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Exhibit 99.1
[Introduction]
o Good morning.
o Thank you Bob for the introduction and thanks everyone for joining me today.
[The new HUGHES brand]
o Last week, HUGHES launched a new and exciting branding program.
o From a strategic perspective, the sale of our satellite manufacturing business
makes this the ideal moment in our corporate history to drive the HUGHES brand
into the spotlight. The branding campaign will redefine who and what we are as
a corporation.
o HUGHES has always been a trailblazer and a visionary company. Courage,
commitment and imagination have enabled HUGHES to build a storied legacy of
achieving the near impossible.
o Today we are enabling the new economy and bringing the world closer to a
future in which human thoughts and images can be transmitted via digital
communications from one person to another, one corporation to another -
without regard to time or distance, often without wires or cables. From our
perspective, this is what the Digital Age is all about - breaking the thought
barrier - and HUGHES has the creative people, innovative technology, and the
momentum and courage to deliver it.
o So let's take a closer look at HUGHES today
[HUGHES Today]
o HUGHES is comprised of four strategic business units;
o PanAmSat is the world's leading provider of leading provider of global video
and data broadcasting services via satellite. We own 81 percent of PanAmSat,
which is also a public company listed on the NASDAQ under the ticker "SPOT."
o In 1999, PanAmSat generated about $800 million in revenues and over $600
million in EBITDA.
o Today, PanAmSat has a backlog of long-term contracts with blue-chip customers
valued at $5.8 billion dollars; and generates EBITDA margins in the
neighborhood of 70 percent.
o PanAmSat is expanding beyond its core business of video distribution with its
NET 36 Internet delivery service, which I'll talk more about later in the
presentation.
o Next, we have Hughes Network Systems, or HNS. HNS is the world's leading
provider of satellite-based private business networks known as very small
aperture terminals, or VSATs.
o HNS is also a leading supplier of DIRECTV receiving equipment, and the leading
provider of Internet access via satellite.
o In 1999, HNS generated revenues of $1.4 billion.
o HNS is in the process of expanding its service-based businesses--with DirecWay
for enterprises and DirecPC for consumers.
o Finally, and most significantly for investors, we have DIRECTV, in the U.S.
and Latin America.
o As a segment, these two businesses attained about $3.8 billion in revenues in
1999, and generated positive EBITDA for the first time.
o In the United States, DIRECTV is the third largest multichannel
provider--behind only AT&T and Time Warner--and serves more than 9 million
customers.
o In Latin America, we own 78 percent of the Galaxy Latin America partnership,
which serves more than 1 million customers.
o Together, these four entities form HUGHES--a powerful digital media,
entertainment and communications company.
[The HUGHES'Vision]
o As we leverage this unique and powerful combination of assets, our Vision is
to be:
o The number-one provider of global satellite services with PanAmSat;
o The number-one provider of global satellite-based broadband communications
through HNS.
o And, through our DIRECTV businesses, to be the leading provider of
multichannel entertainment services
o As we achieve those goals, HUGHES will become the premier global provider of
Integrated Entertainment and Information Products and Services.
[HUGHES' Strategy]
o Our strategy for achieving this Vision is simple: To create superior returns
and value by leveraging the power of our two main competitive advantages:
o Our market-leading, world-class customer bases at DIRECTV, HNS and PanAmSat,
o And our unmatched broadband pipeline into homes and businesses.
[HUGHES Markets and Services]
o When you think of our business and our brands, it's useful to conceive of what
we do in terms of our markets and services.
o HUGHES' businesses span from the Consumer to the Enterprise markets, providing
both Entertainment and Information services.
o We start with Consumer Entertainment--where we're talking about DIRECTV.
o In Consumer Information, our primary brand is DirecPC, which delivers
nationwide high-speed Internet access via satellite.
o In the Enterprise Information market, we find HNS' DirecWay service.
o And finally, we have wholesale Enterprise Entertainment--the core business
of PanAmSat.
o This is, of course, a simplified version of HUGHES. There is significant
overlap as the television and PC converge; and as satellites are used more and
more to distribute Internet content.
o It is, in fact, this ability -- to Maximize Convergence Opportunities -- that
gives HUGHES a major competitive advantage...and distinguishes us from all
other satellite and entertainment investment opportunities.
[HUGHES 1999 Financial Performance]
o With these strengths, HUGHES has attained significant financial returns.
o In 1999, HUGHES generated $5.6 billion dollars in revenue--nearly 60 percent
more than in the previous year.
o As you can see from the graph,
[Graphic displays the following data in a bar chart format:
Revenues (Billions of $)
1995 1996 1997 1998 1999
HUGHES Consolidated $1.6 $2.1 $2.8 $3.5 $5.6
DIRECTV Segment $ 0.2 $0.6 $1.3 $1.8 $3.8
EBITDA (Billions of $)
1995 1996 1997 1998 1999
HUGHES Consolidated $ 0.1 $ 0.1 $ 0.3 $ 0.3 $ 0.5*
DIRECTV Segment $(0.1) $(0.2) $(0.2) $(0.1) $ 0.0
* excludes one-time write-off of $272M attributable to the discontinuation of
narrowband wireless businesses]
o DIRECTV has been our primary revenue driver for several years, and we expect
that to continue. As a result, we anticipate HUGHES' top-line average
growth rate to be 20 percent or more per year over the next five years.
o EBITDA tells a similar story. As you can see, DIRECTV achieved positive EBITDA
in 1999 after several years of investment.
o Even during those investment years, HUGHES achieved solid EBITDA growth--
primarily because of the strength of our PanAmSat business.
o Going forward, we expect to see accelerating EBITDA of at least 50 percent
average annual growth over the next five years.
o Now let's look more closely at our businesses, beginning with DIRECTV in the
U.S.
[Television Household Forecast]
o This year, according to analyts, we see that direct-to-home (or DBS) providers
are serving about 15 percent of U.S. television households.
o Within the next five years, industry analysts expect that approximately 75% of
all new pay-TV subscribers will choose DBS over cable and that DBS will
roughly double its current number of subscribers as it reaches nearly 30
million subscribers in 2005.
o Given that most of our current subscribers are coming from cabled areas and we
are now offering local channels in most of the major markets, these DBS
estimates may prove to be conservative.
o Let me show you why we believe that to be the case.
[Competitive Advantages]
o First of all, DIRECTV has become a media powerhouse--a force in the
entertainment marketplace. As a result, we enjoy several sustainable
competitive advantages.
o By leveraging our 9-million-strong customer base, we're able to create key
strategic relationships with the top names in the industry.
o We have relationships with the top manufacturers and distributors. In fact,
DIRECTV has the most extensive distribution in the industry, including our
newest addition, Blockbuster. [Chart lists logos from several strategic
partners, such as Radio Shack, Best Buy, Circuit City, America Online,
Thomson Multi Media, Verizon and Southwestern Bell]
o We also have a wealth of programming that customers can't find anywhere else,
including exclusive agreements with the most popular sports leagues such as
the NFL and NBA.
o And, we're launching powerful interactive services this year, including Wink,
TiVo, AOL TV and Ultimate TV, which I'll talk more about in a moment.
o We also have a major advantage in business fundamentals.
o This chart shows the analysts' consensus for DIRECTV and cable over the next
five years.
[Chart shows the following information:
Analysts' 5 Year Projections
DIRECTV Cable
Subscriber growth rate 13 - 15% 1 - 2%
Revenue growth rate 20 - 25% ~15%
EBITDA growth rate 50 - 75% ~15%
Capital cost / subscriber ~$200 ~$1,100
SAC / subscriber ~$525 ~$100
Total Investment / subscriber ~$725 ~$1,200
Return on Investment 35 - 40% 18 - 23%
Valuation per subscriber ~$2,700 ~$3,800 ]
o As you can see, our subscriber growth rate dwarf's that of cable and our
revenue growth rate is also expected to be significantly greater.
o But look at the EBITDA growth rate--there's virtually no comparison.
o In addition, our total investment per subscriber--the sum of our capital cost
and our subscriber acquisition cost, or SAC--is 40 percent less than cable's,
giving us the potential for a substantially greater return on investment.
o Yet our current market valuation does not represent the true value of our
subscribers.
o You can see the significant upside we are determined to capture.
o We're also keeping a close eye on the roll-out of digital cable. So far we
have found no correlation between our growth and the presence of digital
cable.
o In fact, in many markets where digital cable is most advanced, we're seeing
our greatest growth. For example, in the third quarter, our growth rate in
cities such as New York, Los Angeles and San Francisco was over 50 percent
higher than the previous year's period.
o One of the possible reasons for this is simply that we offer consumers more
value.
o Our video and audio signal is all-digital; cable companies often
provide an analog service with a digital tier. And in most markets,
we're still priced lower for comparable or better service.
o The only conclusive data we have seen so far is that our roll-out of local
channels more than offsets any impact from digital cable. Today we offer
local channels in 35 markets and we expect to be in 41 markets by the end
of the year.
o With these dynamics, we feel we have a window of opportunity to capture
high-quality customers. As a result, we've decided to aggressively pursue new
subscribers.
[Compelling Subscriber Economics]
o This approach also makes good economic sense.
o With our subscriber acquisition cost of $525, ARPU -- that's average
revenue per user per month -- of about $59 dollars, gross margins of 50
percent and low churn, the average payback period for a new customer is
only 17 months--and the pre-tax internal rate of return on this subscriber
is roughly 70 percent!
o In addition, the customer we invest $525 dollars to attain is valued by the
market at $2,000 to $4,000 dollars--again representing the opportunity for
significant value creation.
o Going forward, we believe the subscriber economics will continue to be
strong.
o Average revenue per subscriber should increase due to the continued
introduction of local channels in new markets, new interactive services and
periodic price increases;
o We see our subscriber acquisition cost (or SAC) on our basic
systems staying flat at roughly $525. We do expect to see SAC increase
an additional 25 to 50 dollars next year as we roll-out our new advanced
set-top boxes. However, the payback and IRR remain intact because of the
incremental revenues expected from these new services.
o And we believe that we can keep churn at its current rate of between 1.5
and 1.7%--which, I might add, is still well below cable's churn rate. We're
implementing new customer retention initiatives, such as an in-home repair
warranty program, longer-term programming commitments from customers, and
our current free professional installation offer.
[Advanced Platform Rollout]
o Now I'd like to give you a closer look at the exciting new interactive
services we're launching on DIRECTV.
o The Wink service is now available, and the Wink capability will become
standard on all of our basic boxes. Two weeks ago, we began offering
enhanced services from leading networks, including CBS, CNBC, ESPN, and
TBS. We'll also have dedicated interactive virtual channels with ESPN, NBC
and the Weather Channel, as well as a dedicated shopping channel with
Barnes and Noble.
o With the launch of this service, simple and valuable interactive television
has now become a reality.
o The other three platforms offer more advanced services.
o The DIRECTV/TiVo combo box--which is now in stores--has a 30-gig hard
drive, allowing customers to personalize their TV viewing while also
pausing live TV.
o Ultimate TV is the Swiss Army Knife of our set-tops--it does it all:
enhanced TV, digital video recording and full online capabilities.
o Finally, the DIRECTV/AOL TV box will offer similar capabilities with a
focus on AOL's popular community services such as e-mail, chat, instant
messaging and Internet access.
o We feel these new products will further extend DIRECTV's lead in the
multichannel industry because most cable systems are still months if not years
away from offering these types of interactive services.
[DIRECTV: The Next Step]
o As we look at our overall interactive services strategy, we see DIRECTV moving
into the role of a whole-house services provider--the one-stop shop for a wide
variety of services.
o Beginning late this year, we'll be bundling DIRECTV with our new DirecPC
two-way broadband Internet service.
o Using a single small dish, customers will receive DIRECTV's programming
along with an "always on" broadband connection.
o This broadband service will offer inbound speed of about 400 kilobits, with
outbound speeds between 100 and 200 kilobits.
o We will have one bill, one customer service number, and we'll integrate our
sales and marketing efforts.
o We'll be consolidating into a gateway platform--one that would allow us to
essentially become a media-manager for the home.
o As such, we would provide the equipment and service to distribute various
forms of media from different sources to different display devices--whether
it's the TV, the PC or some other device.
o The benefits of this are obvious--we believe we will get more subscribers and
stickier subscribers. In addition, there will be significant new revenue
opportunities - perhaps adding as much as $7 - $12 to our ARPU. And finally,
we'll have even greater leverage with content and service providers.
[DIRECTV - Latin America]
o Now let's move on to DIRECTV in Latin America, where we are the only
multichannel provider serving the entire region.
o Galaxy Latin America does business in 27 countries, and we're continuing to
see outstanding growth.
o Year-to-date, subscriber growth is up 81 percent over last year's net adds.
o GLA generated an average programming revenue per subscriber of $36 dollars per
month in the third quarter.
o In addition, it has exclusive agreements with programmers such as Disney and
HBO, and offers exclusive sports entertainment. GLA also offers the most
extensive pay-per-view and special events, and offers local channels in many
of its major markets.
o Later this year, GLA will launch interactive services on the OpenTV platform
including weather, games, and banking applications, and next year we will add
e-mail, e-commerce, chat, and instant messaging.
o So that wraps up our DIRECTV businesses. Now let's move on to our other
business units.
[PanAmSat]
o At PanAmSat, we continue to enjoy a healthy, profitable, and growing business.
o The core business remains the distribution of video programming, and PanAmSat
is continuing to grow that business.
o In mid-October, they brought home a hard-fought victory with the addition
of a 15-year-commitment from the Walt Disney Company's family of cable
programming.
o PanAmSat is continuing to expand its fleet to meet demand--its 21 satellites
today will grow to 24 satellites in 2001. In addition, PanAmSat has attained
licenses for significantly more spectrum in the new Ka-band.
o Net-36 is the most exciting growth opportunity PanAmSat is pursuing today.
o This global satellite overlay to the terrestrial network brings high-
bandwidth Internet services to the edge of the net.
o PanAmSat has already begun to leverage its core business into success for
Net-36 as customers including ABC, ESPN, Bloomberg and Disney have signed
on for streaming services.
o And PanAmSat just announced that Net-36 will be providing rich, dynamic
entertainment, news and sports content to Excite@Home's 2 million broadband
subscribers. PanAmSat has a similar agreement with Qwest for its DSL
customers.
[Hughes Network Systems]
o Finally, let's take a look at Hughes Network Systems.
o HNS leads the market in satellite-based private business networks popularly
known as the VSAT market.
o It's also a leading provider of DIRECTV systems, as well as equipment for use
in terrestrial wireless broadband businesses.
o HNS' primary growth is coming from the expansion of its service
operations--for both the consumer and enterprise markets.
o With DirecPC, HNS has alliances with AOL, Pegasus, and Juno to provide
Internet services "Powered By DirecPC," and HNS is actively pursuing
additional relationships.
o We've begun shipping the AOL Plus Powered by DirecPC equipment, and
we're on schedule to introduce our two-way via satellite DirecPC
broadband service by the end of the year.
o On the enterprise side, HNS has its DirecWay services--which are really an
extension of its VSAT capability. Now, when you buy a VSAT network, you can
add new services such as in-store music, email, or even a company intranet.
It's a simple, elegant, one-stop solution.
o Finally, HNS is leading the development of our new Spaceway system.
o Spaceway is a high-speed, low-cost, two-way communications system that
will be the next generation platform for both DirecPC and DirecWay.
o Spaceway will provide high-speed point-to-point communications--what we
refer to as "full-mesh" connectivity. With this capability, Internet users
will be able to communicate with each other via our satellites without
using the terrestrial network.
o We're working with Boeing to build the Spaceway satellites, and we expect
to launch the service in 2003.
[Investment Highlights]
o In closing, I'd like to recap why I believe HUGHES is a powerful investment
opportunity.
o HUGHES is a company that is focused on high-value service businesses that
operate in rapidly growing markets.
o We are the market leader in each of our core businesses
o We have DIRECTV, the world's leading digital multichannel provider. And
both subscriber numbers and revenue per subscriber have demonstrated
significant growth.
o We're just beginning to tap the power of our broadband pipeline.
o We have alliances with Microsoft and AOL;
o We're transforming television entertainment--again
o And we're building the future of high-speed, high-bandwidth
services.
o In short, our satellite-based platforms are becoming the portal of choice--
a key gateway, if you will, into homes and businesses.
o Finally, our management team is incented to build value in the
H-class stock. I feel it is important for all of you to
understand--especially as rumors abound relating to the potential
separation of GM and HUGHES--that the top executives at HUGHES, including
myself, are compensated primarily in GM Class H stock.
o With that, I'll conclude my remarks. Thank you for your time and attention.
o I'm happy to answer any questions you may have.
