EchoStar CORP Q1 FY2024 earnings call

• Merger between DISH and EchoStar is progressing to plan.
• 2024 operating plan targets positive operating free cash flow with $1 billion reduction in annual total operating expenses.
• Focus on 3 distinct go-to-market business units for greater accountability and profitability.
• Tightened focus on selectively acquiring and retaining higher-value subscribers, with ARPU increasing and churn down in Pay-TV and Retail Wireless.
• Innovation efforts include state-of-the-art open RAN wireless network, Jupiter 3 broadband satellite attracting new customers, and operational efficiency improvements in Pay-TV.
• Sling business had ~1.9 million subscribers, with improved churn and viewership per subscriber, and new features launched.
• Hughes enterprise business expanding, with LEO business initial shipments of user terminals and Gartner upgrade to Leader position.
• Retail Wireless business focused on acquiring high-quality subscribers, improving customer experience, and migrating customers to own network.

Revenue for the first quarter of 2024 was $4 billion, down 8% year-over-year. OIBDA was $470 million, down $231 million year-over-year. Free cash flow was negative $226 million, down $66 million year-over-year.

• Pay-TV: Finished Q1 with approximately 8.2 million customers. Saw increased operational efficiency, reduced churn, and ARPU increased by 4.6% per subscriber. Media sales revenue per subscriber continued to grow, and DISH connected was launched.
• Retail Wireless: Finished the quarter with approximately 7.3 million subscribers. Achieved record churn performance (lowest since acquiring Boost), maintained highest ARPU in the prepaid market, and Boost Mobile was net positive in subscriber growth for March.
• Broadband and Satellite Services: HughesNet expanded subscriber acquisition on the Jupiter 3 satellite, with subscriber losses decreasing to 26,000 (lowest in 10 quarters) and ~978,000 satellite broadband subscribers at quarter end. Hughes enterprise business expected to cross over 50% of revenues from enterprises this year.

• Targets positive operating free cash flow in 2024.
• On track to achieve $1 billion reduction in operating expenses.
• Plan to maintain momentum in business units, with focus on improving postpaid business in Retail Wireless.
• Expect continued growth in Retail Wireless with lower churn and increasing ARPU, and positive net additions by year end.

• Complex and delicate nature of debt refinancing process.
• DBS bondholder lawsuit could complicate financing efforts.
• Competitive pressure from content providers shifting content to direct-to-consumer services.
• FCC deadline risks for network deployment milestones.
• Uncertainty around funding sources to meet debt obligations.

Q: Couple of questions from my side. Hamid, you mentioned an oversaturated wireless market out there. Can you update us as far as what your thinking is on fixed wireless? That certainly seems to be a not so saturated market or one that wireless is taking share from maybe easier to market with less cost than competing in the postpaid side. And related, the 5G private network wholesale aspect, can you update us on that? And then I'll have a quick follow-up.

A: Sure. Thank you, Rick. Good to hear from you. The fixed wireless is something that certainly is in the future in the cards for us like everybody else is focused on. At the moment, a higher priority for us is to make sure that we get our prepaid and postpaid business on solid footing and migrate customers On-Net. The greatest economic advantage for us is loading of the network that we have now. And then certainly, we have access to a number of additional opportunities to focus on right after that. I don't see us doing that this year. For the rest of the year, we are solidly booked with optimizing our economics of bringing customers on that. As for the fixed wireless. There's also opportunities for 12 gigahertz for fixed wireless and CBRS at 345 to 355. We have access to those spectrum. And we think that those probably potentially can offer even more advantageous fixed wireless options with greater bandwidth, greater availability just better suited for that purpose. So we have in our arsenal, those capabilities, which we need to develop. So it will be a business modeling and trade off to see which one is best and maybe all of them. But certainly, on the Boost side -- on the Mobile side, we will not have an offering in the market for the fixed wireless this year. I think you had a second part related to wholesale 5G. Again, wholesale is yet another opportunity for 5G that we have some opportunities already in the works. You have heard us about, obviously, there with the [indiscernible], you know that we have done a private 5G area that has expanded to become 2 basis. And we certainly think that has potential to be far, far larger and we are in good contact with the officials and leaders at the government that seem to want to expand that. We are subject to their budget cycles, obviously, and that -- but related to that, we just announced that we were one of the few suppliers. I think we have 5 or 6 suppliers altogether that got selected for a DoD Award of a 10-year program that they have. And I think the total program is $2.7 billion. We certainly expect to get a fair share of that. And to us, the fair share -- to me, personally the fair share is something that should be proportionate to our ability to deliver on 5G and ORAN, the way that [ Envision ] has been beneficial to the government and for their purposes. So I'll leave it at that. But I think we have a lot of prospects in that area. But priority 1 right now this year is to get our basic prepaid and postpaid business significantly ramped up and brought On-Net.

Q: Appreciate it. Obviously, we get relatively few opportunities to engage with you guys about the business. So I want to ask some bigger picture questions. You've got a $4 billion equity market cap and you've got bonds in 2026, they're maturing trading at $0.60 to a dollar. And these two things seem incompatible. So can you -- I mean, at a high level, walk us through the strategy where DISH doesn't or shouldn't file for bankruptcy? And given where you are with the funding situation, what are the facts and circumstances that present themselves, that informs you that management's fiduciary obligation has shifted away from equity and towards the bondholders?

A: So looking at the bigger picture, as you mentioned -- I look at the balance sheet of the business and I see significant asset value on the balance sheet relative to the liabilities. And to me, the art here and the science here is, how can you take advantage of a strong balance sheet, not from a cash perspective, but certainly from an equity to debt, to debt perspective, value of assets to debt perspective and turn that into liquidity to execute on the operation of the business. I mean that's what -- I mean, in a very high level are the job at hand. So in our conversations and discussions with capital sources, we try to make sure that in the short to midterm horizon at least, we have got access to cash and capital to continue to develop our operating business. We're proud of the operating business. I think our operating business, the 2 business units that are more established or generating cash, and they both have significant prospects. I mean the Hughes business, as you mentioned, it's a very promising business and it's [ sphering ] our enterprise business. We haven't talked about direct-to-satellite. We are one of the only companies on earth that can unilaterally activate that business model. We have a spectrum, right around the world matching U.S., and we have prospects of developing that business that would be a very, very significant enhancement to our existing business globally, both in terms of valuation, in terms of operating business, operating cash. So I guess our recipe is very simple, candidly, can we push the maturities out, can we get to the point where we have access to [ renewable ] maturities and push them out so that we have enough cash to operate the business. we're very bullish about our prospects of our operating business if we have the capital to execute. In the short term -- I mean, while we're working on that financing, we're not -- we're not seeing it in our hands and letting those opportunities expire. We continue to develop them. So hopefully, those challenges on financing, we will have a good business to go forward. So that's the way I look at it. I mean at the moment, my focus -- I mean, I'm very bullish on what we do. So I'm not about to change my position on anything that -- on any road map ahead of us. And I don't know how to answer any better your questions about my fiduciary. We are executing to the best of our ability in the best interest of all constituents. That would be our shareholders, our bondholders, I mean, bondholders would certainly want to have a sustainable business to get their -- to the point where they can maximize what they have today. We have a lot of customers and employees that are also I'm responsible for. And we try -- I'm doing -- this management team is doing the best they can to maximize the benefit for all constituents.