DISH Network Corp (DISH) 2004 Q2 法說會逐字稿

Good Afternoon. My name is Christy and I will be your conference facilitator today. At this time I would like to welcome everyone to the Echostar second quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] I would now like to turn this conference over to Mr. Michael McDonnell, Chief Financial Officer. Sir, you may begin.

Thank you, operator. Thanks everyone for joining us. This is Michael McDonnell I'm the Chief Financial Officer here at Echostar and I'm joined today by Charlie Ergen, our Chairman and CEO; David Moskowitz, our EVP and General Counsel; and Jason Kaiser, our Treasurer. I'm going to give you a quick recap of the financial performance of the quarter. And then I will turn it over to Charlie for comments before we open up for Q&A at the end. But before we get started as most of you know we need to do or Safe Harbor disclosures and so for that I'm going to turn it over to David.

Good morning, everyone. Thanks for joining us. As you know we do invite media to participate in a listen-only mode on this call. So we ask that the media not identify participants and their firms in your reports. We also don't allow audio taping of the conference call and we ask that you respect that. All statements that we make during the call that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those 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 or from any future results expressed or implied by the forward-looking statement. Now, I'm not going to go through a list of all the factors that could cause our actual results to differ from historical results or forward-looking statements. I'd ask you to take a look at the front of our 10(Q) for a list of these factors.

In addition, we may face other risks described from time to time in other reports we file with the SEC. All cautionary statements that we make during the call should be considered and 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 undue reliance on any forward-looking statements that we make. We assume no responsibility for updating any forward-looking statements that we make. Please also note that during this call we will refer to the nonGAAP liquidity measure, free cash-flow. Please refer to our 10(Q) which is available on our website for reconciliation of free cash-flow to net cash-flow from operating activities. I would also note, for those of you who may be interested in EBITDA, that our 10(Q) contains a reconciliation of EBITDA to net income. Now, I will turn it back over to Mike for his last chance as moderator of our call. We are all going to miss Mike very much here. We wish him much success in his future endeavors, so with that, Mike, take it away.

Thanks, David. And I will see if I can get this right on the last try here. Total revenue for the quarter was 1.78 billion an increase of 13% over last quarter, and 26% higher than the same period a year ago. Subscriber growth and higher RPU were the drivers of these revenue increase. Net income for the quarter was 85 million, an increase of 128 million over last quarter, and 44 million lower than the same period a year ago. Basic EPS was 18 cents a share compared to basic loss per share of 9 cents last quarter, and basic EPS of 27 cents for the same period last year. Last quarters net loss figure includes 78 million of charges associated with the redemption of Senior Notes which occurred during that quarter. And the net income figure for the second quarter of last year includes the benefit of reduction in SAC of approximately 34 million, which related to the receipt of a reimbursement payment for previously sold set-top box equipment which was part of a litigation settlement. Free cash-flow was negative 31 million during the quarter, this represents a $212 million decrease from last quarter and $182 million decrease from the same period a year ago. These decreases resulted from increases in CapEx, as well as significant decreases in free cash-flow generated from changes in working capital.

During the second quarter we added approximately 340,000 net new subscribers, that puts us at approximately 10.125 million DISH Network subs as of June 30, 2004. This sub growth was due to the success for marketing promotions, as well as increased areas where we offer local content. And we currently offer local stations in 143 markets. RPU was approximately 55.59 per month during the quarter. This represents an increase from last quarter from $3.83 and an improvement of 3.90 over the same period a year ago. The improvement of RPU is due to our February 2004 price increases, and an increase in local markets, an increase in subs taking multiple set-top boxes, and a reduction in the number of subs receiving subsidized programming under our free and discounted programming promotion. This increase is also attributable to revenue from equipment sales, installations, and other services related to do our relationship with SPC. Our cost of acquiring subs or SAC during the quarter average approximately 4.31 per gross addition, including capitalized lease equipment net of recoveries that figure becomes 5.76 which is a decrease of $28 from last quarter. This decrease is attributable to increases in our co-branded subscriber activation which do not involve upfront investment by us.

Turning to the BS at the end of the quarter we had cash and marketables of 1.86 billion which includes 138 million of cash reserved for satellite insurance and other purposes. We also had 5.5 million of debt as of June 30, 2004, which includes 1.5 billion of convertible securities. On a straight debt per sub basis we ended the quarter at roughly 5.43 per sub. On a net debt basis that drops to 3.74 per sub. Debt per subscriber was reduced from 5.63 as of March 31, 2004, due primarily to subscriber growth. Net debt per sub increased from 2.80 as of March 31, 2004, due to decreases in cash and marketables which occurred during the quarter. These cash and marketable security decreases primarily resulted from stock repurchases which sold 684 million during the quarter. CapEx in the Gen*Star transaction which occurred during the quarter. Cash Capex during the quarter were 206 million with 138 million of that amount going for capitalized lease equipment for new subscribers and the remainder going for satellites and general corporate purposes. And with that I will turn it over to Charlie.

Thank you, Michael. Overall I just have a few comments and then we will take questions. Overall it was probably a pretty solid quarter for us. We made some progress on making sure we had inventory. We made some progress on making sure we had installation capacity, things that have probably hampered our growth in the past. Those things -- those progress did come at the expense of some operating efficiencies and some margin erosion. And we will probably talk more about that in the question-and-answer period because we are certainly carrying more inventory than we normally would, which also affects free cash-flow. And we hired more people to make sure we give better customer service and can get our it installations done, and training people. So that puts a lot of pressure on margins until you become efficient with new hires. Churn was relatively in line with where we thought we would be. SBC relationships continues to move along and show solid progress. And looking forward to the second half of the year the industry, particularly with DirecTVs, which continues to view as pretty incredible performance on their part in terms of sub growth, both on the gross and net side. Obviously, the satellite industry has good momentum in the market place. We are seeing Cable almost across the board with negative numbers. The consumer is -- when they are making a choice is typically voting for satellite. We would certainly like to get more of our fair share of that business, but DirecTV is doing a great job and we are certainly relatively pleased with the number of subscribers that we are getting given our ability to operate and try to operate with some discipline in terms of the things that we think are important. I guess with that we will take questions.

[OPERATOR INSTRUCTIONS] Your first question is from Niraj Gupta of Citigroup.

Thank you and good morning. I guess the first question was if you could give us a little bit of color on how much RPU contribution actually came from the revenue associated with the sales of equipment, installation services you provided to SBC? And the second question is just really following up on Charlie's comment about subscriber related costs, maybe the efficiencies not buying where you wanted them to be in the quarter. Could you speak a little bit directionally where you see retention marketing going and what's driving that sequential tickup besides the SBC equipment? Thanks.

Yeah. Those are all good questions. It's going to be a pretty long-winded answer and I'll try to just touch in general on those questions. The SBC relationship really is one more form of distribution for us. It's one more channel for us. So we don't break any of that out today. It's pretty much equivalent to normal sub that we would get through a normal chain of distribution. So we don't break out direct sales versus satellite special sales versus Internet sales and so forth. But in general, what the SBC relationship what it does do it has a sliding impact on RPU in a positive way, although the main drivers of RPU growth were the price increase and the elimination of subsidiaries. That would be the major job drivers, but there is a slight positive from the SBC sale of installation and equipment. On the negative side that SBC relationship hurts us in our margins because the equipment and installation and so forth that goes into RPU also comes at basically very little or no profit to us. So on the expense side it comes in through that side. So expenses are, in terms of margins would be lower than they otherwise would be. So there's kind of a wash effect there. It is going to be difficult, if SBC gets to be a large enough part of our business, so we try and look at breaking some of that out in the future. But today that would still be way premature to do that. Ultimately the way you have to view our Company, ultimately is free cash-flow. We are so different than even the way DirecTV accounts for what they do and what Cable accounts for the way they do that I think you ultimately -- the only way you are really going to get a video-cut company and really measure it is true free cash-flow after interest and after CapEx. That's really the measurement that really starts putting people on a level playing field. In terms of retention marketing, we don't spend nearly on retention marketing what DirecTV does. As a result our churn is somewhat higher and I think you have to, you kind of have to do the math. And again, we do it every day and I'm not saying that we necessarily have it right. I don't know weather DirecTV has it right. But we have theories and we continue to monitor those theories. But as an example, I can't remember exactly, but they were in the well over $200 million in retention marketing? For the quarter, we were a fraction of that. I believe that we could have saved, had we spent in the neighborhood of 224 million subscribers -- dollars -- we probably would have saved a couple -- we probably would have saved another 100,000 subscribers. Our churn would have been 3 or 4/10ths of a percent less per month. Having said that that same couple $100 million may go out and get us 2 or 300,000 more subscribers at our SAC rate. So you have to balance the money for retention marketing where you are setting your customer up for an expectation that you are always going to upgrade his equipment. And with MPEG-4, kind of a new technology on the horizon for next year, anything you upgrade them to today you are at risk of having to upgrade that same customer again next year before you ever get a repayment back on that. So we have tried to balance that and show some discipline and say, look, there's a sensitivity analysis here in retention marketing where we have some customers we better retain because they are higher RPU customers and some customers quite frankly that are going to go for the best deal whether it be a buyback cable bounty from a cable company or something from perhaps DirecTV where it may not make sense for us to spend incremental money knowing that we may have to come back to that customer again with some bad habits. So we run the math and you guys can do the math yourself. But we would look at retention marketing as a balance between saving a customer and using that money to get a new customer. And also future technologies and balance all those equations and say where do we think the best spot to be is and that's kind of what we do. So retention marketing is clearly higher than it was -- has been trending up as an industry. It was pretty much off the charts at DirecTV and they may have a sound strategy, but in regards to that they may not. I don't know. And we look at it and we try to balance it out. I think it's a factor in the business that does erode margin and it's going to be around for awhile as a result of that. But we are fairly disciplined about it. We spend a fraction of the competition.

Can I ask one follow-up question on fact, if I may. When you guys report the SAC including capitalized costs, I guess it's 5.77 per gross ad. But if you take into account that the SBC ads, if we use 100,000 round number, didn't have SAC associated with it. It looked like SAC was up closer to mid-6s on a comparable basis? Is that again just you're driving more boxes and DVRs and so forth? Could you give us a little more color on that? Thank you.

I think your analysis is pretty correct there. If look at -- if you just want to take piece parts and look at piece parts we certainly have some SAC that's in the mid -- we certainly have some customers that are in the mid-600 in terms of SAC. It typically would be a customer that's getting advance product like HDTV or DVRs. Typically a customer that we would expect lower churn and higher RPU on. On the other hand, we think it makes some sense -- we should also realize that for an SBC relationship our total overall SAC is lower, as a result of that relationship. So you look at that, you look at SAC and you say, balance that with the kind of customer you're getting. You track that customer for a period of time and make sure that you think you're making a good investment in that customer. In a sense our SAC is quite a bit -- from my perspective SAC is actually quite a bit lower than it was for us last year in the sense that we are not giving away $150 of free programming. So it shows up in RPU a couple bucks a month in RPU that we gain back where as last year that number doesn't show up on SAC, that number showed up in RPU as negative. Any time you give away free programming to some degree I look as that as an indirect cost in SAC and we don't have that this year. Second, obviously the SBC relationship we can do deals where somebody else is going to invest in the customer and that's a hedge for us, that can make some sense for us even though we make lower margins than on their customer and lower returns from the customer if we had less investment. So you look at -- and then the third thing is because we are leasing a fair amount of the equipment that we are doing now we had the ability in the future to lower our SAC. We have at least a trend that is out -- we at least have a mechanism that we put in place that can lower our SAC, in the sense that we would get that equipment returned. Most of the time we get that equipment returned and when we get that equipment returned we can redeploy it which reduces our SAC for the next customer. Again, that is going to be a trend that will see start affecting SAC, a little bit more each quarter. Before that its probably got a couple of years before you see the total affect of that. At least we put mechanisms in place to reduce our SAC.

Thanks for the comment.

I think we are -- again, I think we are more disciplined than many people in the market place today.

Thank you.

Your next question is from Jeff Wlodarczak of Wachovia Securities.

Hey, guys. Charlie, are you comfortable with your installer level currently and do you think you are able to meet strong demands at SBC or is that still something you're building?

No, I think that we, for the most part have our installation capacity where it needs to be. The thing that I'm most disappointed in today is that if you look at the margin erosion on -- primarily on customer care -- what's that? I don't know what the category is? Customer care and subscriber related expenses -- about half of that margin erosion is actually -- is really inefficiencies in our business. There's a number of factors there and some we can do some things about short-term sometimes it will take a little bit longer. But for example, SuperDISH where we gone into 143 local markets to do local/local, that's a relatively inefficient way to do it because we had a medium power -- low power/medium power satellite. So we had to put a larger DISH in and we had some switching that's involved there that makes that installation about $150 more expensive, which increases SAC. But on the inefficiency side it takes an hour or 2 longer on the installation. The switching causes more service problems and it becomes a bit more complicated. So longer term obviously you look would look at a new generation of satellites, but we have a satellite that's more powerful going up into September from [SES Americon] that will replace that satellite. We have some new switching technology in conjunction with that launch that will allow us to save on our installation time and safe on some of the technical problems that we have there that will make it a much more efficient operation for us by the end of this year. And then hopefully long-term to future generations of satellites to help do you things. The other -- when you hire new people or installers that are not as well-trained, they make more mistakes, you have more service calls where you go out a second time. So it takes awhile to train those guys. You have more vans that you have to -- that are nonproductive because you are not as efficient as you want to be. Your new call center, which we opened up one in Tulsa and your training is not as efficient. So those efficiencies, it takes awhile to get inefficient over a period of years and it takes a period of years to get efficient again. And again, about half of our inefficiency is something that I think that we as management have done a poor job and something that we can improve.

Charlie, you finished the quarter with roughly $1.7 billion in cash. What cash level are you comfortable with and what are you willing to take leverage to buyback stock at these levels?

Well, I mean I think we have to -- the thing is the answer that I will always give. But I mean everyday we analyze where we are in terms of what -- where interest rates are. Where the market is. Where our stock price is. What are other uses of the capital. Is there an acquisition that looks particularly attractive to us. Should we be repurchasing debt and lowering our leverage. Should we increase our leverage. Does dividends make sense based on current tax policy. All those thing we look at pretty much on a day-to-day basis. I think our Board has looked at that and decided that at least we want to be in the position to repurchase another billion dollars of our stock. We felt that the $31 price was an attractive price based on where we think we can go long-term with the customer. We think today the market is telling us that probably wasn't the right thing to do. But we think long-term that's the right thing to do. And our Board has looked at it and said that we should at least be in the position to continue to buyback stock. And whether we would leverage up to do that or whether we would not by stock or by just buyout existing cash and not deliver all our options for us. That we just look on a day-to-day basis and make decisions based on the best information we have at the time. If you can tell me what interest rates are going to be tomorrow and what our stock price is going to be. What our sales are going to be next year. All those things would go into how we make those decisions.

Fair enough. I will limit myself to 2 questions. Thank you.

Your next question is from David Shoeman of Bridger Capital.

Thanks. I have a few quick questions regarding your lease model. Is it fair to say, a customer who leases takes more equipment?

You know, I probably would have said that initially but I think that we've seen in the market place with a lot of offers of -- Cable pretty much will wire-up your whole house and DirecTV will do 4 receivers for free. Vis-a-vis the competition I'm not sure they necessarily take more equipment. But yes, in general, I would say the lease customer has more equipment than a purchase customer. Having said that, realize we have a technology where you can do 2 rooms out of 1 box. And so because of that our actual numbers of set-top box per home in a lease is probably a little less. So in a lease you can buy a DVR, for example, that gives you DVR on 2 TV sets even though it's only 1 box. So that's 2 TV sets with 1 box. So the number of tuners is higher on a lease, but the number of boxes is probably less.

Got it. And is it fair to say that based on current promotions you would expect a majority of your gross ads going forward to take the lease?

You know, I've always said I thought we would be about 50/50. I think the current promotion is geared a bit more towards the lease. And so I think that that's -- I think that we could be a little higher , a little lower than that. But because it's a bit more aggressive on the lease, I think the odds are that we would tend to be a little higher. But we don't -- you never know until the numbers are in.

So going forward --

We would like to be in the 50/50 range.

So going forward lease represents a higher percentage of your install base and they represent a greater portion of churn. You will save the cost of the recovered equipment times the number of subs that churn from the lease program, which seems like it could have a pretty big impact to free cash-flow as you look out a few periods?

Yeah, let's take a look at that. I mean if you're -- let's say a lease customer as an industry averages, let's say 650 bucks , a sale or lease customer with $650 in SAC and that customer churns on me after a year and I get the boxes back and can redeploy them. Let's say that there's $450 worth of equipment there. Right?

Yep.

The next customer, my SAC is $200, not 650. Right? Whereas my competition has got 650 on the next guy. Right?

Yep.

Now, Cable is in a lease model. Cable has always been in a lease model. So Cable has always had that advantage which is one of the reasons some of their numbers -- which is one of the metrics that we look at that makes some sense. So you run your model out -- when you run your model out, say 50% of our business, somebody mentioned was a lease and you run your model out and you don't get all your equipment back, but you get the vast majority of it back. You run your model out and you will see that over time your SAC, all things being equal, will come down vis-a-vis your competition. So we think we have put in place a discipline that makes some sense strategically even though there's no question your lease customer is going to churn a little bit more on you. But in theory you get more customers because you don't have a commitment and because of the economics you can suffer more churn. So as an analyst you have to be very careful about looking at raw churn numbers in a vacuum.

All right.

Because all churn is not equal and strategically you may suffer more churn and lower your retention marketing. You may increase your retention marketing to lower your churn. We can get our churn down to 1% a month. But we would bankrupt our Company. So I don't know exactly what the sweet spot is per churn and in terms of how much you spend on retention marketing. How much on a lease. We have our own theories about that that we evaluate and sometimes we get it better other times. But we have the ability to change and we find the trends change a little bit different than we can change our model.

On churn we don't have as much visibility as you do in terms of the quality or lack of quality on churn. When you segment your customers into A, B, and C customers, how do you think you are doing currently on churn?

Well, if a C customer -- I think we suffer higher churn in our C customers than we do in our A customers. Some of our churn today is probably based on poor decisions we made a year ago or 2 years ago. So it's not based on decisions we are making today. I think as an industry pretty much everybody has to go Social Security number and have credit today, we follow that model as well. That's getting our industry, our competition has been at it a little bit longer than we have and that discipline that they've put in place I think has really helped them a lot. Piracy is something where competition has done a better job than we have and we are going to suffer some inefficiencies as we go through the process over the next year to clamp down on our system, and that's going to help as well. So there's a lot of factors out there. But suffice it to say we would -- a $29-a-month customer who calls us 3 times a month is probably not as valuable to us -- in fact, we may give him the local cable companies number when he calls, as opposed to somebody who pays $99-a-year -- a-month for us who never calls. Right? So those customers are not equal. We would segment those to some degree and try to focus on that. When you do upgrade programs for retention marketing, if you do it across the board to all your customers, that's when we would start running a couple $100 million a month in retention marketing if we did that. Because you just can't segment it at that point because everybody is getting a deal.

Got it. Thank you very much.

Your next question is from Robert Peck of Bear Stearns.

Hey, Charlie, I just have a couple quick questions here. First of all could you give us a little bit of detail around the typical SBC customer? We were sort of calculating about a $60-a-month customer based on some of the numbers SBC has thrown out. I was also sort of wondering what sort of churn you see, if any, in the SBC customers? And what sort of cannibalism you've seen from current DISH customers?

I think -- again, I don't know specifically, but it wouldn't surprise me that the SBC customers -- 60 bucks to SBC, but it wouldn't be 60 bucks to us. Mike, I'm looking here. It wouldn't be 60 bucks of our RPU? Not on a monthly basis it would not be that high. So, second, there is some cannibalization of current customers or former -- or in some cases a former customer who bought into the -- cannibalization is only when somebody slips by through broad, in terms of, we don't allow them to sell to a current customer today. Or even a former customer for a period of time. But there's no question that there's some of that although, I would say it's probably not material at this point. And I think their customers -- I think they are like anybody getting new to the business are probably going through a little bit of growing pains in terms of distinguishing how to segment their market and credit checks and everything else. Because they may have a phone relationship with somebody, they may not go through the same level of scrutiny as we would. So the caliber of their customer that they get is I think is probably pretty widespread across the board. And I think that they have the ability to loosen that or tighten that up as they see fit to grow their business. We would probably not participate in quite as wide a range of customers they do based on our experience. But I think they are certainly off to a very solid start. My understanding is that their customers are buying bundled services from them. We are -- we don't have a lot of partnerships and when we do have one we work really hard at it . And we are working hard to make it work for them and for us and so far so good.

Two other quick questions. Can you talk to us about our replacement for Michael? And also I noticed there was an SES amendment. Anything material in there or any changes to the obligations of the $2.4 billion with SES?

Know on the second question.

Know on the second question. And on replacement, Mike is really irreplaceable so. But, yes, we are in the market for a CFO and if anybody wants to send me a name we are happy to look at it.

Thanks, Charlie.

In the meantime, Michael's responsibilities have been kind of partly laid out to about half a dozen individuals that will have an opportunity to step up and show it. I think one of the things, just in a general thought, but one of the other challenges, at least for me as CEO, is that we have a lot of new people that are getting responsibilities that are a pretty young team. They are talented. But it's kind of like a new freshman class on your basketball team, you have to go back and teach them the fundamentals before you get a championship team. And we are going to struggle through some of that for awhile, but you end up with a stronger team when -- that people have a lot of different skills that they have to step-up and do things that they otherwise weren't counted on to do. So some of the things I might take for granted from a fundamental point of view. They may not have had as much exposure to us it as the level of Michael McDonnell has and so you have to go back and retrain and talk about that. And for the most part they pick it up and if they don't you find somebody else.

Thanks, Charlie.

Your next question is from Craig Moffett of Sanford Bernstein.

Good morning, Charlie. Quick question regarding the share repurchase. Obviously with the backdrop of Cox having taken its company private there is some speculation that you are doing sort of a slow motion version of the same thing. Can you talk a little bit about what your appetite to take the company private might be at some point or whether at this point it's just opportunistic buying of the shares in the open market?

I don't want to get into speculation because I will have to answer questions forever about speculations. But I think that we are pretty upfront in the sense that we bought back $1 billion of stock at prices we thought were undervalued our Company long-term and our Board has said we can continue to do that. We are at least in a position to be able to continue to do that. Obviously, Cox is a different situation. They have a bunch of other divisions and I think it will be interesting to watch how kind of that plays out. It shows that they have a lot of confidence in their business. In a general sense the video business is one, it's one of those times where I think sometimes you have got to tread water. It's hard to know where you place your bet today as an investor because you have RBOCs and broadband and satellite companies and cable companies kind of all buying for the same thing. And this broadband kind of meshes together. How do you make that bet? I think the risk return ratio is probably more favorable for satellite companies given that there's some negative trends, at least on the video side for cable. I think that the valuations per subscriber and the CapEx and the way a satellite company scales on CapEx is materially different than cable. And customers continue to show and satisfaction poles, satellite companies run 1 and 2. And obviously, it looks like as an industry we are over 1.5 million customers over the first half of the year, positive. Cable is probably negative 6, 7, 800,000 for the first half of the year. I think the risk return ratio is probably a little bit better on satellite, which makes the Cox move a little bit surprising. But, you know, we are not always right and we don't place big bets very often, but we will tread water and see where the next opportunity is going to be. And when we feel comfortable with it that's where we bet.

Okay. Thanks. And if I can just ask a follow-up, a more privy question this time. Can you talk about your strategy for HDTV locals. And in particular I've heard some talk about possibly using the Sony passage technology as a clever way to get around some of the conditional access issues that would prevent -- that would otherwise prevent spectrum sharing with DirecTV. Have you made any substantive progress on spectrum sharing and what otherwise are your plans in HDTV locals?

I guess the short-term obviously we've been operating antenna where broadcasters are broadcastering our boxes are compatible with that and we have customers, that's a pretty good solution for them. That limits our market in HDTV. Obviously, not everybody can put up and offer an antenna and a lot of broadcasters are not broadcasting with enough power to reach the customer. Obviously, we are fighting for in the satellite home-viewer act to have the ability to offer high-definition television in markets where the local broadcaster doesn't. The Senate Commerce Bill kind of goes a long way towards that and pretty much directs the FCC to allow us to do that in 2 years. And I think the third avenue is the one you mentioned, I think you -- we would probably be pretty smart -- even though satellite has got lots of momentum today, I'm always paranoid and it would make some sense, possibly, to share spectrum. And we have not, I think it possibly could make some sense if you could overcome the conditional access and make sure that piracy and control of your customer and that the, neither company benefited them more than the other company then you could probably could look at that spectrum sharing. Absent spectrum sharing you take a look at what investment you are willing to make to do HDTV broadcasting yourself. I mean, DirecTV looks to be doing something through [Spaceway and KA Band] and that's got some positives and some negatives in terms of a way to do it. And so I think, while we haven't had detailed discussions about that with DirecTV, I will say that only because I've known those guys for so long that I have a much better relationship with those guys and find them to be pretty practical from a business perspective in a way that perhaps the previous Management of DirecTV was not. And so I would be cautiously optimistic that as long as we are doing great maybe there's not a big urgency to do that. But to the extent that if things ever slowed down in the satellite business you probably would see that happen. And I think it would be smart to do that more proactively because then your cable guys just don't have any advantage in HDTV at all. And now what do they do? And that would be a scary thought for me if I was a cable guy that satellite actually had HDTV from a local basis and also a national basis.

Thank you.

Our next question is from Benjamin Swinburn of Morgan Stanley.

Thanks a lot. Good morning, guys. Can you hear me okay? Yep. Direct made a couple of comments on their call that their subscriber trends and sort of regionally and that certain, I would say ethnic tiers have done better than others. Could you give us a little color? Assuming you looked at Time-Warner and Comcast numbers who have sort of joined the ranks of the media [inaudible] they charter the world with some significant sub losses. And Q2 being typically seasonally weak both you and Direct had a big or at least some acceleration from the first quarter. Any color there on sort of where the subs are coming from, what kind of packages they are taking, any changes you could talk about there?

Well, I think in general DirecTV does better in the Northeast. It's a function of look angles. Their satellite is at an angle. We do a little bit better in the West.

Operator -- we are getting some static on the line.

The static is actually coming from Mr. Swinburn's line.

Maybe he can hang up then. Maybe you can put it on mute again.

All right we'll try it now. So in generalization we do a little bit better in the West than the Northeast. They do a little bit better in the urban areas. We do a little bit better rural areas. That will change a little bit. I think that obviously a positive development for them is their settlement of NRTC and Pegasus. And that can't be good for Cable because now you've got 2 companies coming after for those cable companies with 2 companies coming after those customers. Obviously, to some degree I think we cannot count on the kind of percentage of the business that we've gotten in the past. Because obviously we have got the dominant share of last year or two as they haven't had the money to spend on acquisition, and now that will be a fair challenge for us. So that obviously is probably a slight negative trend for us in terms of subscriber growth in those areas and we will have to look at other areas to make that up. For international side, there continues to be satellite has a unique advantage because we can put up one international channel for the whole country. Cable has to develop capacity for a small niche and we just have an advantage as satellite companies so there's more opportunity there probably as well. But -- I think you will see some divergence between us and DirecTV. I think you already see it. They are going a little bit different direction than we are going. Obviously, there's a big section in the middle that we are both going to go after. But at the end of the day the real focus is cable companies and they have got 67 million subscribers. And if we are going to go out and get, grow our business we have go to go out and get customers, for the most part from those guys. It doesn't mean that we get it a DirecTV customer and it doesn't mean they won't get some of our customers. But the simple math is DirecTV has 13 million subscribers and Cable has 67 million subscribers. Odds are 5-to-1 or whatever it is we are going to get cable subscribers. And -- I don't know, their bounty programs are now 5, $600. They are still losing subs. Maybe they ought to pay $1,000 bounty. I mean, if the consumer is voting with their pocketbook and saying they prefer satellite. I don't think as an industry we are as good as we are going to get. So in that sense we feel pretty good long-term.

Your next question is from William Kidd of Vintage Research.

William, are you there?

Yes, good afternoon. Sorry about that. I guess, related to the conversation that you were just having, which is that DirecTV alluded to in their conference call about potentially cable getting more competitive in the second half, it might have been in boxes. I started to see some [inaudible] discounted at Comcast when a customer goes to leave, prices being halved in order to retain a customer. I guess how serious of an issue is cable increasing the bar? I guess my read is that to me they seem awfully conservative at least to the way they are trying to temper their territory. I guess, how do you feel about that cable outlook?

Well, I don't know what kind of pressures Cable is under and what disciplines they will employ. But clearly I just don't think that you are going to see a satellite industry get 800,000 subscribers a quarter without Cable reacting to that. And obviously they will react -- they are going to react with what they said I guess, with services, video on demand, phone, broadband, and then they will have to try to attack to keep customers. And one of the big problems is that only about a third of their customers have switched to digital, maybe 35%. And those numbers seem to be tailing off. They have a big investment based on a model that probably a vast majority of their customers would switch to digital. So I think it will be interesting on how they -- what strategies they employ, but I think they are clearly on the defensive.

My question is --

Obviously it could put pressure on the entire industry, right?

Right.

I think to some degree DirecTV has put pressure on the entire industry.

You can make short-term moves and that can influence subscriber editions, and subscriber losses. But in the long-term it's the fundamentals of the business model that are going to determine who does well and who doesn't. So if Cable wants to cut -- I haven't seen it but if Cable wants to cut in half what it charges the customer in order to retain them they can do that in the short-term. But in the long-term they are going to have to decide weather they want to make a profit in the business or not. And iff they do they can't continue to that. And the fundamentals of the satellite business are such that it's a more efficient way to deliver 0s and 1s to the home. Now, that may change over time because of new services that Cable as. But you can influence it in the short-term, but in the long-term the fundamentals of the business will have to take over.

And I think there's a limit to what Cable can do based on their debt loads. I think they can only they have got to show some -- of course, EBITDA is a funny number. But at some point they have got to show a free cash-flow number to pay back the debt. And so they can only cut so far. I think both DirecTV and EchoStar are fairly low leveraged and in a different position there. That's why I just say in general the safest -- I mean, I don't know the answer. I think that all its conversion and everything is going to be interesting, but probably the safer bet is satellite.

Let me switch topics here from your last question. In terms of the growth of the market place you've seen DirecTV obviously, we talked a lot about the retention and the ability to over churn. Skip that and if you just look at growth ads, DirecTV has done a good job with gross -- obviously building some growth ad growth, and obviously there's a higher SAC budget there. I guess, how important is it for EchoStar to kind of maybe increase it's relative market share in the gross ads of growth ads, and if it is important to vis-a-vis increase in the market share. I guess, what is the [inaudible] increment it will get more aggressive there. Because [inaudible] obviously if you go 3 quarters back DirecTV wasn't as aggressive. They weren't doing as well and you had a stronger position there on a relative basis.

I think it's a good question. I don't know if we have the answer to it. We are not pleased as Management to see our competition do 25 or 30% better each quarter than we do in terms of net adds. On the other hand, our strategy is not necessarily the most subscribers it is to build the most value in our share price. And I think you have to balance those competing strategies. If we own only 35% of DirecTV and we owned a programming company we would probably have a little different strategy than we do owning 100%, of our -- being a public company that's based on long-term. So we have to evaluate those things and try to make decisions that we thing are in the best interests of our shareholders long-term. And obviously, I think DirecTV is in the video business is the clear leader in terms of setting the benchmarks today. And I think they are directly forcing people to spend a little bit more money to compete with them. And I think we fall into that category of having to spend a little bit more money than perhaps we would like. I think over time the DirecTV Management will probably look at some of the things they are doing and probably instill a little bit of discipline -- a little bit more discipline than there maybe is today. But in general their strategy is working and I think that it bodes pretty well for us because we think we have got the fundamentals to be a low cost producer and we think that strong satellite industry in a sense topples over the cable economic model in a way that we will benefit without having to spend as much money as we otherwise would have. In other words, DirecTV if they are doing 450,000 subscribers a quarter is better for us than if they are doing 200,000 because that is 250,000 cable customers that aren't paying a cable company who are our major competitor. So I think we are pretty well positioned and the industry is going to go through some interesting times as people sort it out and people sort the economics out. But I feel pretty comfortable that we understand the economics, that we understand discipline, and when it's all said and done we will relative to everybody else be in pretty good shape. I don't know if we are going to be as good relative to an old company.

Your next question is from Tom Eagan of Oppenheimer Company.

Thank you. Regarding broadband, Charlie, could you tell us where you are now in terms of the technology or any new ideas about offering broadband and where you expect to be next year? And then as a follow-up on a previous question. Regarding the subscriber related cost that kind of rose up to a couple points higher than in Q1. Where do you expect that number to be at the end of this year? Thanks.

In terms of broadband we are making some small bets the satellite, that the SES Americon launches for us next month does have some broadband capabilities. We have not really picked a vendor for -- we think we have to go a generation beyond where that business is today. We are not totally convinced we can make an economic model out of it. So we are well-positioned to the extent that we can. But to the extent that there are other technologies in the wireless field and obviously our relationship with SBC they are also interesting. And we are treading water because we don't know about how it's all going to turn out. Other than we know that broadband certainly is the technology that's here to stay and definitely will have a convergence with what we do. But we also want to do it in an economical way that makes sense and there is going to be a lot of spectrum coming up over the next few years that is going to increase the wireless side of it. That's an interesting play. Obviously, fiber to the curb and fiber to the home are interesting technologies, but they're costly and unclear whether, unclear how that's all going to shake out. So we will continue to monitor it. I feel pretty comfortable as a company that we are pretty good looking at technologies and cutting through all the hype and really focusing on the economic model that we think will work and today we are positioned to continue to look at that. Cable you might think is well-positioned, but they've spent 65, $85 billion for a technology that may not be the right one long-term. So that's scary. On the other hand, it may be the right technology and they may have the best platform and they may be well-positioned. But boy it's certainly not -- if we talked about this a year ago you would have placed a bet on Cable and felt pretty good about it. Today you are placing your bet and your hand is shaking. So we will see. What was the other part of the question?

As a follow-up, Charlie, is it possible that you could have an arrangement with SBC where you could have one of your subscribers, take DSL, but not share any of the revenue from video with them?

Yes, it's possible. I think that we would look to -- we are not looking to reinvent the wheel. To the extent that SBC has a DSL network in place and we want to combine that with some video there are some kinds of video that makes sense coming from satellite like Monday Night Football. Some things that might make sense, like ordering an old movie that might make sense coming through DSL and we think there is a real marriage there. And that marriage might be in technology, which we have a pretty good technology company called HDS. Or some of that may be relationships and again, we are going to work hard with the SBC to whether something like that makes sense. And again, we would do that in a way that is beneficial to SBC and obviously we would do it only in a way that's beneficial to us. On the other hand, SBC may just decide to become a competitor long-term, right? There's no guarantee that ultimately they don't decide to go their own way, or any RBOC for that matter go their own way even though they are dabbling in satellite today. You don't know how those things are ultimately, those obviously risks. And then as far as the second part of your question about efficiencies. Again, I think that we've got -- obviously, I think we have room for improvement on our efficiencies and those efficiencies will drop to the bottom line. But it's not something that -- we are still building that installation network. We are still improving our customer service. We failed to a level on customer service that wasn't as good as it should be and so we spent a lot of time and money to get that back up, and I think we've seen some improvement in that. I think that the efficiencies will be something that probably you are going to see more in 2005 than in 2004. But that we have -- but something that we are focused on as a Management Team just like we are focused on RPU and when we focus on things we generally have pretty good results. But it took a couple of years for the efficiencies to manifest themselves and it took a couple of years to ween them out of the system. And in the backdrop of all that we are doing a card swap out and we're doing a new operating system on our IT systems. And so we are going through all that transition and when you do that you just have to have more people answer the phone because you are going to generate more calls because they are going to lose their card in the mail and so forth. And in some degree DirecTV has gone through the pain of doing that a couple years ago when perhaps they weren't as efficient as they would have liked to have been. But they got that to a large degree behind them now and now they got the benefits of that. We started 2 and a half years behind them and we are probably running about a year and a half or 2 years behind them in some of the operating systems, too.

Thank you.

Our next question is from Jason Bazinet of J.P. Morgan.

Hi, good morning. I think about a half a year ago I asked this question and I think, Charlie, you just kind of dismissed it as maybe silly. I was just wondering if I could revisit the topic of you guys rolling out voice-over IP terrestrially. Because it just seems to me that the numbers aren't huge out of a company like [inaudible]. I think a large part of their impediment is that they don't have a customer relationship. And as broadband adoption grows handily as it is why couldn't you augment your video offer with a voice-over, why doesn't that make more sense than using a broadband offer and spending a lot of capital. You are looking through the world at a very satellite excentric. World view as opposed to just looking at the cash-flows that might be available on the voice side?

I think the problem is we don't control the pipe from a voice-over IP perspective. It's strictly done through a broadband connection. To the extent that you can do it on a wireless basis, that might become more interesting.

Why do you need to control the pipe?

Well, because you don't always know that you are going to -- you don't know that, depending on FCC rulings and everything else. I wouldn't want to be AT&T and have the FCC rule that you can't suddenly -- you thought you had a pipe that you could use, but you can't use anymore, for that or anybody else. And so you don't know how that's all going to shake out. And secondly, there may not be any money in voice-over IP. It may be free. So then you're trying to figure out how to make money in free voice. So I wouldn't -- obviously, your idea 6 months ago is more logical today. I mean there's certainly trends that say that what you're suggesting might make sense. But if you're asking if we have any hardcore plans today, we don't. Are we looking at voice-over IP? Are we looking at broadband through power lines, and through wireless, and through satellite, and through phone companies? Yes. I will say it again. We are treading water because everybody has got opinions on where it's all going. But nobody has made a compelling argument to convince me that they know exactly where it's going. As a result of that we have a pretty clean balance sheet. We have got subscriber growth. We've got a relationship with our customers. We have an infrastructure in place to go into a person's home and wire things up and bill them and answer phone calls. And we will take a look and see what, before -- we haven't placed the $65 billion bet yet. And some of our competition has and that might have been -- it might be the wrong bet. And so when we get ready to place a $65 billion bet we're going to be pretty sure -- we don't gamble. Right? So in other words, when we place a bet we think the odds are in our favor. And today we just don't know. Other than we think in general, satellite is a pretty safe bet which is why we bought back some of our stock.

Okay. Thank you.

Your next question is from Vijay Jayant of Lehman Brothers.

Thanks. A couple of questions on SBC. One, in the future of SBC could the fiber network and -- what happens to an SBC DISH network customer? Do you [inaudible] in terms of the value of that customer?

Well, the customers at SBC kits today don't transfer with them to any kind of fiber network contractually. So that that customer would in a sense -- could with some monetary -- I mean gosh, you can negotiate a deal that would be beneficial to both parties. That customer also could end up being an SBC customer, could end up being a DISH customer. If that were to potentially happen. In other words, but it doesn't really work that way. The SBC wouldn't snap their fingers and have a fiber to the home video infrastructure tomorrow throughout their 13 state region any way. I think what you are going to see is see our relationship evolve. And again, because of the tremendous capitulary requirements that the mass require there's obviously, at least our hope is that the SBC relationship ends up being something where you end up negotiating a win/win situation to the partnership relationship. And some of their customers are getting video through satellite. Maybe most of their customers are getting through satellite and some of those maybe augmented through a fiber connection as well. Of course, obviously their end of the business, DSL economics, and phone economics are predominantly going to them. The video economics will predominantly go to us. That way we stay in our business and they stay in their business and neither company has tremendous capital cost and you get the benefits of bundling without having to do it all, without having to make the entire investment like the cable industries had to do. The best thing that can happen to an RBOC is the cable companies come under tremendous pressure from the debt leverage and can't upgrade their systems. Because then they lose, because the cable guys are potentially becoming customers and data customers that are more of what a phone company does. And so they have a real strategic reason to partner with a satellite company to make sure that the enemy, which in their case is the cable company, doesn't get off to a fast lead that it can't cover. It looked like cable was going to do that in DSL and now it's running more 50/50. That isn't bad for us. That's a good thing.

Charlie, just commenting on the SBC partnership again. If I'm an EchoStar customer today and I see the SBC promotion and I want to get the triple-play with DISH in it, does your economics as EchoStar change from that customer?

In general economics to us whether it's SBC takes -- does the customer or we do the customer it is about the same; about the same. I mean, obviously, we have a higher SAC and in our customer we have a higher return. We have a lower SAC and lower return in an SBC customer. But total economics are, at least today, are about the same. So, in other words, we had an SBC customer BS we would value that about the same as we would as somebody we sold to directly or through a retailer. That doesn't mean that won't change over time, but that's the way it is today it's about the same. And it messes up our metrics a little bit because RPU changes a little bit. Our expense line changes a little bit. So it gets to be a little bit harder to read it. That's why ultimately, I say it again, you have to go down the free cash-flow line. We were negative $31 million, it's nothing to be proud of. That's the line you have to go to evaluate our company. Some analysts ought to go out there and look at free cash-flow the way we define it. How much money you start with? How much money you end with? The last 3 years for every cable company and every satellite company and take a look at it. If you do that and look at those trends and look at you are probably going to feel pretty good about EchoStar vis-a-vis everybody else. Maybe not vis-a-vis an oil company.

Thanks, Charlie.

Your next question comes from Douglas Shapiro of Banc of America Securities.

Okay. Thanks. A couple of follow-ups, one on SBC. I'm just curious, is it commonplace for independent dealers in the SBC territories to sell the SBC bundle? And then on security, I was just wondering if you could give us an update on the time line of when would you complete the next security card swap out? And I was also curious if you thought that the DirecTV swap out of the P3 Stream or turn off of the P3 Stream had any impact in the market place during the quarter? Thanks.

I think, first of all the P3 Stream cut-off is a positive for the industry. Certainly has got to be a positive for DirecTV. They get customers who obviously were going to maybe were buying the basic channels and now will buy the package that they really were watching. Probably has a little bit of a short-term negative impact on us and a good long-term impact on us. But the short-term negative obviously the pirates now go -- all the pirates that were pirating the P3 Stream goes to our system and pirates our system which contributes to churn and puts a negative impact on RPU when they do that. So on the positive side we are not able to go out and make the investment knowing that if we secure our system, which we believe we can, that we will in fact, reduce churn and increase RPU when we do that even though it will make a major investment to do that. We are doing that in phases. We are doing it very similar strategically as to how DirecTV did it in terms of you don't change the streams in all your channels at one time, but you phase that in and make sure that you got your system working right before you turn everything off. It's at least a 1-year process for us. We are doing it now, right? And we have upgraded a fair amount of our base out there. But until you turn the stream completely off somebody can still get an old box from whatever. So we are probably a year away from fully securing that system. Although, many of our channels will be secure long before then, like premium channels, international channels and things like that, so. It's a major positive development that DirecTV has secured their system. In the long-term. I don't really know how it affected them. I mean some people believe that that may have driven more customers to them. It may have driven some of their current customers to them who weren't paying and are starting to pay. And of course, they would have had very little SAC with that customer. I don't really see a lot of evidence of that myself, only DirecTV could answer that. I think they are doing a great job in the market place. They are hitting on all cylinders and they are putting the message out there that satellite TV is comparable from an expense side to cable, in other words, it's free. And it's 100% digital and people are responding by upgrading their home video systems to 100% digital systems without the cost of going to a digital tier through their current operator. People weren't that satisfied with their cable companies.

And then on the SBC question, I don't I'll just repeat it. I understand that some independent dealers in the SBC territory they are selling the bundle; is that right? And if so is that common place?

Yeah, they haven't started yet. We have independent retailers who we have an agreement with SBC that will allow our independent retailers to sell the SBC bundle. That still hasn't been rolled out. I think it's scheduled to -- roll-out third quarter sometime? Probably realistically it will be the fourth quarter before that rolls out and that's strictly making sure we can interface the IT issues with SBC to be able to do that.

Great. Thanks a lot.

Your next question is from Lara Warner of Credit Suisse First Boston.

Great. Thank you. Just 2 quick questions. First, Charlie, you've been talking a lot about balance of retention and churn. For the back part of the year given most likely to get a response out of the cable industry. Do you feel you've reached that balance out your current churn and retention spending levels? Particularly since I think you said '05 is probably where you start to get some efficiencies? And then last question on SBC, they have maintained that part of your agreement is if they were to build out a fiber network there is an additional relationship with yourself such that they may be able to by programming at least from you for those subscribers. Is that accurate? And if you could fill in a little bit of the gaps around the nature of that agreement that would be great.

Well, it depends on how they were to bundle that video, but in some cases the answer to that would be, yes. And again I think that, all I can say is I think -- it -- the SBC relationship has the potential of being one of the great relationships of all time from a partnership perspective. On the other hand, you have technologies moving in a lot of different directions and SBC is going to make their own -- they are quite a bit bigger company and they are going to make their own strategic calls for their own survival. And they also may be in a situation as big as they are that there are cross purposes at what we do. And so what we tried to do in our relationship is to make sure that both companies are focused on making their relationship work. And that the first stab at everything we do is to make sure that we can both go in the same direction. And make sure that that may make it an economic deal for everybody. A lot of business in life is shaking hands with somebody and trusting them that they are going to act in good faith. And with SBC it's been a pleasure because with their Senior Management Team it has been that kind of relationship so far. It doesn't mean that that's going to continue forever, but it's off to a very solid start in that sense. We are a realist. We know that they have issues they have to look at. They know we have issues that we have to look at. All we do is explain to them our perspective, they explain their speculative, and you try to find a common ground. And that could include DISH Network video service through some of their fiber in the future. Retention marketing again, our best guest is we have kind of the right balance for that. So having said that, what you don't know is how many customers -- for example , a customer can call us today and get an upgrade for sometimes for a relatively low investment on their part they can get an upgrade to DVR and HDTV box or something like that. So our systems we have in place we think we kind of have the right metrics to do that and how we segment and how we do that. How many people will call us is a function we don't know. Generally -- We are not out there with the mass blanket free upgrade for 4 boxes to everybody. If they call us up and do that. Because, again, one is you lose total control of your base when you do that. And, two, you do have a new technology called MPEG-4 coming next year that the extent that you start upgrading people this year, you are going to upgrade them again. You could be in a situation where you spend hundreds of millions of dollars on retention marketing this year only to spend that plus even more for the same customer next year. So you have to be very cognizant -- and MPEG-4 is probably the last tentacle upgrade for a long period of time. MPEG-2 has been around for 10 years. MPEG-4 is going to be around probably 10 years before it has to be changed out. I think you have some strategic things you have to think about in how you do that. We've been a bit more cautious. History may show that that's a good decision or may show that that's a bad decision. Once you have spent a bunch of money, you may lose it forever. So what I get concerned about, I don't mind spending money on new satellite that has a life of 15 years. And I can figure out how to get money out out of it, but I hate spending money on inefficiencies. We blew $30 million last quarter on inefficiencies and we are never going to get that back and I hate that. Some of retention marketing if you're not careful can be money lost forever.

The general trajectory given that the SAC reductions appear to be fairly certain is that at least on the margin more of that will probably fall into the free cash-flow line versus large further upticks in retention generally speaking?

I would say that we have greater opportunity to improve our margin going forward than make it worse. Now, I'm not making predictions on what's going to happen, I just say we have opportunity. Whether we execute it as a Management Team is a whole other question.

Okay. Great. Thanks.

Operator, I think we will take one more question.

Your final question comes from Tom Watts of SG Cowen.

Hi, Charlie. In your opening comments you highlighted the importance of free cash-flow and you mentioned that inventories is one factor that hit cash-flow this quarter. We also saw higher CapEx related to you said both the digital home plan and also satellite costs. What should we look for for, in terms of -- should we look at similar levels of CapEx for future quarters and when are we going to see free cash-flow response? Part of the inventories, but other than the one time inventory reset what should I be looking for in free cash-flow?

Well, first the major negative was working capital to free cash-flow and that, we will care -- we are not going to get into the situation we did last year where we are running out of inventory. So we will carry fairly high level inventories throughout the rest of this year more than we would like to. And in part because we have several different models we don't no exactly which one customers are going to -- it's unclear to us exactly whether they would like the 2 tuners or 1 tuner systems or DVRs versus standard boxes. So we are carrying a little bit more of each than we probably otherwise would. That is probably a 2005 benefit. In terms of CapEx, I guess in general the trend in that has been up. We would spend CapEx on, I think there's CapEx in the IT side that we get good efficiencies. I think there is CapEx on new satellites where we would get efficiencies. Where we think we can run a model that we get a great return on that we will spend the CapEx and then in general Capex has probably been trending up. And that's probably realistic considering -- I think we probably, are confident enough about our business going forward that we were probably more optimistic about a more willing to spend more CapEx money today than maybe we were a couple years ago when the recession was kind of there and we weren't sure exactly what was going to happen. We kind of spend CapEx when we get confident and we are a bit more confident than we were last year.

Great. Thanks.

All right. That's it.

I think that's it. Thanks for joining us everybody. I guess the next call will be somewhere probably in the early November time frame.

We are going to give you a free pass to call Michael.

I will just be listening the next time. So with that I think we will end the call.

All right. Thank you. Thanks to all of you.

This concludes today's conference call. You may now disconnect.