins with Citi.

Thanks, and good morning. I'm curious to explore the ways in which EchoStar is working with DISH currently. I think you mentioned one of the 5G Open RAN examples where you may be working with DISH. And the filings for both companies still refers to the possibility of additional opportunities to work together. And I'm just kind of curious what the range of possibilities that could include. And specifically, could that include co-investment opportunities, as well as merger scenarios between the two companies. Thanks.

Look, our relationship with DISH is very collaborative. We obviously have an arm's length relationship with the company as, you know, we're both publicly traded stocks and we highly guard that aspect of the relationship to make sure we are, you know, obviously protecting shareholders and best interests. Having said that, we find ourselves in a number of cases and opportunities in a mutual beneficial situation. So, I think we have a number of areas where we can collaborate. So, we highlighted a couple of those. RS spectrum filings around the world are very complimentary for theirs in terms of the S-band spectrum. So, and we have satellite S-band coverage over Europe. They have satellite S-band coverage over United States and Canada. and North America, essentially. And so, to the degree that we can prove a service in Europe, we can, you know, collaborate with DISH. We have not disclosed all the details of, you know, the agreements, as some of the agreements are preliminary and has been limited to small prep services. But as we are, our aspirations are growing in terms of our S-band offerings will put in place several agreements with DISH for the use of their assets and potentially work with them on their 5G core network capabilities where we probably do not want to build in-house at Echo Star. They have the only pure 5G core in the world and also is available, is unused, underutilized. I think that's something that we can, in an outsourced fashion, work with them. We're not at the point where those agreements are necessary yet, but in due time we'll disclose any related party transactions related to those activities. The 5G with the island, has been just the, you know, we have used DISH as a sub to our program. So we have had a number of subcontractors and service providers, whether it be Cisco, whether it be DISH, whether it be some of the others that we have worked with, is a number of, you know, peace providers that we have kind of brought together as a complete solution to the Navy. And for the time being and going forward, our relationship with DISH will remain in the same in the same construct. There's no reason for us to consider any other alternative at the moment. We're not looking for joint acquisitions with DISH, and that's not, and we're not working on any, you know, as we said in Horizon 3, we're looking to acquire companies. If you're asking us whether we are co-investing in companies, we're not co-investing in companies with DISH. It's purely an Equistar activity.

Thanks. And just one follow-up on Horizon 3, what are the things that investors should be looking out for that could accelerate the timetable in which the investment case and maybe even some of the return opportunities become more visible and tangible in terms of you know, quantifying what that would represent for ECHOSTAR?

So for ECHOSTAR, two things that we can point you to. One is, you know, as we go forward, we'll report our enterprise backlog. And these are booked, committed contracts. These are not just funnel activities. These are sold. And I think you should keep a close eye on that. And as we will report our progress on a quarterly basis, And as you look at that, you could see the trend of revenue in the future. I mean, this is different than a consumer. A consumer has a disadvantage that you really don't know the trend in a very long horizon. But in the enterprise, you actually see that. One of the advantages of the enterprise business is that it can grow in very large chunks. For instance, if it's possible to, within a year, sign a within a quarter sign a half a billion dollar enterprise over there but you know how long does it take to get a half a billion dollar consumer revenue right i mean so enterprise can grow you know very very large in very quick steps so first of all we encourage you to take a look at our backlog and carefully examine that because uh that shows that the trend a few years down the road will be you know how much of our business is going to be enterprise revenue and and how much it's going to consume. We're not putting any projections today, but we're giving you some of the, one of the biggest drivers, which is the backlog, is the biggest proof of the future benefits. And we try to be more precise with that as we go forward. We try to give you a bit more timing as we, you know, finding that useful to you and ourselves. We certainly will disclose more of that potentially second half of this year, beginning of next year. The, so that's one. The second one is as it comes to the airspan development. Look, one of the most, the timing in this industry, as you're well aware, to develop satellite systems takes several years. And so the, you know, that's why we call this Horizon 3. You should start seeing as of 2627, 2627, you know, the biggest impacts, potentially first impacts are showing up. And this is not just because of the satellites, but Also, please think that to provide directed device for devices that are 5G compliant, meaning 3GPP compliant for directed satellite, those devices, the chipsets, are just beginning to be manufactured starting now. That will take a year and a half cycle for the chipsets to be ready. Then it takes another year for the chipsets to get to the phones, so phones get out of the market. And on the very first day where the phones are introduced, that's not a too many phones. I mean, you know, that very day, you know, the small number of phones are released, right? For that base to grow, it takes another year. So, when you add that up, you're talking about, you know, four-year window, three-year window from here to your four-year window, and that's exactly the same window that the satellites will take to be prepared. These are ponds of satellites in, you know, large sizes to be produced. As I said, you know, this will be, you know, vastly impactful in the second half of this decade. I would say starting with 27 timeline, you should expect to see very material, meaningful revenues from then forward. That, by the way, that is only related to the big 5G wide band. In between, we have, you know, the Lyra constellation, which has a 24, which is just next year, in 12 months from now, potentially 18 months from now. you know, we'll be generating revenues from that system, you know, in between while we get to the larger system. I hope that gives you a bit of a, you know, roadmap for where we think the revenues will fall, and we hope to give you more information, again, potentially, you know, end of this year, beginning of next year, as we solidify our segment reporting and some of these plans.

That's helpful. Thank you.

As a reminder, to ask a question, that is star 11. Our next question comes from Chris Quilty with Quilty Space. Hi, can you hear me?

Yeah, barely, but yes.

Oh, okay. Sorry about that. So how many satellites is that new constellation going to have? Just kidding. I had to at least ask. No, actually, Hamid, I wanted to follow up on something you were saying about the backlog, and more specifically, can you give us a sense, I mean, obviously it's enterprise in general, but is there a specific area where you're seeing the strongest growth in that backlog, whether it's the government side, is it retail, is it oil and gas, any color in that direction?

I don't know if I can be disclosing that. I think we're seeing growth in a number of areas, including areas, segments that we have not had a historical business in. And I think in hopefully not too distant future, maybe during the course of the next couple of quarters, you know, we'll give you, you know, more specifics on that. Our enterprise business is growing in a number of directions. And we are primarily focusing on, you know, obviously focusing on highest margin, highest profitability segments. We have vastly deprioritized and, in fact, discontinued anything that had low margins, lower margins. So don't look at our enterprise business as compared to some of the undifferentiated enterprise businesses. Ours includes high expertise, a lot of manufacturing of our own products, solutions that we home create, and unique IP involved in some of those. So we are very excited about the enterprise business again lower capital requirement vastly lower capital requirements in that and very large size orders coming I think for now we are not yet in position for competitive reasons we're not yet in position to the to kind of dissect the new business that we getting but you should assume that it involves some you know groundbreaking new areas where we have not done business before great and

you know, maybe turn in a different direction. Can you give us your sense of what you're seeing regionally in terms of demand in different parts of the world and, you know, perhaps maybe a little bit higher level thought on, you know, what you're seeing? Obviously, good backlog and good orders, but, you know, in terms of the economic environment and the demand from your customers?

Sure. Well, I guess sort of generically, you know, if you look, let's start with South America. We sort of mentioned the cellular backhaul world. You know, we're seeing a lot of projects for connecting the unconnected. So that's a very active market. That theme continues pretty much across most of the rest of the world except for Western Europe. So that's a pretty strong theme, you know, both the unconnected aspect as well as the cellular backhaul aspect. We are seeing growth in the broadband, where you have direct terminals to homes and schools and so on. And that, you know, we talked about the Miasat project. We obviously have a lot of activity in other places like Indonesia. India certainly is a case in point. And then, you know, in Western Europe, you know, Utilsat is actively deploying broadband. So, So we have a whole series of these broadband projects all the way from end users up to schools and communities. In North America, you know, there's a whole series of industrial projects, a lot of connectivity. Where in North America, the object is to have more than one path to the broadband services. You know, most of the corporations and users can't afford to be down anymore. especially with cloud services. So we see a lot of activity in that space.

Great. Also, you talked about the fusion service offering. Can you give us any sense of how quickly that product line is growing and maybe even what percent of the installed base or some other metric that might be useful? And what sort of impact are you seeing on those plans in terms of the monthly ARPUs?

Yeah, I guess we'll have two parts. One, I think we can in future quarters give you a little more background. We haven't completed our rollout across the U.S. yet. So I think once we have that, we can give you a better sense of it. You know, and then I think, you know, as we look forward, you know, if you look at our service plans, I think you can see the base pricing is a $99 plan. So certainly that's a skip above most of the plans we sell today in the geo service. So we would expect some combination of blending of customers buying that kind of a plan, as well as our standard go-to plans, which are lower priced.

Great. There was a mention on CapEx of, obviously, one of the $15 million receivable from Maxar. Can you just remind us, are there any additional payments that you expect throughout the course of this year?

Yes, we expect that the second quarter will continue to receive payments and they've disclosed that in their filing. So our payments will continue at the same pace through end of June. And if for any reason, which we're not anticipating at the moment, you know, the satellite, you know, delivery is further delayed, there'll be additional payments beyond June, but we're not expecting that. So there will be You know, there'll be another $30 million of additional payments, $15 million for the quarter. Yeah, $15 million for the next quarter.

Okay. Also, your ESA and electronically steered antenna, that aviation antenna, it sounds like you've gotten, you know, surprisingly good traction. There haven't been that many announcements of aviation installs. Can you give us a sense of what your expectations are for that product line and how broadly you're shopping that in front of other airline customers?

Well, certainly. One of the attributes of the aviation world is it's quite a rigorous certification process. So actual antennas that go on aircraft will be delayed until we complete that process. But You know, we think what we've done is technologically quite sophisticated. It provides a lot of, I think, very good benefits to an airline that might consider it. You know, so we hope that, you know, as time goes on, we'll see, you know, we'll see a pickup of that. You know, I think the main thing we've announced is, of course, the antenna we're going to be supplying to GoGo Business Aviation, which is a nice bit for that kind of an aircraft. So, So I think we'll continue to get that developed and get it approved and out to market, and then at which point we'll be able to see how big an opportunity it is.

Great. And final question. I think you mentioned that you had shipped 16,000 core modules for integration into OneWeb terminals. Remind me, you're not assembling the terminal. That's someone else. You're just shipping the core module. And second question, since... you know, OneWeb products are now shipping. Are you guys seeing any activity in your Indian operations?

Well, okay, on the first part, so the industrial structure that was created was we build the core module, which any partner of OneWeb's can use in whatever aspect of a terminal or a set of services they might create. So we're just an enabling component. And so in that respect, we ship these out to their various partners, and their partners then, you know, make use of them in their applications. You know, and as far as India, I think mainly we defer to OneWeb to describe their plans there. Obviously, we stand by ready once the services are lit up, but they can, I think, speak more to that.

All right.

Great. Thank you very much, Elman. Our next question comes from the line of Rick Prentice with Raymond James.

Hey, just out of time, we've got for a few more follow-ups. I want to follow back up on one of Michael's questions. I think your answer alluded to it, but under what or any circumstances would it make sense for EchoStar shareholders, for DISH and EchoStar to recombine? Is there any potential out there scenario that says that should happen? Is it even a thought?

That is not a topic that we have contemplated and can discuss here in a call. We do have, as I mentioned earlier, we are not limited with respect to any opportunities in the existing situation we have with DISH. So we have a great working relationship with them. We have not had any issues with respect to the companies not being able to come to an arm's length agreement on any aspect of the opportunities. As I said, we find ourselves in a number of cases where there's mutually beneficial opportunities seem to have somewhat of a complimentary assets to us in many ways, but we have not had any limitations on being able to put those two assets, classes of assets to use in an opportunity. So we're not hampered by anything at the moment.

Okay. And to follow up on some of Chris's questions, Obviously some concern about global economy out there, potential recessions, enterprise. What are you seeing as far as enterprise? Obviously the backlog can speak for itself, but any concerns you're hearing from the customer base about economic concerns or purchase orders or timing and trends?

Well, I think nothing specific. Obviously the customers we talk to are in different positions depending on what part of the world they're in. There are certainly some concerns, especially with enterprise customers, but we do see them proceeding to make decisions, perhaps a little bit slower in some cases, but they are proceeding. So we're not seeing yet the forecasted effect that people feel is out there in the market.

And I want to also say that at the moment, we're not exposing ourselves in any material or meaningful way to bad debt. So our business, our enterprise business, it stands on solid credit ground. We're not using our balance sheet to float other enterprise businesses. In some of our manufacturing activities, we actually get paid before even we buy the equipment and materials. So we're not exposed to bad debt in any material way in the enterprise business.

Okay. And last one for me, any update on the CFO search as far as candidates, timing, when we could expect someone joining the team?

I think I was just joking with my team and saying I love the job so much myself that I might as well never fill it. But kidding aside, look, the nature of our business has been, first of all, we've been very busy. I've been interviewing a number of candidates. I have not I have a complete team now and I'm happy with everybody that I have on my team. So we're not in any way kind of short of leadership here. And CFO is the only open position that I have that is still open. I have been candidly, part of it has been, you know, my own schedule and just lining things up, getting the right candidate. But part of it is that as the nature of our business has been changing, you know, we're doing this shifting towards, you know, enterprise, taking a look at, you know, the S-band and others. I've been, you know, very picky about, you know, the profile that's changing, continuously changing and trying to figure out who is the, you know, right person to join us. But I do expect that, you know, this will not take hopefully too much longer. But again, I wanted to say that as you have seen from our results, from our ability to focus on, you know, proper financials and developing the business, that we are not in any way limited by lack of a sitting CFO.

Great. Thanks for the follow-up questions. Have a good one.

That concludes today's question and answer session. I'd like to turn the call back to Dean Manson for closing remarks.

Okay. Well, thank you, Liz. I think we're ready to bring the meeting to a close. Thank you, everyone, for calling in. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.