EchoStar Corp (SATS) 2011 Q4 法說會逐字稿

Good morning, my name is Sarah and I will be the conference Operator today. At this time I'd like to welcome everyone to the EchoStar Corporation Q4 2011 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 session. (Operator Instructions) Thank you.

I'd now like to turn the call over to our host, Mr. Deepak Dutt, Vice President of Investor Relations. You may begin your conference.

Thank you, Operator, and good day, everybody. Welcome to EchoStar's fourth-quarter 2011 earnings call. I'm joined today by Mike Dugan our CEO; Ken Carroll, CFO; Pradman Kaul, President of Hughes; Anders Johnson, President of EchoStar Satellite Services; Roger Lynch, Executive Vice President of EchoStar Advanced Technologies; Grant Barber, CFO for Hughes; Dean Manson, General Counsel; and Paul Orban, Controller. As you know, we invite media to participate in listen-only mode on the call and ask that you not identify participants or their firms in your reports. We also do not allow audio taping, which we ask that you respect.

Let me now turn this over to Dean Manson for the Safe Harbor disclosure. Dean?

Thank you, Deepak, and hello, everyone. All statements we make during this call that are not statements of historical fact constitute forward-looking statements, which 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 such forward-looking statements.

For a list of those factors and risks, please refer to our annual report on Form 10-K to be filed in connection with our earnings. All cautionary statements that we make during this 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 undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

That said, let me turn it back to Deepak.

Thank you, Dean. We will start the call now with comments by Mike Dugan. Mike?

Thank you, Deepak, and welcome, everybody, to today's call. This morning we released certain preliminary unaudited results for the fourth quarter and year ended December 31, 2011. We plan on filing our 10-K early next week. I would like to take a moment and recap the highlights of those results for you.

EchoStar Corporation today reported total revenue of $834 million for the first quarter ended December 31. A 62.6% increase compared with $513 million for the fourth quarter ended December 31, 2010. The loss before income taxes totaled $22 million for the quarter ending December 31, 2011, compared with income before income tax of $186 million during the corresponding period in 2010. For the year ended December 31, 2011 EchoStar reported total revenue of $2.76 billion, compared with $2.35 billion for the year ended December 31, 2010; an increase of 17.5%. Income before income taxes for the year ended December 31, 2011 totaled $26 million, compared with $289 for the year ended December 31, 2010. Again we are in the process of completing the full financial statements and the audit and expect to file the 10-K early next week.

Let's move on to specific highlights before we open up to questions and answers. First of all, Jupiter, now known as EchoStar 17, our KA band satellite under construction at Space Systems/Loral, has successfully completed the alignment and dynamic phase where the spacecraft is built up with all of its flight hardware and tested to confirm it can withstand the launch loads and acoustic environments seen during flight. The program now is in the final testing phase. Jupiter's Gateway system and user terminals have successfully completed their factory and field qualifications, and are now being tested over the EchoStar leased AMC 15K band satellite. Crossing these major milestones paves the way for the planned launch in the summer of 2012 of EchoStar 17, which will deliver high speed usenet, Gen 4 broadband satellite Internet service across North America. And provide the capacity to accelerate growth in our consumer (inaudible).

The EchoStar 16 spacecraft, which is a DBS satellite fully leased-to-DISH network, is under construction, also at Space Systems/Loral, and it successfully completed thermal vacuum testing. The program is now entering the alignment dynamic phase and it is on track for completion in the summer of 2012 and a launch sometime in the second half of 2012 aboard a Proton. You may recall that at the Q3 earnings call, we announced the award of certain orbital slots to our Brazilian subsidiary. We have since been in discussions with Anatel, the Brazilian telecom regulatory agency, and are optimistic that the license for the 45-degree west slot will be signed shortly. As a result, we are looking forward to expanding our business in one of the fastest-growing regions in the world.

Hughes' new order input continued at a strong pace in Q4. Significant orders in our North American enterprise business included [Rove] 44, GTECH, Best Western, Halliburton, Yum, Jack-in-the-Box, McDonald's, Sherman Williams, Conoco Philips, and various orders from defense and intelligence agencies. Key international orders were from JSC, Ascarda, RTCOMM, Nigeria, Saudi Ministry of Foreign Affairs, Vodacom South Africa, NOVIAsat Saudi Arabia, Avante, Camelot, and [Telemark Presidone].

This strong order activity resulted in a non consumer backorder of over $1 billion coming into 2012. In addition, we had another $1.9 billion of contracted backlog in our satellite services business from satellites in orbit and under construction, thus continuing our strong visibility into future revenue. Hughes also ended the quarter with an 8% growth in its subscriber base over the end of 2010.

DISH Network has announced the highly anticipated arrival of Hopper, the latest EchoStar-developed receiver platform. Hopper is a high-powered HD DVR with three satellite tuners that provides full DVR functionality to every TV in a consumer's home by communicating with the Joey, a compact client receiver located in other rooms of the home. The Hopper, the central TV recorder, has a 2 terabyte hard drive, allows recording of up to six HD channels at once by using the revolutionary feature PrimeTime Anytime. This feature gives the consumer instant on-demand access to eight days of primetime HD content in the top four local HD broadcast networks. DISH plans to make this new system available to consumers Q1 of this year.

EchoStar had a very successful turnout at the 2012 Consumer Electronics Show. Our Slingbox and USENET consumer offerings garnered much attention on the show floor and each announced industry-leading solution. The USENET Gen 4 demo showed the capabilities of the satellite Internet-powered home that will be realized with the EchoStar 17/Jupiter launch. This includes HD quality streaming video, voice-over IP, and very fast web browsing.

The Sling-loaded Broadcom system on a chip, or SOC solution, was named as the most interesting industry development at CES by Multichannel News. In addition, EchoStar achieved an industry first at CES with all three of its current operator solutions honored as innovation award winners -- Aria, a hybrid QAM IP solution for cable operators; XAP, the hybrid whole-home DVR solution identified earlier as Hopper and Joey for satellite operators; and MoveTV, an all IP video delivery solution that truly represents the future of over-the-top TV, including linear programming, cloud DVR, video on demand, and HD quality video and support for many devices, from an HDTV to tablets and smartphones, and a responsive and highest-quality possibility over low bandwidth, utilizing the adaptive bit rate technology developed by Groove Networks.

EchoStar also signed a new three-year receiver agreement with DISH Network. The new agreement provides a mutually beneficial foundation for the two companies to continue innovation in the highly competitive receiver manufacturing and deployment. The aggregate pricing is substantially the same as the prior agreement. The agreement went into effect on January 1, 2012 and expires December 31, 2014. Integrated efforts related to the Hughes acquisition continue to make good progress.

HSS accounting has been largely transitioned to SAP which is where Hughes accounting is done. The legal and HR functions are also integrated now under newly announced senior leadership. The use of EchoStar satellite fleet by Hughes is increasing. An example being the testing of EchoStar 17 ground equipment on AMC-15. And we will continue to look at other opportunities to leverage all of these assets.

I'd now like to highlight a few recent announcements relating to Sling. Sling Media's licensed software ecosystem is now supported on the Broadcom SOC and gives users a full-featured multi-screen, multi-platform viewing solution. Slingbox customers who have a Slingbox Pro HD or Slingbox Holo can now stream to the box Logitech Revue (inaudible) connect the device platforms and watch on a second TV. They can also stream to a player app developed with tighter Facebook integration. SlingPlayer for Verizon subscription services where users can go Slingbox hardware with a refundable deposit and a monthly fee with an available Android phone and SlingPlayer app. And finally, Chrome browser support for SlingPlayer on desktop platform, PC and Mac, which expands the reach of SlingPlayer for PC and Mac desktop platforms.

All the above are exciting technical achievements and service announcements position us very well for revenue and margin expansion in the near and longer term.

We are now ready for question-and-answer part of the call. And I will turn the call over to the Operator to conduct the Q&A.

(Operator Instructions) Anthony Klarman of Deutsche Bank.

Just a few questions on the upcoming launches. I was wondering if you can give us just the remaining completion CapEx that is required for those launches? And the timing around that -- when that will be spent. And when you expect the launch insurance premiums to get paid?

I think, as Mike mentioned, we've got Echo-17, which is scheduled this year with, approximately $110 million left on the [build]. And around $34 million on the insurance premium. Both of those will most likely be incurred this year. And on Echo-16, we have remaining about $65 million, and about a $30 million insurance premium.

Thanks. And then, just a question on the Hughes product and the cross-sell potential over to DISH. They recently announced a slight expansion to their agreement with ViaSat. Obviously, ViaSat is a little ahead in terms of the launch of their satellite. Just wondering what your thoughts were on where you were in the negotiations with DISH on potentially coming up with a similar agreement with them about how to roll out the new Jupiter capacity, once that's up and launched?

Obviously, we plan to be very aggressive in getting as much support from DISH as possible. Certainly if I was on the DISH side, with our delay or our being second as far as launch, I'd certainly want to support customers in the first and second quarters. We believe that with the fleet that we have available from Hughes, and our current plan, we are going to be very competitive. And we believe we'll probably work with DISH to provide them a little bit more customized solution than what they've launched with ViaSat. But we will just have to see how that goes. But I'm very optimistic we will have a great agreement there.

Thank you.

(Operator Instructions) Amy Yong, Macquarie Capital.

This is Andrew for Amy. I wanted to ask you a question about the Aria solution; if you could comment on maybe any customer interest in that?

We got a lot of interest at CES. I do not believe we have any agreements that we can discuss or announce right now on that platform.

Okay, thank you. And also, just to further expand on your comments regarding Sling, are you seeing any other large cable MSOs that are maybe following similar to [cable's] lead with subsidizing your Slingbox going forward?

Certainly those discussions continue. I think we are more interested, and I believe that the integration within Broadcom, and providing a solution that goes within future cable boxes is the main focus right now. We're very optimistic about that.

And certainly, the current evolution of over-the-top rights, and being able to move content out of the home, Sling provides an excellent platform for that. And that's become much more apparent just in the last three months. And certainly at CES we had great interest from almost every MSO about how can they use Sling to provide out-of-the-home solution.

Thanks. Sorry, just a follow-up on -- more of a modeling question. I apologize because I had to join late on the call, but can you maybe expand on the impairment charge I saw on the release, in the limited release?

Yes. That relates to the satellite that we have had on the books for a while, the CMB-Star asset. And we've taken a couple of write-downs. And over the last year we determined that, based on appropriate accounting methodology, that we need to take another write-down. So, effectively we've written that down $33 million, and have approximately $19 million remaining on the books for that asset.

Okay. Thank you for that. And again, this is a minor modeling question. Are you paying taxes in 4Q, for this quarter that just passed?

What is your question? Are we paying taxes?

Is there income tax? Are you expecting an income tax expense for the quarter?

Yes. When we file the 10-K, there will be a tax provision, yes.

Okay. Good. That's all I have at this point. Thank you.

(Operator Instructions) Chris Little of Longfellow.

Could you talk a little bit about any of the new thoughts on different uses for QuetzSat1, which DISH has talked about in their K? And if you could expand on maybe potential uses in Latin America for that satellite? Thanks.

First of all, it's QuetzSat, is the way we try to pronounce it. But I have to be honest with you, I still struggle how to spell it every time I write an e-mail. So, I have to reference that. It's a little bit of an unusual name.

We do have a contract with DISH where they will lease 24 transponders of QuetzSat once it's located back to 77 degree slot. However, doing proper due diligence, we're exploring other business opportunities with more attractive ROIs. That could cause QuetzSat to be located at a different orbital slot. So, right now we don't have anything else to announce on QuetzSat's final location. It is healthy, and fully completed testing.

Could you expand if one of those options is to potentially use it for the DISH Mexico service?

That's certainly one option that's under consideration and discussion, yes.

And just as a follow-up, since I haven't seen it in the release, and it took me a long time to get on the call, could you just talk if there were any net adds at the Hughes consumer broadband business in the quarter?

We went over that earlier. I think that is outlined in what was released, but --.

I didn't see it in the release, and I couldn't get on the call. So, if you could just help me out again, that would be great.

Pradman, do you want to answer that?

Yes, I don't think we normally -- I think our ending subscribers is the only number we usually give out. And that was 626,000 at the end of the quarter. And you guys can figure out the net adds because we gave you a number.

Can you just repeat what the absolute number was?

626,000.

So, it was flat again.

Yes, relatively flat, yes.

Can you comment on where the gross adds were in the quarter relative to the past couple of quarters? And was it a continuation of the issue of flexing out some bad subs? In other words, can you just comment on what the gross add momentum was in the quarter relative to the last couple of quarters?

Again, that is a number we don't usually give out in the public. But from a qualitative purpose, it's been right on track with the previous quarters. And we haven't seen any slow down in the gross acquisition of numbers that we're seeing, even to-date.

And maybe as a follow-up then, could you just comment on when you expect churn, which has been elevated the past couple quarters, to get back to more normalized levels?

We've seen significant improvement in that over the last few months, and getting it back to the kind of numbers we were used to seeing, I think, for 2012.

Thank you.

Josh Rosen of Act II.

Just had a handful of questions. Is there any impact or anything you can discuss in terms of the ViaSat lawsuit with Loral over the technology in ViaSat-1, whether that could affect Jupiter completion or the launch in any way?

Hi, this is Dean. We are certainly aware of that case, and tracking it closely. It was filed just recently, and we're not a party to the case. We don't have all the information about it at this point. But we are watching it closely because it relates to the -- or at least refers to the Jupiter or EchoStar 17, as we're calling it, satellite. But that's really what we have to say at this point.

Okay. And then also on the satellite side, with the SES, I guess they talked about there was an anomaly on -- I forgot which satellite that is that you guys fully lease from them. Could you just talk about what the impacts -- I think you guys renegotiated that lease, or are paying less on it? And then, when the contracts come up for renewal in the next couple years, what type of capacity do you expect you're going to need from SES on additional satellites?

We fully lease from SES the AMC-15 and AMC-16 satellites, both of which are experiencing the same anomaly. And the anomaly, while it's somewhat understood, it's unpredictable as to how it will behave over time. Our contractual arrangements with SES are such that, as the capacity available to us on those two satellites declines, so does our obligation to pay them for the capacity that we actually use. As far as replacing those satellites, or leasing additional capacity from SES, that's an ongoing conversation, and will somewhat be determined by the performance of the satellites over time.

Okay, great. And then, as a follow-up to the QuetzSat question, are you evaluating the orbitals, or the use of the orbital slots that you have in Brazil? Is that on the table? And is building another Jupiter -- 2, call it -- for Latin America on the table, as well?

I would say, first of all, as we stated earlier, we are very hopeful that we can resolve everything with Anatel, and get the license signed and fully in our hand. When that's done, we will certainly move aggressively to figure out how to get assets in place to start the service license. I can't speak to specific dates and times. Certainly in an ongoing business strategy, we are continuing to look at additional broadband satellite capacity. And South America would be one of those markets we are looking at, for sure.

Great. Thanks. And just one last question, if I could. I know it's early, but have you guys seen any impact on the consumer broadband side from ViaSat-I's initial sales in the past 1 or 1.5 months?

It is really early.

Mike, would you like me to answer that?

Yes.

The answer is -- we aren't seeing any impact yet. As late as yesterday, our subscriber gross acquisition numbers are right on track, and tracking the previous quarters. So, as yet, we are not seeing the full impact. We aren't seeing any impact yet. But you're right, as ViaSat gets their full roll-out done, I expect we might see a little slow down until we get our new satellite in operation. But as of today, we are not seeing any impact.

Right. The other thing that should be clear is -- right now, both ViaSat and the Hughes Network continue to have unique and separate distribution channels. And we just need to be clear, up until this point, DISH was not a distributor [of the new] service. And so, just the fact that they are continuing their agreement with ViaSat, there is not a lot of overlap in distribution at this moment.

Great. Thanks a lot.

Adam Spielman of PPM America.

I was wondering, just going back, there was a question earlier about what CapEx you still had left in the satellite for 2012? Just as we think about the additional directional CapEx components for 2012, is it correct to think that you'll start spending on Jupiter-2 as well?

I think that is highly probable, or possible, at least. We've got a lot of work to do as we work on these slots, and we work on who has final say-so and landing rights; all of that is pretty complicated. And it's feasible that we wouldn't start Jupiter-2 this year, but probably; we certainly hope to.

Okay. So, you've got $200 million-plus on Echo-16, QuetzSat. And then you've got potentially Jupiter-2. And you have your ongoing VSAT and maintenance CapEx. Is that the right way to think about it?

It's Echo-16 and Jupiter, which we've renamed Echo-17. What you just said doesn't include anything to do with QuetzSat. That was last [year]. (laughter)

Okay, thanks. And then just, again, can you remind us -- on your satellite that is going to go up, is it still July of this year? Jupiter-1?

We have two satellites under construction, and are planned to launch this year. One which is Echo-17 Jupiter. And we plan for that in the Summer of this year. And then we have Echo-16, which probably is late Summer or early third quarter. But the reality is, if you guys just pay attention to the launch manifests, you will see that there are things changing on a number of the launch providers. And we would love to have a date, and we would love to give you a specific date for launch, but that's just not possible with what's going on in the industry right now.

All right. And final one for me. Is the broadband product, can you just remind us, now that we're hearing a lot about what the actual product looks like out of ViaSat, and the download speeds, does the product look similar that you envision launching?

I think we believe that Jupiter is at least as capable as ViaSat-1, or Echo-17 if you want to go to the new naming convention. But that does not guarantee that we will decide to provide to the consumer exactly the same plan and performance. We certainly have our own thoughts about what is necessary to be competitive. The satellite's total bandwidth may be allocated slightly different to consumers and businesses and so on. So, we are not ready to really say -- yes, we will be identical to what ViaSat is offering right now.

Thank you.

Michael McCaffery of Shenkman Capital.

Can you guys provide the approximate revenue between the two operating segments -- the HSS and the Technologies LLC?

No, we don't break that out, at this point in time.

I was going to say, Mike, you will see that when we put out the 10-K in the segment analysis. And you'll see that as soon as we put that out. So, at this point, on this call, we can't comment on the segment numbers. But we'll get it out as quickly as we can. As soon as we file the K, you'll see the numbers.

Thanks.

There are no further questions that are queued up at this time. I will turn the call back over to the speakers.

Okay. We appreciate everybody joining us today, and we look forward to the next quarter's call. Thank you.

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