EchoStar Corp (SATS) Q2 2021 Earnings Call Transcript

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EchoStar Corp (SATS 3.79%)
Q2 2021 Earnings Call
Aug 3, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the EchoStar Corporation Second Quarter 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to your host today, Mr. Terry Brown. Sir, please begin.

Terry Brown -- Vice President of Finance

Thank you. Good morning, everybody, and welcome to our earnings call for the second quarter of 2021. I'm joined today by David Rayner, COO and CFO; Pradman Kaul, President of Hughes; Anders Johnson, Chief Strategy Officer and President of EchoStar Satellite Services; and Dean Manson, General Counsel and Secretary. Mike Dugan, our CEO, unfortunately could not join the call due to an illness. 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 report. 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 A. Manson -- Executive Vice President, General Counsel

Thank you, Terry. All statements we make during this call, other than statements of historical fact, constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements 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 the forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K for the year ended December 31, 2020, filed on February 23 and our subsequent filings made with the SEC. 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 reports 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 Dave Rayner.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Thank you, Dean, and good morning, everyone. Mike Dugan ask that we pass on his apologies for not being able to attend today. I will be providing a financial overview followed by Pradman and Anders, who will provide an update on the business. As usual, we will close with a question-and-answer session. As usual, my narrative will include comments on adjusted EBITDA, which is reconciled to GAAP measurements in our press release. Consolidated revenue in the second quarter was $500 million, up $40 million compared to the same period last year, driven by our Hughes segment. Hughes equipment revenue increased $26 million from higher sales activity to both domestic and international enterprise customers. Hughes service revenue increased $13 million, primarily due to growth of our Latin American consumer subscribers. ESS revenue in Q2 was $4 million, up slightly as compared to the same period last year, and corporate and other revenue was $3 million, also up slightly.

Consolidated adjusted EBITDA in the second quarter was $187 million, an increase of 16% from last year. Hughes adjusted EBITDA in Q2 was $207 million, higher by $21 million. The growth in Hughes adjusted EBITDA was driven primarily by the higher revenue, as selling, general and administrative expenses remained relatively flat. ESS adjusted EBITDA was up slightly as compared to last year and corporate and other adjusted EBITDA was a loss of $23 million compared to a loss of $27 million last year. The primary driver of the lower loss was an improvement in earnings of unconsolidated affiliates, and dividends received from certain marketable investment securities. Our consolidated adjusted EBITDA margin was 37.4%, increasing 2.4% from the same period last year. Net income increased $50 million to $35 million.

The increase is primarily due to higher operating income of $31 million and higher gains of investments of $37 million, partially offset by costs associated with litigation and higher income tax expense. Capital expenditures in the quarter were $83 million compared to $92 million in Q2 last year. Free cash flow, defined as adjusted EBITDA minus capex was $103 million during the quarter, increasing $35 million. In the second quarter of 2021, we bought back 2.4 million shares of our stock in the open market at a cost of $58 million. We also repurchased or paid off the remaining $809 million of our seven 5/8% bonds which matured on June 15. As of June 30, we had $1.6 billion of cash and marketable securities and debt of $1.5 billion.

With that, let me now turn it over to Pradman.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Thank you, Dave. A few comments before I get into specifics on the second quarter. We run our business with the primary objective of growing revenue and earnings. We do track and measure ourselves against several other supporting metrics, but top and bottom line growth are our overriding goals. We've achieved both goals annually in the first six months of this year. We grew Hughes revenue 6% and Hughes adjusted EBITDA by 17% through June 30 over the same period last year. These strong financial results are driven by our innovative products and connectivity solutions and the efficient management of our service businesses. Now let's turn to some specifics related to the second quarter. We ended Q2 of 2021 with approximately 1.542 million subscribers across the U.S. and Latin America, down 11,000 from March 31, 2021.

Our U.S. subscriber base declined by approximately 20,000 subs. However, growth in our U.S. retail ARPU remained robust, driven by the strong demand for broadband capacity. This growth in U.S. ARPU helped offset the decline in revenue due to the lower net U.S. subs. We expect these trends to continue in the near term. As you know, our U.S. consumer offering is capacity constrained, and we continue to manage our sales and marketing efforts proactively to optimize service to our existing subs. As a result, U.S. News again recognized HughesNet as the best satellite Internet service provider for 2021-2022, and among the top 10 best ISPs overall across the U.S. In Latin America, in Q2, we grew our subscriber base by approximately 9,000. Continuing stay at home conditions throughout the region have driven usage, leading to capacity constraints in certain markets.

As in the U.S., we are balancing network utilization with subscriber levels and monitoring all aspects of our consumer operations. We anticipate ongoing growth in our Latin American consumer markets through 2021. As for our enterprise business, we are building on the momentum from Q1 with strong Q2 orders, an increase of 138% from the same quarter last year. Our North American enterprise division remains active with deployments across multiple areas including the franchise, retail petroleum and SME business sectors. We continue to invest in our market-leading capabilities and have implemented further refinements in our network management portfolio, including our industry-first artificial intelligence for IT operations. We received recognition of our efforts in the form of a Bronze Globee Award for artificial intelligence in the 2021 IT World Awards, one of only two companies in the U.S. to be so recognized.

Activity is also picking up in the in-flight connectivity market. Our partners have resumed installation in planes. So we have restarted equipment shipments. Within the SES-17 program, we continue to meet the milestones in preparation for deployment of that system. Turning to our effort of gateway deployment for OneWeb. Our work is proceeding well. We have now deployed seven gateway systems globally to support the initial service launch. We expect to complete all gateway shipments by the end of 2022. And during Q2, we expanded our involvement with OneWeb by signing a multiyear contract to provide technical oversight and operations support for each of the deployed gateways. Our international enterprise business was also extremely active this quarter. In India, we were awarded a five-year contract by the Bank of India to connect 1,800 branches using satellite broadband powered by the Jupiter system.

In the Asia Pacific region, we received a service agreement extension from a multinational oil company for managed network services to connect their retail petroleum operations. In Brazil, a major supermarket chain selected Hughes to provide managed SD-WAN services to connected stores. In terms of system sales, we signed a significant new contract to provide the Jupiter System Series three for upcoming Ku-band satellite that requires flexibility and capacity density requirements that are well served by the Jupiter System. In Indonesia, we signed a new operator that's using the Jupiter System to provide broadband services for the government. Also, one of our resellers in Indonesia, Abhimata Citra Abadi, has ordered a new gateway for Teleglobal and continues to expand the business with other operators. Bank BRI, who operate their own satellites, continue to expand their network implementation using the Jupiter System.

In addition, two of our service partners have been selected to roll out our satellite backhaul to over 2,000 LTE locations by a consortium of operators. These contracts are a testimony to the efficiency, performance and versatility of the Jupiter system, the de facto standard for satellite broadband implementations worldwide. We remain focused on closing our joint venture agreement with Bharti Airtel in India. The joint venture will help us bring greater scale, operational efficiencies and market reach to provide Indian customers with broadband solutions for enterprise and government networks. Bharti will contribute its VSAT business to the JV and our existing subsidiaries for a 33% stake. As previously noted, this is subject to regulatory approvals. Finally, we are working toward the launch of the Jupiter three satellite, which we expect will take place in the second half of 2022.

As you are aware, the technology on the satellite will lower our cost per bit and significantly increased the capacity and speed of service we can offer to our customers in the Americas. Along with the manufacturer of Maxar, we are focused on recovering the schedule for delivery while ensuring that the satellite meets all of our operational specifications. Satellite technology and new users for this technology are evolving at an amazing pace with new services and applications launching constantly. Demand for connectivity continues unabated and hybrid solutions of GEO, NGSO and terrestrial networks will satisfy this need in the most cost-efficient way. Thanks to our multi-transport innovations and our continuing involvement in the implementation of NEO networks through the OneWeb system, Hughes is uniquely positioned to play a leading role in providing the best hybrid networking solutions to meet each customer's needs. Let me now hand it over to Anders.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Thanks, Pradman. Good morning. In Q2, ESS revenue was $4 million, up slightly from Q2 of last year. We continue to pursue opportunities to lease our available Ku capacity as the market slowly continues to recover. Our third nano SAT, EchoStar Global III launched on June 30 aboard the Transporter two mission. The satellite has completed orbit-raising and commissioning activities and is placed at the altitude prescribed in our license for the S-band frequencies. We have, therefore, satisfied the extended conditions granted to Australia by the International Telecommunications Union, an important step in perfecting our rights to the spectrum. We are excited about a broad range of potential applications being proposed for this new constellation. On the European front, we are progressing in our collaboration with Semtech, leveraging LoRa LR-FHSS technology as part of our plan to use our EchoStar 21 satellite to deploy and develop the first real-time bidirectional satellite service, delivering massive IoT services using licensed spectrum.

We expect initial operations to begin in the first half of next year and are beginning to seek out potential early adopters for LoRa early adopter program. In addition, working with Sequans, we have concluded development of a band 65 compliant modem and have entered into research and development and business development activities to support the development of UAV and unmanned aerial mobility applications across Europe. On the global S-band front, we are looking forward to the upcoming standards release by the wireless industry's main standard-setting association, the Third-Generation Partnership Project or 3GPP. We've already had success with 3GPP standards with our EchoStar Mobile S-band services and 3GPP's Release 17, due out early 2022, will be the first to include non-terrestrial networks and to address satellite's role in the 5G global communications ecosystem.

We remain focused on our longer-term strategic goal of full integration of S-band satellite services into global 5G networks and are continuing our work on multiple fronts to further that effort. We're excited to take 5G to the next level, providing truly seamless worldwide connectivity via satellite. I'll now turn it back to Dave.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Thank you, Anders. We believe EchoStar has delivered another strong quarter, improving financial results and advancing strategic initiatives. With that, we'll now turn the call over to the operator to start the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Our first question or comment comes from the line of Rick Prentiss from Raymond James. Your line is open.

Rick Prentiss -- Raymond James -- Analyst

Thanks. Good morning guys. A couple of questions. First, good to see the nano satellite launch, communicate, rise into position and satisfy the regulatory hurdle and commitments. Anders, you mentioned the 3GPP. Is there any date more specific for release 17 than early 2022? Because that sure seems like one of the things we should be watching on the Street as far as that box getting checked. And what are other milestones you suggest we watch from the outside as you guys move toward this S-band strategy?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Well, I think the release is due out in the first quarter, whether that means the end of February or March, I don't know. 3GPP is an interesting negotiation among a lot of different factions, including operators as well as manufacturers and other interested relevant parties. But we're doing our best to make sure the rules that count for us are included in the Release 17. Going forward, there'll be future refinements and enhancements. But that will move us into 2022, 2023. But I think the starting gun for us will be 2022.

Rick Prentiss -- Raymond James -- Analyst

Okay. And Dave, you guys did some more stock buybacks in the quarter. Looking at the 10-Q, the pacing was interesting to us, looked like about 1.5 million shares in April, dropping to 0.6 million shares in May and just 0.3 million in June. How should we think about how you paced that? And have you done any post 2Q?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Well, Rick, we put in place a buying plan at the end of last year, and we continue to execute under that -- under the parameters that were established at that time. We have not changed that plan and that plan continues in place currently.

Rick Prentiss -- Raymond James -- Analyst

Okay. And I didn't notice, was there any post 2Q stock buyback? I had one client that was asking, he thought he had seen some.

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

We haven't made any announcements on anything past June 30. But as I said, the plan remains in place.

Rick Prentiss -- Raymond James -- Analyst

Makes sense. Okay. Because I didn't see it either. And operationally, Pradman, you talked about stay at home orders in some of the Latin American countries. By capacity constraints, are you talking about installation capacity, are you talking about satellite capacity? How should we think about what that capacity constraint is? Why is it happening? And how you expect it to get fixed?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes. I think the capacity constraints that we are talking about is primarily the fact that because of the COVID conditions, etc., the amount of bits that each subscriber was using increased dramatically. And so the effect of that, therefore, was that the satellites were providing more data to each subscriber and resulting in fewer subscribers or the quality of service getting impacted to some extent, which then results in a higher churn, which then results in consumer unhappiness with the service.

But as the conditions improve in South America in terms of the COVID and the political instability in a few of the key countries, we are beginning to reverse that trend and see subscribers using the right amount of data that they should for the kind of service offering that they're selecting.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

In addition to that, Rick, in certain regions of South America, we have had restrictions or impediments on getting things installed as some countries, some regions continue to have travel restrictions. And so getting installation crews out has proven somewhat difficult on a continuing basis. So to answer your question, as Pradman said, we've got capacity restraints in some beams, and we've got also restrictions on installation capacity, if you will.

Rick Prentiss -- Raymond James -- Analyst

Right. Okay. And the Jupiter three launch still on track for a second half 2022 launch. When should we expect a launch date to officially get announced? And what milestones are we looking for that we can monitor from outside as far as moving toward that date? And how about the rising into in service for that, were there any target dates?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Well, I think the schedule is still the same. We expect to launch the satellite and launch the service in the second half of 2022. There are a whole bunch of milestones in getting there that we should start seeing some specifics getting more accurately defined probably by the end of this year. But at this stage, we are on track for that overall schedule.

Rick Prentiss -- Raymond James -- Analyst

All right. Well, good. Sorry to hear Dugan was ill. I hope you all stay well and healthy and best wishes, guys.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Thank you, Ric.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Michael Rollins from Citi. Your line is open.

Michael Rollins -- Citi -- Analyst

Thanks and good morning. You mentioned earlier -- in the discussion earlier, you were discussing Hughes playing a leading role in hybrid networking solutions. I was just curious if you made further progress on agreements or commercially constructing a hybrid LEO, GEO broadband product? And then just secondly, just curious if you have any expectations with respect to the broadband component of the infrastructure bill in terms of what kind of influence that can have on your strategy and operations over time?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Okay. They're two different questions. But the first one on the NEO GEO networks, we're doing a lot of work in that area in developing the network architecture. Now as you know, we have an investment and a partnership with OneWeb. We are developing service plans and network architectures with them for many parts of the world. We are fortunate to have a strong geo presence with the Jupiter platform in almost every region on the globe. And I think now with OneWeb getting into service in 2022 that we will see some of these architectures played out.

So more to come in the next six months to nine months that I think we'll be making announcements in that area. Now and the second question was on -- sorry?

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Infrastructure -- broadband bill, infrastructure bill.

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Oh, the broadband bill, yes. It's an area where we are very, very interested. Broadband connectivity market is very large. And as you know, in any of these networks, the priorities that we have are speed, bandwidth and price. The great majority of traffic is video, over 75% to 85% of the traffic on our network is video. And video is not latency-sensitive, which is the biggest disadvantage of the geo satellite, right? So -- but with the hybrid architecture, we think we can solve the latency problem. And therefore, we believe we will be able to get some of the subsidies that the government is offering in these different programs.

But at this stage, the details of these programs are not firmed up, and there's a lot of debate going on in this area. And -- but we expect we'll be able to come up with an offering that meets the speed bandwidth and hopefully, latency with the hybrid architecture to get a piece of that pie.

Michael Rollins -- Citi -- Analyst

And just one other follow-up. You mentioned the opportunity for subsidies. And I was just curious, are you seeing any impact to your operations from the EBB, the Emergency Broadband Benefit program that was previously introduced?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

No, I don't think we are seeing any significant negatives or positives at this stage. We announced our participation in this program on July 8. So that means we can benefit from the subsidy if our customers are compliant for the bandwidth -- for the benefit and choose to participate. So I think we'll play in that game, too.

Michael Rollins -- Citi -- Analyst

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Chris Quilty from Quilty Analytics. Your line is open.

Chris Quilty -- Quilty Analytics -- Analyst

Thank you. Pradman, I had a question for you. I think somewhere in your script, you mentioned that you expect to see international growth through 2021. Was that language supposed to indicate that after 2021, you'll find it difficult to grow? Or am I reading too much into that?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

You're reading too much. We expect to continue to grow in 2022 and on. So I don't think that -- we are actually working right now to make sure that we figure out how to get additional capacity that we would need in 2022 and 2023 with that. As you know Jupiter three has a significant amount of capacity in South America. So when we launch Jupiter three in 2022 in the second half, we will get a significant amount of new capacity that we can utilize to grow our South American business. So we -- I expect to see us continuing to grow that business in the next few years.

Chris Quilty -- Quilty Analytics -- Analyst

Understand. And prior to Jupiter 3, do you anticipate needing incremental third-party capacity? Or is the current capacity that you have with Telesat, Eutelsat and Yahsat sufficient?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

There are probably some beams which start saturating in this time frame, but there is a significant amount of capacity that we'll still have in other beams. We're constantly talking to people who have either launched or have capacity available over South America. And if we get the right deal and the right beam in the right geographic area, we could augment our space capacity some more.

Chris Quilty -- Quilty Analytics -- Analyst

Great. And a question on international growth outside of Latin America. I know you've got your partnership with Yahsat, which just went public. Are you fleshing out plans to expand into more of a global provider and would you look to do that through a company, a Hughes-specific satellite or something through a partnership arrangement?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

I think it's both. We -- as we move country by country in the world, we are -- we decide what's the best approach right now. So for example, we have JVs -- we have the Americas, which is close to us where we, Hughes, use our own totally vertically integrated networks. Then we go into the JV with Yahsat, we're covering Africa and the Middle East. In India, we have the current business, which is the largest satellite services provider in India. We have the highest market share there. So that's going well.

And so as we go into other areas, like Russia, like Southeast Asia, we tend to basically have partnerships with existing satellite service providers and using the Jupiter platform as the standard equipment, so that the customer gets the same service anywhere in the world almost, using our equipment, using our partnerships, using our JVs and using our Hughes-owned space segment. So we use all those tools to provide service -- a broadband service to our customers.

Chris Quilty -- Quilty Analytics -- Analyst

Great. And how about India? Can you remind us both of the regulatory status for either Hughes receiving approval for putting a geo over the Indian region; or b, OneWeb's ability to get licensed there? And a follow-on, on that second point, what does the relationship look like between you and Bharti and OneWeb? Have you come into any sort of agreements about how you would address the Indian market?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Okay. First, on the satellite, we continue to -- we have a filing in for a satellite, a geo satellite. And I think we're number one in line, but the government has issued a satellite policy, which allows satellite ownership to be deregulated. But nobody has yet got the formal approval, and we continue to pursue that. OneWeb has also filed for a license for an NGSO landing rights. And considering that Bharti is a huge telecom service provider with what, about 400-plus million subscribers, cellular subscribers, I think they have a good shot at getting the NGSO landing rights in India. But they have applied and they're pursuing that right now.

Chris Quilty -- Quilty Analytics -- Analyst

Great. And final question for you with regard to North America. I mean it sounds like in Latin America, people are continuing to consume more capacity, more stay at home. Are you seeing any reversal of that in the U.S. where people are starting to slowly return to the office? Are they -- are you seeing indications that as people leave home, head to the office, they're dialing back their subscription plans?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

No, I don't think anybody is dialing back their subscription plans, but we are having to constantly manage in the shaping of the traffic to keep the customers happy, give them within their existing plans as much flexibility as we can give and use that to control the churn. Now if you use the churn as a guide to see, as a guide to the quality of service that the subscriber is getting, the churn in North America is significantly better than, say, South America today, where it -- because of all the uncertainty we've talked about in South America and all the political and COVID-related problems in South America.

So the U.S. has been very, very good, the churn rates declining slowly, and customers seem to be getting, they seem to be happy with the quality of service they're getting.

Chris Quilty -- Quilty Analytics -- Analyst

Great. And I lied. If I can sneak in one more for Dave. Can you give us an update on the capex profile for the balance of this year and next year?

Dean A. Manson -- Executive Vice President, General Counsel

Yes. Chris, I would expect full year 2021 capex to be mid-400s. Next year, probably a similar range. Obviously, we've got the completion of J3 as well as the launch contract payments going up to launch later in the year 2022. As we implement service, we'll start seeing consumer equipment and installation capex start increasing as we bring J3 into service and start adding subs at an increased rate.

Chris Quilty -- Quilty Analytics -- Analyst

Awesome. Thank you gentlemen.

Operator

Thank you. We have a follow-up question from Mr. Rick Prentiss from Raymond James. Your line is open.

Rick Prentiss -- Raymond James -- Analyst

I want to follow up on some of Chris's questions. Let's stay in India for a second. Pradman, you mentioned the Bharti joint venture. Any update? I know it takes regulatory approval. Any update, 1, on how COVID is doing there? But 2, what's the process to get regulatory approval? And are we thinking it could get approved before or at year-end 2021?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Yes, I'm very hopeful that we'll get approval for the -- we're down to one approval needed. And I think we are hopeful we'll get that in the next few months.

Rick Prentiss -- Raymond James -- Analyst

And with the COVID in India, how is that affecting business? And is that affecting the approval of the JV?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

No, it's not affecting the approval of the JV at all. Service, because we're not in the consumer business in India, the service offerings that we have are for the enterprise and the carriers of the business. So that's been impacted in terms of the speed of installation of the networks because, again, travel was difficult. But I think things in India have improved in the last 30 days, and we have -- our office is back in full operation. Our employees are back attending their jobs, to their jobs. So let's keep our fingers crossed and hope that it will continue in that way.

Rick Prentiss -- Raymond James -- Analyst

Knock on wood, that's a good sign. And Dave, a couple of quarters as we went through COVID, you had some bad debt items. Are there any onetime items in the 2Q results that we should be aware of? And how is the bad debt or collection of debt trending?

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Yes. Bad debt today is -- I would say, is back to a normalized level pre-COVID. Obviously, we've had some recoveries from those companies that declared bankruptcy last year and have since emerged, and we collected some, or in some cases all of the owed amounts in. So I don't think there's anything from a bad debt standpoint, that's unusual in the quarter. Obviously, we did have a litigation expense accrual that's called out in both the Q as well as the press release.

Rick Prentiss -- Raymond James -- Analyst

Okay. And be remiss if I didn't also ask the supply chain question. Are you guys seeing any issues in any of the components or pricing for any of your equipment?

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

We have a really good guy who runs our operations in manufacturing, and I think has done an incredible job. That organization has done a great job, but we haven't seen any impact at this stage. But things are tightening up, and we are trying to be very aggressive in our inventory planning and maintaining our inventory levels at the right. And so far, we haven't really been impacted, but the market is tight, and we hope we can get through the year with no impact. And today, it looks like we can.

Rick Prentiss -- Raymond James -- Analyst

Okay. Thanks guys.--

Operator

I'm showing no additional calls in the queue. I'd like to turn the conference over to Mr. Terry Brown for any closing remarks.

Terry Brown -- Vice President of Finance

Yes. Thank you, everybody, for joining today, and we look forward to talking to you next quarter.

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Thank you.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Terry Brown -- Vice President of Finance

Dean A. Manson -- Executive Vice President, General Counsel

David J. Rayner -- Chief Operating Officer, Chief Financial Officer and Treasurer

Pradman P. Kaul -- Chief Executive Officer and President, Hughes Network Systems

Anders N. Johnson -- Chief Strategy Officer, President EchoStar Satellite Services

Rick Prentiss -- Raymond James -- Analyst

Michael Rollins -- Citi -- Analyst

Chris Quilty -- Quilty Analytics -- Analyst

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