Hughes Network Systems, LLC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - Hughes Network Systems, LLC	form8k.htm

FOR IMMEDIATE RELEASE

Hughes Communications Announces First Quarter 2011 Results

Strong Revenue Growth

Record Subscriber Activations

Record Q1 Adjusted EBITDA

Germantown, Md., May 5, 2011—Hughes Communications, Inc. (NASDAQ: HUGH) (“Hughes”), the global leader in broadband satellite network solutions and services, today announced financial results for the first quarter ended March 31, 2011. Hughes’ consolidated operations are classified into five reportable segments: North America Broadband, International Broadband, Telecom Systems, HTS Satellite, and Corporate and Other. The North America Broadband, International Broadband, Telecom Systems, and HTS Satellite segments represent all the operations of Hughes Network Systems, LLC (“HNS”), Hughes’ principal operating subsidiary.

First Quarter 2011 Financial Highlights:

·	Consolidated total revenues of $264 million, a 9% increase over the first quarter of 2010. Consolidated services revenues of $216 million, a 15% increase over the first quarter of 2010.

·	Consumer business sets new records with impressive growth over first quarter of 2010:

–	Total consumer revenue of $131 million for a growth of 15%.

–	Record subscriber gross adds of 77,000 for a growth of 34%.

–	Record net adds of 35,000 for a growth of 33%.

–	Consumer ARPU increased to $75 from $72 for the first quarter of 2010.

–	Churn of 2.3% compared to 2.0% in the first quarter of 2010.

–	Ending subscribers of 613,000, an increase of 16% over the subscriber base as of March 31, 2010.

·	Enterprise businesses show strong revenue growth of 10% over the first quarter of 2010 led by robust international growth.

·	Record Adjusted EBITDA of $58 million, an increase of 36% over the first quarter of 2010.

New orders of $266 million, an increase of 12% over the first quarter of 2010, with major orders from Sonic, GETN, Jiffy Lube, Murphy Oil and Regal Cinemedia in our North America broadband business; Yahsat, CJSC Synterra, IT Partners, Telefonica, COPEL and HDFC Bank in our International broadband business; and MEXSAT in our Telecom Systems business. Strong non-consumer order backlog of $1.1 billion as of March 31, 2011, a growth of 32% over the backlog as of March 31, 2010.

·	Positive net cash from operating activities of $49 million compared to $13 million in the first quarter of 2010.

Set forth below are tables highlighting certain of Hughes’ and HNS’ results for the three months ended March 31, 2011 and 2010.

Hughes Communications, Inc.								Hughes Network Systems, LLC
		Three Months								Three Months
		Ended March 31,								Ended March 31,
	(Dollars in thousands)	2011			2010				(Dollars in thousands)	2011			2010

	Revenue								Revenue
	North America Broadband	$	193,706		$	173,995			North America Broadband	$	193,706		$	173,995
	International Broadband		51,672			43,456			International Broadband		51,672			43,456
	Telecom Systems		16,692			24,692			Telecom Systems		16,692			24,692
	HTS Satellite		602			-			HTS Satellite		602			-
	Corporate and Other		1,420			1,050			Total	$	262,672		$	242,143
	Total	$	264,092		$	243,193

	Operating income (loss)								Operating income (loss)
	North America Broadband	$	21,745		$	9,616			North America Broadband	$	21,745		$	9,616
	International Broadband		(738	)		(1,156	)		International Broadband		(738	)		(1,156	)
	Telecom Systems		(316	)		3,708			Telecom Systems		(316	)		3,708
	HTS Satellite		(1,304	)		(858	)		HTS Satellite		(1,304	)		(858	)
	Corporate and Other		(4,467	)		(746	)		Total	$	19,387		$	11,310
	Total	$	14,920		$	10,564

	Net income (loss) attributable to HCI stockholders	$	838		$	(6,140	)		Net income (loss) attributable to HNS	$	5,164		$	(5,562	)

	Adjusted EBITDA*	$	57,924		$	42,602			Adjusted EBITDA*	$	58,223		$	43,008

	New Orders	$	266,351		$	238,387			New Orders	$	265,486		$	237,117

For the definition of Adjusted EBITDA, see “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below.

Recent Highlights:

Heartland Automotive Services, America’s largest Jiffy Lube franchisee, signed a managed services contract for a full-featured VoIP (Voice over IP) solution with HNS. The high availability, converged voice and data broadband solution will enable Heartland to eliminate expensive POTS lines at its hundreds of retail locations.

HNS signed an amendment to its existing agreement with Sonic, the nation’s largest chain of drive-in restaurants, to upgrade service at over 455 stores to a broadband managed network service in a high availability network configuration, and to extend the existing VSAT service at the remaining 3,083 stores. The amendment is valued at $12.5 million and extends service until 2016.

·	Hughes India received orders from HDFC Bank for $2.9 million to provide service to 245 rural branches and 58 off-site ATMs spread across different states in India. This critical network utilizes Hughes’ VSAT solution which enables fast roll-out in rural areas and high VPN bandwidth availability.

·	Hughes do Brazil signed a $13 million contract with Telefonica to extend the current service contract for 24 months. Telefonica uses Brazil’s VSAT service to provide last mile connectivity to over 1000 corporate sites.

Hughes do Brazil signed a $4.6 million contract with COPEL to extend its 800 site contract for 36 months. COPEL, a utility in the state of Parana, has been mandated to provide Internet access to all schools in the state. COPEL uses Hughes’ network to provide service in areas which do not have terrestrial broadband access.

·	HNS was selected by Vodacom Group, Ltd., a leading African communications company, to provide its market-leading HN and HX broadband satellite solutions to help propel Vodacom’s expansion of converged service offerings in South Africa and throughout the continent.

·	AmeriPride, a multi-national uniform rental service and linen supply company based in Lincoln, Nebraska selected the Hughes Access Continuity Service over broadband satellite from HNS to protect its service centers across North America from network outages.

·	Hughes Communications India Ltd., India’s leading provider of broadband satellite networks and services, was recognized as the Best VSAT Operator in India at the Telecom Operator Awards ceremony held in March 2011.

To summarize, Pradman Kaul, president and CEO said, “Our consumer business continued to lead the way in the first quarter of 2011 with record gross and net adds and increased ARPU, which resulted in strong services revenue growth. The enterprise segments also showed healthy revenue growth and our order backlog continues to be strong, all of which made this an outstanding quarter. Development work on our Jupiter satellite continues on-track for a launch in the first half of 2012, and we are making good progress on the regulatory front as it relates to the merger with EchoStar. We are very pleased with our accomplishments in the quarter.”

Commenting on Hughes’ financial performance, Grant Barber, executive vice president and CFO said, “The strategy of expanding margins through the satellite ownership model continues to play out very well, as evidenced by continued growth in our operating profits and Adjusted EBITDA in the first quarter of 2011. This, combined with strong working capital management, enabled us to fund substantial capital expenditures on Jupiter and maintain our liquidity at a healthy level.”

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

The following table reconciles the differences between Hughes’ Net Income (Loss) as determined under United States of America Generally Accepted Accounting Principles (GAAP) and Adjusted EBITDA.

Hughes Communications, Inc.
		Three Months						Twelve Months
		Ended March 31,						Ended March 31,
	(Dollars in thousands)	2011			2010			2011			2010

	Net income (loss) attributable to HCI stockholders	$	838		$	(6,140	)	$	29,765		$	(54,137	)
	Add:
	Equity incentive plan compensation		1,868			1,871			7,511			7,459
	Interest expense		12,505			16,110			55,740			66,393
	Income tax expense		1,901			1,219			6,398			4,320
	Depreciation and amortization		37,501			30,133			138,954			110,971
	Long-term incentive/retention cash plan		-			-			-			650
	Sea Launch impairment		-			-			-			44,400
	Data Synapse impairment		-			-			-			1,000
	HTI investment impairment		-			-			-			5,239
	Class action settlement		-			-			1,866			-
	Restructuring/Merger costs		3,730			-			3,730			-
	Less:
	Interest income		(419	)		(591	)		(1,871	)		(2,493	)
	Adjusted EBITDA	$	57,924		$	42,602		$	242,093		$	183,802

The following table reconciles the differences between HNS’ Net Income (Loss) as determined under GAAP and Adjusted EBITDA.

Hughes Network Systems, LLC
		Three Months						Twelve Months
		Ended March 31,						Ended March 31,
	(Dollars in thousands)	2011			2010			2011			2010

	Net income (loss) attributable to HNS	$	5,164		$	(5,562	)	$	36,119		$	(45,613	)
	Add:
	Equity incentive plan compensation		1,786			1,832			7,141			7,128
	Interest expense		12,500			16,105			55,719			66,370
	Income tax expense		1,770			1,217			6,244			4,321
	Depreciation and amortization		37,362			29,969			138,347			110,248
	Long-term incentive/retention cash plan		-			-			-			650
	Sea Launch impairment		-			-			-			44,400
	Class action settlement		-			-			1,866			-
	Less:
	Interest income		(359	)		(553	)		(1,576	)		(2,314	)
	Adjusted EBITDA	$	58,223		$	43,008		$	243,860		$	185,190

The condensed consolidated financial statements of Hughes and HNS for the three months ended March 31, 2011 and 2010 are attached to this press release.

Note on Use of Non-GAAP Financial Measures

Hughes provides non-GAAP financial data in addition to providing financial results in accordance with GAAP. This press release includes Adjusted EBITDA as a supplemental non-GAAP financial measure. Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, amortization, equity incentive plan compensation, long-term incentive/retention cash plan and other adjustments permitted by the debt instruments of HNS. We believe this non-GAAP financial measure provides useful information to both management and investors by excluding specific expenses that we believe are not indicative of our core operating results. Internally, we use this non-GAAP measure in our review of the performance of management and in the performance of our business and operations. Management also uses Adjusted EBITDA of HNS for purposes of determining the payments to be made in connection with the long-term cash incentive retention program. Externally, we believe that investors may find this non-GAAP financial information useful in their assessment of our operating performance. In addition, we believe that this

non-GAAP financial measure provides information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Adjusted EBITDA of HNS is also used in calculating covenant compliance under HNS’ credit agreements and the indenture governing HNS’ 9½% Senior Notes due 2014 issued in 2006 and 2009.

Adjusted EBITDA is not a recognized term under GAAP. This non-GAAP measure does not represent net income or cash flows from operations, as these terms are defined under GAAP and should not be considered as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Additionally, this non-GAAP measure is not intended to be a measure of cash flow available to management for discretionary use, as such measure does not consider certain cash requirements such as capital expenditures (including expenditures on VSAT operating lease hardware and capitalized software development costs), tax payments, debt service requirements (including VSAT operating lease hardware), and payments under the long-term cash incentive retention program. Adjusted EBITDA, as presented herein, is not necessarily comparable to similarly titled measures reported by other companies. Any analysis of

non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

About Hughes Communications, Inc.

Hughes Communications, Inc. (NASDAQ: HUGH) is the 100 percent owner of Hughes Network Systems, LLC. Hughes is the world’s leading provider of satellite broadband for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments globally. HughesNet® is the #1 high-speed satellite Internet service in the marketplace, with offerings to suit every

budget. To date, Hughes has shipped more than 2.5 million systems to customers in over 100 countries, representing over 50 percent market share. Its products employ global standards approved by the TIA, ETSI, and ITU organizations, including IPoS/DVB-S2, RSM-A, and GMR-1.

Headquartered outside Washington, D.C., in Germantown, Maryland, USA, Hughes maintains sales and support offices worldwide. For more information, please visit www.hughes.com.

Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995

This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, discussions regarding industry outlook and Hughes’ expectations regarding the performance of its business, its future liquidity and capital resource needs, its strategic plans, and objectives. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans” and similar expressions and the use of future dates are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties, and assumptions, including, but not limited to, the following: risks related to Hughes’ substantial leverage and restrictions contained in its debt agreements, technological developments, its reliance on providers of satellite transponder capacity, changes in demand for Hughes’ services and products, competition, industry trends, regulatory changes, foreign currency exchange rate fluctuations, and other risks identified and discussed under the caption “Risk Factors” in Hughes’ Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 7, 2011 and in the other documents Hughes files with the Securities and Exchange Commission from time to time.

###

	Contact Information	Attachments

	Investor Relations Contact: Deepak V. Dutt,	Hughes Communications, Inc.
	Vice President, Treasurer and Investor Relations Officer	Condensed Consolidated Balance Sheets
	Email: deepak.dutt@hughes.com	Condensed Consolidated Statements of Operations
	Phone: 301-428-7010	Condensed Consolidated Statements of Cash Flows

	Media Contact: Judy Blake,	Hughes Network Systems, LLC
	Director, Marketing Communications	Condensed Consolidated Balance Sheets
	Email: judy.blake@hughes.com	Condensed Consolidated Statements of Operations
	Phone: 301-601-7330	Condensed Consolidated Statements of Cash Flows

HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

(Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	116,914		$	138,131
Marketable securities		23,672			44,532
Receivables, net		183,357			186,692
Inventories		59,627			57,819
Prepaid expenses and other		26,794			26,127
Total current assets		410,364			453,301
Property, net		837,601			774,052
Capitalized software costs, net		45,326			46,092
Intangible assets, net		10,683			11,440
Goodwill		5,093			5,093
Other assets		74,980			73,197
Total assets	$	1,384,047		$	1,363,175
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	97,559		$	120,202
Short-term debt		4,700			6,285
Accrued liabilities and other		151,760			128,790
Total current liabilities		254,019			255,277
Long-term debt		756,450			740,576
Other long-term liabilities		26,764			27,308
Total liabilities		1,037,233			1,023,161
Commitments and contingencies
Equity:
Hughes Communications, Inc. ("HCI") stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no
shares issued and outstanding as of March 31, 2011 and December 31, 2010		-			-
Common stock, $0.001 par value; 64,000,000 shares authorized;
21,835,000 shares and 21,834,787 shares issued and outstanding
as of March 31, 2011 and December 31, 2010, respectively		22			22
Additional paid in capital		736,993			735,233
Accumulated deficit		(386,918	)		(387,756	)
Accumulated other comprehensive loss		(14,132	)		(18,449	)
Total HCI stockholders' equity		335,965			329,050
Noncontrolling interests		10,849			10,964
Total equity		346,814			340,014
Total liabilities and equity	$	1,384,047		$	1,363,175

HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
Revenues:
Services revenues	$	215,670		$	187,940
Hardware revenues		48,422			55,253
Total revenues		264,092			243,193
Operating costs and expenses:
Cost of services		132,710			115,713
Cost of hardware		49,574			60,886
Selling, general and administrative		60,977			50,325
Research and development		5,154			4,915
Amortization of intangible assets		757			790
Total operating costs and expenses		249,172			232,629
Operating income		14,920			10,564
Other income (expense):
Interest expense		(12,505	)		(16,110	)
Interest income		419			591
Other income (loss), net		(248	)		-
Income (loss) before income tax expense and
equity in earnings of unconsolidated affiliates		2,586			(4,955	)
Income tax expense		(1,901	)		(1,219	)
Net income (loss)		685			(6,174	)
Net loss attributable to the noncontrolling interests		153			34
Net income (loss) attributable to HCI stockholders	$	838		$	(6,140	)
Income (loss) per share:
Basic	$	0.04		$	(0.29	)
Diluted	$	0.04		$	(0.29	)
Shares used in computation of per share data:
Basic		21,766,155			21,480,908
Diluted		23,360,821			21,480,908

HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	685		$	(6,174	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		37,501			30,133
Amortization of debt issuance costs		861			616
Share-based compensation expense		1,868			1,871
Other		230			61
Change in other operating assets and liabilities, net of acquisition:
Receivables, net		4,405			2,680
Inventories		(1,581	)		(2,078	)
Prepaid expenses and other		(939	)		919
Accounts payable		(35,558	)		(20,789	)
Accrued liabilities and other		41,336			5,363
Net cash provided by operating activities		48,808			12,602
Cash flows from investing activities:
Change in restricted cash		373			86
Purchases of marketable securities		(11,999	)		(27,781	)
Proceeds from sales of marketable securities		32,868			15,000
Expenditures for property		(101,269	)		(63,671	)
Expenditures for capitalized software		(2,752	)		(3,166	)
Proceeds from sale of property		80			-
Net cash used in investing activities		(82,699	)		(79,532	)
Cash flows from financing activities:
Short-term revolver borrowings		898			1,999
Repayments of revolver borrowings		(945	)		(2,430	)
Long-term debt borrowings		16,822			1,220
Repayment of long-term debt		(2,756	)		(1,721	)
Debt issuance costs		(1,015	)		(1,742	)
Net cash provided by (used in) financing activities		13,004			(2,674	)
Effect of exchange rate changes on cash and cash equivalents		(330	)		1,739
Net decrease in cash and cash equivalents		(21,217	)		(67,865	)
Cash and cash equivalents at beginning of the period		138,131			261,038
Cash and cash equivalents at end of the period	$	116,914		$	193,173

Supplemental cash flow information:
Cash paid for interest	$	2,491		$	2,413
Cash paid for income taxes	$	3,441		$	2,341
Supplemental non-cash disclosures related to:
Capitalized software and property acquired, not paid	$	21,829		$	25,303

HUGHES NETWORK SYSTEMS, LLC

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	44,136		$	80,800
Marketable securities		2,679			6,675
Receivables, net		181,415			184,869
Inventories		59,627			57,819
Prepaid expenses and other		25,303			24,600
Total current assets		313,160			354,763
Property, net		837,255			773,652
Capitalized software costs, net		45,326			46,092
Intangible assets, net		10,056			10,738
Goodwill		2,661			2,661
Other assets		68,285			67,459
Total assets	$	1,276,743		$	1,255,365
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	93,049		$	117,763
Short-term debt		4,609			6,196
Accrued liabilities and other		157,375			133,383
Total current liabilities		255,033			257,342
Long-term debt		756,380			740,487
Other long-term liabilities		26,764			27,308
Total liabilities		1,038,177			1,025,137
Commitments and contingencies
Equity:
Hughes Network Systems, LLC ("HNS") equity:
Class A membership interests		176,248			176,099
Class B membership interests		-			-
Retained earnings		66,651			61,487
Accumulated other comprehensive loss		(12,783	)		(15,682	)
Total HNS' equity		230,116			221,904
Noncontrolling interest		8,450			8,324
Total equity		238,566			230,228
Total liabilities and equity	$	1,276,743		$	1,255,365

HUGHES NETWORK SYSTEMS, LLC

Condensed Consolidated Statements of Operations

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
Revenues:
Services revenues	$	214,250		$	186,890
Hardware sales		48,422			55,253
Total revenues		262,672			242,143
Operating costs and expenses:
Cost of services		132,006			115,650
Cost of hardware		49,574			60,886
Selling, general and administrative		55,869			48,680
Research and development		5,154			4,915
Amortization of intangible assets		682			702
Total operating costs and expenses		243,285			230,833
Operating income (loss)		19,387			11,310
Other income (expense):
Interest expense		(12,500	)		(16,105	)
Interest income		359			553
Other loss, net		(248	)		-
Income (loss) before income tax expense		6,998			(4,242	)
Income tax expense		(1,770	)		(1,217	)
Net income (loss)		5,228			(5,459	)
Net income attributable to the noncontrolling interest		(64	)		(103	)
Net income (loss) attributable to HNS	$	5,164		$	(5,562	)

HUGHES NETWORK SYSTEMS, LLC

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	5,228		$	(5,459	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		37,362			29,969
Amortization of debt issuance costs		861			616
Share-based compensation expense		149			224
Other		235			37
Change in other operating assets and liabilities, net of acquisition:
Receivables, net		4,524			3,077
Inventories		(1,581	)		(2,078	)
Prepaid expenses and other		(1,505	)		828
Accounts payable		(37,629	)		(19,909	)
Accrued liabilities and other		42,466			7,660
Net cash provided by operating activities		50,110			14,965
Cash flows from investing activities:
Change in restricted cash		423			88
Purchases of marketable securities		-			(22,615	)
Proceeds from sales of marketable securities		3,999			10,000
Expenditures for property		(101,259	)		(63,668	)
Expenditures for capitalized software		(2,752	)		(3,166	)
Proceeds from sale of property		80			-
Net cash used in investing activities		(99,509	)		(79,361	)
Cash flows from financing activities:
Short-term revolver borrowings		898			1,999
Repayments of revolver borrowings		(945	)		(2,430	)
Long-term debt borrowings		16,822			1,220
Repayments of long-term debt		(2,740	)		(1,721	)
Debt issuance costs		(1,015	)		(1,742	)
Net cash provided by (used in) financing activities		13,020			(2,674	)
Effect of exchange rate changes on cash and cash equivalents		(285	)		1,673
Net decrease in cash and cash equivalents		(36,664	)		(65,397	)
Cash and cash equivalents at beginning of the period		80,800			183,733
Cash and cash equivalents at end of the period	$	44,136		$	118,336
Supplemental cash flow information:
Cash paid for interest	$	2,485		$	2,407
Cash paid for income taxes	$	3,426		$	2,341
Supplemental non-cash disclosures related to:
Capitalized software and property acquired, not paid	$	21,829		$	25,303

Hughes Network Systems, LLC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 5, 2011

Attached files

Hughes Network Systems, LLC Reports