EchoStar(SATS) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Disclosure Regarding Forward-Looking Statements This section defines forward-looking statements, identifies key risk factors related to integration, competition, operations, human capital, products/technology, cybersecurity, acquisitions, capital structure, and regulation, and advises investors against undue reliance on these statements - Forward-looking statements are based on current views and assumptions, not guarantees of future performance, and involve known and unknown risks[8] - Key risk factors include challenges in realizing merger synergies, market price volatility, intense competition in video, broadband, and wireless services, and operational dependencies on third-party networks (T-Mobile, AT&T)[9][10][11][14] - Other risks involve intellectual property, cybersecurity threats, substantial debt, the need for additional capital, and control by a principal stockholder[16][17][18] Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for EchoStar Corporation, including balance sheets, statements of operations and comprehensive income (loss), changes in stockholders' equity (deficit), and cash flows, along with detailed notes explaining significant accounting policies, segment information, and other financial disclosures Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Selected Data) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Total current assets | $3,116,539 | $4,891,814 | $(1,775,275) | | Total noncurrent assets | $52,439,878 | $52,217,080 | $222,798 | | Total assets | $55,556,417 | $57,108,894 | $(1,552,477) | | Total current liabilities | $7,004,963 | $8,018,589 | $(1,013,626) | | Total long-term obligations | $28,710,304 | $28,702,013 | $8,291 | | Total liabilities | $35,715,267 | $36,720,602 | $(1,005,335) | | Total stockholders' equity (deficit) | $19,841,150 | $19,949,910 | $(108,760) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations (Selected Data, Three Months Ended March 31) | Metric (in thousands, except per share) | 2024 | 2023 | Change | | :------------------------------------ | :----------- | :----------- | :----------- | | Total revenue | $4,014,843 | $4,387,666 | $(372,823) | | Total costs and expenses | $4,030,087 | $4,034,328 | $(4,241) | | Operating income (loss) | $(15,244) | $353,338 | $(368,582) | | Income (loss) before income taxes | $(110,300) | $366,730 | $(477,030) | | Net income (loss) attributable to EchoStar | $(107,376) | $253,534 | $(360,910) | | Basic net income (loss) per share | $(0.40) | $0.94 | $(1.34) | | Diluted net income (loss) per share | $(0.40) | $0.82 | $(1.22) | Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Changes in Stockholders' Equity (Selected Data, in thousands) | Metric | Balance, Dec 31, 2023 | Balance, Mar 31, 2024 | | :-------------------------------------- | :-------------------- | :-------------------- | | Class A and B Common Stock | $271 | $271 |\ | Additional Paid-In Capital | $8,301,979 | $8,310,877 |\ | Accumulated Other Comprehensive Income (Loss) | $(160,056) | $(164,604) |\ | Accumulated Earnings (Deficit) | $11,737,983 | $11,630,607 |\ | Total EchoStar stockholders' equity (deficit) | $19,880,177 | $19,777,151 | - The company purchased SNR Management's ownership interest in SNR HoldCo for approximately $442 million, eliminating redeemable noncontrolling interests[24][52] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Selected Data, Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net cash flows from operating activities | $451,259 | $789,947 | $(338,688) | | Net cash flows from investing activities | $(238,145) | $(204,858) | $(33,287) | | Net cash flows from financing activities | $(1,420,451) | $84,855 | $(1,505,306) | | Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents | $(1,208,186) | $671,621 | $(1,879,807) | | Cash, cash equivalents, restricted cash and cash equivalents, end of period | $703,415 | $3,233,424 | $(2,520,009) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering the company's organization, recent developments (including the DISH Network merger and going concern uncertainty), significant accounting policies, segment information, debt, commitments, contingencies, and related party transactions 1. Organization and Business Activities - EchoStar completed the acquisition of DISH Network on December 31, 2023, and is now focused on business integration to achieve synergies and cost savings[29][30] - Substantial doubt exists about the company's ability to continue as a going concern due to $1.983 billion debt maturing in November 2024 and forecasted negative cash flows, with active discussions underway to raise additional capital[32][33] - The company operates four primary business segments: Pay-TV (DISH & SLING), Retail Wireless (Boost Mobile & Gen Mobile, transitioning to MNO with 5G VoNR reaching 200 million Americans), 5G Network Deployment (over $30 billion invested in spectrum, 5G broadband reaching 250 million Americans), and Broadband and Satellite Services (978,000 subscribers, EchoStar XXIV satellite in service)[35][36][37][38][39][41][44] 2. Summary of Significant Accounting Policies - The merger with DISH Network was accounted for as a transaction between entities under common control, with DISH Network's net assets combined at historical carrying value and no additional goodwill recognized[47][48] - Beginning January 1, 2024, direct costs related to 5G Network Deployment (e.g., communication tower leases, transport, cloud services) are now classified under "Cost of services" instead of "Cost of sales – equipment and other," reflecting the network's commercial use[49] - The company eliminated redeemable noncontrolling interests by purchasing Northstar Manager's and SNR Management's ownership interests in Northstar Spectrum and SNR HoldCo, respectively, for approximately $109 million and $442 million[51][52] - Capitalized interest related to 5G Network Deployment assets decreased by $88 million for the three months ended March 31, 2024, as assets were placed into service, leading to an increase in "Interest expense, net of amounts capitalized"[57] - New accounting pronouncements on Joint Ventures (ASU 2023-05), Segment Reporting (ASU 2023-07), and Income Taxes (ASU 2023-09) are being evaluated for their impact on financial statements[66][67][68] 3. Basic and Diluted Net Income (Loss) Per Share Basic and Diluted EPS (Three Months Ended March 31) | Metric | 2024 | 2023 | | :-------------------------------------- | :----------- | :----------- | | Net income (loss) attributable to EchoStar - Basic | $(107,376) | $253,534 | | Basic EPS | $(0.40) | $0.94 | | Diluted EPS | $(0.40) | $0.82 | | Weighted-average common shares outstanding - Basic | 271,519 | 269,833 | | Weighted-average common shares outstanding - Diluted | 271,519 | 307,410 | - Dilutive impacts of Convertible Notes (37.55 million shares) and stock awards (27 thousand shares) were excluded from diluted EPS calculation for Q1 2024 due to the net loss attributable to EchoStar, making them anti-dilutive[71][72] 4. Supplemental Data - Statements of Cash Flows Supplemental Cash Flow Data (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | | :-------------------------------------- | :----------- | :----------- | | Cash paid for interest (including capitalized interest) | $230,581 | $270,460 | | Cash received for interest | $31,732 | $21,872 | | Cash paid for income taxes, net of (refunds) | $(41,115) | $502 | | Capitalized interest | $258,367 | $337,094 | | Accrued capital expenditures | $164,693 | $511,453 | 5. Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investments Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investments (Selected Data, in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------------- | :------------- | :---------------- | :----------- | | Total current marketable investment securities | $152,649 | $623,044 | $(470,395) | | Restricted marketable investment securities | $31,266 | $27,840 | $3,426 | | Restricted cash and cash equivalents | $89,713 | $90,225 | $(512) | | Total other investment securities, net | $309,189 | $314,370 | $(5,181) | | Total marketable investment securities, restricted cash and cash equivalents, and other investment securities, net | $582,817 | $1,055,479 | $(472,662) | - The company's option to purchase T-Mobile's 800 MHz spectrum licenses expired on April 1, 2024, with a fair value of zero as of March 31, 2024. T-Mobile has unilaterally barred EchoStar's participation in the subsequent auction[92] Other, net (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Marketable and non-marketable investment securities - realized and unrealized gains (losses) | $(23,893) | $(7,417) | $(16,476) | | Derivative instruments - net realized and/or unrealized gains (losses) | $0 | $(28,961) | $28,961 | | Total Other, net | $(26,110) | $(34,761) | $8,651 | 6. Inventory Inventory (Selected Data, in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change | | :-------------------- | :------------- | :---------------- | :----------- | | Finished goods | $473,444 | $512,894 | $(39,450) | | Total inventory | $632,952 | $665,169 | $(32,217) | 7. Property and Equipment and Intangible Assets Property and Equipment, Net (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | Change | | :-------------------- | :------------- | :---------------- | :--------- | | Total property and equipment | $17,751,314 | $17,747,189 | $4,125 | | Accumulated depreciation | $(8,161,881) | $(8,185,355) | $23,474 | | Property and equipment, net | $9,589,433 | $9,561,834 | $27,599 | Depreciation and Amortization Expense (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | 5G Network Deployment equipment | $166,822 | $61,151 | $105,671 | | Total depreciation and amortization | $485,400 | $347,754 | $137,646 | - The Spaceway 3 satellite was deorbited in January 2024. EchoStar XXV, a new DBS satellite, is under construction and expected to launch in 2026 for the Pay-TV segment[96][101] - The Broadband and Satellite Services segment's EchoStar XXIV satellite began service in December 2023, increasing broadband capacity across North and South America[103] 8. Leases Lease Expense (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Operating lease cost | $167,006 | $117,556 | $49,450 | | Total lease costs | $189,289 | $156,602 | $32,687 | Lease Liabilities (Selected Data, in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------------- | :------------- | :---------------- | :----------- | | Operating lease assets | $3,092,070 | $3,065,448 | $26,622 | | Total operating lease liabilities | $3,498,977 | $3,438,702 | $60,275 | | Total finance lease liabilities | $108,524 | $123,658 | $(15,134) | - The weighted average remaining lease term for operating leases is 10.0 years (down from 10.6 years), and for finance leases is 2.1 years (down from 2.2 years)[109] 9. Long-Term Debt and Finance Lease Obligations Long-Term Debt and Finance Lease Obligations (Selected Data, in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------------- | :------------- | :---------------- | :----------- | | 2 3/8% Convertible Notes due 2024 | $0 | $951,168 | $(951,168) | | 5 7/8% Senior Notes due 2024 | $1,982,544 | $1,982,544 | $0 | | Total long-term debt and finance lease obligations (including current portion) | $21,787,464 | $22,763,920 | $(976,456) | - The company repurchased or redeemed the principal balance of its 2 3/8% Convertible Notes due 2024 as of March 15, 2024[112] - The 0% Convertible Notes due 2025 (principal $2.0 billion) and 3 3/8% Convertible Notes due 2026 (principal $3.0 billion) are unsecured obligations, ranked equally with existing senior unsecured debt, and structurally junior to subsidiaries' liabilities[115][118] - The Intercompany Loan from DISH DBS to DISH Network totaled $7.496 billion as of March 31, 2024, secured by wireless spectrum licenses[129][130] 10. Commitments and Contingencies - EchoStar has invested over $30 billion in Wireless spectrum licenses (plus $9 billion capitalized interest) and needs additional capital to fund 5G Network Deployment and potential AWS-3 re-auction payments[131][132] - The company met its March 2024 5G commitment to provide 5G broadband service to at least 70% of the U.S. population (250 million Americans) and 5G VoNR to 200 million Americans[136] - The FCC determined Northstar Wireless and SNR Wireless were ineligible for 25% bidding credits in the AWS-3 Auction, potentially making EchoStar responsible for re-auction payment differences (e.g., $1.892 billion for Northstar, $1.029 billion for SNR if re-auction bids are $1)[140][142][143] - The company is involved in various lawsuits, including patent infringement claims (ClearPlay, Digital Broadcasting Solutions, Entropic, Realtime Data, SafeCast, Sound View Innovations, TQ Delta, Uniloc), a data breach class action, a 401(k) litigation, a license fee dispute in India (with DirecTV indemnification), and a securities class action related to 5G network buildout[150][157][159][162][165][168][173][175][182][187][194][196][203][209] - A new lawsuit was filed by U.S. Bank Trust Company on April 26, 2024, alleging intracompany asset transfers in January 2024 breached Indentures for DISH DBS Corporation's Senior Secured Notes and Senior Notes, seeking to unwind transfers and award damages[214] - The U.S. government filed a motion to intervene and dismiss the Vermont National qui tam complaint, stating the case is "unlikely to vindicate the United States' interests"[217] 11. Segment Reporting Total Assets by Segment (in thousands) | Segment | March 31, 2024 | December 31, 2023 | Change | | :---------------------------- | :------------- | :---------------- | :----------- | | Pay-TV | $49,306,211 | $49,437,958 | $(131,747) | | Retail Wireless | $750,328 | $777,957 | $(27,629) | | 5G Network Deployment | $47,276,901 | $46,793,378 | $483,523 | | Broadband and Satellite Services | $4,224,153 | $5,811,553 | $(1,587,400) | | Total assets | $55,556,417 | $57,108,894 | $(1,552,477) | Revenue by Segment (Three Months Ended March 31, in thousands) | Segment | 2024 | 2023 | Change | % Change |\ | :---------------------------- | :----------- | :----------- | :----------- | :------- |\ | Pay-TV | $2,726,578 | $2,972,131 | $(245,553) | (8.3)% |\ | Retail Wireless | $905,850 | $974,866 | $(69,016) | (7.1)% |\ | 5G Network Deployment | $29,504 | $18,907 | $10,597 | 56.0% |\ | Broadband and Satellite Services | $382,586 | $439,596 | $(57,010) | (13.0)% |\ | Total revenue | $4,014,843 | $4,387,666 | $(372,823) | (8.5)% | Operating Income (Loss) by Segment (Three Months Ended March 31, in thousands) | Segment | 2024 | 2023 | Change | | :---------------------------- | :----------- | :----------- | :----------- | | Pay-TV | $670,108 | $675,233 | $(5,125) | | Retail Wireless | $(74,417) | $(18,207) | $(56,210) | | 5G Network Deployment | $(570,751) | $(333,603) | $(237,148) | | Broadband and Satellite Services | $(39,554) | $27,705 | $(67,259) | | Total operating income (loss) | $(15,244) | $353,338 | $(368,582) | 12. Revenue Recognition Contract Balances (in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------------- | :------------- | :---------------- | :----------- | | Contract assets | $72,300 | $66,103 | $6,197 | | Contract liabilities | $664,212 | $710,456 | $(46,244) | - Remaining performance obligations for the Broadband and Satellite Services segment decreased by $328 million to $1.412 billion as of March 31, 2024, primarily due to creditworthiness evaluation[227] Contract Acquisition Costs, Net (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Additions | $65,104 | $95,659 | $(30,555) | | Amortization expense | $(94,266) | $(112,883) | $18,617 | | Balance at end of period | $322,813 | $444,104 | $(121,291) | 13. Related Party Transactions - EchoStar deconsolidated Hughes Systique's financial statements as of December 31, 2023, and now records the investment as a cost method investment[229] Transactions with NagraStar (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Purchases from NagraStar | $8,602 | $9,545 | $(943) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on EchoStar's financial condition and operational results, highlighting the impact of the DISH Network merger, segment performance, key financial metrics, and liquidity challenges, including the need for additional capital to address upcoming debt maturities and fund 5G network deployment Overview - EchoStar completed the acquisition of DISH Network on December 31, 2023, and is focused on integration to achieve synergies and growth[234][235] - The company operates four segments: Pay-TV (DISH & SLING), Retail Wireless (Boost Mobile & Gen Mobile, transitioning to MNO with 5G VoNR reaching 200 million Americans), 5G Network Deployment (cloud-native, O-RAN based 5G network, 5G broadband reaching 250 million Americans), and Broadband and Satellite Services (global solutions, EchoStar XXIV satellite in service)[236][237][238][239][240][241][242] - The company experienced inflationary pressures in commodity and labor costs during 2023 and Q1 2024, significantly impacting operating results[243] Explanation of Key Metrics and Other Items - Defines key financial metrics including Service revenue, Equipment sales and other revenue, Cost of services, Cost of sales – equipment and other, Selling, general and administrative expenses, Depreciation and amortization, Impairment of long-lived assets and goodwill, Interest expense, net of amounts capitalized, Other, net, EBITDA, OIBDA, and various subscriber metrics (DISH TV, SLING TV, Pay-TV, Wireless, ACP/Gen Mobile, Broadband)[244][245][246][247][248][249][250][251][252][253][254][255][256][257][259][260][261][262][263][264][265] - Highlights that "Cost of services" now includes direct costs related to 5G Network Deployment since January 1, 2024, due to commercial traffic utilization[246] Results of Operations – Segments This section details the financial performance of EchoStar's four business segments for the three months ended March 31, 2024, compared to the same period in 2023, showing overall revenue decline but varied segment-specific trends in subscriber numbers, ARPU, costs, and operating income/loss Business Segments Total Revenue and Operating Income (Loss) by Segment (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change |\ | :-------------------------------------- | :----------- | :----------- | :----------- | :------- |\ | Total revenue | $4,014,843 | $4,387,666 | $(372,823) | (8.5)% |\ | Total operating income (loss) | $(15,244) | $353,338 | $(368,582) | * | - Consolidated revenue decreased by 8.5% YoY, primarily due to declines in Pay-TV, Retail Wireless, and Broadband and Satellite Services segments[268] - Consolidated operating income shifted to a loss of $15 million from a $353 million income YoY, mainly due to increased operating losses in 5G Network Deployment, Retail Wireless, and Broadband and Satellite Services[269] Pay-TV Segment Pay-TV Segment Performance (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change |\ | :-------------------------------------- | :----------- | :----------- | :----------- | :------- |\ | Total revenue (in thousands) | $2,726,578 | $2,972,131 | $(245,553) | (8.3)% |\ | Operating income (loss) (in thousands) | $670,108 | $675,233 | $(5,125) | (0.8)% |\ | Pay-TV subscribers (millions) | 8.178 | 9.198 | (1.020) | (11.1)% |\ | DISH TV subscribers (millions) | 6.258 | 7.098 | (0.840) | (11.8)% |\ | SLING TV subscribers (millions) | 1.920 | 2.100 | (0.180) | (8.6)% |\ | Pay-TV subscriber additions (losses), net (millions) | (0.348) | (0.552) | 0.204 | 37.0% |\ | Pay-TV ARPU | $107.38 | $102.71 | $4.67 | 4.5% |\ | DISH TV churn rate | 1.53% | 1.98% | (0.45)% | (22.7)% |\ | DISH TV SAC | $1,054 | $1,055 | $(1) | (0.1)% | - Net Pay-TV subscriber losses improved by 37.0% YoY, driven by lower DISH TV and SLING TV subscriber disconnects, partially offset by lower gross new DISH TV activations[288][289] - Pay-TV ARPU increased by 4.5% due to programming price increases for DISH TV and SLING TV, and higher ad sales revenue[295] - Cost of services decreased by 9.2% due to a lower average subscriber base and reduced variable/retention costs, despite higher programming costs per subscriber. Q1 2023 costs were negatively impacted by $30 million in cyber-security-related expenses[296] - The company entered into a $75 million license agreement covering Peloton exercise equipment in Q2 2023 and a license agreement covering NordicTrack exercise equipment in Q1 2024, resolving patent litigation related to Adaptive Bitrate Streaming[283] Retail Wireless Segment Retail Wireless Segment Performance (Three Months Ended March 31) | Metric | 2024 | 2023 | Change | % Change |\ | :-------------------------------------- | :----------- | :----------- | :----------- | :------- |\ | Total revenue (in thousands) | $905,850 | $974,866 | $(69,016) | (7.1)% |\ | Operating income (loss) (in thousands) | $(74,417) | $(18,207) | $(56,210) | * |\ | Wireless subscribers (millions) | 7.297 | 7.913 | (0.616) | (7.8)% |\ | Wireless subscriber additions (losses), net (millions) | (0.081) | (0.081) | 0.000 | * |\ | Wireless ARPU | $36.69 | $36.43 | $0.26 | 0.7% |\ | Wireless churn rate | 3.05% | 4.24% | (1.19)% | (28.1)% | - Net Wireless subscriber losses were flat YoY, with a lower churn rate offset by fewer gross new activations and lower net ACP/Gen Mobile subscriber additions[316] - Wireless ARPU increased by 0.7% due to a shift towards higher-priced service plans[320] - Cost of services decreased by 7.5% due to a lower average subscriber base and reduced network services costs, despite higher monthly dealer incentives. Q1 2023 was negatively impacted by duplicative costs from migrating subscribers off T-Mobile's TSA[322] - The Affordable Connectivity Program (ACP) was projected to end in April 2024, impacting approximately 600,000 ACP subscribers (8% of the Wireless base). The company has plans to retain/migrate these subscribers[308][309] 5G Network Deployment Segment 5G Network Deployment Segment Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change |\ | :-------------------------------------- | :----------- | :----------- | :----------- | :------- |\ | Total revenue | $29,504 | $18,907 | $10,597 | 56.0% |\ | Operating income (loss) | $(570,751) | $(333,603) | $(237,148) | (71.1)% |\ | Depreciation and amortization | $237,187 | $97,627 | $139,560 | * | - Operating loss increased by 71.1% YoY, primarily due to higher depreciation and amortization expenses as 5G Network Deployment assets were placed into service, and increased lease, transport, and cloud services costs[332][334] - The company has invested over $30 billion in Wireless spectrum licenses (plus $9 billion capitalized interest) and expects capital expenditures to decline in the near term but increase again for 2025 build-out requirements[325][376] Broadband and Satellite Services Segment Broadband and Satellite Services Segment Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change |\ | :-------------------------------------- | :----------- | :----------- | :----------- | :------- |\ | Total revenue | $382,586 | $439,596 | $(57,010) | (13.0)% |\ | Operating income (loss) | $(39,554) | $27,705 | $(67,259) | * |\ | Broadband subscribers (millions) | 0.978 | 1.177 | (0.199) | (16.9)% |\ | Broadband subscriber additions (losses), net (millions) | (0.026) | (0.051) | 0.025 | 49.0% | - Net Broadband subscriber losses improved by 49.0% YoY, driven by the launch of the EchoStar XXIV satellite service and increased subscriber demand for new service plans[347] - Service revenue decreased by 15.3% due to lower sales of broadband services to North American consumer and enterprise customers, and the deconsolidation of Hughes Systique from Q1 2023[348] - Depreciation and amortization expense increased by 15.2% due to the EchoStar XXIV satellite being placed into service in December 2023[353] - The segment had approximately $1.512 billion of contracted revenue backlog as of March 31, 2024[338] Other Consolidated Results Other Consolidated Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Operating income (loss) | $(15,244) | $353,338 | $(368,582) | | Interest income | $30,462 | $68,186 | $(37,724) | | Interest expense, net of amounts capitalized | $(99,408) | $(20,033) | $(79,375) | | Other, net | $(26,110) | $(34,761) | $8,651 | | Income (loss) before income taxes | $(110,300) | $366,730 | $(477,030) | | Income tax (provision) benefit, net | $1,925 | $(93,885) | $95,810 | | Net income (loss) attributable to EchoStar | $(107,376) | $253,534 | $(360,910) | - Interest income decreased by $38 million due to lower average cash and marketable investment securities balances[356] - Interest expense, net of amounts capitalized, increased by $79 million as capitalized interest was reduced by $79 million due to 5G Network Deployment assets being placed into service[357] - Other, net expense decreased by $9 million, primarily due to a $29 million decrease in the fair value of the T-Mobile 800 MHz spectrum option in Q1 2023, with no change in Q1 2024[358] Consolidated EBITDA (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net income (loss) attributable to EchoStar | $(107,376) | $253,534 | $(360,910) | | Consolidated EBITDA | $445,045 | $647,020 | $(201,975) | Liquidity and Capital Resources This section discusses EchoStar's liquidity position, cash flow activities, and future capital requirements, highlighting a significant decrease in cash and marketable securities, negative free cash flow, and the urgent need to raise additional capital to address upcoming debt maturities and ongoing 5G network deployment Cash, Cash Equivalents and Current Marketable Investment Securities Cash, Cash Equivalents and Current Marketable Investment Securities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------------- | :------------- | :---------------- | :----------- | | Cash, cash equivalents and current marketable investment securities | $766,000 | $2,444,000 | $(1,678,000) | - The decrease of $1.678 billion was primarily due to $678 million in capital expenditures, $951 million for redemption of 2 3/8% Convertible Notes due 2024, and $442 million for purchasing SNR Management's ownership interest, partially offset by $451 million from operating activities[366] Cash Flow Cash Flow Activities (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change |\ | :-------------------------------------- | :------------- | :------------- | :------------- |\ | Net cash flows from operating activities | $451,259 | $789,947 | $(338,688) |\ | Net cash flows from investing activities | $(238,145) | $(204,858) | $(33,287) |\ | Net cash flows from financing activities | $(1,420,451) | $84,855 | $(1,505,306) | Free Cash Flow (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------------- | :------------- | :------------- | | Free cash flow | $(226,437) | $(160,729) | $(65,708) | - Free cash flow remained negative, decreasing by $65.7 million YoY, primarily due to capital expenditures for 5G Network Deployment. This trend is expected to continue in 2024 and future periods[373][376] Operational Liquidity - Future cash flow is impacted by churn rate, service margins (Pay-TV margins reduced by programming costs, Retail Wireless margins by MNSA/NSA agreements and 5G Network conversion speed), and new subscriber acquisition rates[375] - Operating expenditures for 5G Network Deployment are expected to increase for the remainder of 2024, while capital expenditures are expected to decline in the near term but increase again for 2025 build-out requirements[376] Subscriber Acquisition and Retention Costs - Significant upfront costs are incurred to acquire and retain Pay-TV, Wireless, and Broadband subscribers, including advertising, retailer incentives, equipment subsidies, and installation services[378][379] - Retention costs for DISH TV subscribers involve equipment upgrades (e.g., Hopper® receivers) and retention credits, while for Wireless subscribers, they are primarily promotional pricing on upgraded devices[379] Seasonality - Historically, the first half of the year sees fewer gross new DISH TV subscriber activations, and Q1/Q4 have lower DISH TV churn rates. However, these trends may not be indicative of future performance due to market maturity[380] - Net SLING TV subscriber additions are influenced by major sporting and television events, while Q1 and Q3 generally show higher gross new Wireless subscriber activations[381] Satellites - Adequate satellite transmission capacity is crucial for Pay-TV and Broadband services. Failure or loss of satellites could lead to prolonged service loss or significant costs for replacement capacity[382][383] - The EchoStar XXIV satellite has addressed previous capacity constraints in the Broadband and Satellite Services segment[383] Covenants and Restrictions Related to our Long-Term Debt - The company, DISH Network, DISH DBS, and HSSC were in compliance with covenants and restrictions related to their long-term debt as of the filing date[385][386] - Debt indentures impose limitations on incurring additional debt, paying dividends, making investments, creating liens, and transferring assets. Non-compliance could trigger immediate debt repayment[385][386] Obligations and Future Capital Requirements - The company does not currently have sufficient cash or projected future cash flows to fund Q4 operations or the $1.983 billion debt maturing in November 2024, and is actively seeking additional funding[390][397] - Future capital expenditures are expected for 5G Network Deployment and subscriber premises equipment, which are considered non-discretionary[389] - Declining Pay-TV and Wireless subscriber bases and reduced subscriber-related margins negatively impact cash flow, necessitating additional capital raising which may not be available on favorable terms[391][392] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the company's market risk during the three months ended March 31, 2024, referring to the previous annual report for detailed information - No material changes in market risk occurred during the three months ended March 31, 2024[400] Item 4. Controls and Procedures This section confirms that management, including the CEO and Principal Financial Officer, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[401] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[402] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 10, "Commitments and Contingencies – Contingencies – Litigation," for detailed information regarding the legal proceedings the company is involved in - Legal proceedings information is detailed in Note 10, "Commitments and Contingencies – Contingencies – Litigation"[404] Item 1A. Risk Factors This section directs readers to Item 1A, "Risk Factors," in the company's most recent Annual Report on Form 10-K for a detailed discussion of risk factors - A detailed discussion of risk factors is available in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2023[405] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that the company's stock repurchase program expired on December 31, 2023 - The company's stock repurchase program expired on December 31, 2023[407] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities - No defaults upon senior securities were reported[6] Item 4. Mine Safety Disclosures This section indicates that there were no mine safety disclosures - No mine safety disclosures were reported[6] Item 5. Other Information This section states that none of the company's directors or Section 16 officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2024 - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or Section 16 officers during Q1 2024[408] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including Section 302 and 906 certifications, and financial statements formatted in iXBRL - Exhibits include Section 302 and 906 Certifications of CEO and CFO, and financial statements in iXBRL format[410] Signatures This section contains the signatures of the President and Chief Executive Officer, and the Executive Vice President and Chief Financial Officer, certifying the report - The report is signed by Hamid Akhavan (President and CEO) and Paul W. Orban (EVP and CFO)[414]