DISH Network (DISH) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This section outlines the nature of forward-looking statements and summarizes key risk factors that could cause actual results to differ - Forward-looking statements are based on current views and assumptions, but actual performance, events, or results could differ materially due to known and unknown risks[10] - Key risk categories include: Competition and Economic Risks, Operational and Service Delivery Risks, Acquisition and Capital Structure Risks, Legal and Regulatory Risks, and Risks Related to the Merger with EchoStar[11][15][16][20][21] - The COVID-19 pandemic and its economic impact have adversely affected the business, and any worsening could have a material adverse effect[12] - The company faces intense and increasing competition from providers of video, broadband, and wireless services, potentially leading to increased subscriber acquisition/retention spending or higher churn[13] - Significant debt outstanding and the need for additional capital, which may not be available on favorable terms, pose risks to business investment and strategic transactions[17][18] - The pending merger with EchoStar introduces business uncertainties and contractual restrictions, with no assurance of realizing anticipated benefits or within expected timeframes[21] Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, providing a snapshot of the company's financial position and performance Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | |:---|:---|:---| | Total Assets | $53,744,674 | $52,606,562 | | Total Current Assets | $3,147,962 | $4,610,110 | | Cash and cash equivalents | $851,966 | $1,785,056 | | Marketable investment securities | $182,816 | $835,983 | | Property and equipment, net | $7,224,876 | $5,640,119 | | FCC authorizations | $37,817,941 | $36,933,073 | | Total Liabilities | $34,933,450 | $34,197,922 | | Total Current Liabilities | $5,789,263 | $6,024,248 | | Current portion of long-term debt and finance lease obligations | $1,065,447 | $1,547,190 | | Long-term debt and finance lease obligations, net of current portion | $20,178,564 | $19,801,948 | | Total Stockholders' Equity (Deficit) | $18,282,171 | $17,944,281 | - Total assets increased by approximately $1.14 billion from December 31, 2022, to September 30, 2023, primarily driven by an increase in Property and equipment, net, and FCC authorizations[23] - Cash and cash equivalents significantly decreased by over $933 million, and marketable investment securities decreased by over $653 million, indicating a reduction in liquid assets[23] - Total liabilities increased by approximately $735 million, with long-term debt and finance lease obligations (net of current portion) increasing by about $376 million[23] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Total Revenue | $3,704,516 | $4,095,451 | $11,573,075 | $12,636,034 | | Total Costs and Expenses | $3,746,322 | $3,668,422 | $11,085,124 | $10,965,710 | | Operating Income (Loss) | $(41,806) | $427,029 | $487,951 | $1,670,324 | | Total Other Income (Expense) | $(143,021) | $60,725 | $(57,198) | $121,050 | | Income (Loss) before income taxes | $(184,827) | $487,754 | $430,753 | $1,791,374 | | Net Income (Loss) attributable to DISH Network | $(139,185) | $412,230 | $283,843 | $1,367,713 | | Basic Net Income (Loss) per share | $(0.26) | $0.78 | $0.53 | $2.58 | | Diluted Net Income (Loss) per share | $(0.26) | $0.65 | $0.44 | $2.15 | - For the three months ended September 30, 2023, the company reported a net loss of $139.185 million, a significant decline from a net income of $412.230 million in the same period of 2022[25] - Total revenue decreased by 9.5% for the three months ended September 30, 2023, and by 8.4% for the nine months ended September 30, 2023, compared to the respective prior periods[25] - Operating income shifted to a loss of $41.806 million for the three months ended September 30, 2023, from an income of $427.029 million in the prior year, primarily due to increased costs and expenses[25] Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | |:---|:---|:---| | Total DISH Network stockholders' equity (deficit) | $17,944,281 | $18,282,171 | | Accumulated earnings (deficit) | $13,088,850 | $13,372,693 | | Additional paid-in capital | $4,851,392 | $4,904,145 | - Total stockholders' equity increased from $17.944 billion at December 31, 2022, to $18.282 billion at September 30, 2023, primarily due to accumulated earnings and additional paid-in capital[31] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---| | Net cash flows from operating activities | $1,718,096 | $2,141,503 | | Net cash flows from investing activities | $(2,498,267) | $(6,929,986) | | Net cash flows from financing activities | $(131,725) | $(2,060,595) | | Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents | $(911,896) | $(6,849,078) | | Cash, cash equivalents, restricted cash and cash equivalents, end of period | $936,085 | $885,182 | - Net cash flows from operating activities decreased by approximately $423 million for the nine months ended September 30, 2023, compared to the same period in 2022[34] - Net cash outflows from investing activities significantly decreased by approximately $4.43 billion, primarily due to lower purchases of FCC authorizations in 2023[34] - Net cash outflows from financing activities decreased by approximately $1.93 billion, mainly due to proceeds from the issuance of senior notes in 2023[34] Notes to Condensed Consolidated Financial Statements 1. Organization and Business Activities DISH Network operates Pay-TV and Wireless segments, is transitioning to a 5G MNO model, and has a pending merger with EchoStar - DISH Network operates two primary business segments: Pay-TV (DISH® and SLING® brands) and Wireless (Boost Mobile®, Boost Infinite®, Gen Mobile® brands, and 5G Network Deployment)[35][36][37] Pay-TV Subscribers (as of September 30, 2023): | Category | Subscribers (millions) | |:---|:---| | Total Pay-TV | 8.840 | | DISH TV | 6.720 | | SLING TV | 2.120 | - The Wireless business is transitioning from a Mobile Virtual Network Operator (MVNO) model, relying on T-Mobile and AT&T, to a Mobile Network Operator (MNO) model with its own 5G Network[38] Wireless Subscribers (as of September 30, 2023): | Category | Subscribers (millions) | |:---|:---| | Total Wireless | 7.500 | - DISH has invested over $30 billion in Wireless spectrum licenses and committed to deploying a facilities-based 5G broadband network, achieving over 73% U.S. population coverage by June 2023[40][42] - A merger agreement with EchoStar was amended on October 2, 2023, where DISH Network will become a wholly-owned subsidiary of EchoStar, with DISH stockholders receiving EchoStar common stock at an exchange ratio of 0.350877[48][49] - The company experienced a cyber-security incident in February 2023, which affected internal servers but not customer databases; approximately $30 million in related expenses were incurred in Q1 2023[53][54][55][56] 2. Summary of Significant Accounting Policies This note details key accounting policies including consolidation, noncontrolling interests, interest capitalization, and fair value measurements - The company consolidates majority-owned subsidiaries, controlled entities, and Variable Interest Entities (VIEs) where it is the primary beneficiary[58] - Redeemable noncontrolling interests, such as Northstar Manager's and SNR Management's ownership in their respective entities, are recorded as temporary equity and increased by a fixed annual rate of return[59][63][64][66] - Subsequent to September 30, 2023, DISH completed the purchase of Northstar Manager's ownership interests for approximately $109 million, eliminating the related redeemable noncontrolling interest[60][67] - Interest associated with the acquisition or construction of certain assets, including Wireless spectrum licenses and 5G Network Deployment, is capitalized[70][71] - Assets for incremental costs of obtaining subscriber contracts are capitalized and amortized over the estimated subscriber life, totaling $330 million net of amortization as of September 30, 2023[76] 3. Basic and Diluted Net Income (Loss) Per Share This note provides the calculation of basic and diluted EPS, detailing weighted-average shares and the impact of potential dilution Earnings Per Share (EPS) - Class A and B Common Stock: | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Basic Net Income (Loss) per share | $(0.26) | $0.78 | $0.53 | $2.58 | | Diluted Net Income (Loss) per share | $(0.26) | $0.65 | $0.44 | $2.15 | Weighted-Average Common Shares Outstanding (in thousands): | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Basic | 534,034 | 530,436 | 532,788 | 529,870 | | Diluted | 534,034 | 637,455 | 639,931 | 637,295 | - For the three months ended September 30, 2023, the dilutive impact of 107 million weighted-average shares of Class A common stock was excluded due to the net loss, making the effect anti-dilutive[83] - In connection with the EchoStar merger, the terms of Convertible Notes, convertible note hedge, and warrant transactions will be amended to reflect conversion into EchoStar Class A Common Stock[81] 4. Supplemental Data - Statements of Cash Flows This note provides supplemental cash flow and non-cash data, including cash paid for interest and capitalized interest Supplemental Cash Flow Data (in thousands): | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---| | Cash paid for interest (including capitalized interest) | $851,275 | $798,773 | | Cash paid for income taxes | $22,440 | $49,746 | | Capitalized interest | $969,736 | $773,689 | | Accrued wireless equipment purchases | $281,444 | $537,977 | | Accrued Upfront Payment | $100,000 | — | - Capitalized interest significantly increased by $196 million for the nine months ended September 30, 2023, compared to the same period in 2022[88] - A $100 million Upfront Payment was accrued as of September 30, 2023, related to the extension of the T-Mobile 800 MHz spectrum license purchase option[88][89] 5. Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities This note details the composition of investment securities and highlights the derivative instrument for T-Mobile's 800 MHz spectrum Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities (in thousands): | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Total current marketable investment securities | $182,816 | $835,983 | | Restricted marketable investment securities | $23,232 | $41,689 | | Restricted cash and cash equivalents | $84,119 | $62,925 | | Other investment securities | $180,333 | $168,200 | | Total | $470,500 | $1,108,797 | - The total value of marketable investment securities, restricted cash, and other investment securities decreased by approximately $638 million from December 31, 2022, to September 30, 2023[90] - The company holds a derivative instrument, an option to purchase T-Mobile's 800 MHz spectrum licenses, valued at $1.501 billion as of September 30, 2023 (down from $1.693 billion at Dec 31, 2022)[103] - The deadline to purchase the 800 MHz spectrum licenses was extended to April 1, 2024, with an upfront payment of $100 million to T-Mobile, which is fully creditable against the purchase price[107][109] Other, net (Income/Expense) (in thousands): | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Derivative instruments - net realized and/or unrealized gains (losses) | $(155,133) | $34,000 | $(192,107) | $92,000 | | Gains (losses) related to early redemption of debt | $4,480 | — | $72,566 | $(1,149) | - A significant decrease in the fair value of the T-Mobile 800 MHz spectrum option contributed to a $155.133 million loss in 'Other, net' for the three months ended September 30, 2023[112] 6. Inventory This note provides a breakdown of inventory, which increased due to a distribution agreement for Boost Infinite wireless devices Inventory (in thousands): | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Finished goods | $484,270 | $447,322 | | Work-in-process and service repairs | $34,060 | $19,351 | | Consignment | $54,261 | $14,792 | | Raw materials | — | $20,908 | | Total inventory | $572,591 | $502,373 | - Total inventory increased by approximately $70.2 million from December 31, 2022, to September 30, 2023[113] - The increase in consignment inventory is primarily due to a distribution agreement related to Boost Infinite wireless devices[113] 7. Property and Equipment and Intangible Assets This note details property and equipment, depreciation expenses, and the company's satellite fleet, including a new satellite under construction Property and Equipment, Net (in thousands): | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Total property and equipment | $12,343,715 | $10,290,544 | | Accumulated depreciation | $(5,118,839) | $(4,650,425) | | Property and equipment, net | $7,224,876 | $5,640,119 | - Property and equipment, net, increased by approximately $1.58 billion from December 31, 2022, to September 30, 2023, primarily driven by a significant increase in 5G Network Deployment equipment[114] Depreciation and Amortization Expense (in thousands): | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | 5G Network Deployment equipment | $94,204 | $6,665 | $231,085 | $14,989 | | Total depreciation and amortization | $294,797 | $174,736 | $806,504 | $519,300 | - Depreciation and amortization expense for 5G Network Deployment equipment saw a substantial increase, reflecting assets being placed into service[115] - DISH Network currently utilizes nine geostationary satellites for Pay-TV services, seven owned and two leased; a new DBS satellite, EchoStar XXV, is under construction and expected to launch in 2026[116][117][118] 8. Leases This note outlines operating and finance leases, highlighting an increase in operating lease costs due to communication tower leases Total Lease Costs (in thousands): | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Operating lease cost | $130,288 | $91,447 | $364,622 | $229,359 | | Total lease costs | $149,811 | $104,702 | $437,149 | $270,652 | - Operating lease costs increased significantly, primarily due to communication tower leases[121] Supplemental Balance Sheet Information Related to Leases (in thousands): | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Operating lease assets | $3,052,636 | $2,687,522 | | Operating lease liabilities | $3,096,308 | $2,687,883 | | Weighted Average Remaining Lease Term (Operating leases) | 11.1 years | 11.8 years | | Weighted Average Discount Rate (Operating leases) | 8.2% | 7.3% | - Operating lease assets and liabilities increased, reflecting ongoing lease commitments[122] 9. Long-Term Debt and Finance Lease Obligations This note details long-term debt, highlighting future capital requirements for 5G deployment and upcoming debt maturities Long-Term Debt and Finance Lease Obligations (in thousands): | Debt Instrument | Sep 30, 2023 (Carrying Amount) | Dec 31, 2022 (Carrying Amount) | |:---|:---|:--- | | 2 3/8% Convertible Notes due 2024 | $951,168 | $1,000,000 | | 5 7/8% Senior Notes due 2024 | $1,989,139 | $2,000,000 | | 0% Convertible Notes due 2025 | $1,957,197 | $2,000,000 | | 3 3/8% Convertible Notes due 2026 | $2,908,801 | $3,000,000 | | 11 3/4% Senior Secured Notes due 2027 | $3,500,000 | $2,000,000 | | Total long-term debt and finance lease obligations (including current portion) | $21,244,011 | $21,349,138 | - The company repurchased portions of its Convertible Notes and Senior Notes during the nine months ended September 30, 2023[124] - An additional $1.5 billion aggregate principal amount of 11 3/4% Senior Secured Notes due 2027 was issued on January 26, 2023[124] - DISH Network expects significant expenditures for its 5G Network Deployment in 2023 and 2024 and does not currently have sufficient cash or projected cash flows to fully fund its 2024 debt maturities[125] - The company plans to raise additional capital, complete the EchoStar merger, pursue strategic transactions, and/or implement cost reduction initiatives to address capital needs[126] - The Intercompany Loan from DISH DBS to DISH Network, totaling $7.382 billion as of September 30, 2023, is secured by wireless spectrum licenses and used to finance spectrum purchases and 5G Network Deployment[144] 10. Commitments and Contingencies This note details significant commitments, including 5G deployment costs, and provides a comprehensive overview of ongoing legal proceedings Other Long-Term Obligations (in thousands) as of Sep 30, 2023: | Year | Amount | |:---|:---| | 2023 (remaining three months) | $1,485,859 | | 2024 | $2,668,442 | | 2025 | $2,096,744 | | 2026 | $1,840,438 | | 2027 | $1,087,858 | | Thereafter | $4,955,117 | | Total | $14,134,458 | - Expected capital expenditures for 5G Network Deployment are approximately $10 billion, with $1.858 billion included in other long-term obligations[148] - The option to purchase T-Mobile's 800 MHz spectrum licenses was extended to April 1, 2024, with a $100 million upfront payment, resolving prior disputes[150][152] Wireless Spectrum Licenses (Carrying Amount in thousands) as of Sep 30, 2023: | License Type | Carrying Amount | |:---|:---| | Owned Licenses (Subtotal) | $19,699,971 | | Noncontrolling Investments (Northstar, SNR) | $9,890,389 | | Capitalized Interest | $8,227,581 | | Total | $37,817,941 | - DISH Network has met its 70% U.S. population coverage requirement for 5G broadband service by June 2023, extending final build-out deadlines for certain licenses to June 14, 2025[160][161] - The FCC confirmed DISH met two of three nationwide 5G commitments, with the remaining 35 Mbps download speed commitment to be confirmed by drive test within six months from September 29, 2023[160] - Northstar Wireless and SNR Wireless AWS-3 licenses are subject to accelerated build-out deadlines (October 2025) due to not meeting interim requirements[179] - DISH Network is involved in numerous legal proceedings, including patent infringement lawsuits, a data breach class action, a 401(k) litigation, and a qui tam complaint seeking $10 billion related to AWS-3 bidding credits[208][214][216][218][223][225][227][230][232][242][244][250][252][262][267] - Management believes the outcomes of these legal proceedings are unlikely to materially affect financial condition, though they could be material to operating results for any particular period[207][270] 11. Segment Reporting This note provides disaggregated financial information for the Pay-TV and Wireless business segments Total Assets by Segment (in thousands): | Segment | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Pay-TV | $48,722,185 | $46,295,495 | | Wireless | $49,142,869 | $46,261,004 | | Eliminations | $(44,120,380) | $(39,949,937) | | Total assets | $53,744,674 | $52,606,562 | Revenue by Segment (in thousands): | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Pay-TV | $2,807,101 | $3,078,418 | $8,754,372 | $9,399,244 | | Wireless | $900,302 | $1,018,132 | $2,824,550 | $3,241,590 | | Total revenue | $3,704,516 | $4,095,451 | $11,573,075 | $12,636,034 | Operating Income (Loss) by Segment (in thousands): | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Pay-TV | $589,465 | $647,654 | $1,985,490 | $2,185,171 | | Wireless | $(631,271) | $(220,625) | $(1,497,539) | $(514,847) | | Total operating income (loss) | $(41,806) | $427,029 | $487,951 | $1,670,324 | - The Wireless segment experienced a significant increase in operating loss for both the three and nine months ended September 30, 2023, compared to the prior year[274] - All service revenue and substantially all long-lived assets are derived from or reside in the United States[274] 12. Contract Balances This note provides information on contract balances, including the allowance for credit losses and contract liabilities Allowance for Credit Losses (in thousands): | Metric | Balance at Beginning of Period | Provision for Expected Credit Losses | Write-offs Charged Against Allowance | Balance at End of Period | |:---|:---|:---|:---|:---| | Nine months ended Sep 30, 2023 | $44,431 | $54,655 | $(47,380) | $51,706 | Contract Liabilities (in thousands): | Metric | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Contract liabilities | $617,244 | $698,602 | - Contract liabilities decreased by approximately $81.3 million from December 31, 2022, to September 30, 2023[278] - The company applies a practical expedient and does not disclose the value of remaining performance obligations for contracts less than one year, which constitute a substantial majority of its revenue[279] 13. Related Party Transactions This note details transactions with related parties, primarily EchoStar and NagraStar, which are influenced by common ownership - DISH Network and EchoStar operate as separate public companies but share common beneficial ownership and management by Charles W. Ergen[280] Related Party Transactions with EchoStar (in thousands): | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Equipment sales and other revenue (from EchoStar) | $3 | $1 | $6 | $4 | | Cost of services (to EchoStar) | $2 | $3 | $6 | $9 | | Cost of sales – equipment and other (to EchoStar) | $1 | $1 | $4 | $4 | | Selling, general and administrative expenses (to EchoStar) | $3 | $3 | $9 | $10 | - DISH Network leases real estate to and from EchoStar, provides collocation and antenna space, and TT&C services to EchoStar[286][287][288][289][301] - The companies have tax sharing agreements and patent cross-license agreements governing their respective rights and obligations[305][309][310][311][314][315] Transactions with NagraStar (in thousands): | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Purchases from NagraStar | $8,972 | $10,285 | $28,012 | $32,713 | | Amounts payable to NagraStar (as of period end) | $7,235 | $7,422 | N/A | N/A | | Commitments to NagraStar (as of period end) | $2,504 | $3,272 | N/A | N/A | 14. Subsequent Events This note discloses the subsequent sale of certain wireless assets in Puerto Rico and the US Virgin Islands to Liberty Latin America - On November 5, 2023, DISH Network agreed to sell certain wireless assets in Puerto Rico and the US Virgin Islands to Liberty Latin America for $256 million, payable over three years[318] - The transaction also includes a right for DISH to receive preferential international roaming rates and credits within Liberty's footprint[319] - The financial closing is subject to regulatory approvals from the FCC and DOJ and can be terminated if not completed within twelve months (with a potential three-month extension)[318][319] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial performance, detailing results across Pay-TV and Wireless segments and future outlook Overview DISH Network's strategy focuses on providing value in Pay-TV, expanding its Retail Wireless base, and commercializing its 5G Network - DISH Network's business segments are Pay-TV (DISH® and SLING® brands) and Wireless (Retail Wireless and 5G Network Deployment)[322] - The Pay-TV strategy is to be the best provider of video services through technology, customer service, and value, targeting both traditional and OTT streaming markets[323] - The Retail Wireless strategy aims to profitably grow its subscriber base by offering competitive prepaid and postpaid services, transitioning from an MVNO to an MNO model[324][325] - The 5G Network Deployment strategy focuses on commercializing Wireless spectrum licenses through the nation's first cloud-native, O-RAN based 5G network, having achieved over 73% U.S. population coverage by June 2023[326][327] - The company entered into an Amended and Restated Agreement and Plan of Merger with EchoStar on October 2, 2023, where DISH Network will merge into EchoStar[329] - A cyber-security incident in February 2023 affected internal systems but not customer databases, incurring approximately $30 million in remediation costs during Q1 2023[334][335][336][337] EXPLANATION OF KEY METRICS AND OTHER ITEMS This section defines key financial and operational metrics used to analyze the company's performance, including non-GAAP measures - Key revenue categories include 'Service revenue' (Pay-TV and Wireless subscriber revenue) and 'Equipment sales and other revenue' (wireless devices, non-subsidized Pay-TV equipment sales, intellectual property licensing)[339] - Key expense categories include 'Cost of services' (Pay-TV programming, Wireless service costs), 'Cost of sales - equipment and other' (wireless devices, network operations), and 'Selling, general and administrative expenses' (sales, advertising, commissions, employee costs, installation)[340][341][342] - Non-GAAP measures like EBITDA (Net income (loss) attributable to DISH Network plus interest, taxes, depreciation, and amortization) and OIBDA (Operating income (loss) plus depreciation and amortization) are used to assess operating efficiency and financial performance[346][347] - Subscriber metrics include DISH TV subscribers, SLING TV subscribers, Pay-TV ARPU, DISH TV churn rate, Wireless subscribers, Wireless ARPU, and Wireless churn rate[348][349][350][351][352][355][356][357][358] - Free cash flow is defined as 'Net cash flows from operating activities' less 'Purchases of property and equipment' and 'Capitalized interest related to FCC authorizations'[359] RESULTS OF OPERATIONS – Segments This section analyzes consolidated and segment-level financial performance, detailing revenue, operating income, and key operational metrics Business Segments Consolidated revenue and operating income declined, driven primarily by increased operating losses in the Wireless segment Consolidated Revenue (in thousands): | Period | 2023 | 2022 | Variance Amount | Variance % | |:---|:---|:---|:---|:---| | Three Months Ended Sep 30 | $3,704,516 | $4,095,451 | $(390,935) | (9.5)% | | Nine Months Ended Sep 30 | $11,573,075 | $12,636,034 | $(1,062,959) | (8.4)% | Consolidated Operating Income (Loss) (in thousands): | Period | 2023 | 2022 | Variance Amount | Variance % | |:---|:---|:---|:---|:---| | Three Months Ended Sep 30 | $(41,806) | $427,029 | $(468,835) | * | | Nine Months Ended Sep 30 | $487,951 | $1,670,324 | $(1,182,373) | (70.8)% | - The shift to an operating loss for the three months ended September 30, 2023, and the significant decrease in operating income for the nine months, were primarily due to increased operating losses in the Wireless segment[362][366] Pay-TV Segment The Pay-TV segment experienced a decline in subscribers and revenue due to intense competition and changing consumer behavior Pay-TV Subscribers (in millions): | Metric | Sep 30, 2023 | Sep 30, 2022 | Change | |:---|:---|:---|:---| | Total Pay-TV subscribers | 8.840 | 10.018 | (1.178) | | DISH TV subscribers | 6.720 | 7.607 | (0.887) | | SLING TV subscribers | 2.120 | 2.411 | (0.291) | - Net Pay-TV subscriber losses increased for the nine months ended September 30, 2023, with both DISH TV and SLING TV experiencing higher net losses[405][406] - Gross new DISH TV subscriber activations decreased by 22.7% for the nine months ended September 30, 2023, due to lack of demand, shifting consumer behavior, and increased competitive pressures[407] Pay-TV ARPU: | Period | 2023 | 2022 | Change | Change % | |:---|:---|:---|:---|:---| | Three Months Ended Sep 30 | $105.25 | $102.07 | $3.18 | 3.1% | | Nine Months Ended Sep 30 | $103.98 | $100.91 | $3.07 | 3.0% | - Pay-TV ARPU increased due to programming price increases for both DISH TV and SLING TV[393][412] DISH TV Churn Rate: | Period | 2023 | 2022 | Change | Change % | |:---|:---|:---|:---|:---| | Three Months Ended Sep 30 | 1.58% | 1.53% | 0.05% | 3.3% | | Nine Months Ended Sep 30 | 1.69% | 1.55% | 0.14% | 9.0% | - DISH TV churn rate increased, adversely impacted by external factors like cord cutting, competitive pressures, and briefly by the cyber-security incident in Q1 2023[389][408] DISH TV SAC: | Period | 2023 | 2022 | Change | Change % | |:---|:---|:---|:---|:---| | Three Months Ended Sep 30 | $1,065 | $1,029 | $36 | 3.5% | | Nine Months Ended Sep 30 | $1,095 | $1,033 | $62 | 6.0% | - DISH TV SAC increased due to higher installation costs, increased labor costs, and a lower percentage of remanufactured receivers[398][416] - Equipment sales and other revenue for the nine months ended September 30, 2023, increased by $50 million, primarily due to a non-recurring $75 million license agreement with Peloton for Adaptive Bitrate Streaming patents[411] Wireless Segment The Wireless segment incurred significant operating losses due to 5G network build-out costs and a decline in Retail Wireless subscribers Wireless Segment Operating Income (Loss) (in thousands): | Period | 2023 | 2022 | Variance Amount | |:---|:---|:---|:---| | Three Months Ended Sep 30 | $(631,271) | $(220,625) | $(410,646) | | Nine Months Ended Sep 30 | $(1,497,539) | $(514,847) | $(982,692) | - Total purchases of property and equipment (excluding capitalized interest) for the Wireless segment increased to $2.159 billion for the nine months ended September 30, 2023, primarily for 5G Network Deployment[419] Retail Wireless Subscribers (in millions): | Metric | Sep 30, 2023 | Sep 30, 2022 | Change | |:---|:---|:---|:---| | Wireless subscribers, as of period end | 7.500 | 8.007 | (0.507) | | Wireless subscriber additions (losses), net | (0.494) | (0.552) | 0.058 | | Wireless ARPU | $36.19 | $37.75 | $(1.56) | | Wireless churn rate | 4.33% | 4.44% | (0.11)% | - Retail Wireless experienced a net loss of 494,000 subscribers for the nine months ended September 30, 2023, and a decrease in ARPU due to a shift to lower-priced service plans[453][457] - Wireless churn rate improved slightly, positively impacted by an emphasis on acquiring higher quality subscribers, but negatively impacted by the migration off T-Mobile's TSA[455] - Cost of services in Retail Wireless decreased for the nine months ended September 30, 2023, primarily due to a lower average subscriber base, partially offset by higher monthly dealer incentive costs[459] - 5G Network Deployment operating loss significantly increased to $(1.198) billion for the nine months ended September 30, 2023, driven by higher lease expenses, transport, cloud services, and increased depreciation[468][469][471] OTHER CONSOLIDATED RESULTS This section summarizes other consolidated results, highlighting increased interest income and a significant expense from derivative fair value changes Other Consolidated Results (in thousands): | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Interest income | $18,649 | $7,632 | $90,907 | $21,853 | | Interest expense, net of amounts capitalized | $(10,173) | $(4,848) | $(27,379) | $(15,067) | | Other, net | $(151,497) | $57,941 | $(120,726) | $114,264 | | Income tax (provision) benefit, net | $67,988 | $(58,169) | $(81,930) | $(372,936) | | Net income (loss) attributable to DISH Network | $(139,185) | $412,230 | $283,843 | $1,367,713 | - Interest income significantly increased for both periods due to higher returns on cash and marketable investment securities[475][480] - 'Other, net' shifted from income to a substantial expense, primarily driven by a $155 million decrease in the fair value of the T-Mobile 800 MHz spectrum option for the three months ended September 30, 2023[476][481] - The income tax provision decreased for the nine months ended September 30, 2023, primarily due to a decrease in income before income taxes and a lower effective tax rate[482] Non-GAAP Performance Measures and Reconciliation This section provides reconciliations of non-GAAP measures, Consolidated EBITDA and Segment OIBDA, to their comparable GAAP measures Consolidated EBITDA (in thousands): | Period | 2023 | 2022 | |:---|:---|:---| | Three Months Ended Sep 30 | $79,148 | $642,351 | | Nine Months Ended Sep 30 | $1,108,749 | $2,253,163 | - Consolidated EBITDA significantly decreased for both the three and nine months ended September 30, 2023, primarily due to changes in operating revenues and expenses[485] Segment OIBDA (in thousands): | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Pay-TV | $675,565 | $753,602 | $2,271,638 | $2,513,244 | | Wireless | $(105,617) | $35,372 | $(130,275) | $168,541 | | 5G Network Deployment | $(299,146) | $(181,345) | $(813,597) | $(478,355) | - Wireless segment OIBDA shifted to a loss for the three months ended September 30, 2023, and saw a significant increase in loss for the nine-month period, driven by the 5G Network Deployment business unit[487] LIQUIDITY AND CAPITAL RESOURCES This section discusses liquidity, highlighting a decrease in cash, negative free cash flow, and the strategy to fund future capital needs Cash, Cash Equivalents and Current Marketable Investment Securities (in thousands): | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | |:---|:---|:---|:---| | Total | $1,035,000 | $2,621,000 | $(1,586,000) | - Cash, cash equivalents, and current marketable investment securities decreased by $1.586 billion, primarily due to capital expenditures for 5G Network Deployment, debt repurchases, and redemptions[488] Net Cash Flows (in thousands) for Nine Months Ended Sep 30, 2023: | Activity | Amount | |:---|:---| | Operating Activities | $1,718,096 | | Investing Activities | $(2,498,267) | | Financing Activities | $(131,725) | Free Cash Flow (in thousands): | Period | 2023 | 2022 | |:---|:---|:---| | Nine Months Ended Sep 30 | $(1,356,530) | $(445,932) | - The company experienced negative free cash flow of $(1.356) billion for the nine months ended September 30, 2023, a significant increase in outflow compared to the prior year, and expects this trend to continue[496][499] - DISH Network does not currently have sufficient cash or projected cash flows to fully fund its 2024 debt maturities and plans to raise additional capital, complete the EchoStar merger, or implement cost reduction initiatives[513][517] - The company is subject to restrictive covenants on its long-term debt, which could trigger immediate repayment if not complied with[507] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 10 of the financial statements for detailed information regarding the company's legal proceedings - For information regarding legal proceedings, refer to Note 10 'Commitments and Contingencies – Litigation' in the Notes to Condensed Consolidated Financial Statements[523] Item 1A. Risk Factors This section updates risk factors, focusing on cyber-attacks, potential impacts from government spending changes, and EchoStar merger risks - The company remains vulnerable to cyber-attacks and other malicious activities, which could disrupt business, lead to financial losses, and damage reputation, despite protective measures[525][527][528][529][530][532] - Changes in U.S. government spending, such as discontinuation of the Affordable Connectivity Program (ACP), could negatively impact Wireless subscriber activations, churn rate, and reimbursements[533][534][535] - Risks related to the EchoStar merger include business uncertainties, contractual restrictions, significant nonrecurring expenses, potential difficulties in integration, and the possibility that anticipated benefits may not be realized[536][538][559][560][561] - The merger is subject to regulatory approvals, and failure to complete it could adversely affect market prices, businesses, and financial conditions of both companies[547][548][549] - Following the merger, EchoStar will have substantially higher leverage, and the combined company will continue to be controlled by one principal stockholder, Charles W. Ergen[550][552][558][565][566][567] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no stock repurchases during the quarter and notes the Board's authorization for future repurchases Issuer Purchases of Equity Securities (July 1, 2023 - September 30, 2023): | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (1) | |:---|:---|:---|:---|:---| | July 1, 2023 - July 31, 2023 | — | $— | — | $1,000,000 | | August 1, 2023 - August 31, 2023 | — | $— | — | $1,000,000 | | September 1, 2023 - September 30, 2023 | — | $— | — | $1,000,000 | | Total | — | $— | — | $1,000,000 | - No Class A common stock was repurchased during the three months ended September 30, 2023[569] - On October 20, 2023, the Board of Directors authorized stock repurchases of up to $1.0 billion of Class A common stock through December 31, 2024[569] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[8] Item 4. Mine Safety Disclosures This section states that there were no mine safety disclosures during the reporting period - No mine safety disclosures were reported[8] Item 5. Other Information This section confirms no directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or Section 16 officers during the quarter ended September 30, 2023[570] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including merger agreements and officer certifications - Key exhibits include the Amended and Restated Agreement and Plan of Merger (October 2, 2023) and the Amended and Restated Support Agreement (October 2, 2023), both incorporated by reference from a Form 8-K filing[572] - The report also includes Section 302 and 906 Certifications from the Chief Executive Officer and Chief Financial Officer, and financial statements in iXBRL format[572] SIGNATURES This section contains the signatures of authorized officers certifying the report's submission - The report is signed by W. Erik Carlson (President and CEO), Paul W. Orban (EVP and CFO), and James S. Allen (SVP and Chief Accounting Officer) on November 6, 2023[575]