DISH Network Corp. (DISH) declared financial results for the first quarter of 2011. Quarterly GAAP net income was $549 million or $1.22 per share compared with a net income of $218.2 million or 52 cents per share in the prior-year quarter. First quarter of 2011 EPS of $1.22 was well above the Zacks Consensus Estimate of 68 cents.

This fabulous performance was primarily attributable to higher total revenue and lower subscriber promotion subsidies, which declined by a whopping 27.7% year over year.

In another major development, DISH Network and its sister concern EchoStar Corp. (SATS) have settled all their pending legal battles with TiVo Inc. (TIVO) related to patent infringement. DISH Network and EchoStar will pay $500 million to TiVo, of which $300 million will be paid upfront and the remaining $200 million will be paid in six equal installments during 2012-2017.

Quarterly total revenue increased 5.4% to $3,220.6 million, from $3,056.7 million in the year-ago quarter. This was mainly due to an increase in subscriber related revenue.

However, the first quarter revenue fell below the Zacks Consensus Estimate of $3,235 million. DISH Network gained 58,000 net subscribers during the reported quarter, which raised its total subscriber base to 14.191 million on March 31, 2011.

Segment wise, Subscriber related quarterly revenue was approximately $3,195.7 million, up 5.3% year over year. Equipment sales & other revenue was $15.9 million, up 14.9% year over year. Equipment sales, services, and other revenue from EchoStar was $9 million, up 21.5% year over year.

Average monthly subscriber churn rate in the first quarter of 2011 was 1.47% compared with 1.40% in the year-ago quarter. Average revenue per user (ARPU) in the reported quarter was $75.39 compared with $71.18 in the prior-year quarter. Average subscriber acquisition cost in the same quarter was $725 compared with $741 in prior-year quarter.

In the first quarter of 2011, Subscriber-related expenses increased 3.2% year over year to $1.7 billion, caused by higher programming content costs and expenses related to call center operations. Subscriber acquisition cost decreased by 13.9% year over year to $354.6 million. Depreciation and amortization expenses were $228.1 million, down 4.7% year over year.

General and administrative expenses grew 6.7% year over year to $159.8 million on higher personnel costs and professional fees to support the network. Quarterly operating income increased by a whopping 115.2% to $985.4 million, while operating margin rose to 30.6%, from the year-ago level of 15%. Accordingly, first quarter of 2011 EBITDA was $1,226.1 million compared with $697.5 million in the year-ago quarter.

During the first quarter of 2011, DISH Network generated $742.6 million of cash from operations compared with $592.3 million in the year-go quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $509.7 million compared with $325.6 million in the prior-year quarter.

At the end of the first quarter of 2011, DISH Network had $2,571.7 million of cash and marketable securities and $6,227.6 million of outstanding debt on its balance sheet compared with $3,164.9 million of cash and marketable securities and $6,514.9 million of outstanding debt on its balance sheet at the end of fiscal 2010.

Recommendation

We maintain our long-term Neutral recommendation on DISH Network. Currently it holds a short-term Zacks #3 Rank (Hold) on the stock.

 
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