Yahoo Finance EchoStar Corporation (NASDAQ:SATS) Q1 2024 Earnings Call Transcript
EchoStar Corporation (NASDAQ:SATS) Q1 2024 Earnings Call Transcript May 8, 2024
EchoStar Corporation misses on earnings expectations. Reported EPS is $-0.41332 EPS, expectations were $-0.17. EchoStar Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to EchoStar Corporation's First Quarter 2024 Earnings Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll now turn the call over to Dean Manson. Dean, you may now begin your presentation.
Dean Manson : Thank you, Rob. Welcome to EchoStar's first quarter 2024 earnings call. We will begin with opening remarks from Hamid Akhavan, President and CEO; followed by Paul Orban, EVP and Principal Financial Officer; Gary Schanman, EVP and Group President of Video Services; Paul Gaske, COO of Hughes; and John Swieringa, President of Technology and COO. We request that any participant producing a report not identify other participants or their firms in such reports. We also do not allow audio recording, which we ask that you respect. All statements we make during this call, other than statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and for any future results expressed or implied by the forward-looking statements. For a list of those factors and risks, please refer to our quarterly report on Form 10-Q for the quarter ended March 31, 2024, filed on May 8 and our subsequent filings made with the SEC. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on any forward-looking statements.
We assume no responsibility for updating any forward-looking statements. Let me refer to OIBDA and free cash flow during this call. The comparable GAAP measure and a reconciliation for OIBDA is presented in our earnings release and for free cash flow, those things are presented in our 10-Q. With that, I'll turn it over to Hamid.
Hamid Akhavan : Thank you, Dean. Welcome, everyone. We appreciate you joining us today. We're just over four months into the merger between DISH and EchoStar and operations are progressing to plan for the year. Given the nature of earnings calls, our prepared remarks will focus mainly on the operating business. However, we understand that most of you are also interested in hearing about our efforts to refinance our maturing debt obligations and improve our cash flow position. To that end, we continue to work on a number of avenues. We have fielded a variety of offers and are pursuing those which can support our long-term objectives. The complex and delicate nature of this process demands time and confidentiality, we will certainly have more to share in due course.
As for the operating business, in the first quarter, we met our budget targets in nearly all important metrics in each of our business units. We will elaborate on some of those results during this call today. To start, as I shared on our last call, our 2024 operating plan targets a positive operating free cash flow. This includes efficiencies, optimizations and synergies, which result in a reduction in our annual total operating expenses of $1 billion. Our first quarter results keeps us on track for achieving that objective. We have sharpened our leadership and operating business on three distinct go-to-market business units. This allows for greater accountability and profitability-focused management, while providing our business leaders greater flexibility when it's needed.
We have tightened our focus on selectively acquiring and retaining higher-value subscribers, and our efforts are already showing up in Q1 numbers. Overall, ARPU is increasing in every business unit, while churn is down in Pay TV and Retail Wireless. As we work to improve our operating profitability, we have not lost our focus on an edge on innovation. Our teams are hard at work developing and enhancing our catalog of offerings for consumer and enterprise customers, with many first-time wins in new sectors and channels. We have a state-of-the-art open RAN wireless network, which is now serving hundreds of thousands of happy customers and demonstrating its power and speed in trials. Our new Jupiter 3 broadband satellite the largest ever in technical operation is attracting new customers at the fastest rate in many years and the Pay TV business unit's operational efficiency has improved year-over-year.
We are pleased by our start to the year and plan to maintain the momentum through the rest of the year. With that, I will turn it over to Paul Orban for additional commentary on our Q1 numbers .
Paul Orban : Thank you, Hamid. As of the last call, I will briefly touch on the going-concern qualification. Please read the financial statements contained in our 10-Q to see the precise disclosure. As a reminder, this evaluation is a technical accounting determination that requires us to consider our current cash position and project our cash position one year from today, and it does not allow us to consider any new funding sources unless that financing is committed as of today. As of the end of the first quarter, our cash and cash equivalents and marketable investment securities totaled $766 million. On February 16, we completed the purchase of SNR Management's ownership interest in SNR HoldCo for $442 million, resulting in SNR now being wholly owned by EchoStar.
On March 15, we paid off our $1 billion debt maturity with cash on hand. We have roughly $2 billion of debt maturing in November 2024, and we do not currently have the necessary cash on hand our projected future cash flows to fund fourth quarter operations or the November '24 debt maturity. To address our capital needs, as Hamid mentioned, we are in discussions with funding sources at all levels in our capital structure. As Hamid highlighted, our teams are focused on maintaining positive operating cash flow, defined as free cash flow, excluding debt service payments and onetime payments related to the construction of our EchoStar 25 satellite. We are on track to meet this goal in 2024 in part by continuing to execute on our plan to remove $1 billion of operating expenses from the business, which includes merger synergies.
We continue to manage all of our brands with a focus on financial discipline and a goal to onboard high-quality and highly profitable subscribers. We are seeing the results in a reported DISH and Retail Wireless churn. Now let's review our financial performance from the first quarter. Revenue was $4 billion in the first quarter of 2024. That's down 8% year-over-year, primarily due to subscriber declines across Pay TV, Retail Wireless and broadband and satellite services. OIBDA was $470 million, down $231 million year-over-year, driven by the ramp in operating costs for the network as we have more sites online as well as decreased margin from having fewer subscribers year-over-year, as previously mentioned. Free cash flow was negative $226 million, is down $66 million year-over-year.
We had a decrease in capital spend for the network of $281 million, which was in line with our prior guidance. The decrease in capital spend was largely offset by the decrease in OIBDA. And was also negatively impacted by working capital items, which we expect to reverse in Q2. After these working capital changes, we were flat to last year. As I discussed last call, we do expect CapEx for the year to be roughly half of what it was in 2023. With that, I'd like to turn it over to Gary to discuss our Pay TV unit.
Gary Schanman: Thank you, Paul. On the Pay TV side, we finished Q1 with approximately 8.2 million customers. We're seeing positive signs of increased operational efficiency in the business. and our focus on customer loyalty and improved quality subscriber acquisition enabled us to reduce churn across our video services business versus last year while also increasing ARPU by 4.6% per subscriber. All in, the improved churn, ARPU and significant lower variable cost achieved by our savings for growth efforts resulted in higher per sub profitability. In particular, our media sales revenue per subscriber continues to grow year-over-year, and our ability to deliver linear programmatic and addressable advertising at scale is one of our strengths, and we're really excited to have launched DISH connected, a new first-of-its-kind service that allows us to deliver programmatic advertising to our set-top box-based customers.
We continue to experience competitive pressure from programmers who ship content from traditional pay TV to their own direct-to-consumer services, and this was evident throughout Q1 during the college football bowl season, NFL playoffs and both the men's and women's NTA basketball tournaments. This has been most pronounced as MAX continues to offer NBA and NHL playoffs are free. Noteworthy also worth mentioning is the pending launch of the Disney Fox Warner Bros. sports JV, which we find fundamentally anticompetitive and warrants an examination by the government. In regards to DISH TV, we finished the quarter with approximately 6.3 million subscribers with Q1 churn significantly lower compared to the same period in 2023. Our Q1 subscriber numbers for DISH TV were again negatively impacted by ongoing local broadcaster disputes.
However, on that note, I'm pleased to report that we did settle a 17-month dispute with Cox Media Group last month and we look forward to a less disruptive year in 2024. We're happy with our initial success in cross-selling Boost and HughesNet to our DISH TV base. This TV cross-sell accounted for 9% of HughesNet gross adds in Q1, and we're working on ways to further integrate our products to improve the customer experience and our value proposition. Regarding the Sling business, one of the industry's only profitable streaming services. We finished the quarter with approximately 1.9 million subscribers, a loss of approximately $135,000 in Q1, about $100,000 better year-over-year. This improved churn is due to our purposeful focus on high-quality profitable subscribers and an improved customer experience.
In fact, our increased product performance and 2023 features have led to an increase of 18% year-over-year viewership per subscriber and we are already seeing early signs of higher engagement driven by new Q1 launches, including our rewards program, which is our new wash and wind loyalty program for both Sling and Freestream fast users. Our Arcade, which is the first streaming TV integrated watch and play casual gaming service, our new sports three day replay, which is a new feature for our DBR users that lets them watch the past three days of sports content and we launched the fast industry's first free DVR on Sling free stream. With Arcade rewards and free DVR, our free steam service is unique in the market and emerging as a significant and efficient funnel for new customer acquisition and additional media sales.
I'm pleased with the momentum that we're building and look forward to where we take our business in 2024. Now I'd like to turn it over to Paul Gaske, who will cover broadband and satellite services.
Paul Gaske : Thank you, Gary. Our broadband and Satellite Services segment operates in both the consumer and enterprise markets. Our consumer business under the HughesNet brand expanded acquisition of subscribers on the Jupiter 3 satellite during the first quarter. We are pleased with the initial response to the new service plans introduced with the additional capacity of Jupiter 3. We also began upgrading existing subscribers on Jupiter 1 and 2, enabling them to benefit from the greater speeds and data provided by the new plans. Our focus remains on attracting the highest value subscribers and reducing churn in 2024. As a result, our subscriber losses decreased to 26,000, the lowest reduction in 10 quarters. We finished Q1 with approximately 978,000 satellite broadband subscribers.
We continue to work on expanding our Hughes enterprise business on several fronts, and we expect Huge to cross over the 50% threshold of its revenues coming from enterprises this year. In our Hughes managed LEO business, we began initial shipments late last year of a Hughes manufactured user terminal based on our unique flat pay electronically steered antenna also not as an ESA. E-S-A, which is manufactured in our U.S.-based facility. We've received very positive feedback from the marketplace on the performance and value of our ESA. As mentioned on our last call, Gartner upgraded us from a challenger to a leader position in the 2023 Gartner Magic Quadrant. We're one of the few companies that has the ability to deliver best-in-class enterprise services on a global scale.
Allowing us to address broad managed services market. In one example of such opportunities, Hughes Defense teamed with Boost wireless and was selected as one of the few providers to supply 5G connectivity and devices under the umbrella of a $2.7 billion 10-year IDIQ contract with the DoD. Lastly, our entry into the in-flight communications business is progressing as we complete key development milestones and prepare to provide service to airline customers such as Delta Airlines. With that, I will turn it back to Hamid for an update on our retail wireless business.
Hamid Akhavan: Thank you, Paul. As has previously been shared, I've taken the helm of our retail wireless business unit as we search for a new leader of the segment. I'm happy to report that we have hit a number of new promising developments. We finished the quarter with approximately 7.3 million subscribers. And while it's not broken out in our numbers, Boost Mobile was net positive in subscriber growth for the month of March. We are not quite where we want to be but we are encouraged by our record churn performance, the lowest churn we have had since acquiring the Boost business. We accomplished this while still maintaining what we believe is the highest ARPU in the prepaid market, which rose slightly during the past quarter.
As in all our business units, our focus has been on acquiring the highest quality subscribers, improving the customer experience and optimizing our network. Our new family plans as well as our tax season offers received a positive response, and we'll continue to expand our customer base through additional competitive offers, flexible service options and the economic benefits of using our own network. We intend to build up on this positive momentum, particularly as we hit critical selling seasons in the back half of the year. To further capitalize on our -- on owner economics, we successfully initiated the migration of hundreds of thousands of customers from our partner networks to our own Boost network. This on-net subscriber base will continue to grow throughout the year.
In spite of this momentum in our prepaid business, we realize we have to -- we have work to do to improve our offerings and execution in the postpaid space, a key objective for the back half of the year. With the expiration of government funding on June 1 for the [ ACP ] program, we are actively working with our HCP customers to transition them to appropriate plans within our Gen Mobile and Boost Mobile brands, including the National Lifeline program. Ensuring Americans have access to high-speed Internet and mobile services is important to the development of our society, and we believe these are essential services in today's world. We will do what we can to the best of our means to support the continuation of service for these individuals. Nonetheless, we expect to lose some customers with the expiration of the program, but we do not expect these losses to have a material impact on our operations or financial performance.
Let me now hand the call to John to cover our network deployment progress.
John Swieringa : Thank you, Hamid. The team has been hard at work executing on our network deployment plan and operating our first of its kind, open ran cloud-native network. As Hamid mentioned, we are actively transitioning existing customers with network compatible devices to our own network, and adding new customers as well. Among other tactics, we've enabled first of its kind over-the-air migrations with minimal customer impact. Throughout this process, we've been pleased with the performance of the network and our ability to take greater advantage of owner economics. While we are still in the early stages of commercializing our network, our on-net customers are experiencing accessibility, retainability and throughput performance on par with competitive services.
We also addressed a key product gap for our customers in the first quarter with our launch of global roaming services. During Q1, 5 out of 10 devices sold and activated at Boost, were compatible with our network. And 3 of those 5 activated directly on net. We now have network compatible devices available from all of our major OEMs and options available in a wide variety of price points. As a number of network compatible devices and our 5G voice coverage continues to grow throughout the year, we expect device activations on our network to increase. In March, we completed our network drive test and filed the results with the FCC, certifying that our 5G network provides download speeds of 35 megabits per second or greater to more than 70% of the U.S. population.
This was an important and final component of our 2023 5G network deployment commitment. It confirms the Boost network is delivering high-quality service to our customers, which is a major achievement and testament to the hard work of our team put into building the world's first open RAN network and doing that in record time. We are focused on expanding and optimizing the Boost network to compete against the incumbents and on meeting our 2025 FCC milestones. In Q1, we invested $391 million which is comparable to $672 million in Q1 of 2023. Our immediate focus has been on capital investments and optimizations required to have a competitive network for Boost customers within our existing and future [indiscernible] footprint. This is a logical progression for us as we move from an accelerated build to running and optimizing our markets with a P&L mindset.
Now I'd like to turn it back to Hamid.
Hamid Akhavan: Thank you, John. In summary, we fully appreciate that liquidity is the most prominent objective at the moment, which is driving our share performance. While we focus significant attention on this critical activity, we are laser-focused on operating the business with greater efficiency and developing these long-term opportunities. We feel good about the prospects and trajectories in our two established business units, namely DISH and Hughes. Both business units are on track to deliver significantly higher efficiencies than last year. As for our nascent retail wireless business unit, it is getting its footing in the marketplace, starting with high on-net customer satisfaction its lowest historical churn and the highest ARPU in the prepaid segment.
We realize we are facing an oversaturated consumer market with a slow expansion in share of wallet from consumers and the competitive nature of the postpaid segment, where we are yet to tap some of the advantages that are an agile, non-legacy and likely utilized infrastructure affords us. All-in-all, I'm encouraged by the operating momentum we have established early in the year, which will help us as we tackle the significant challenges ahead. With that, we'll open it for Q&A.
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