DISH Network (DISH) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The financial statements for Q3 2024 show a significant decline in stockholder's equity and a net loss for the period Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased, liabilities increased, and stockholder's equity sharply declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $4,171,312 | $2,343,661 | | Total noncurrent assets | $41,398,705 | $49,069,370 | | Total assets | $45,570,017 | $51,413,031 | | Total current liabilities | $7,285,490 | $7,592,166 | | Total long-term obligations | $36,984,962 | $26,590,309 | | Total liabilities | $44,270,452 | $34,182,475 | | Total stockholder's equity (deficit) | $1,299,565 | $16,792,174 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q3 2024, total revenue decreased, leading to an operating loss and a net loss for the quarter and nine-month period Statement of Operations Summary (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $3,515,317 | $3,704,516 | $10,723,476 | $11,573,075 | | Operating income (loss) | $(124,500) | $(41,806) | $(130,292) | $487,951 | | Net income (loss) attributable to DISH Network | $(210,523) | $(139,185) | $(436,251) | $283,843 | Condensed Consolidated Statements of Changes in Stockholder's Equity (Deficit) Stockholder's equity significantly decreased due to a major asset transfer to EchoStar and a net loss for the period - An asset transfer to parent company EchoStar, valued at $12.003 billion, was recorded as a dividend, significantly reducing accumulated earnings[23][36] - The conversion of redeemable noncontrolling interest in SNR HoldCo to noncontrolling interest added $442 million to total equity[23][61] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, operating cash flow was positive, offset by investing activities, with significant financing proceeds Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | $874,490 | $1,718,096 | | Net cash flows from investing activities | $(111,902) | $(2,498,267) | | Net cash flows from financing activities | $1,315,356 | $(131,725) | | Net increase (decrease) in cash | $2,077,944 | $(911,896) | Notes to Condensed Consolidated Financial Statements The notes detail the pending Pay-TV sale, asset transfers, segment operations, debt, litigation, and 5G network commitments Management's Narrative Analysis of Results of Operations Management discusses the pending Pay-TV sale, asset transfers, segment performance, and future capital needs, expecting continued negative cash flow Overview and Recent Developments This section details the pending Pay-TV sale, asset transfers to EchoStar, and integration efforts for synergy realization - On September 29, 2024, an agreement was made to sell the Pay-TV business (DISH DBS) to DIRECTV for $1.00 plus the assumption of net debt, though the DISH DBS Exchange Offers subsequently failed[290][295] - In Q1 2024, the company completed significant asset transfers to its parent, EchoStar, including wireless spectrum licenses and the EchoStar XXV satellite, with a historical net carrying value of $12.0 billion[297][298] - The company is focused on integrating with EchoStar, its parent company since December 31, 2023, to realize synergies and cost savings[303][304] Future Capital Requirements, Economic Environment, and Liquidity Management anticipates substantial future capital needs for 5G deployment, expects continued negative cash flow, and notes inflationary pressures - The company expects to continue experiencing negative cash flow in 2024 and beyond due to 5G network deployment costs, litigation expenses, and declines in its Pay-TV and Wireless subscriber bases[321] - Future capital requirements are substantial, driven by the 5G network build-out, potential spectrum purchases, and subscriber acquisition costs, which may not be available on favorable terms[314][316] - The company has experienced inflationary pressures in commodity and labor costs, which have significantly impacted overall operating results[318] Explanation of Key Metrics and Other Items This section defines key business metrics, including Pay-TV and Retail Wireless subscriber metrics, ARPU, churn, SAC, and non-GAAP measures - Pay-TV ARPU is calculated by dividing Pay-TV service revenue (excluding broadband) by the average number of Pay-TV subscribers, with an increase in SLING TV subscribers negatively impacting this metric[339] - DISH TV SAC includes all acquisition costs (advertising, installation, commissions) plus capitalized equipment, divided by gross new DISH TV subscriber activations[341] - Wireless churn rate is calculated by dividing terminated subscribers by the average number of subscribers, excluding government-subsidized subscriber additions[345] Results of Operations – Segments Consolidated revenue decreased in Q3 2024, leading to a widened operating loss, primarily from 5G Network Deployment Segment Revenue and Operating Income (Loss) - Q3 2024 vs Q3 2023 (in thousands) | Segment | Revenue Q3 2024 | Revenue Q3 2023 | Operating Income (Loss) Q3 2024 | Operating Income (Loss) Q3 2023 | | :--- | :--- | :--- | :--- | :--- | | Pay-TV | $2,618,031 | $2,807,101 | $588,501 | $589,465 | | Retail Wireless | $895,949 | $890,980 | $(113,792) | $(168,166) | | 5G Network Deployment | $42,833 | $29,916 | $(599,022) | $(463,105) | | Total | $3,515,317 | $3,704,516 | $(124,500) | $(41,806) | Segment Revenue and Operating Income (Loss) - Nine Months 2024 vs 2023 (in thousands) | Segment | Revenue 9M 2024 | Revenue 9M 2023 | Operating Income (Loss) 9M 2024 | Operating Income (Loss) 9M 2023 | | :--- | :--- | :--- | :--- | :--- | | Pay-TV | $8,020,893 | $8,754,372 | $1,926,541 | $1,985,490 | | Retail Wireless | $2,693,330 | $2,794,087 | $(309,571) | $(298,872) | | 5G Network Deployment | $106,653 | $67,902 | $(1,747,262) | $(1,198,667) | | Total | $10,723,476 | $11,573,075 | $(130,292) | $487,951 | Other Consolidated Results Q3 2024 saw a significant increase in net interest expense, a positive swing in 'Other, net' income, and a net loss - Interest expense, net of amounts capitalized, increased by $150 million in Q3 2024 compared to Q3 2023, primarily due to less interest capitalization as 5G network assets were placed into service and after asset transfers to EchoStar[462][463] - For the nine months ended Sep 30, 2024, 'Other, net' income was $81 million, positively impacted by a $128 million gain on an asset sale to EchoStar and a $21 million gain on the Liberty Puerto Rico asset sale, partially offset by a $70 million loss in equity earnings from the Invidi investment[471] Non-GAAP Performance Measures and Reconciliation The company provides reconciliations for non-GAAP measures, with consolidated EBITDA increasing in Q3 2024 Consolidated EBITDA Reconciliation (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to DISH Network | $(210,523) | $(139,185) | $(436,251) | $283,843 | | Interest, net | 151,998 | (8,476) | 464,027 | (63,528) | | Income tax provision (benefit), net | (47,971) | (67,988) | (80,872) | 81,930 | | Depreciation and amortization | 364,199 | 294,797 | 1,122,383 | 806,504 | | Consolidated EBITDA | $257,703 | $79,148 | $1,069,287 | $1,108,749 | Segment OIBDA - Q3 2024 (in thousands) | Segment | Operating Income (Loss) | Depreciation & Amortization | OIBDA | | :--- | :--- | :--- | :--- | | Pay-TV | $588,501 | $87,502 | $676,003 | | Retail Wireless | $(113,792) | $23,037 | $(90,755) | | 5G Network Deployment | $(599,022) | $269,529 | $(329,493) | Controls and Procedures Management concluded disclosure controls were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[480] - No changes occurred in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[481] PART II — OTHER INFORMATION Legal Proceedings This section refers to Note 9 of the financial statements for detailed information on ongoing legal proceedings - For information on legal proceedings, the report directs readers to Note 9 of the financial statements[482] Risk Factors This section updates risk factors, focusing on the pending DIRECTV Transaction's potential for termination, delays, and disruptions - Termination of the DIRECTV Transaction could lead to adverse consequences, including negative reactions from financial markets, customers, and other stakeholders[484] - Completion of the DIRECTV Transaction is subject to uncertain conditions, including governmental approvals and the successful exchange of DISH DBS Notes, which could delay or prevent closing[487][489] - The company is subject to restrictive covenants in the Purchase Agreement that limit its business activities, such as paying dividends, making certain investments, or incurring debt, prior to the transaction's completion[501][502] - The announcement and pendency of the transaction could disrupt business operations, affecting relationships with customers, suppliers, and employees, and divert significant management resources[497][499] Exhibits This section lists exhibits filed with the Form 10-Q, including key agreements for the DIRECTV transaction and financing - Exhibit 2.1: Equity Purchase Agreement with DIRECTV Holdings, LLC[509] - Exhibit 10.1: Loan and Security Agreement for the $2.5 billion New DISH DBS Financing[509] - Exhibit 10.2: Transaction Support Agreement with certain creditors for the exchange of convertible notes[509] Signatures The Form 10-Q report was signed by the company's CEO, CFO, and Chief Accounting Officer on November 14, 2024 - The report was signed on November 14, 2024, by Hamid Akhavan (CEO), Paul W Orban (CFO), and James S Allen (Chief Accounting Officer)[512]