DISH Network (DISH) - 2019 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Disclosure Regarding Forward-Looking Statements This section outlines forward-looking statements and details various risks, categorized into Competition, Operational, Acquisition, and Legal/Regulatory, that could cause actual results to differ materially - The company identifies significant risks across several categories that could impact future performance[9] - Key competitive and economic risks include intense competition from traditional pay-TV and OTT providers, changing consumer behavior, and the potential for economic weakness to adversely affect the business[10][11][12] - Operational risks highlighted include rising programming expenses, dependence on third parties for programming and satellite capacity (notably EchoStar), and the rapid pace of technological change in the industry[17][19][20] - Acquisition and capital structure risks involve substantial investments in wireless spectrum, the challenges of commercializing these assets, build-out requirements, and the company's significant debt load[27][29][32] - Legal and regulatory risks include potential adverse rulings in litigation (such as the Telemarketing litigation), the impact of tax reform, intellectual property disputes, and significant regulatory oversight by the FCC[38][39][42] Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2019, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, with accompanying detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Data (Unaudited) | Balance Sheet Item | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total current assets | $3,592,217 | $3,289,205 | | Total assets | $31,686,377 | $30,587,012 | | Total current liabilities | $4,955,056 | $4,776,132 | | Total liabilities | $22,253,718 | $21,532,755 | | Total stockholders' equity (deficit) | $8,951,217 | $8,594,189 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations (Unaudited) | Income Statement Item | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total revenue | $3,187,144 | $3,458,487 | | Operating income (loss) | $456,300 | $529,506 | | Net income (loss) attributable to DISH Network | $339,761 | $367,560 | | Diluted net income (loss) per share | $0.65 | $0.70 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Item | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash flows from operating activities | $732,929 | $751,551 | | Net cash flows from investing activities | ($40,268) | ($56,597) | | Net cash flows from financing activities | $4,753 | ($59,099) | | Net increase (decrease) in cash, cash equivalents... | $697,414 | $635,855 | Notes to Condensed Consolidated Financial Statements - The company operates two primary business segments: Pay-TV (DISH and Sling brands) and Wireless. As of March 31, 2019, DISH had 12.063 million Pay-TV subscribers, comprising 9.639 million DISH TV subscribers and 2.424 million Sling TV subscribers[54][55] - Since 2008, the company has invested over $21 billion in wireless spectrum licenses and related non-controlling interests[57] - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, resulting in the recognition of $725.6 million in operating lease assets and a corresponding amount in lease liabilities on the balance sheet as of March 31, 2019[93][94] - The company has significant commitments related to its wireless spectrum, including build-out requirements for its 700 MHz, AWS-4, H Block, and 600 MHz licenses, with deadlines ranging from March 2020 to June 2029[148][150][152][154] - The company faces significant litigation, including the Telemarketing Litigation. A judgment in the FTC Action requires payment of $280 million, and a separate judgment in the Krakauer Action requires payment of $61 million. Both amounts were accrued as of March 31, 2019[247][248] Segment Operating Results (Three Months Ended March 31, 2019) | Segment | Revenue (in thousands) | Operating Income (Loss) (in thousands) | | :--- | :--- | :--- | | Pay-TV | $3,188,169 | $457,369 | | Wireless | $3 | ($1,069) | | Eliminations | ($1,028) | $0 | | Total | $3,187,144 | $456,300 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2019 financial performance, highlighting revenue decline, net income decrease, significant Pay-TV subscriber losses, rising programming costs, and substantial capital expenditures for wireless network build-out Results of Operations Key Operating Metrics (Q1 2019 vs Q1 2018) | Metric | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Net Pay-TV Subscriber Losses | (259,000) | (94,000) | (165,000) | | Net DISH TV Subscriber Losses | (266,000) | (185,000) | (81,000) | | Net Sling TV Subscriber Additions | 7,000 | 91,000 | (84,000) | | Pay-TV ARPU | $85.03 | $84.50 | +$0.53 | | DISH TV Churn Rate | 1.74% | 1.47% | +0.27% | | DISH TV SAC | $828 | $707 | +$121 | - The increase in net Pay-TV subscriber losses was negatively impacted by the removal of Univision and AT&T (HBO/Cinemax) channels from the programming lineup[403] - Subscriber-related revenue decreased by 8.0% to $3.148 billion, primarily due to a lower average Pay-TV subscriber base, partially offset by a 0.6% increase in Pay-TV ARPU[410][411] - Subscriber-related expenses decreased 8.2% to $2.005 billion, driven by a lower subscriber base, though programming costs per subscriber increased due to higher rates for content, particularly local broadcast channels[412] - DISH TV SAC increased by 17.1% to $828 per activation, primarily due to higher hardware costs associated with acquiring higher-quality subscribers who activate with more expensive receivers like the Hopper 3[417] Liquidity and Capital Resources - The company ended Q1 2019 with $2.393 billion in cash, cash equivalents, and current marketable investment securities, an increase of $324 million from year-end 2018[427] Free Cash Flow Reconciliation (Three Months Ended March 31) | Item (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash flows from operating activities | $732,929 | $751,551 | | Less: Purchases of property and equipment | ($120,859) | ($70,521) | | Less: Capitalized interest related to FCC authorizations | ($289,775) | ($294,003) | | Free cash flow | $322,295 | $387,027 | - Future capital requirements are significant, particularly for the wireless business. The company expects expenditures for its wireless projects to be between $500 million and $1.0 billion through 2020 for the First Phase, and approximately $10 billion for the Second Phase[454] - The company has a remaining balance of $1.295 billion on its 7 7/8% Senior Notes, which mature on September 1, 2019. The company expects to fund this obligation from cash and marketable securities balances[460] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in the company's market risk during the first quarter of 2019, referring to the detailed disclosure in the 2018 Annual Report on Form 10-K - There were no material changes in the company's market risk during the three months ended March 31, 2019[464] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting occurring during the quarter - The Chief Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[465] - No material changes to the company's internal control over financial reporting were identified during the most recent fiscal quarter[466] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 10, 'Commitments and Contingencies – Litigation,' in the Notes to the Condensed Consolidated Financial Statements for information regarding the company's legal proceedings - Information regarding legal proceedings is detailed in Note 10 of the financial statements[468] Item 1A. Risk Factors This section refers to the detailed discussion of risk factors in Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2018 - A detailed discussion of risk factors is available in the company's 2018 Annual Report on Form 10-K[469] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity, noting no repurchases of Class A common stock during Q1 2019, with a remaining $1.0 billion board authorization Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2019 | 0 | $0 | | Feb 1 - Feb 28, 2019 | 0 | $0 | | Mar 1 - Mar 31, 2019 | 0 | $0 | | Total | 0 | $0 | - As of March 31, 2019, the company had a remaining authorization to repurchase up to $1.0 billion of its Class A common stock[470] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, which include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and the financial statements formatted in XBRL - Exhibits filed with the report include CEO and Principal Financial Officer certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files (101)[473]