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Echostar Corporation (NASDAQ:SATS)

Q3 2011 Earnings Call

November 7, 2011 1:30 pm ET

Executives

Deepak Dutt – Investor Relations

Dean Manson – Senior Vice President, General Counsel & Secretary, Hughes

Michael T. Dugan – President and Chief Executive Officer

Pradman P. Kaul – Director

David J. Rayner – Chief Financial Officer

Anders Johnson – President

Paul Orban serves – Senior Vice President and Controller

Analysts

Amy Yong – Macquarie

Jason Bazinet – Citigroup

Michael Gertsner – MSD Capital

Christopher Little – Longfellow Capital

Kenneth Miller – Nokomis Capital

Operator

Good afternoon. My name is Adrian, and I will be your conference operator today. At this time, I would like to welcome everyone to the EchoStar Corporation Q3 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) Deepak Dutt, Vice President, Investor Relations, you may begin your conference.

Deepak Dutt

Thank you, operator and a good day everyone. Welcome to EchoStar’s third quarter 2011 earnings call. I’m joined today by Mike Dugan, our CEO, Dave Rayner, CFO, and assistance of Ken Carroll, 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, 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?

Dean Manson

Thank you, Deepak and good day everyone. All statements we make during this call that are not statements of historical facts, 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, please refer to the front of our 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 reports 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.

Deepak Dutt

Yeah. Thank you, Dean. And we will now start with comments by Mike Dugan. Mike?

Michael T. Dugan

Thank you, Deepak. Welcome everybody to today’s call. We are pleased to have delivered a solid third quarter with Hughes results now included for the fourth quarter. While revenue increased significantly from last year, as would be expected with the inclusion of Hughes, it was somewhat dampened by the continued weak sales to DISH Network. Equipment sales to DISH in Q3 were down about 14% from last year, but were at 25% improvement over Q2.

Even with the DISH decline, EchoStar continues to see improved sales from other customers and we’ll talk about that in a little bit. We reported a net loss for the quarter as compared to net income for last year primarily as a result of higher interest expenses related to the Hughes acquisition, as well as tax provisions related to tax gains on our TerraStar investment.

As many of you are aware, we closed on the Hughes transaction on June 8 of this year. Their strong North American consumer service business combined with global presence in over a 100 countries greatly enhances our growth opportunities in the coming years. These attributes combined with our existing satellite expertise and fleet presence, our set-top box technology, Sling and Move networks capabilities, all make for a very powerful combination.

Integration activity is well underway with the objectives of accelerating growth in our company and improved profitability.

Now, let's address a few other highlights. On September 29 EchoStar Satellite was launched successfully on schedule and we expect it will be placed in service in the near future all testing to date has been extremely positive.

We also have two satellites currently under construction, EchoStar 16 and Jupiter-1. EchoStar 16 is a BSS satellite scheduled for launch second half of 2012 and it will be leased to DISH Network. Construction of Jupiter-1, our new high-throughput KA band satellite is progressing very well and on schedule spacecraft thermal black testing is in process, the project in total is on schedule and we expect to launch in the first half of 2012. We will use Jupiter to expand and enhance our Hughes’ net consumer subscriber broadband Internet service in North America and to service future enterprise customers.

Hughes’ new order input continue at a strong pace in Q3 significant orders in North American business included Murphy Oil, the Social Security Administration, the US Government Education Training Network or GETN, Friday (inaudible) and various other orders from Defense and Intelligent Agency.

Key International orders were from the African Development Bank, Avanti, BP, Telemar Brazil, and SCP, Mexico. This strong order activity resulted in the non-consumer order backlog of $1.1 billion going into Q4. In addition, we had another $1.1 billion of contract to backlog in our ESS business thus continuing our strong visibility into future revenues. Hughes also ended the quarter with 12% growth in its consumer base over the end of third quarter last year.

Hughes announced significant enhancements to use net service to bring faster speeds and a richer Internet experience to existing customers. This included browsing and download performance from improved online customer experience and an increase in the daily download allowance for all service plan.

We’ve also introduced various TV to use tools and services to services to help subscribers take advantage of all these improvements and maximize the online experience.

We also announced the new Hughes Cloud Services & Hosting Solution for businesses of any size in any industry. This turnkey offering brings EchoStar (inaudible) of experienced managing Hughes data streams and broadband service to cloud computing across the entire business platform.

Hughes are now fixed first shipment of advances KA band gateway equipment and satellite terminals to all our Satellite Communications Company, Yahsat based in Abu Dhabi. The shipment of four-system gateways network control center in these order of KA band terminals to be used by Yahsat to provide its “YahClick” next-generation, high-speed satellite Internet service, that’s expected to launch in early 2012. The new service has been specifically developed to bring high performance broadband access to unserved and unreserved region of the Middle East, Africa and Southwest Asia and is on target to reach 26 countries.

Through the Hughes Brazilian subsidiary, EchoStar was selected as the highest bidder for the right to select two out of four orbital positions in recent Brazil orbital slot auction, both of these selections are subject are in going challenges by other bidders and we expect those challenges to be resolved in the coming weeks. With this win, the company looks forward to expanding its video and data service offering in one of the fastest growing regions of the world.

While EchoStar technologies business continues to experience reduced sales to our largest customer DISH Network, we are seeing progress with sales to other customers. Our relationship with Unity Media, the German cable crop operations of Liberty Global continued to be strong and we have several trials underway and are in development with US based cable companies in Telcos.

In addition, Sling launched the latest SlingPlayer retailer App in the Android market and Slingbox owners can now expand their TV experience to their android devices and take advantage of the higher performance screen resolutions and video quality related to Android devices can deliver.

We also received $552 million of cash from TerraStar in Q3 representing repayment of various debt facilities. In addition, we received $77 million subsequent to September 30, 2011 further strengthening our cash position enabling us to aggressively pursue some of the growth opportunities talked about before.

Before we open up this to questions, I want to take a moment and thank Dave Rayner for his long and extended service to DISH Network and also EchoStar in various capacities from CFO at DISH to the integrated companies that taken over the CFO roll here at EchoStar in the last month. Dave worked very hard with me on the acquisition of Hughes and the road show and so on, and he’s certainly going to be missed. However, we got a great replacement in Ken Carroll who will succeed Dave as CFO in the following few days.

Ken is well known in the satellite industries, joined EchoStar in August 2010 as COO of our EchoStar Satellite Services and since June, has served as Executive Vice President of Business Development and International for EchoStar. Ken is a 20-year veteran in the Satellite TV and Satellite Broadband industry has previously served as CFO of Liberty Satellite & Technology and direct-to-home satellite TV provider, PrimeStar. Immediately prior to joining EchoStar, Ken was President and COO of WildBlue Communication. I'm certain that Ken's vast experience provides him with the skills and capacity to take the CFO role here, and I'm looking forward to continuing to work with Ken as we also deal with some of that business development work that Ken's got underway.

We're now ready for question and answer part of the call, and I'll turn the call over to the operator to conduct the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Amy Yong from Macquarie. Your line is open.

Amy Yong – Macquarie

Hi, thanks. It seems like margins are a bit weaker in the FSS business. Does this have anything to do with your decision to shift down the IP delivery service in the summer? Then also, can you talk about your two overall thoughts that you won in Brazil, what kind of challenges are you facing and is the idea to replicate at Dish Mexico model in that region?

Michael T. Dugan

Well, as the satellite services, I think there is several factors. One is, we’ve renegotiated some of our agreements with DISH Network or bring in new satellite into play and although ViP-TV, I think you’re talking about that we announced, we terminate service had a minor impact in that, I don’t believe it was significant.

As to Brazil, we’re certainly looking to partner with the strong partners in the Brazilian market to do something very similar to what was done in Mexico, with Dish Mexico that is the model that we’ll be pursuing. And again, there has been some objections raised on both the filings in Brazil, but the team is working through that and I really don’t have anything further to be able to announce at this time.

Amy Yong – Macquarie

Okay, thanks.

Operator

And the next question comes from the line of Jason Bazinet from Citi. Your line is open.

Jason Bazinet – Citigroup

Thanks. I just have three quick questions. Was there anything unusual that happened on the SG&A line in the quarter related to integration costs or do you sort of feel like this is sort of a one time, or a good recurring number? The second is on the Hughes consumer side; it didn't look like you added any customers. I was just wondering is that, at least sequentially, is that correct and is that, is anything unusual going on there? And then third; do you guys provide any updates, I have enough to do on the number of dish Mexico's suns that you have? Thanks.

Michael T. Dugan

Let me try and answer some of those. I’ll let Pradman answer the Hughes consumer question in the second.

Jason Bazinet – Citigroup

Sure.

Michael T. Dugan

But In regards to the Dish Mexico subscribers, we have never disclosed a Dish Mexico number, that’s up to Dish Mexico doing and they will do in the normal course through their regulatory filings. But they continue to have strong subscriber growth. On the SG&A, there is nothing specific for the quarter that’s high necessarily.

There is certainly some opportunities I think we have as we continue the transition to drive that number down or the big increase if you look at – there's been some increase in sales and marketing spent specifically at Hughes, as well as at EPC as we’ve gone through some sales efforts in regards to continue to grow the business. But I think there is an opportunity to get some synergies there, but I don’t think there is anything unusual. Pradman, do you want to answer the Hughes consumer question.

Pradman P. Kaul

Sure. So you are right, at the end of Q3, our global subs are essentially flat compared to the second quarter, but we are very pleased with our gross adds in Q3, they were close to the highest we’ve seen so far. But we saw, so although we saw a strong growth of 16% in consumer service revenue Q3 or in 2011 or Q3 2010, however our churn into the third quarter was higher than in the past, primarily because of the involuntary service terminations for credit reasons which we believe has been driven by the very difficult macroeconomic climate, so we’ve introduced several enhancements to the pre-activation process including more detailed credit assessment and I'm beginning to see our churn beginning to decline, and so we are very positive about our future growth of this business.

Jason Bazinet – Citigroup

Great. Thank you very much.

Operator

Okay. The next question comes from the line of Michael Gertsner. I don’t have the company, but your line is open.

Michael Gertsner – MSD Capital

Hey, guys how are you?

Michael T. Dugan

Good morning, Michael.

Michael Gertsner – MSD Capital

Yeah I guess to start, I wondered if you could provide any clarity sort of one of the line Jason was asking about with the SG&A that it seems like there might have been some non-recurring or maybe some acquisition related effects running through operating income and net income, maybe especially some significant purchase counting adjustments in Q3 and also I wondered if there might be some fees and expenses related to both EchoStar and Hughes deals that might be following through. And further I think I heard Mike you mentioned Terrestar effect of the tax rate but maybe you guys could give me a little more clarity on to the tax situation of the company on a more normalized basis?

David J. Rayner

Yeah Michael, it’s Dave Rayner. On a couple of things, there weren’t any material deal related cost to either Hughes or TerreStar they got included in the third quarter, but clearly going forward there are items that are related to purchase accounting specifically the cost of the acquisition into the intangibles and a significant increase in amortization of those intangibles which obviously will be recurring item going forward.

In regard to TerreStar taxes, obviously we had a taxable events with the repayments of the debt components that we got repaid in the third quarter and obviously that will happen again in the fourth quarter as we continue to received payments.

From a tax standpoint, we have bought quite a bit of the debt at significant discount to face. So there is quite a bit of gain related to that and with the tax flow event of that being repaid, we had a tax provision that was required.

On a more normalized basis going forward, yeah, you’re going to have fluctuations quarter-over-quarter just given the complexity of the business from a cash paid tax standpoints. I don’t anticipate happening any cash taxes other than may be some capital gain related to the cash field for quite a bit of time probably at least another four to five years before we are back into a cash tax payer on the normal course. And I am speaking there obviously federal that doesn’t cover state more foreign.

Michael Gertsner – MSD Capital

Is that data any royalty or is that also due to the accelerated depreciation for all the new satellites that you guys will be launching?

David J. Rayner

Both.

Michael Gertsner – MSD Capital

Okay I guess on a related question, trying to understand the normalized earnings power here on that. You mentioned you’ve launched QuetzSat and you also have EchoStar 16 and Jupiter 1 going up next year. Is there a way that you can help investors to mention broadly you know the earnings power incrementally from these various launches that should began to express itself and also how the new satellite sort of fit into the overall deployment of the fleet.

David J. Rayner

Yeah and If you think about QuetzSat; QuetzSat is designed as a replacement satellite, although as we put in the queue, we’re currently looking at alternative uses of QuetzSat, given the slots that we have acquired and we’ll continue to acquire. So we're always going to be looking at the fleet in comparison to the over slots that we have in the business opportunities that we have to generate revenue had maximize value. And so in the case of Jupiter, obviously the Jupiter expansion of revenue and earnings power, it is pretty straightforward, it gets into the acquisition of additional consumer subscribers. In the case of Echo-16, it will be purely incremental that satellite has been totally pre-leased to DISH Network, and when that goes into service next year, we clearly expect a step-up in revenue and earnings as results of that.

Michael Gertsner – MSD Capital

Okay. And can you help us may be dimensionalise how significant the step-up there might be Dave, or is there a way for us to sort of framework to evaluate that?

David J. Rayner

No. To answer your question…

Michael Gertsner – MSD Capital

But how many incremental trends, Anders, that maybe we can make our own process?

David J. Rayner

The contract is based on a rate of return that’s guaranteed from DISH. And so based on the final, constructed and launch cost, we will generate a [grid] upon rate of return on that expenditure. And I don’t know, I don’t think we have disclosed what that rate of return is. But it is fairly typical kind of return for the satellite industry.

Michael Gertsner – MSD Capital

Okay. And I guess you mentioned QuetzSat is a replacement, there you have opportunity as you are exploring the redeployment of some satellites there?

David J. Rayner

Yeah. I mean QuetzSat is reflexible and Anders can certainly try in here, but QuetzSat just is a design has a lot of flexibility and we can put it any number of different places. So as we look at our Latin America strategy, it certainly make sense to explore all opportunities in terms of where we could deploy specific aspects. Anders, on this anything else you want to say that?

Anders Johnson

No, I think Dish Mexico is currently being provided surface off of other EchoStar assets and with QuetzSat now becoming available we are examining alternative machines for it. Whereas the interim assets, the currently providing the service have significant lives left in them. And so therefore that opens the door for us to evaluate other opportunities.

Michael Gertsner – MSD Capital

Understood, so I guess to fill in the blanks, there may be something where it fits with some of the [arable] thoughts you’ve been acquiring possibly.

Anders Johnson

Right.

Michael T. Dugan

Yes.

Michael Gertsner – MSD Capital

Understood. Okay, I mean maybe what I will do if I have one or two more questions, I’ll jump back in the queue, so other people can ask some questions too.

Operator

Your next question comes from the line of Christopher Little from Longfellow Capital. Your line is open.

Christopher Little – Longfellow Capital

Hi guys. Could you disclose what the gross ads and/or the churn was the Hughes broadband business, number one, and then could you also provide some commentary, you recently filed with the SEC to potentially use EchoStar III. Could you give a little more detail on what that might look. And then number three, could you also provide a little more detail on the renegotiation of dish contract that hurts the margins at EchoStar Services within the quarter, will that be one-time in your return to more a historical margins or should we look for lower margins going forward. Thank you.

David J. Rayner

In regards to the last one while renegotiations there are some things that happen in quarter more one-time in nature that really affect that margin more than anything else. So if you think about the overall mix I would now expect the margins to really change long term or even short term from that standpoint other than those that are impacted by the launch and utilization of additional capacity QuetzSat being a perfect example.

Anders Johnson

Regarding the FCC filing for Echo III, we are exploring a number of expansion opportunities for video business in South America, Echo III is currently available for redeployment and we commenced the discussion with the FCC about their willingness to allow us to use US-led space station in a non-US slot serving non-US territory, that’s really the – that filing with the FCC was intended to start a discussion, we are still considering various options with various assets in that part of the world.

Christopher Little – Longfellow Capital

And could we look at it as a similar situation to the DISH Mexico situation. In other words, is there enough capacity on EchoStar III that would allow SES Astra or you to provide similar capacity to what Astra is providing for DISH Mexico. And then just again if we could have the gross adds and/or churn for Hughes broadband?

Anders Johnson

I think the Dish Mexico has worked well for us, and it’s a structure that we are considering replicating in other parts of the world. The assets through which we’ll do it, we obviously have a preference to use our own assets first and a lot of the development activities allow us to use older more mature assets to start services in advance and say ordering a new satellite for a slot specific machine.

Michael T. Dugan

In regards to gross adds and churn as Pradman said gross adds were very strong for the quarter, and churn was up resulting in essentially flat subs, in terms of specific numbers no we’re not going to be disclosing those.

Christopher Little – Longfellow Capital

Then just a last question for Pradman, could you give us may be a timeframe you expect to get back to normalized levels of churn?

Pradman P. Kaul

We are working hard on figuring out how to reduce it as I mentioned, so far the first months results have encouraging. We are beginning to show improvements, but it’s very difficult to project and predict when we get back to normal, but we are working hard at it.

Christopher Little – Longfellow Capital

Thank you.

Operator

(Operator Instructions) The next question comes from line of Kenneth Miller. Your line is open.

Kenneth Miller – Nokomis Capital

Hello, I know you got in a couple questions about this already but I wanted to ask again about SG&A expense was quite a bit higher than the previous kind of combined run rate of two companies.

And your notes on a Hughes acquisition in your 10-Q, you mentioned $17 million of accruals for investment stock option awards liability and another $11 million in change of control bonuses, are there not part of SG&A this quarter because you didn’t mention them in your last Q and based on your SG&A expenses in the last quarter. They didn’t seem to be there I don’t know if it capitalized how is your part of SG&A this quarter?

Pradman P. Kaul

In regards to SG&A overall, as I said, when you look at the combined companies and obviously this is not something that we would do efficiently given that, we didn’t own Hughes last year, but certainly it’s logical, if somebody goes back and looks at the SG&A numbers for Hughes last year compare and add those in to our historical.

As I said, the primary reason is up its sales and marketing expense at Hughes is the biggest single change in SG&A between for the two companies on a more or less combined basis. In regards to the accounting for the unvested options, I’m going to let Paul Orban address that.

Paul Orban

Excuse me, this is Paul Orban. In the quarter, we would have had the amount that would have been earned, expensed. So those are being expensed over the life of those bonuses.

Kenneth Miller – Nokomis Capital

Okay, well if you accrued for them, I mean, they’d rather capitalize your expense, 2012... What's that?

Michael T. Dugan

Our expense, their expense has earned.

Kenneth Miller – Nokomis Capital

It is worth 28 million of what should be one-time change of control and stock option pricing related payments to former Hughes executives correct?

Michael T. Dugan

Correct. But there is an earn-out provision on those. So we did not go into purchase price accounting since there has to be service providers who are being expensed over the term of those bonuses and options.

Kenneth Miller – Nokomis Capital

Okay. If you look at Hughes, was the $28 million entirely in SG&A, this quarter or not?

Michael T. Dugan

No.

Kenneth Miller – Nokomis Capital

How much of it was in the quarter?

Michael T. Dugan

It would have been a relatively small amount compared to the overall number of SG&A.

Kenneth Miller – Nokomis Capital

Okay. So directionally this is going to be a consistent level of SG&A going forward?

Michael T. Dugan

I think the SG&A number that you have for the quarter is a fairly consistent number which is what I said earlier I mean certainly you’re going to have fluctuations overtime, I would fully expect that sales and marketing expense would go up from the launch of Jupiter and Hughes gets very active in terms of its marketing expenses. But for other than those kind of events and the incurrence of synergies, as we continue, they will achieve them, I don’t think it’s totally out of line now.

Kenneth Miller – Nokomis Capital

Okay. And that’s helpful. And on Jupiter on your last call, you said it was a possibility you could be launching before the end of Q1, 2012 and I would tell you mentioned you expect in the first half of 2012. Can you give us any further granularity and any kind of opinion on whether a launch for the extended Q1, 2012 is still possible?

Michael T. Dugan

No, if that was said it was a mistake as we stated in this call it’s the end of Q2, you have launched, you have in-orbit test, you have service launch, all those add together, you won’t see a service launched off of Jupiter until the end of Q2, beginning of Q3 total service everything complete. And I think they will launch before them.

Kenneth Miller – Nokomis Capital

I mean the actual digital satellite launch?

Michael T. Dugan

It will be definitely Q2 unless we see some delay that we don’t know about right now which has been pretty consistent. I don’t think we’ve ever said that it’s going to be Q1.

Kenneth Miller – Nokomis Capital

Okay. I mean just the rocket squashing up in the space not the actual service bring up.

Pradman P. Kaul

No, no, no. I understand what you’re saying, what I'm saying is I don’t believe we’ve ever said that whether it was a launch schedule in Q1.

Kenneth Miller – Nokomis Capital

Okay.

Michael T. Dugan

If it happened it was a mistake that’s all I can tell you. The space crafts never been planned for Q1 launch.

Kenneth Miller – Nokomis Capital

Okay. Next question is any kind of thoughts on what you’re going to do with your cash since you’re doing quite a bit back from TerreStar?

Michael T. Dugan

Well, again I think you see as acquiring slots of moving fairly aggressively in to South America and Brazil a lot of that will if we clear those slots and we did find the right partner, we will require significant cash to put a satellite under construction and start to build a business distribution and business plan there.

We are also looking at several other areas of the US, we are looking at options to build a second Jupiter spacecraft for South America and potentially for some additional service in the US, there is a lot of activities underway that we’re considering use of the cash.

Kenneth Miller – Nokomis Capital

You’re planning on not usually making more financial investments like TerreStar, but more satellite construction investments?

David J. Rayner

I think it’s safe to say that we will continue to evaluate all uses of our cash including as Mike said expansion of the business internationally as well as potential acquisitions and in the other uses of the cash, which we will evaluate based on the focus of generating shareholder – long term shareholder value.

Kenneth Miller – Nokomis Capital

Okay and last quick question…

Michael T. Dugan

I totally agree with Dave.

Kenneth Miller – Nokomis Capital

Last quick question, your DISH Network set-top boxes was up sequentially after being down quite a bit, but additional calls or reference having excess inventory any kind of directional comments on whether you think the inventory correction is past or kind of still to come in terms of your business with DISH?

Michael T. Dugan

Well, I think we’ve been relatively consistent on this Mark, I don’t know if you want to put a color but…

Mark W. Jackson

Well, a lot of the excess inventory is older generation stuff and they are primary selling HD. DISH continues to look for homes for some of their older boxes that are reflecting from the field, which gives them great cost savings. How they’re going to do, I think it’s going to be dependent on their first quarter promotion and how that’s going to affect our business our new set top box sale.

Now the other thing that is interesting, the industry is talking about as we do have some flooding in Thailand that is causing our (inaudible) throughout the industry especially in regard to getting hard drives in and other components based on that. So we're continuing to keep our eye on that to see if that’s going to affect our sales all in the coming quarters?

Michael T. Dugan

I think, I can say we're pretty encouraged by the current forecasting going on, but there's a lot of unknowns there, success and some of these component issues. So we’re just going to have to see how it goes.

Kenneth Miller – Nokomis Capital

Okay, that's all for me. Thanks very much.

Operator

The next question comes from the line of Michael Gerstner. Your line is open.

Michael Gerstner – MSD Capital

Hi, how are you doing guys? I hope you don’t mind one more than.

Michael T. Dugan

Absolutely not.

Michael Gerstner – MSD Capital

Okay. We recently read some comments by our Chief Product Officer as reported in cable industry press I guess, I call it one of the cable [rags] regarding a new network DVR being developed by EchoStar and mentioned it being placed with first customer for the new product maybe in late 2011. I guess, we also read about as you mentioned, probably on the call, Michael the Time Warner, cable Sling applications, and I think our understanding there is you’re actually embedding the Sling technology in their boxes perhaps instead of selling them Sling boxes for some sort of royalty type arrangement. I wondered if you could describe or maybe give us a little more color on these types of initiatives and so, if there is anything else like this going on with the company right now.

Michael T. Dugan

Well, I'd like to take the first one, and then Mark will take the second one.

Michael Gerstner – MSD Capital

Sure.

Michael T. Dugan

The first one, first of all, the gentlemen that discussed the technology being deployed is part of our advanced development organization and his titles are referenced to that organization not EchoStar in total. So, let’s be clear and (inaudible) out building a business. We are in fact continuing to do trials. We believe that over the top video and server based videos are very important enhancement to what we do on a day to day basis for DISH Network and for other customers and even the cable areas that we are moving into, so we’ve got a lot of visible acquisitions including move networks and so on that you guys know about. We are combining those assets along with Sling and along with some of the other activities to move very aggressively there. We were – are working on several trials, but nothing really to ship this year I guess, I would say. As to the discussion on embedding Sling, I’d like Mark to take that one; it’s his organization working with the cable guys.

Mark W. Jackson

Yes. The Time Warner did announce a trial with Slingbox externally. So went off and launched that trial. We heard to say, it got good results on that. I think it’s fair to say we’re working with Time Warner to see how we’re going to move forward and possibly the other companies through out the cable industry, but that’s all we have to report today until Timer Warner makes any further accounts.

Michael Gerstner – MSD Capital

I understood. I mean, I guess to step away from it, it seems like a lot of these kind of products are being discussed always from your historical customer DISH or at least in addition to them. Is it fair to say there has been a reasonable up tick in the interest and receptivity of potential other customers?

Michael T. Dugan

Well, I think yes, we are seeing a lot of interest in the Sling Technology, and I think you guys are well aware, because you are very knowledgeable about that the lawsuit of streaming video, outside the home and the programmers are taking very serious actions against that, and I think Sling doesn’t really do that. Sling allows you to view the video in your home over an IP connection with a totally different approach. And all of a sudden a lot of the people being challenged have decided that Sling is a very good concept both from a legal standpoint and from a technical standpoint.

Michael Gerstner – MSD Capital

That’s helpful. Last question if Mike, and you mentioned that you are going to evaluate other DISH Mexico type opportunities perhaps in South America is a way to maybe pursue your structure in South America. I guess, when we look at the financials of the company, we here about the number of subscribers that DISH Mexico has yet it’s sort of hard to see were that shows itself either on the income statement or on the balance sheet DISH Network at least in a way that you know expresses the operational progress there financially within the EchoStar financial statements. You feel you have good avenues to essentially realize that value over time either through you know longer-term cash distribution as this business matures or through [fusing] it together with other you know components of your business opportunities.

Michael T. Dugan

Yeah, Michael I think I understand your question. I’m not sure I’ve got a good answer for you. Certainly in the queue we disclosed what we are selling to that related party, DISH Mexico in terms of their actual operations. Obviously we are picking up our portion of share of net income below the EBITDA line. I understand how it’s difficult to try and identify that value creation there, and I'm not sure I've got a good answer. It's something that Ken and I will discuss and he can see if there is a way we can do something on a going forward basis, but just from an accounting standpoint, it’s tough to disclose. We don't have operational control. So we really don't have the ability to start disclosing their numbers for them other than what they have to do through regulatory filings in Mexico.

Michael Gerstner – MSD Capital

I understood thanks. Dave, I mean does that perhaps influence it all the way, you’ll think about setting up these structures going forward in other countries too?

David J. Rayner

I think we are going to set up the structures and Ken, since he's been actually involved in this he can add on to this. But I think we're going to set the structures, they're going to maximize value creation and whether that value creation shows up on a recurring basis in the financial statements or whether it’s something that they have longer term value, they gets distributed in the form of cash up on a dissolution or some other event of the venture, I think we’re fairly open to, but I’ll let Ken address that more if he chooses.

Ken Carroll

No. I think Dave is exactly right. I think a lot of it depends on what the market is like and who the potential partners are that we’re looking to do business with and what their needs are. So I think again, we’re going to try to structure any type of venture agreements with other partners that basically maximizes the opportunity for success in that marketplace.

Michael T. Dugan

And to be clear, I mean, we’re faced with multiple regulation environments that have little similarity to necessarily the way we do business in the US. So each opportunity has to be assessed based on the countries requirements and regulations.

Michael Gerstner – MSD Capital

That’s helpful. Thank you, Mike. Last question if I can, just to ask Pradman something before we have to go. Pradman I know, I guess when the acquisition of Hughes was announced by EchoStar, I know the EchoStar team member you were pretty enthusiastic about the opportunities ahead for what both companies could do together or what Hughes could do as part of EchoStar. In the last six months since the acquisition is closed, how do you feel that opportunities set is evolved or changed, do you feel like it is growing or has the market gone in a way do you feel like there is fewer opportunities, just trying to get a sense of your level of enthusiasm for the opportunities ahead here with Hughes?

Pradman P. Kaul

The level of enthusiasm is as high as it has ever been. There is a number of things that we are doing together that I think we could have been able to do by ourselves. Clearly, we are all excited about Jupiter-1 and want to get Jupiter-1 launched, but because of our association with EchoStar, once we do we hope to have a wholesale deal with DISH, which could generate significant subscriber additions. And also as Mike mentioned a little earlier, with the combined companies products and services and financial clouds, we are looking very aggressively at some international markets like Brazil and then one or two other parts of the world where we have the potential to launch Jupiter like satellites and services. These things obviously take time, they don’t occur in zero time, but if you take the international opportunities to enter consumer businesses with high throughput capacity slots you look at the Jupiter-1 potential multiplied by our association with DISH. And then in addition, we’re also working together on some products and services for Blockbuster, Blockbuster Digital and some enterprise opportunities in digital cinema all of which will pan out over the next 12 months or so. But all in all, I think, all the promises that we thought were possible are being I think from (inaudible) just going to take a little time to see the results.

Michael Gerstner – MSD Capital

Thank you, guys. Thank you for taking all my questions too.

Michael T. Dugan

Thank you, Michael.

Deepak Dutt

Yeah. I think this – if there aren’t any more questions I believe this brings us to the end of the call. Thank you all for participating and have a good day.

Operator

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

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