DISH Network (DISH) - 2024 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Disclosure Regarding Forward-Looking Statements Forward-looking statements are subject to risks and uncertainties, with actual results potentially differing materially due to factors like the EchoStar merger and competition - The company identifies key risk categories that could cause actual results to differ from forward-looking statements, including risks related to the merger with EchoStar, intense competition in Pay-TV and Wireless, operational performance, reliance on third-party providers, cybersecurity threats, substantial debt, and the need for additional capital[5][6][7] Item 1. Financial Statements The financial statements reveal a significant decline in financial position, with assets decreasing, liabilities increasing, and a net loss, raising substantial doubt about the company's going concern ability Condensed Consolidated Balance Sheet Summary (As of June 30, 2024 vs. Dec 31, 2023) | Balance Sheet Item | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $2,008,471 | $2,343,661 | | Total Assets | $43,286,892 | $51,413,031 | | Total Current Liabilities | $6,666,654 | $7,592,166 | | Total Liabilities | $41,782,948 | $34,182,475 | | Total Stockholder's Equity (Deficit) | $1,503,944 | $16,792,174 | Condensed Consolidated Statements of Operations Summary | Income Statement Item (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $3,568,270 | $3,911,577 | $7,208,159 | $7,868,559 | | Operating Income (Loss) | $(31,771) | $206,334 | $(5,792) | $529,757 | | Net Income (Loss) | $(211,824) | $222,424 | $(222,055) | $465,662 | | Net Income (Loss) Attributable to DISH Network | $(211,849) | $200,323 | $(225,728) | $423,028 | Condensed Consolidated Statements of Cash Flows Summary (Six Months Ended) | Cash Flow Item (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | $703,711 | $1,349,816 | | Net cash flows from investing activities | $161,532 | $(2,054,511) | | Net cash flows from financing activities | $(1,000,883) | $(42,072) | - The company states that substantial doubt exists about its ability to continue as a going concern, lacking cash for Q4 2024 operations or the $1.983 billion debt maturing in November 2024, and is actively discussing funding sources[32][33] Note 1: Organization and Business Activities DISH Network operates Pay-TV, Retail Wireless, and 5G Network Deployment segments, with significant early 2024 asset transfers to EchoStar, and management concluding substantial doubt about its going concern ability - On January 10, 2024, DISH transferred significant assets to its parent, EchoStar, including wireless spectrum licenses and the EchoStar XXV satellite, with a net carrying value of $12.003 billion, recorded as a dividend, and assigned a $4.7 billion intercompany loan to EchoStar[25][26] - On March 12, 2024, DISH sold its 700 MHz spectrum to EchoStar for approximately $1.037 billion, using the proceeds to repay the $951 million balance on its 2 3/8% Convertible Note[28] - As of June 30, 2024, the company had 8.074 million Pay-TV subscribers (6.076 million DISH TV and 1.998 million SLING TV) and 7.281 million Wireless subscribers[36][38] Note 8: Long-Term Debt and Finance Lease Obligations As of June 30, 2024, DISH reported approximately $25.0 billion in long-term debt, including a $1.983 billion maturity in November 2024 and a $4.7 billion intercompany loan to EchoStar, with fair values significantly below carrying amounts Long-Term Debt Summary (as of June 30, 2024) | Debt Instrument | Issuer | Carrying Amount (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | :--- | | 5 7/8% Senior Notes due 2024 | DDBS | $1,982,544 | $1,885,796 | | 0% Convertible Notes due 2025 | DISH | $1,957,197 | $1,416,091 | | 3 3/8% Convertible Notes due 2026 | DISH | $2,908,799 | $1,827,540 | | Intercompany Loan 2026 Tranche | DISH | $4,767,289 | $4,767,289 | | Total Long-Term Debt & Finance Lease Obligations | | $24,986,948 | $19,624,639 (debt only) | - In January 2024, a $4.7 billion intercompany loan tranche was assigned to parent company EchoStar, making it an external obligation of DISH Network to its parent[99][114] Note 9: Commitments and Contingencies The company faces significant 5G network deployment commitments requiring additional capital for 2025, potential liabilities from the AWS-3 auction up to $1.892 billion, and ongoing litigation including patent infringement and a data breach class action - The company has met its 2023/2024 5G deployment commitments, covering over 200 million Americans with 5G VoNR, but will need to raise additional capital to meet its June 14, 2025 final build-out requirements[41][119] - The company faces a potential liability from the AWS-3 auction, where Northstar Wireless could owe up to approximately $1.892 billion and SNR Wireless up to approximately $1.029 billion depending on re-auction outcomes[124][126] - DISH is a defendant in multiple patent infringement lawsuits from entities like ClearPlay and TQ Delta, concerning features like AutoHop™ and satellite technologies, with many cases ongoing and uncertain outcomes[138][145][177] - A class action lawsuit was filed against the company related to a February 2023 cybersecurity incident, alleging deficient security and failure to protect customer data, with an uncertain outcome and potential liability[140][149] Note 10: Segment Reporting For Q2 2024, Pay-TV generated $668 million operating income on $2.68 billion revenue, while Retail Wireless and 5G Network Deployment segments posted widening operating losses Segment Performance (Three Months Ended June 30, 2024 vs 2023) | Segment | Revenue 2024 (in thousands) | Revenue 2023 (in thousands) | Operating Income (Loss) 2024 (in thousands) | Operating Income (Loss) 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Pay-TV | $2,676,284 | $2,975,140 | $667,797 | $720,792 | | Retail Wireless | $891,531 | $928,241 | $(121,362) | $(112,499) | | 5G Network Deployment | $34,892 | $19,079 | $(578,206) | $(401,959) | Segment Performance (Six Months Ended June 30, 2024 vs 2023) | Segment | Revenue 2024 (in thousands) | Revenue 2023 (in thousands) | Operating Income (Loss) 2024 (in thousands) | Operating Income (Loss) 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Pay-TV | $5,402,862 | $5,947,271 | $1,338,040 | $1,396,025 | | Retail Wireless | $1,797,381 | $1,903,107 | $(195,779) | $(130,706) | | 5G Network Deployment | $63,820 | $37,986 | $(1,148,240) | $(735,562) | Management's Narrative Analysis of Results of Operations Management discusses declining consolidated revenue and operating losses driven by subscriber losses and 5G network investments, reiterating substantial doubt about the company's going concern ability and urgent need for capital - Management reiterates the going concern issue, stating the company lacks cash for Q4 2024 operations or the $1.983 billion debt maturing in November 2024, and is actively discussing options to raise additional capital[247][255] - The company highlights significant asset sales and transfers to its parent, EchoStar, in early 2024, including wireless spectrum licenses and a satellite, executed to manage capital and debt obligations[233][234][236] - The company achieved its 5G network deployment milestone, covering over 200 million Americans with VoNR, but capital expenditures are expected to increase to meet 2025 build-out requirements[245][253] Pay-TV Segment Analysis The Pay-TV segment faces intense competition, leading to subscriber decline, though Q2 2024 net losses improved to 104,000, with revenue decreasing 10.0% to $2.68 billion and operating income falling 7.4% Pay-TV Key Metrics (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Subscriber Losses (in millions) | (0.104) | (0.294) | +64.6% | | DISH TV Net Losses (in millions) | (0.182) | (0.197) | +7.6% | | SLING TV Net Additions (Losses) (in millions) | 0.078 | (0.097) | N/A | | Pay-TV ARPU | $108.42 | $104.07 | +4.2% | | DISH TV Churn Rate | 1.39% | 1.51% | -0.12 pts | | DISH TV SAC | $938 | $1,169 | -19.8% | - Competition remains intense from established providers and direct-to-consumer streaming services, leading to cord-cutting and cord-shaving, with programming costs expected to continue increasing[285][291] - The decrease in gross new DISH TV subscriber activations (down 36.7% YoY) was attributed to lack of demand, shifting consumer behavior, lower marketing spend, and emphasis on higher-quality subscribers[301] Retail Wireless Segment Analysis The Retail Wireless segment improved Q2 2024 net subscriber losses to 16,000 due to a lower churn rate of 2.93%, but faces challenges from a widening operating loss of $121 million and the conclusion of the ACP program Retail Wireless Key Metrics (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Subscriber Losses (in millions) | (0.016) | (0.188) | +91.5% | | Gross Subscriber Additions (in millions) | 0.606 | 0.711 | -14.8% | | Wireless Churn Rate | 2.93% | 4.54% | -1.61 pts | | Wireless ARPU | $35.91 | $36.37 | -1.3% | - The federal Affordable Connectivity Program (ACP) funding concluded on June 1, 2024, impacting approximately 387,000 ACP subscribers, with a risk of deactivation in the second half of 2024 despite migration efforts[328] - The significant drop in the wireless churn rate was positively impacted by the completion of a subscriber migration off T-Mobile's TSA systems and a strategic focus on acquiring and retaining higher-quality subscribers[327][338] 5G Network Deployment Segment Analysis The 5G Network Deployment segment reported a Q2 2024 operating loss of $578 million, a 43.8% increase, driven by higher operating costs and depreciation, requiring more capital for 2025 build-out 5G Network Deployment Financials (Q2 2024 vs Q2 2023) | Financial Item (in thousands) | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $34,892 | $19,079 | +82.9% | | Total Costs and Expenses | $613,098 | $421,038 | +45.6% | | Operating Loss | $(578,206) | $(401,959) | -43.8% | | OIBDA | $(312,286) | $(278,475) | -12.1% | - Operating costs increased primarily due to higher lease expenses for communication towers and other network-related costs as deployment expands, with certain personnel costs reclassified from SG&A to Cost of Services[361] - Depreciation and amortization expense increased by $142 million YoY as more 5G network assets were placed into service, and this expense is expected to continue increasing as the buildout progresses[362] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[384] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[385] PART II — OTHER INFORMATION Legal Proceedings This section refers to Note 9 of the Condensed Consolidated Financial Statements for detailed information regarding the company's ongoing legal proceedings - For information regarding legal proceedings, the report directs readers to Note 9, "Commitments and Contingencies – Contingencies – Litigation" in the financial statements[386] Risk Factors This section incorporates by reference the detailed discussion of risk factors from the company's most recent Annual Report on Form 10-K for the year ended December 31, 2023 - The report incorporates by reference the detailed discussion of risk factors from the company's most recent Annual Report on Form 10-K[387] Exhibits The report lists filed exhibits, including Section 302 and 906 certifications by the CEO and CFO, and financial statements formatted in iXBRL - Filed exhibits include CEO and CFO certifications as required by Sarbanes-Oxley Sections 302 and 906, as well as iXBRL data files for the financial statements[388] Signatures The report was duly authorized and signed on August 13, 2024, by the President and CEO, EVP and CFO, and SVP and Chief Accounting Officer - The Form 10-Q was signed on August 13, 2024, by the company's CEO, CFO, and Chief Accounting Officer[390]