EchoStar Corp (SATS) 2012 Q2 法說會逐字稿

Good afternoon, everyone. My name is Sarah and I'll be the conference operator today. At this time, I'd like to welcome you all to the EchoStar Corporation Q2 2012 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)

I would 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 second quarter 2012 earnings call. I'm joined today by Mike Dugan, our CEO; Ken Carroll, CFO; Pradman Kaul, President of Hughes; Mark Jackson, President of EchoStar Technologies; Anders Johnson, President of EchoStar Satellite Services; Grant Barber, CFO of Hughes; Dean Manson, Executive Vice President, General Counsel, and Secretary; and Tom McElroy, Controller. As you know, we invite media to participate in listen-only mode on the call and I 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 risks and factors, please refer to our annual report on Form 10-K and our quarterly report on Form 10-Q. 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 report and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.

Let me now turn it back to Deepak.

Thank you, Dean. We'll start with comments by Mike Dugan. Mike?

Thanks, Deepak, and welcome everybody to today's call. We're all pleased to have delivered a strong quarter and I'd like to highlight some important events. First, a few financial highlights. Second quarter 2012 revenue was $806 million, a 38% increase over revenue of $584 million in the second quarter of 2011. Net income attributable to EchoStar shareholders was $35.7 million compared to $18.5 million for the second quarter of 2011. Earnings per share on a fully diluted basis rose to $0.41 from $0.21 in the second quarter of 2011. From a liquidity perspective, we once again ended the quarter in strong financial shape with $1.6 billion cash and marketable securities.

Now for a few highlights from our different businesses. EchoStar XVII, our Ka-band satellite built by Space Systems/Loral was successfully launched by Arianespace. The Ariane 5 rocket lifted off July 5, 2012 from Europe's space port in French Guinea. The rocket left the spacecraft in geosynchronous transfer orbiting shortly thereafter it was successfully placed into its permanent geosynchronous orbital slot of 107.1 degrees west. All deployments and transfer orbit operations have been completed successfully and payload in orbit tests have progressed nicely. We expect to begin commercial operations by the end of September. The satellite with JUPITER high throughput technology will enable Hughes' fourth gen satellite internet service which is designed to dramatically internet browsing performance and support high bandwidth applications such as video and music. HughesNet Gen4 customers will be able to obtain faster speeds and a very high download capacity so they can experience internet access at its fullest.

Hughes new order input continued a strong pace in Q2. We had significant orders in our North American enterprise business, including National Oilwell Varco, [Route 44], ConocoPhillips, Blockbuster, and [Explorer Map]. Key orders in the international business were received from the outset Camelot, Telmar Brazil, and other entities in India. This strong order activity resulted in a healthy nonconsumer order backlog of $968 million at the end of the second quarter of 2012. Hughes also ended the quarter with approximately 626,000 subscribers on the US commercial -- or consumer service. Our Brazilian subsidiary was awarded an orbital slot at an auction conducted in August last year by Anatel, the Brazilian telecom regulator. We've since completed the prerequisites and executed the license agreement with Anatel on May 4. We are currently at an advanced stage of negotiations with potential partners for a joint venture to provide DTH service and are looking forward to expanding our business in one of the fastest growing regions in the world.

Our ESS business secured significant orders from Harris CapRock Government Services and Americom Government Services. These bring the contract backlog in our Satellite Services business from satellites in orbit and under construction to $1.8 billion as of the end of second quarter, thus continuing our strong visibility into future revenues. Within ETC, we launched the PrimeTime Anytime and Auto Hop features for the XiP Whole-Home DVR system recently delivered to DISH Network. These leading innovation solutions have been driving new customer acquisitions for DISH over the quarter. We launched a new two tuner HD DVR platform meeting with the latest performance features and price targets for the market in Canada. The Canadian market through Bell continues to see steady growth for our set-top box business with all shipments supporting HD broadcast at this time.

We continue to expand the SlingPlayer ecosystem of devices to view TV and DVR content remotely. Sling launched the SlingPlayer for connective device apps on Western Digital Live, the popular internet streamer plus storage product. Slingbox customers can now receive their place shifting video through the WD Live Media Streamer. Sling also expanded its geographic distribution by launching Slingboxes in Singapore. The Slingbox Pro HD is now available online and in popular retail outlets in Singapore. Sling also released a major update to its DISH iPad apps with significant improvements to design, performance, and feature set. Customer adoption and response has been very positive.

We also launched -- ETC also launched the world's slimmest digital video recorder for UK's Freeview service, the highly anticipated Ultra Slim Box. A Freeview Plus HD Ultra Slim Box offers consumers subscription free TV with access to 50 high quality channels plus four in HD. All of the above technology and service announcement positioned us very well for revenue and margin expansion in the near and longer-term.

Finally, just a statement, as you may know, there was an abnormality on Monday evening with the proton launch of two Russian federal launches satellites. A malfunction in the upper stage appears to have left the satellites short of their intended orbits. While the investigation into what caused the malfunction of the upper stage has already commenced, it appears certain this will cause a delay of some sort in the scheduled September launch of EchoStar XVI. EchoStar XVI will therefore be placed into short-term storage at Space Systems/Loral's Palo Alto facility pending results of the failure investigation and an understanding of the future launch date.

We're now ready for question-and-answer's part of the call. And I'll turn the call over to the operator to conduct the question-and-answers.

(Operator Instructions)

Amy Yong, Macquarie.

Pradman, I think when you were at Hughes, you talked about providing longer-term guidance with JUPITER, I think something like EBITDA doubling over a few years. Is that still the case? And then also, how close are you to inking a deal with Brazil? It sounds like a potential partner could be Viva.

Yes, but we were, as an independent company Hughes, we had given the long-term guidance, a five-year guidance. Obviously now that we are part of a larger corporation, those numbers don't mean as much directly anymore, but I'm sure as go proceed over the next few quarters, we'll reexamine our policy of giving long-term guidance and let you folks know. On the Brazilian thing, Ken, you want to comment?

Yes. So -- this is Ken.

You've got to clarify her question. Is she talking about Hughes Brazilian or is she talking about the --?

Yes, that's a good point. Amy, are you talking about the Hughes Brazilian broadband venture or the EchoStar DBS venture -- DTH venture?

If you could comment on DTH and then maybe broadband, so both?

Pradman, why don't you go ahead and comment on broadband first.

Right. We -- as you know, currently we have a subsidiary in Brazil that focuses on the enterprise business and that business is doing very well. We continue to look at the potential of starting a broadband consumer service business in Brazil, but at this stage have not made enough progress to publicly talk about our efforts there.

As to the DBS business as we talked about in my initial comments, we continue to be excited about the DTH potential in Brazil. And we've been hard at work at several options for partnering or forming joint venture. These options have been based around working with a partner with significant in-country sales, marketing, and distribution experience that we think will be nicely complemented by our strong set-top box and satellite systems knowledge. Due to the confidential nature of these discussions, we don't have anything further to disclose on this call.

Chris Quilty, Raymond James.

Just can you give us an update on the status of -- forgive me if I butcher it, [Ketsat], and where you stand on the provisioning of the satellite.

Well, Ketsat continues to be fully functional. We hold it in reserve for various potential backup. We also will not likely deploy Ketsat until things get resolved on the EchoStar XVI launch. And so for right now we're in great shape there, but unfortunately we are going to be slightly delayed because Echo XVI.

Okay. And switching over to the HughesNet business, it looks like subscribers were down about 8,000 sequentially. Can you talk about what you're seeing in the business in terms of churn either on older legacy Ku-band services, SPACEWAY, competition, or general economic conditions?

Okay, would you like me to handle that? Okay. Basically, Chris, if you look at it sequentially, you're right, we're 8,000 subs down, but as you know on a seasonal basis, the Q2 is always the lowest quarter that we have. So we made our plan, our gross acquisitions are continuing to be on plan and strong, so we have no -- we haven't seen any slowing down of the market in that regard, and are very hopeful that once we launch the JUPITER Gen4 services that we'll be able to accelerate the acquisition of subs.

Right. And can you give us also an update on wholesale distribution efforts with DISH and DIRECTV, where you stand in terms of actually deploying customers?

Yes, all of that will start once we start service with JUPITER -- with the Gen4 service in -- at the end of September as Mike said. We have announced that DIRECTV is going to be a sales agent for us. We are in the final stages of concluding a wholesale deal with DISH and everything is moving on track in terms of the distribution channels that we are setting up.

Got you. Switching gear on the equipment side of the business, it looks like Bell Canada was up like 80% year over year, more than $40 million. Were there specific one-time items in the quarter, one-time shipments, or is that a more sustainable rate on a go-forward basis?

Could you restate the question? Sorry, we had some feedback we were trying to deal with and we missed the question. I apologize.

No problem. It looks like Bell was up about 80% or $40 million year over year. And I was just wondering whether there were one-time shipments in the quarter or is that a more sustainable level on a go-forward basis or what specifically was driving that growth?

This is Mark. I think the main thing that's driving the growth is they're going more to DVRs than non-DVRs, which is a higher price point unit. So we hope that it's sustainable over time, but business their fluctuates back and forth. But that's mainly where the growth is.

Okay. And I think you stopped giving specific disclosure on DISH Mexico, but is that venture still moving along?

Yes, I think we're fairly pleased with how things are going in DISH Mexico. We're doing a lot of different things that we haven't announced there yet, but basically what you'll see is they're going to go for a higher end customer with more HD in the future and that's fairly public record. So we've got to look for growth in the higher end of the marketplace.

Okay. And finally, on the Sling product offering, you had a couple mentions of new customers there. And I know you don't break it out on a line item in terms of growth, but is it fair to assume you're still seeing year over year growth in that product line? And if you can talk about where you stand in terms of chip set solutions and customers?

So we've announced and I think some of our silicon vendors have announced that they've done deals with us to help facilitate licensing Sling in those chip sets. So we hope that we're going to get more and more growth from other set-top box manufacturers and MSOs. We are working with MSOs, but it's really up to them to announce when they're going to be ready for service launch. And the retail product, we're going to do a refresh on here in the future. And we're excited about that, but we still see growth in the retail market also.

Okay. And there's also been some announcement by competitors of Sling-like functionality. Is it your position that, that is basically Company patented technology and should we expect any litigation around that?

I would just say that Sling has a lot of IP around their technology and that if anybody is out there that we feel is violating it, we'll have to look carefully at that.

(Operator Instructions)

Adam Spielman, PPM America.

Wondering if you could comment, the competing ViaSat product has been out for a couple of months. Just interested if you could comment on what you've learned or what's interesting to you about it? Do you think -- I think -- uptick has been maybe slower than people expected. Do you view that as any indication of the market or perhaps other issues?

I don't believe we have any better insight into ViaSat's subscriber numbers than what's already available in the public domain. Certainly I would say that the Hughes team as well as the EchoStar team continue to be very bullish on the need for satellite broadband within the US and the JUPITER/Echo XVII footprint. I can tell you Pradman and his entire team are incredibly focused on getting the satellite ready and rolling out in a way that we think will be very successful. We certainly are putting a lot of effort into ensuring the introduction and the launch as well as all the distribution partners are in place to make it very successful fourth quarter this year. And I don't think I want to say anything more about our competitor's performance.

Okay. And then, just one follow-on. Can you just remind us, have you said anything about where you expect 2012 CapEx to fall out? Obviously, you've spent a large chunk of it with the recent launch, but there's still another launch to come later this year.

We certainly have additional expenses. I don't know if the guys have the details that they can provide, but --

Yes, if I could interject. In the Q we have disclosed this, Adam. It's $124 million to go for Echo XVI and Echo XVII

That was for both?

Yes, that's correct. About the same for each of them. I think it's $61 million and $63 million.

There are no further questions at this time. We turn the call back over to presenters for closing remarks.

Okay, we might as well terminate the call then.

Okay. Thank you, everybody, for participating.

Thanks a lot.

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