Hughes Communications, Inc. Q2 2010 Earnings Call Transcript

Hughes Communications, Inc. Q2 2010 Earnings Call Transcript
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Hughes Communications, Inc. (HUGH)

Q2 2010 Earnings Call

August 04, 2010 11:00 am ET

Executives

Deepak Dutt - VP, Treasurer and Investor Relations Officer

Pradman Kaul - President and CEO

Grant Barber - Executive VP and CFO

Analysts

James Ratcliffe - Barclays Capital

Chris Quilty - Raymond James & Associates

Larry Harris - C.L. King

Jennifer Fritzsche - Wells Fargo

Michael McCaffrey - Shenkman Capital

David Cohen - Midwood Capital

Presentation

Operator

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» Hughes Communications Q1 2010 Earnings Call Transcript
» Hughes Communications, Inc. Q3 2009 Earnings Call Transcript
» Hughes Communications Inc. Q2 2009 Earnings Call Transcript

Good day, ladies and gentleman, and welcome to the Second Quarter 2010 Hughes Communications Incorporated Earnings Conference Call. My name is Tayesha and I'll be your operator for today. (Operator Instructions). I would now like to turn your conference over to Mr. Deepak Dutt, Vice President, Treasurer and Investor Relations Officer. Please proceed.

Deepak

Dutt

Thank you, operator and good morning everybody. Welcome to our second quarter 2010 earnings call. Before we begin, I would like to remind everyone that this conference 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 documents we file from 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.

With that, let me introduce the management joining the call today. We have Pradman Kaul, President and CEO and Grant Barber, Executive Vice President and CFO.

So, let me turn the call over to Pradman.

Pradman

Kaul

Thank you, Deepak and good morning everyone. I'd like to start with a few highlights on our performance in the Q2 and then get to specifics for our different businesses.

First, we once again delivered strong growth in adjusted EBITDA of over 29% over the second quarter of '09. This was also a new second quarter record. It was driven primarily by strong performances in the consumer business, both in revenues and margin.

Second our strategy on leveraging combined service and hardware offerings continues to enhance our competitive positioning, and fuel strong service revenue growth. Our total services revenue grew by an impressive 16% over Q2 '09 excluding revenue from the terminated Telematics contract.

Third, we continue to deliver positive net cash from operating activities in Q2, and generated a net $30 million of cash from operating activities enabling us to end the quarter with a very healthy cash position.

Now I would like to give some highlights of our business. Our consumer business, once again, was the premium growth engine. Churn improved to a record 2%, compared to 2.3% in Q2 '09 and consumer ARPU increased to $73 versus $70 in Q2 '09.

We ended the quarter, with nearly 326,000 subscribers of SPACEWAY and a total of over 545,000 subscribers. It's worth elaborating a little on these two key issues, churn and ARPU. This is the third consecutive quarter that we have seen a marked reduction in churn from the 2.3% average we had in the first three quarters of '09. It is a result of a lot of effort, to improve the quality of our service, and enhance customer satisfaction.

The recent award of an A-plus rating by the Better Business Bureau for our huge HughesNet service, is a reflection of these efforts. One of the key reasons for the growth in ARPU is the increase in revenue from our premium services offerings. Currently we have two offerings in this category, Express Repair and tokens for more bits. We are seeing a lot of interest in both of these offering and are planning to add more new services in the coming quarters.

Enterprise revenue declined in Q2 due to slippage in closure of some large orders. However, our strategy of expanding our services continuous to play out very well with the growth of 12% in our North American and International Enterprise Services revenues.

We were awarded new orders of $201 million in Q2, 2010 and key North American enterprise orders including a technology refresh and Best Buy together with an extension in their service contract and the extension of the Burger King contract of Canada, a new order from the lottery operator GTECH for rollout in Kentucky and orders from Conoco Phillips and the State of Texas.

Internationally, our Indian subsidiary signed a major contract with Bharat Electronics for providing satellite network for the Indian Navy, and we also received expansion orders from Avanti and Camelot in Europe, TIM, Martins, and Telemar in Brazil and equipment orders from JSC Iskra and Afsat.

Although, not in time for the Q2 close, some of the orders that slipped out have been signed in July. These include a network for Deloitte in the United States and Allahabad Bank in India.

A number of other enterprise orders of North America and internationally for hardware refreshes, service expansion and new services are in advanced stages of the order cycle and we are optimistic about a return to growth cycle in this segment from Q3 onwards.

Another important accomplishment in Q2 was a settlement that we reached with Sea Launch. Your may recall that we took a $44.4 million write-down in Q2 '09 following a bankruptcy filing by Sea Launch for the deposit that we had paid to them.

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