EchoStar CORP Q2 FY2024 earnings call

• EchoStar has been performing as planned through the first six months, focused on integrating operations, advancing 2024 plans, driving business unit alignment, realizing synergies, and managing costs.
• In Pay-TV, operational efficiency gains, improved churn, and ARPU growth were noted, with DISH Connected product scaling and bulk sales division growing.
• In broadband and satellite services, HughesNet consumer business saw subscriber growth and bundle launch, while Enterprise business had significant order receipts and terminal shipments.
• In wireless, Boost Mobile underwent brand refresh with unified experience, new rate plans, and marketing campaign, and network coverage and optimization were ongoing with Boost Mobile network reaching over 200 million Americans with 5G voice and over 250 million with 5G mobile broadband.

Revenue in the second quarter was over $3.95 billion, down 9% year-over-year primarily due to subscriber declines across all lines of business. OIBDA was $442 million, down $181 million year-over-year. Free cash flow was a negative $191 million.

• Pay-TV segment: Finished Q2 with approximately 8.1 million customers. DISH TV had ~6.1 million subscribers in Q2 with churn 12 points lower than Q2 2023. ARPU grew by over 4%. DISH Connected product scaled in Q2. Bulk sales division grew in hospitality and senior living spaces. Sling business had ~2 million subscribers in Q2, a gain of 78,000, with improved customer experience and viewership engagement.
• Broadband and satellite services segment: HughesNet consumer business had ~955,000 broadband subscribers in Q2, with gross additions up ~14% year-over-year. Launched HughesNet DISH TV bundle. HughesNet Enterprise business continued to grow, shipped over 5,000 user terminals based on ESA technology, received significant orders domestically and internationally, and made progress in in-flight communications.
• Wireless segment: Boost Mobile finished Q2 with approximately 7.3 million subscribers. Excluding loss of net ACP subscribers, added ~32,000 net retail wireless subscribers. Churn reduced to 2.93% from 4.54% in the same period last year. ARPU increased as focus was on higher-quality subscribers, improved customer experience, and network optimization. Boost Mobile's customer satisfaction and brand sentiment were improving.

• Expect CapEx for the year to be roughly half of what it was in 2023.
• Wireless business expects retail wireless net additions to be positive for the year.
• No specific guidance on when the wireless business will produce positive EBITDA, but encouraged by current progress and will provide more info in the future.

• Uncertainty regarding debt refinancing to address maturing debt obligation in November.
• Legal risks such as fraudulent conveyance lawsuits and their potential impact on collateral pool and refinancing talks.
• Device compatibility issues affecting wireless business growth and traffic scaling.

Q: When do you need/want to have the cash on hand? Can you remind us how much unencumbered spectrum you have? And is that securitization market open?

A: Paul Orban said they have latitude to wait until the day beforehand to have sufficient cash to pay bills. Regarding unencumbered spectrum, Paul Orban said only 600 megahertz spectrum is encumbered currently, and everything else is unencumbered and can be used to securitize to raise capital.

Q: What is the path to positive net adds for the wireless business and timing to getting retail wireless business to producing positive EBITDA?

A: Hamid Akhavan said the path to positive net adds is not announced yet, and they are not putting projections in the market yet as it's a special year with various activities taking energy and attention, but encouraged by current progress and expects to be more specific next year regarding positive EBITDA.

Q: Any update on 5G private networks?

A: Hamid Akhavan said 5G private network is a nascent market, there are early signs like participating in Spiral 4, DoD, and having a few deployments, but market needs to develop and can't put a big forecast out yet.

Q: What is left within the company that can still be levered? What LTV can they be levered at, and how are current legal liabilities impacting collateral pool and refinancing talks?

A: Hamid Akhavan said spectrum assets are unencumbered and can be used as collateral, and legal lawsuits related to fraudulent conveyance are not seen as preventing progress in refinancing talks currently.

Q: Should we still expect retail wireless net additions to be positive for the year if we strip out ACP losses? And about the wireless network subscribers served on the network doubling quarter-on-quarter?

A: Hamid Akhavan said yes, they still expect retail wireless net additions to be positive for the year. John Swieringa said the availability of compatible devices is the main limitation for on-net subscribers, but traffic is scaling nicely.

Q: Can you give a stat on when device compatibility issue for wireless network may normalize? And phasing of CapEx on wireless side?

A: John Swieringa said Android portfolio for new devices is mostly compatible now, and for Apple, it's iPhone 15 and forward, and CapEx in the second half of the year is pending outcomes related to meeting June 2025 milestones.

Q: Can you give more color on spectrum build-out requirements, and do you need all spectrum to operate mobile business plan?

A: Paul Orban said 90% of the carrying value relates to spectrum with June 2025 deadline, skewing towards cities and larger populations. Hamid Akhavan said they have more spectrum than needed for the business plan, and are focused on refinancing using spectrum as collateral rather than selling it currently.

Q: What are the major friction items preventing wireless business gross adds from ramping, and plans to get rid of them?

A: Hamid Akhavan mentioned distribution being less than competition, phone unlocking issues, and brand elevation as major friction items, and plans to focus on digital experience, support FCC phone unlocking efforts, and elevate the brand in the second half of the year.

Q: About the lawsuit procedure and its impact on refinancing? And comment on wireless business pricing being disruptive?

A: Dean Manson said they'll have to file a motion to dismiss or answer the amended complaint, but it's not critical for refinancing talks. Hamid Akhavan said they are working constructively with parties and the lawsuit doesn't significantly impede refinancing, and wireless business pricing is measured with fair competition expected.

Q: About working capital, seasonality, and ability to extend payables?

A: Paul Orban said changes in working capital are timing related seasonality, and they continue to pay in historical pattern. Paul Gaske said working capital will get a little better as inventory balances come down slightly throughout the year