DISH Network (DISH) - 2020 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Disclosure Regarding Forward-Looking Statements This section outlines forward-looking statements, based on current management views, which are not guarantees of future performance and are subject to various risks - The report contains forward-looking statements regarding plans, objectives, and future results, which are subject to risks and uncertainties beyond the company's control[7] - Key risk categories that could impact future performance include: - Competition and Economic Risks: Intense competition from pay-TV and digital media, changing consumer behavior, economic weakness, and the impact of the COVID-19 pandemic - Operational and Service Delivery Risks: Dependence on programming providers, rising programming expenses, reliance on key vendors, and risks related to satellite capacity and technology changes - Acquisition and Capital Structure Risks: Risks associated with wireless spectrum investments, build-out requirements, integration of acquisitions (like the Prepaid Business from Sprint), and substantial debt - Legal and Regulatory Risks: Risks from litigation (e.g., Telemarketing litigation), intellectual property disputes, and significant FCC regulatory oversight[8][16][20][32] Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2020, including Balance Sheets, Income, Equity, and Cash Flows, with explanatory notes Condensed Consolidated Financial Statements Financial statements show total assets at $33.67 billion, total revenue at $3.22 billion, but net income significantly decreased to $73.1 million due to a $356.4 million impairment charge Condensed Consolidated Balance Sheet Data (Unaudited) | Balance Sheet Items | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $4,642,289 | $4,015,100 | | Total Assets | $33,673,295 | $33,230,935 | | Total Current Liabilities | $4,630,987 | $4,496,091 | | Total Liabilities | $21,435,715 | $21,114,788 | | Total Stockholders' Equity | $11,659,593 | $11,564,072 | Condensed Consolidated Statement of Operations Data (Unaudited) | Income Statement Items | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $3,217,389 | $3,187,144 | | Total Costs and Expenses | $3,073,311 | $2,730,844 | | Operating Income (Loss) | $144,078 | $456,300 | | Net Income (Loss) | $99,274 | $361,299 | | Net Income (Loss) Attributable to DISH Network | $73,099 | $339,761 | | Diluted EPS | $0.13 | $0.65 | Condensed Consolidated Statement of Cash Flows Data (Unaudited) | Cash Flow Items | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Net Cash Flows from Operating Activities | $875,953 | $732,929 | | Net Cash Flows from Investing Activities | ($481,136) | ($40,268) | | Net Cash Flows from Financing Activities | ($11,186) | $4,753 | Notes to Condensed Consolidated Financial Statements Notes detail business segments, accounting policies, Sprint asset acquisition, wireless spectrum investments, impairment charges, $280 million litigation accrual, and related-party transactions - The company operates two primary business segments: Pay-TV (DISH TV and Sling TV) and Wireless. As of March 31, 2020, there were 11.323 million Pay-TV subscribers[45][46] - In Q1 2020, the company recorded a $356.4 million non-cash impairment charge. This was due to abandoning its narrowband IoT deployment in favor of a 5G network, resulting in a $253 million write-down of related assets, and a $103 million write-down of the T1 and D1 AWS-4 satellites[83][84] - The company has entered into an Asset Purchase Agreement to acquire Sprint's prepaid mobile businesses (Boost Mobile, Virgin Mobile) for $1.4 billion. The deal is part of a larger arrangement with T-Mobile and the DOJ to establish DISH as a new nationwide wireless competitor[47][48] - DISH has made significant commitments to the FCC to deploy a nationwide 5G broadband network, with specific population coverage targets by June 2022 and June 2023. Failure to meet these commitments could result in up to $2.2 billion in penalties and license forfeitures[57][61] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights a 413,000 Pay-TV subscriber loss, COVID-19 impacts, a strategic shift to 5G with a $356 million impairment, and strong liquidity but $10 billion in future 5G capital needs Q1 2020 Key Operating Metrics | Metric | Q1 2020 | Change from Q1 2019 | | :--- | :--- | :--- | | Net Pay-TV Subscriber Loss | 413,000 | Increased loss of 154,000 | | Net DISH TV Subscriber Loss | 132,000 | Decreased loss of 134,000 | | Net Sling TV Subscriber Loss | 281,000 | Down from 7,000 net additions | | Pay-TV ARPU | $88.76 | +4.4% | | DISH TV Churn Rate | 1.54% | Down from 1.74% | - The COVID-19 pandemic has adversely impacted the business by reducing in-person sales, disrupting commercial services (bars, restaurants, hotels), and potentially affecting subscribers' ability to pay. In response, the company paused service for 250,000 commercial accounts, removing them from the subscriber count[425][427][521] - The company has shifted its wireless strategy from a narrowband IoT network to a full 5G broadband network deployment. This led to a $253 million impairment of assets that will not be used in the 5G network. The total estimated cost for the 5G deployment is approximately $10 billion[466][583] - Free cash flow for Q1 2020 was $537 million, an increase from $322 million in Q1 2019, primarily due to higher net cash from operating activities[550] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk occurred during Q1 2020, with further details available in the 2019 Annual Report on Form 10-K - There were no material changes to the company's market risk exposure during the three months ended March 31, 2020[592] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes to internal controls, while monitoring COVID-19 impacts - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[593] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[594] PART II — OTHER INFORMATION Legal Proceedings This section refers to Note 10 of the financial statements for detailed information on ongoing legal proceedings - For information on legal proceedings, the report directs readers to Note 10, "Commitments and Contingencies – Litigation," in the Notes to the Condensed Consolidated Financial Statements[596] Risk Factors This section updates risk factors, focusing on the significant adverse impacts of the COVID-19 pandemic on business operations, subscriber activations, and supply chains - The COVID-19 pandemic is presented as a significant risk factor that has already adversely impacted the business and could have a material adverse effect on future financial condition and results[598][599] - Specific risks exacerbated by the pandemic include: - Fewer subscriber activations and potentially higher churn due to economic weakness, social distancing impacting in-home installations, and reduced operations of commercial customers (e.g., bars, restaurants) - Potential difficulty in satisfying long-term payment obligations, including for the 5G network deployment, due to weakness in capital markets - Disruptions to the supply chain, which could delay the 5G network deployment and impact pay-TV operations - A large portion of the workforce working remotely, increasing risks to IT infrastructure and cybersecurity - The possibility that anticipated benefits from the acquisition of Sprint's Prepaid Business may be materially and adversely affected[602][604][608][609] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no Class A common stock repurchases in Q1 2020, with a $1.0 billion repurchase program remaining active through December 31, 2020 Issuer Purchases of Equity Securities (Q1 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2020 | 0 | $0 | | Feb 1 - Feb 29, 2020 | 0 | $0 | | Mar 1 - Mar 31, 2020 | 0 | $0 | | Total | 0 | $0 | - A stock repurchase program authorizing up to $1.0 billion in purchases of Class A common stock remains active, with the full amount available as of March 31, 2020. The program is authorized through December 31, 2020[610] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and financial statements in iXBRL format - Exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial data in iXBRL format (Exhibit 101)[613]