Hughes Communications Announces Second Quarter 2010 Results

GERMANTOWN, Md., Aug. 4 /PRNewswire-FirstCall/ -- Hughes Communications, Inc. (Nasdaq: HUGH) ("Hughes"), the global leader in broadband satellite network solutions and services, today announced financial results for the second quarter ended June 30, 2010. 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.

Second Quarter 2010 Financial Highlights:

• Record Adjusted EBITDA of $52 million, an increase of 29% over the second quarter of 2009.

• Consumer business continues impressive performance:
  • Total revenue increased by 13% and services revenue by 18% over the second quarter of 2009.
  • Strong second quarter subscriber gross adds of 47,000 and net adds of 15,000.  
  • Consumer ARPU increased to $73 from $70 in the second quarter of 2009.
  • Churn improved to 2.0% from 2.3% in the second quarter of 2009.

• Consolidated total revenues of $252 million for a 2% increase over the second quarter of 2009, excluding revenues from the terminated Telematics contract. Total revenues of $256 million in the second quarter of 2009.

• Consolidated services revenues of $193 million for a growth of 16% over the second quarter of 2009, excluding revenues from the terminated Telematics contract; 11% growth in total revenues.

• Operating income of $18 million compared to an operating loss of $31 million in the second quarter of 2009, which included a $44 million one-time charge as a result of Chapter 11 filing by Sea Launch.

• New orders of $201 million, with major orders from Best Buy, State of Texas, Conoco Phillips, GTECH, Halliburton, Row 44, and Burger King in our North America Broadband business; and Avanti, Camelot, Afsat, TIM, Martins, Telemar, BEL/NavyNet, and JSC Iskra in our International Broadband business.

• Positive net cash from operating activities of $30 million, a growth of 54% over the second quarter of 2009.

Six Months Ended June 30, 2010 Financial Highlights;

• Adjusted EBITDA of $95 million for a growth of 30% over the six months ended June 30, 2009.

• Strong growth in Consumer business over the six months ended June 30, 2009:
  • Total revenue up 14%, service revenue up 20%.
  • Subscriber gross adds of 105,000 and net adds of 41,000
  • Total subscriber base of 545,500 as of June 30, 2010 for a growth of 15% over the subscriber base as of June 30, 2009.

• Consolidated total revenues of $495 million for a 3% growth excluding revenues from the terminated Telematics contract. Consolidated total revenues of $496 million, the same as in the six-month period ended June 30, 2009.

• Consolidated services revenues of $381 million for a growth of 18% over the six months ended June 30, 2009, excluding revenues from the Telematics contract. Consolidated total services revenue growth of 14%.  

• New orders of $440 million resulting in a non-consumer backlog of $755 million as of June 30, 2010.

• Strong liquidity with cash, cash equivalents and marketable securities of $222 million as of June 30, 2010.

Set forth below are tables highlighting certain of Hughes' and HNS' results for the three- and six-months ended June 30, 2010 and 2009.

Recent Highlights:

• On May 27, 2010, HNS and Sea Launch entered into a Settlement Agreement to resolve the claim that HNS filed in the Sea Launch bankruptcy, whereby Sea Launch will irrevocably issue to HNS two credits, each in the amount of $22.2 million (the "Credits"), in satisfaction and discharge of HNS' bankruptcy claim. The Credits may be used by HNS to defray the cost of up to two launches contracted by December 31, 2015, and scheduled to occur by December 31, 2017. In addition, subject to the terms and conditions of the Settlement Agreement, one or both Credits may be transferred to third parties. The bankruptcy court has approved the Settlement Agreement and it will become effective upon the effectiveness of the plan of reorganization, which is expected to occur later in 2010.

• HNS earned an A+ rating from the Better Business Bureau (BBB) for its HughesNet® high-speed satellite Internet service. The A+ ranking is BBB's highest, and is based on a company's business practices and responsiveness to customer concerns, factoring in elements such as company longevity, size, and commitment to BBB standards.

• HCIL Comtel, a subsidiary of HNS, was selected by Bharat Electronics Limited to provide a satellite network that will serve multiple communication needs for the Indian Navy. A contract was signed for four redundant HX NOCs for $4.7 million and is expected to be implemented early 2011.

• HNS has been named the certified provider of secure managed broadband services for Chevron marketer and retailer stations nationwide, beginning July 2010. Marketers and retailers now have more options for broadband connectivity that is PCI-compliant and also provides the high performance needed to support new Web-based store applications.

• HNS completed a successful demonstration of its advanced airborne video solution to a key government agency, confirming full D-1 video resolution at air-to-ground user data rates of over 2 Mbps. This new airborne video solution features speeds five times greater than what is currently available, delivering groundbreaking performance at an affordable cost.

• Hughes Europe, a subsidiary of HNS, announced the sale of a sixth HX broadband satellite hub and an additional 2,000 HX broadband terminals to Bentley Walker, a leading international satellite Internet services provider, who is expanding its service footprint and extending its solutions to military personnel in Afghanistan and Iraq.

• HNS was awarded an Indefinite Delivery Indefinite Quantity (IDIQ) contract by the State of Oregon to provide Hughes Broadband Internet and Access Continuity services via its SPACEWAY® 3 satellite system. The contract, available to state agencies, local governments, and school districts that are members of the Oregon Cooperative Purchasing Program, is for a term of three years and may be extended up to three additional years.

• HNS announced the formation of HughesNet China Co., Ltd., a joint venture with China UnifiedNet, to provide managed network services in China. HughesNet China also entered into framework agreements with two leading Chinese telecom carriers to provide managed network services to their major enterprise customers, and rural education and emergency communications in the western provinces of China.

To summarize, Pradman Kaul, president and CEO said, "Once again, our consumer business led the way with strong gross adds combined with lower churn and increased ARPU, all of which resulted in strong services revenue growth in the second quarter of 2010. Services revenue from the enterprise segments also continued to show solid growth. Our strategy of focusing new consumer activations on SPACEWAY 3 continues; we had approximately 326,000 subscribers on SPACEWAY 3 as of June 30, 2010. Development work on our Jupiter™ satellite and the launch vehicle build are on track and we are making good progress in our assessment of strategic initiatives. We are very pleased with our second quarter accomplishments and are positioned well for the rest of 2010 and beyond."

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 the strong growth in our operating income and Adjusted EBITDA in the second quarter of 2010. This gross margin expansion coupled with effective working capital management resulted in impressive growth in cash from operating activities. We ended the quarter with strong consolidated cash, cash equivalents and marketable securities of $222 million."

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.

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

The condensed consolidated financial statements of Hughes and HNS for the periods ended June 30, 2010 and 2009 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' 9 1/2% Senior Notes due 2014, issued in 2006 and 2009.

Adjusted EBITDA is not a recognized term under GAAP. This nonGAAP 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 global leader in providing broadband satellite networks and services for enterprises, governments, small businesses, and consumers. HughesNet encompasses all broadband solutions and managed services from Hughes, bridging the best of satellite and terrestrial technologies. Its broadband satellite products are based on global standards approved by the TIA, ETSI, and ITU standards organizations, including IPoS/DVB-S2, RSM-A, and GMR-1. To date, Hughes has shipped more than 2.2 million systems to customers in over 100 countries.

Headquartered outside Washington, DC, 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 forwardlooking statements. Although management believes that the expectations reflected in these forwardlooking 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, 2009, filed with the Securities and Exchange Commission on March 3, 2010, and in the other documents Hughes files with the Securities and Exchange Commission from time to time.

©2010 Hughes Communications, Inc. All rights reserved. Hughes, HughesNet, SPACEWAY, and Jupiter are trademarks of Hughes Network Systems, LLC.

Attachments

Hughes Communications, Inc.

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Cash Flows

Hughes Network Systems, LLC

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Cash Flows

SOURCE Hughes Communications, Inc.