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4
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Developments
Sale and Transfer of Assets
In accordance with Accounting Standards Codification 805-50 Business Combinations – Related Issues, for transactions among entities under common control, generally the assets transferred and/or sold are recorded at the net carrying value of the assets. The difference between the net carrying value and the fair value of the assets transferred and/or sold is recorded in “Additional paid-in capital” or “Accumulated earnings (deficit)” on our Condensed Consolidated Balance Sheets. If an asset transferred and/or sold among entities under common control is determined to be a financial asset, any gain or loss on the sale of the financial asset is recorded in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All transactions detailed below are transactions among entities under common control.
Sale of Assets to EchoStar. On January 10, 2024, we sold certain assets and equity interests to EchoStar, which included the sale of a financial asset (the “Sale of Assets to EchoStar”), for fair value of approximately $ million. The difference between our net carrying value of the assets sold to their fair value was $ million, of which $ million, net of deferred tax, was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024 and a $ million gain related to the financial asset was recorded in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2024.
Asset Transfer to EchoStar. On January 10, 2024, we transferred our wholly-owned subsidiaries that hold certain assets, including the EchoStar XXV satellite currently under construction, and our wireless spectrum licenses, including AWS-4, H-Block, CBRS (3550-3650 MHz), C-Band – Cheyenne (3.7-3.98 GHz), 12GHz (MVDDS), LMDS, 24 GHz, 28 GHz, 37GHz, 39GHz and 47GHz to EchoStar Wireless Holding L.L.C., a direct wholly-owned subsidiary of our parent, EchoStar (together with the “Intercompany Loan 2026 Tranche” defined below, the “Asset Transfer to EchoStar”). In addition, DISH DBS, in its capacity as “Lender” under the terms of the Loan and Security Agreement related to the Intercompany Loan between DISH Network and DISH DBS, has consummated the assignment pursuant to such terms, without any modification or amendment thereto, of its receivable in respect to the 2026 Tranche of $ billion (the “Intercompany Loan 2026 Tranche”) to DBS Intercompany Receivable L.L.C. DBS Intercompany Receivable L.L.C. has subsequently assigned its rights as lender thereunder to EchoStar Intercompany Receivable Company L.L.C., our parent, EchoStar’s direct wholly-owned subsidiary, such that amounts owed in respect of the 2026 Tranche will now be paid by us to EchoStar Intercompany Receivable L.L.C.
The transferred amount equals our historical net carrying value of these assets, which was $ billion with the offset recorded as a dividend in “Accumulated earnings (deficit)” on our Condensed Consolidated Balance Sheets as of June 30, 2024.
5
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
700 MHz Spectrum Sale to EchoStar. On March 12, 2024, we sold our wholly-owned subsidiary which holds the 700 MHz spectrum to a wholly-owned subsidiary of our parent, EchoStar (the “700 MHz Spectrum Sale to EchoStar”), for fair value of approximately $ billion, of which $ billion was paid in cash as of June 30, 2024 and the remaining balance of $ million is recorded in “Trade accounts receivable” on our Condensed Consolidated Balance Sheets. The difference between our net carrying value of the assets sold to their fair value of $ million, net of deferred tax, was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024. The proceeds were used to pay the remaining balance of $ million on our 2 3/8% Convertible Note which matured on March 15, 2024.
The Sale of Assets to EchoStar, Asset Transfer to EchoStar and 700 MHz Spectrum Sale to EchoStar together are referred to as (the “Sale and Transfer of Assets to EchoStar”).
Orbital II Transfer from EchoStar. On May 2, 2024, EchoStar transferred certain assets to us, including the EchoStar XXV satellite currently under construction. The transferred amount equals our historical net carrying value of these assets, which was $ million with the offset recorded as a capital contribution in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024.
Merger with EchoStar
On December 31, 2023, EchoStar completed the acquisition of DISH Network pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of October 2, 2023 (the “Amended Merger Agreement”), by and among EchoStar, EAV Corp., a Nevada corporation and its wholly owned subsidiary (“Merger Sub”), and DISH Network, pursuant to which EchoStar acquired DISH Network by means of the merger of Merger Sub with and into DISH Network (the “Merger”), with DISH Network surviving the Merger as EchoStar’s wholly owned subsidiary. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
With the Merger complete, we are currently focused on the process of integrating our and EchoStar’s business in a manner that facilitates synergies, cost savings, growth opportunities and achieves other anticipated benefits (the “Integration”).
Future Capital Requirements
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
6
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Because we do not currently have committed financing to fund our operations for at least twelve months from the issuance of these condensed consolidated financial statements, substantial doubt exists about our and our parent, EchoStar’s, ability to continue as a going concern. Based on our cash forecast, we do not currently have the necessary Cash on Hand and/or projected future cash flows to fund fourth quarter 2024 operations or the November 2024 debt maturity. Additionally, our cash forecast contains estimates and assumptions, and we cannot predict the timing of all cash receipts and expenditures with certainty. Variances in timing from our estimates and assumptions may adversely impact our liquidity prior to the fourth quarter. To address our capital needs, we and our parent, EchoStar, are in active discussions with funding sources to raise additional capital. We cannot provide assurances that we will be successful in obtaining such new financing necessary for us to have sufficient liquidity. Further, if we are not successful in these endeavors, our ability to fund the expenditures necessary to meet some of our future FCC build-out requirements and wireless customer growth initiatives will be adversely affected.
In addition, our parent, EchoStar, may not be able to provide additional liquidity in the future.
The condensed consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we not continue as a going concern.
Segments
We currently operate primary business segments: (1) Pay-TV; (2) Retail Wireless and (3) 5G Network Deployment.
Pay-TV
We offer pay-TV services under the DISH® brand and the SLING® brand (collectively “Pay-TV” services). The DISH branded pay-TV service consists of, among other things, Federal Communications Commission (“FCC”) licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, broadcast operations, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in our operations (“DISH TV”). We also design, develop and distribute receiver systems and provide digital broadcast operations, including satellite uplinking/downlinking, transmission and other services to third-party pay-TV providers. The SLING branded pay-TV services consist of, among other things, multichannel, live-linear and on-demand streaming over-the-top (“OTT”) Internet-based domestic, international, Latino and Freestream video programming services (“SLING TV”). As of June 30, 2024, we had million Pay-TV subscribers in the United States, including million DISH TV subscribers and million SLING TV subscribers.
Retail Wireless
We offer nationwide prepaid and postpaid retail wireless services to subscribers primarily under our Boost Mobile® and Gen Mobile® brands (“Retail Wireless” services), as well as a competitive portfolio of wireless devices. Prepaid wireless subscribers generally pay in advance for monthly access to wireless talk, text and data services. Postpaid wireless subscribers are qualified to pay after receiving wireless talk, text and data services, and may also qualify for device financing arrangements.
7
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
5G Network Deployment
We initially invested a total of over $ billion in Wireless spectrum licenses, and a portion of these licenses were included in the Sale and Transfer of Assets to EchoStar. We currently have $ billion of investments related to Wireless spectrum licenses, which does not include $ billion of capitalized interest related to the carrying value of such licenses. See Note 1, Note 2 and Note 9 for further information. We plan to commercialize our Wireless spectrum licenses through the completion of the nation’s first cloud-native, Open Radio Access Network (“O-RAN”) based 5G network (our “5G Network Deployment”). We have committed to deploy a facilities-based 5G broadband network (our “5G Network”) capable of serving increasingly larger portions of the U.S. population at different deadlines.
We will need to raise additional capital in the future, which may not be available on favorable terms, to fund the efforts described below, as well as, among other things, make any potential Northstar Re-Auction Payment and SNR Re-Auction Payment for the AWS-3 licenses retained by the FCC. There can be no assurance that we will be able to complete all build-out requirements or profitably deploy our Wireless spectrum licenses, which may affect the carrying amount of these assets and our future financial condition or results of operations. See Note 9 for further information.
Our Wireless spectrum licenses are subject to certain interim and final build-out requirements, as well as certain renewal requirements. On September 29, 2023, the FCC confirmed we met all of our June 14, 2023 band-specific 5G deployment commitments, and of our nationwide 5G commitments. The single remaining 5G commitment, that at least % of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. We now have the largest commercial deployment of 5G VoNR in the world covering over million Americans and 5G broadband service covering over million Americans. Our fully constructed facilities along with our construction in process will be sufficient to meet many of our build-out requirements over the next year, including our June 14, 2025 milestones. These facilities are for licenses comprising approximately % of the aggregate carrying value, including capitalized interest, for our 600 MHz, and our parent, EchoStar’s 700 MHz, H Block and AWS-4 licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our June 14, 2025 final build-out requirements, we will need to raise additional capital to, among other things, continue our 5G Network Deployment. If we are unable to address our capital needs or encounter unanticipated construction delays, we may be unable to retain such spectrum licenses, which would result in an impairment of our owned licenses.
8
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
9
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
SNR Wireless. SNR Wireless LicenseCo, LLC (“SNR Wireless”) is a wholly-owned subsidiary of SNR Wireless HoldCo, LLC (“SNR HoldCo”), which is an entity owned by us and our parent’s direct wholly-owned subsidiary, EchoStar SNR Holdco L.L.C. and, prior to February 16, 2024, by us and SNR Wireless Management, LLC (“SNR Management”). On February 16, 2024, the FCC consented to the sale of SNR Management’s ownership interests in SNR HoldCo, which was purchased by EchoStar SNR HoldCo L.L.C. for a total of approximately $ million. This purchase resulted in the conversion of our outstanding redeemable noncontrolling interest as it relates to SNR HoldCo to noncontrolling interest, which is now held by our parent, EchoStar, as of the purchase date and we continue to consolidate the SNR Entities into our financial statements.
For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
10
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
11
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
12
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
million and $ million for the three months ended June 30, 2024 and 2023, respectively. Advertising expenses totaled $ million and $ million for the six months ended June 30, 2024 and 2023, respectively.
million and $ million for the three months ended June 30, 2024 and 2023, respectively. Research and development costs totaled $ million and $ million for the six months ended June 30, 2024 and 2023, respectively.
13
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
Cash paid for interest Intercompany Loan 2026 Tranche
—
Cash received for interest
Cash paid for income taxes, net of (refunds)
()
()
Cash paid for income taxes to EchoStar, net of (refunds)
—
—
Capitalized interest (1)
Employee benefits paid in Class A common stock
—
Vendor financing
—
Accrued capital expenditures
Asset retirement obligation
Asset Transfer to EchoStar, including deferred taxes of $ (2)
—
Conversion of outstanding redeemable noncontrolling interest in SNR HoldCo to noncontrolling interest
—
Orbital II Transfer from EchoStar
—
| (1) | See Note 2 for further information. |
| (2) | See Note 1 for further information. |
Beginning in 2024, DISH Network and its domestic subsidiaries join with EchoStar in filing U.S. consolidated federal income tax returns and, in some states, combined or consolidated returns. The federal and state income tax provisions or benefits recorded by DISH Network are generally those that would have been recorded if DISH Network and its domestic subsidiaries had filed returns as a consolidated group independent of EchoStar. Cash is due and paid to EchoStar based on amounts that would be payable based on DISH Network consolidated or combined group filings. Amounts are receivable from EchoStar on a basis similar to when they would be receivable from the IRS or other state taxing authorities. During the three and six months ended June 30, 2024, payments were made to EchoStar for income taxes.
14
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
Strategic - trading/equity
Other
Total current marketable investment securities
Restricted marketable investment securities (1)
Total marketable investment securities
Restricted cash and cash equivalents (1)
Other investments, net:
Equity method investments (2)
Cost method investments
Fair value method investments
Total other investments, net
Total marketable investment securities, restricted cash and cash equivalents, and other investments, net
$
$
| (1) | Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash, cash equivalents and marketable investment securities” on our Condensed Consolidated Balance Sheets. |
| (2) | This change primarily resulted from the Sale and Transfer of Assets to EchoStar, see Note 1 for further information, and the decrease in our investment in Invidi Technologies Corporation, discussed below. |
15
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Restricted Cash, Cash Equivalents and Marketable Investment Securities
As of June 30, 2024 and December 31, 2023, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit, surety bonds and trusts.
Other Investments, net
We have strategic investments in certain debt and/or equity securities that are included in noncurrent “Other investments, net” on our Condensed Consolidated Balance Sheets. Our debt securities are classified as available-for-sale and are recorded at fair value. Generally, our debt investments in non-publicly traded debt instruments without a readily determinable fair value are recorded at amortized cost. Our equity investments where we have the ability to exercise significant influence over the investee are accounted for using the equity method of accounting. Certain of our equity method investments are detailed below.
16
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Invidi Technologies Corporation. We own a % interest in Invidi Technologies Corporation (“Invidi”), an entity that provides proprietary software for the addressable advertising market. Invidi contracts with multichannel video programming distributers to include its software in their respective set-top boxes and DVRs in order to deliver targeted advertisements based on a variety of demographic attributes selected by the advertisers. Invidi has also developed a cloud-based solution for internet protocol-based platforms. During the three months ended June 30, 2024, Invidi impaired the goodwill on their financial statements and our portion of this impairment resulted in a $ million loss in “Equity in earnings (losses) of affiliates” recorded in “Other, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the three months ended June 30, 2024.
We also hold investments that are not accounted for using the equity method of accounting, which are measured at fair value. Investments in equity securities without readily determinable fair values are accounted for at cost, less impairment, and adjusted for observable price changes for identical or similar investments of the same issuer.
Our ability to realize value from our strategic investments in securities that are not publicly traded depends on, among other things, the success of the issuers’ businesses and their ability to obtain sufficient capital, on acceptable terms or at all, and to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.
Fair Value Measurements
Our investments measured at fair value on a recurring basis were as follows:
$
$
$
—
$
$
$
$
—
Debt securities (including restricted):
U.S. Treasury and agency securities
$
$
$
—
$
—
$
$
$
—
$
—
Commercial paper
—
—
—
—
—
—
Corporate securities
—
—
—
—
—
—
Other
—
—
Equity securities
—
—
—
—
Total
$
$
$
$
$
$
$
$
17
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Derivative Instruments
We had the option to purchase certain of T-Mobile’s 800 MHz spectrum licenses from T-Mobile at a fixed price pursuant to the License Purchase Agreement, as defined and detailed in our Annual Report on Form 10-K for the year ended December 31, 2023. This instrument met the definition of a derivative and was valued based upon, among other things, our estimate of the underlying asset price, the expected term, volatility, the risk free rate of return and the probability of us exercising the option. As of June 30, 2024 and December 31, 2023, the derivative’s fair value was on our Condensed Consolidated Balance Sheets. All changes in the derivative’s fair value were recorded in “Other, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). See the table below. We did not exercise the option to purchase the 800 MHz spectrum licenses pursuant to the License Purchase Agreement, which expired on its own terms on April 1, 2024. As a result, the Amended Final Judgment, as defined and detailed in our Annual Report on Form 10-K for the year ended December 31, 2023, requires T-Mobile to auction the spectrum licenses.
We accounted for our option to purchase certain T-Mobile’s 800 MHz spectrum licenses under the License Purchase Agreement as a Level 3 instrument within the fair value hierarchy.
Gains and Losses on Sales and Changes in Carrying Amounts of Investments and Other
“Other, net” within “Other Income (Expense)” included on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:
)
$
$
()
$
Sale of Assets to EchoStar - realized gains (losses)
—
—
—
Derivative instruments - net realized and/or unrealized gains (losses)
—
()
—
()
Gains (losses) related to early redemption of debt
—
—
Equity in earnings (losses) of affiliates
()
()
()
()
Other
()
()
Total
$
()
$
$
$
18
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
Work-in-process and service repairs
Consignment
Raw materials
Total inventory
$
$
-
$
$
Satellites
-
Satellites acquired under finance lease agreements
Furniture, fixtures, equipment and other (1)
-
5G Network Deployment equipment (2)
-
Software and computer equipment
-
Buildings and improvements (1)
-
Land (1)
-
Construction in progress
-
Total property and equipment
Accumulated depreciation
()
()
Property and equipment, net
$
$
| (1) | The change primarily relates to the Sale and Transfer of Assets to EchoStar. See Note 1 for further information. |
| (2) | Includes 5G Network Deployment assets acquired under finance lease agreements. |
19
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
$
$
Satellites
Buildings, furniture, fixtures, equipment and other
5G Network Deployment equipment
Software and computer equipment
Intangible assets and other amortization expense
Total depreciation and amortization
$
$
$
$
Cost of sales and operating expense categories included in our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation and amortization expense related to satellites, equipment leased to customers, or our 5G Network Deployment equipment and software.
Activity relating to our asset retirement obligations was as follows:
$
$
$
Liabilities incurred
Accretion expense
Revision to estimated cash flows
—
—
—
—
Balance at end of period
$
$
$
$
Total included in Other long-term liabilities
$
$
$
$
The corresponding assets, net of accumulated depreciation, related to asset retirement obligations were $ million and $ million as of June 30, 2024 and December 31, 2023, respectively.
20
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Satellite Under Construction
EchoStar XXV. On March 20, 2023, we entered into a contract with Maxar Space LLC for the construction of EchoStar XXV, a DBS satellite that is capable of providing service to the continental United States (“CONUS”) and is intended to be used at the 110 degree orbital location. During the fourth quarter of 2023, we entered into an agreement with Space Exploration Technologies Corp (“SpaceX”) for launch services for this satellite, which is expected to be launched during 2026. The EchoStar XXV contract was included in the Sale and Transfer of Assets to EchoStar on January 10, 2024. Subsequently, on May 2, 2024, the EchoStar XXV contract was included in the Orbital II Transfer from EchoStar. For the six months ended June 30, 2024, capital expenditures for EchoStar XXV totaled $ million, which includes $ million for capital expenditures incurred after May 2, 2024, which is included in “Purchases of property and equipment,” and $ million for capital expenditures incurred between the Sale and Transfer of Assets to EchoStar on January 10, 2024 and May 2, 2024, which is included in “Other, net” within “Net cash flows from investing activities” on our Condensed Consolidated Statements of Cash Flows. See Note 1 for further information.
21
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
, some of which include , and some of which include the leases within . For certain arrangements (generally communication towers), the lease term includes the non-cancelable period plus the renewal period that we are reasonably certain to exercise.
Our Nimiq 5 satellite is accounted for as finance lease within our Pay-TV segment. Substantially all of our remaining leases are accounted for as operating leases, including our Anik F3 satellite lease.
The components of lease expense were as follows:
$
$
$
Short-term lease cost (2)
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Total lease costs
$
$
$
$
| (1) | The increase in operating lease cost is primarily related to communication tower leases. |
| (2) | Leases that have terms of 12 months or less. |
22
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Supplemental cash flow information related to leases was as follows:
$
Operating cash flows from finance leases
$
$
Financing cash flows from finance leases
$
$
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
$
Finance leases
$
—
$
Supplemental balance sheet information related to leases was as follows:
$
Other current liabilities
$
$
Operating lease liabilities
Total operating lease liabilities
$
$
Finance Leases:
Property and equipment, gross
$
$
Accumulated depreciation
()
()
Property and equipment, net
$
$
Other current liabilities
$
$
Other long-term liabilities
Total finance lease liabilities
$
$
Weighted Average Remaining Lease Term:
Operating leases
years
years
Finance leases
years
years
Weighted Average Discount Rate:
Operating leases
%
%
Finance leases
%
%
23
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
$
2025
2026
2027
2028
—
Thereafter
—
Total lease payments
Less: Imputed interest
()
()
()
Total
Less: Current portion
()
()
()
Long-term portion of lease obligations
$
$
$
$
5 7/8% Senior Notes due 2024
DDBS
% Convertible Notes due 2025
DISH
7 3/4% Senior Notes due 2026
DDBS
3 3/8% Convertible Notes due 2026
DISH
5 1/4% Senior Secured Notes due 2026
DDBS
11 3/4% Senior Secured Notes due 2027
DISH
7 3/8% Senior Notes due 2028
DDBS
5 3/4% Senior Secured Notes due 2028
DDBS
5 1/8% Senior Notes due 2029
DDBS
Intercompany Loan 2026 Tranche (2)
—
—
Other notes payable
Subtotal
$
$
Unamortized deferred financing costs and other debt discounts, net
()
()
Finance lease obligations (3)
Total long-term debt and finance lease obligations (including current portion)
$
$
| (1) | We repurchased or redeemed the principal balance of our 2 3/8% Convertible Notes due 2024 as of March 15, 2024, the instrument’s maturity date. |
24
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
| (3) | Disclosure regarding fair value of finance leases is not required. |
We estimated the fair value of our publicly traded long-term debt using market prices in less active markets (Level 2).
Convertible Notes
% Convertible Notes due 2025
On December 21, 2020, we issued $ billion aggregate principal amount of the Convertible Notes due December 15, 2025 in a private placement. These notes will not bear interest, and the principal amount of the Notes will not accrete.
The Convertible Notes due 2025 are:
| ● | our general unsecured obligations; |
| ● | ranked senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes due 2025; |
| ● | ranked equally in right of payment with all of our existing and future unsecured senior indebtedness; |
| ● | ranked effectively junior to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; |
| ● | ranked structurally junior to all indebtedness and other liabilities of our subsidiaries; and |
| ● | not guaranteed by our subsidiaries. |
We may not redeem the Convertible Notes due 2025 prior to the maturity date. If a “fundamental change” (as defined in the related indenture) occurs prior to the maturity date of the Convertible Notes due 2025, holders may require us to repurchase for cash all or part of their Convertible Notes due 2025 at a repurchase price equal to % of the principal amount of such Convertible Notes due 2025, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.
The indenture related to the Convertible Notes due 2025 does not contain any financial covenants and does not restrict us from paying dividends, issuing or repurchasing our other securities, issuing new debt (including secured debt) or repaying or repurchasing our debt.
Subject to the terms of the related indenture, the Convertible Notes due 2025 may be converted at an initial conversion rate of shares of EchoStar’s Class A common stock per $ principal amount of the Convertible Notes due 2025 (equivalent to an initial conversion price of approximately $ per share of EchoStar’s Class A common stock) (the “Initial Conversion Rate”), at any time on or after July 15, 2025 through the second scheduled trading day preceding the maturity date. Holders of the Convertible Notes due 2025 will also have the right to convert the Convertible Notes due 2025 at the Initial Conversion Rate prior to July 15, 2025, but only upon the occurrence of specified events described in the related indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur. Upon any conversion, EchoStar will settle its conversion obligation in cash, shares of EchoStar’s Class A common stock or a combination of cash and shares of EchoStar’s Class A common stock, at its election.
25
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The Convertible Notes due 2026 are:
| ● | our general unsecured obligations; |
| ● | ranked senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes due 2026; |
| ● | ranked equally in right of payment with all of our existing and future unsecured senior indebtedness; |
| ● | ranked effectively junior to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; |
| ● | ranked structurally junior to all indebtedness and other liabilities of our subsidiaries; and |
| ● | not guaranteed by our subsidiaries. |
We may not redeem the Convertible Notes due 2026 prior to the maturity date. If a “fundamental change” (as defined in the related indenture) occurs prior to the maturity date of the Convertible Notes due 2026, holders may require us to repurchase for cash all or part of their Convertible Notes due 2026 at a specified make-whole price equal to % of the principal amount of such Convertible Notes due 2026, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.
The indenture related to the Convertible Notes due 2026 does not contain any financial covenants and does not restrict us from paying dividends, issuing or repurchasing our other securities, issuing new debt (including secured debt) or repaying or repurchasing our debt.
Subject to the terms of the related indenture, the Convertible Notes due 2026 may be converted at an initial conversion rate of shares of EchoStar’s Class A common stock per $ principal amount of Convertible Notes due 2026 (equivalent to an initial conversion price of approximately $ per share of EchoStar’s Class A common stock) (the “Initial Conversion Rate”), at any time on or after March 15, 2026 through the second scheduled trading day preceding the maturity date. Holders of the Convertible Notes due 2026 will also have the right to convert the Convertible Notes due 2026 at the Initial Conversion Rate prior to March 15, 2026, but only upon the occurrence of specified events described in the related indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur. Upon any conversion, EchoStar will settle its conversion obligation in cash, shares of EchoStar’s Class A common stock or a combination of cash and shares of EchoStar’s Class A common stock, at its election.
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(Unaudited)
Concurrently with entering into the convertible note hedge transactions, we also entered into warrant transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to customary anti-dilution adjustments, up to the same number of shares of DISH Network Class A common stock, which initially gives the option counterparties the option to purchase approximately million shares of DISH Network Class A common stock at a price of approximately $ per share, which in connection with the completion of the Merger converted into approximately million shares of EchoStar Class A Common Stock at price ranges of approximately $ to $ per share. We received $ million in cash proceeds from the original sale of these warrants. In accordance with accounting guidance on hedge and warrant transactions, the net cost incurred in connection with the convertible note hedge and warrant transactions are recorded as a reduction in “Additional paid-in capital” within “Stockholder’s Equity (Deficit)” on our Condensed Consolidated Balance Sheets as of December 31, 2016.
We will not be required to make any cash payments to each option counterparty or its affiliates upon the exercise of the options that are a part of the convertible note hedge transactions, but will be entitled to receive from them a number of shares of Class A common stock, an amount of cash or a combination thereof. This consideration is generally based on the amount by which the market price per share of Class A common stock, as measured under the terms of the convertible note hedge transactions, is greater than the strike price of the convertible note hedge transactions during the relevant valuation period under the convertible note hedge transactions. Additionally, if the market price per share of Class A common stock, as measured under the terms of the warrant transactions, exceeds the strike price of the warrants during the measurement period at the maturity of the warrants, we will owe each option counterparty a number of shares of Class A common stock in an amount based on the excess of such market price per share of Class A common stock over the strike price of the warrants. However, as specified under the terms of the warrant transactions, we may elect to settle the warrants in cash.
27
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
After two years post issuance date, a minimum of % of each interest payment due with respect to each tranche of the Intercompany Loan must be paid in cash. Thereafter, interest payments must be paid in cash. Interest will accrue: (a) when paid in cash, at a fixed rate of % per annum in excess of the interest rate applicable to, in the case of the 2026 Tranche, the 5 1/4% Senior Secured Notes due 2026, and in the case of the 2028 Tranche, the 5 3/4% Senior Secured Notes due 2028 (each, the “Cash Accrual Rate” with respect to the applicable tranche); and (b) when paid in kind, at a rate of % per annum in excess of the Cash Accrual Rate for the applicable tranche.
As of June 30, 2024, the total Intercompany Loan amount outstanding plus interest paid in kind was $ billion. During the three and six months ended June 30, 2024, interest payments for the Intercompany Loan paid in cash totaled $ million.
Intercompany Loan 2026 Tranche. In January 2024, DISH DBS assigned the 2026 Tranche of $ billion to EchoStar Intercompany Receivable Company L.L.C., our parent, EchoStar’s, direct wholly-owned subsidiary, such that amounts owed in respect of the 2026 Tranche will now be paid by us to EchoStar Intercompany Receivable L.L.C. The Intercompany Loan 2026 Tranche was previously eliminated in consolidation and held by DISH DBS. As of June 30, 2024, the total “Intercompany Loan 2026 Tranche” amount outstanding plus interest paid in kind was $ billion, not including “Intercompany Loan 2026 Tranche Interest payable in cash” of $ million recorded on our Condensed Consolidated Balance Sheets. During the three and six months ended June 30, 2024, we recorded $ million and $ million, respectively, of “Interest expense, net of amounts capitalized” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The Intercompany Loan is secured by Weminuche’s interest in the wireless spectrum licenses for the 3.45-3.55 GHz Licenses with such cash proceeds up to the total loan amount outstanding including interest paid in kind. Under certain circumstances, DISH Network wireless spectrum licenses (valued based upon a third-party valuation) may be substituted for the collateral. The Intercompany Loan is not included as collateral for the Senior Secured Notes, and the Senior Secured Notes are subordinated to DISH DBS’s existing and certain future unsecured notes with respect to certain realizations under the Intercompany Loan and any collateral pledged as security for the Intercompany Loan.
28
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
billion in Wireless spectrum licenses, and a portion of these licenses were included in the Sale and Transfer of Assets to EchoStar. We currently have $ billion of investments related to Wireless spectrum licenses, which does not include $ billion of capitalized interest related to the carrying value of such licenses. See Note 1 and Note 2 for further information. We plan to commercialize our Wireless spectrum licenses through our 5G Network Deployment. We have committed to deploy our 5G Network capable of serving increasingly larger portions of the U.S. population at different deadlines.
We will need to raise additional capital in the future, which may not be available on favorable terms, to fund the efforts described below, as well as, among other things, make any potential Northstar Re-Auction Payment and SNR Re-Auction Payment for the AWS-3 licenses retained by the FCC. There can be no assurance that we will be able to complete all build-out requirements or profitably deploy our Wireless spectrum licenses, which may affect the carrying amount of these assets and our future financial condition or results of operations.
Wireless Spectrum Licenses
Our Wireless spectrum licenses are subject to certain build-out requirements, as well as certain renewal requirements that are summarized in the table below:
600 MHz Licenses
June 14, 2025 (3)
June 2029
3.45–3.55 GHz Licenses
May 4, 2026 (4)
May 4, 2030 (4)
May 2037
1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz (2)
March 2026
AWS-3
October 2025 (5)
October 2025 (5)
Subtotal owned
Noncontrolling Investments:
SNR
October 2025 (5)
October 2025 (5)
Capitalized Interest (6)
Total Regulatory authorizations, net
$
Leased from EchoStar (7):
700 MHz Licenses (2)
June 14, 2025 (8)
June 2033
AWS-4 Licenses (2)
June 14, 2025 (8)
June 2033
H Block Licenses (2)
June 14, 2025 (9)
June 2033
MVDDS Licenses (1)
July 2024 (10)
LMDS Licenses (1)
—
September 2028
28 GHz Licenses
October 2, 2029 (11)
October 2029
24 GHz Licenses
December 11, 2029 (11)
December 2029
37 GHz, 39 GHz and 47 GHz Licenses
June 4, 2030 (11)
June 2030
3550-3650 MHz Licenses
March 12, 2031 (11)
March 2031
3.7-3.98 GHz Licenses
July 23, 2029 (11)
July 23, 2033 (11)
July 2036
Total Leased from EchoStar
$
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(Unaudited)
| (4) | There are a variety of build-out options and associated build-out metrics associated with these licenses. If the interim build-out requirement is not met, the final build-out requirement may be accelerated by one year from May 2030 to May 2029. |
| (5) | For these licenses, we must provide reliable signal coverage and offer service to at least % of the population of each license area by this date. |
| (6) | See Note 2 for further information. |
| (7) | See Note 1 for further information on the Sale and Transfer of Assets to EchoStar and see Note 12 for Related Party Transactions with EchoStar. |
| (8) | For these licenses, we must offer 5G broadband service to at least % of the population in each Economic Area (which is a service area established by the FCC). On September 29, 2023, the FCC confirmed we have met all of our June 14, 2023 band-specific 5G deployment commitments, and two of our three nationwide 5G commitments. The single remaining 5G commitment, that at least % of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. |
| (9) | For these licenses, we must offer 5G broadband service to at least % of the population in each Economic Area (which is a service area established by the FCC). On September 29, 2023, the FCC confirmed we have met all of our June 14, 2023 band-specific 5G deployment commitments, and two of our three nationwide 5G commitments. The single remaining 5G commitment, that at least % of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. |
| (10) | We have timely filed renewal applications for all these licenses. |
| (11) | There are a variety of build-out options and associated build-out metrics associated with these licenses. |
Commercialization of Our Wireless Spectrum Licenses and Related Assets. On September 29, 2023, the FCC confirmed we have met all of our June 14, 2023 band-specific 5G deployment commitments, and two of our three nationwide 5G commitments. The single remaining 5G commitment, that at least % of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. We now have the largest commercial deployment of 5G VoNR in the world covering over million Americans and 5G broadband service covering over million Americans. We currently expect capital expenditures, excluding capitalized interest, for our 5G Network Deployment to be approximately $ billion, including amounts incurred in 2021, 2022, 2023 and the first six months of 2024. See Note 2 for further information. Our fully constructed facilities along with our construction in process will be sufficient to meet many of our build-out requirements over the next year, including our June 14, 2025 milestones. These facilities are for licenses comprising approximately % of the aggregate carrying value, including capitalized interest, for our 600 MHz and our parent, EchoStar’s 700 MHz, H Block and AWS-4 licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our June 14, 2025 final build-out requirements, we will need to raise additional capital to, among other things, continue our 5G Network Deployment. If we are unable to address our capital needs or encounter unanticipated construction delays, we may be unable to retain such spectrum licenses, which would result in an impairment of our owned licenses.
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(Unaudited)
FCC Order and October 2015 Arrangements. On August 18, 2015, the FCC released a Memorandum Opinion and Order, FCC 15-104 (the “Order”) in which the FCC determined, among other things, that DISH Network has a controlling interest in, and is an affiliate of, Northstar Wireless and SNR Wireless, and therefore DISH Network’s revenues should be attributed to them, which in turn makes Northstar Wireless and SNR Wireless ineligible to receive the % bidding credits (approximately $ billion for Northstar Wireless and $ billion for SNR Wireless). On November 23, 2020, the FCC released a Memorandum Opinion and Order on Remand, FCC 20-160, that found that Northstar Wireless and SNR Wireless are not eligible for bidding credits based on the FCC’s determination that they remain under DISH Network’s de facto control. Northstar Wireless and SNR Wireless appealed the FCC’s order to the D.C. Circuit Court of Appeals. On June 21, 2022, the United States Court of Appeals for the District of Columbia issued an Opinion rejecting this challenge. On January 17, 2023, Northstar Wireless filed a petition for a writ of certiorari asking the United States Supreme Court to hear a further appeal, but that petition was denied on June 30, 2023.
Letters Exchanged between Northstar Wireless and the FCC Wireless Bureau. As outlined in letters exchanged between Northstar Wireless and the Wireless Telecommunications Bureau of the FCC (the “FCC Wireless Bureau”), Northstar Wireless paid the gross winning bid amounts for AWS-3 Licenses and notified the FCC that it would not be paying the gross winning bid amounts for AWS-3 Licenses. As a result of the nonpayment of those gross winning bid amounts, the FCC retained those licenses.
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(Unaudited)
Letters Exchanged between SNR Wireless and the FCC Wireless Bureau. As outlined in letters exchanged between SNR Wireless and the FCC Wireless Bureau, SNR Wireless paid the gross winning bid amounts for AWS-3 Licenses and notified the FCC that it would not be paying the gross winning bid amounts for AWS-3 Licenses. As a result of the nonpayment of those gross winning bid amounts, the FCC retained those licenses.
If the winning bids from re-auction or other award of the AWS-3 licenses retained by the FCC are greater than or equal to the winning bids of SNR Wireless, no additional amounts will be owed to the FCC by SNR Wireless. However, if those winning bids are less than the winning bids of SNR Wireless, then we and our parent, EchoStar, will be responsible for the difference less any overpayment of the SNR interim payment, detailed below (which will be recalculated as % of the winning bids from re-auction or other award) (the “SNR Re-Auction Payment”). For example, if the winning bids in a re-auction are $1, the SNR Re-Auction Payment would be approximately $ billion, which is calculated as the difference between $ billion (the SNR winning bid amounts) and $1 (the winning bids from re-auction) less the resulting $ million overpayment of the SNR interim payment. We cannot predict with any degree of certainty the timing or outcome of any re-auction or the amount of any SNR Re-Auction Payment.
D.C. Circuit Court Opinion. On August 29, 2017, the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) in SNR Wireless LicenseCo, LLC, et al. v. Federal Communications Commission, 868 F.3d 1021 (D.C. Cir. 2017) (the “Appellate Decision”) affirmed the Order in part, and remanded the matter to the FCC to give Northstar Wireless and SNR Wireless an opportunity to seek to negotiate a cure of the issues identified by the FCC in the Order (a “Cure”). On January 26, 2018, SNR Wireless and Northstar Wireless filed a petition for a writ of certiorari, asking the United States Supreme Court to hear an appeal from the Appellate Decision, which the United States Supreme Court denied on June 25, 2018.
32
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(Unaudited)
33
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(Unaudited)
34
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(Unaudited)
We intend to vigorously defend this case. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
Digital Broadcasting Solutions, LLC
On August 29, 2022, Digital Broadcasting Solutions, LLC filed a complaint against our wholly-owned subsidiaries DISH Network L.L.C. and DISH Technologies L.L.C. in the United States District Court for the Eastern District of Texas. The complaint alleges infringement of U.S. Patent No. 8,929,710 (the “710 patent”) and U.S. Patent No. 9,538,122 (the “122 patent”), each entitled “System and method for time shifting at least a portion of a video program.” Generally, the plaintiff contends that the AutoHop feature of our Hopper® set-top boxes infringes the asserted patents. On June 21, 2023, the Court granted the motion of DISH Network L.L.C. and DISH Technologies L.L.C. to have the case transferred to the United States District Court for the District of Colorado.
In May 2023, DISH Network L.L.C. and DISH Technologies L.L.C. filed petitions with the United States Patent and Trademark Office challenging the validity of all claims of the 710 patent and the 122 patent and, on December 11, 2023, the United States Patent and Trademark Office entered decisions instituting each petition. On May 9, 2024, a magistrate judge issued an order granting the defendants’ motion to stay the case pending the petitions before the United States Patent and Trademark Office and any related appeals.
We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patents, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
35
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
36
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
37
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
38
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
39
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
40
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
SafeCast Limited
On June 27, 2022, SafeCast Limited filed a complaint against us in the United States District Court for the Western District of Texas. The complaint alleges that we infringe U.S. Patent No. 9,392,302, entitled “System for providing improved facilities in time-shifted broadcasts” (the “302 patent”). On the same day, it brought complaints in the same court asserting infringement of the same patent against AT&T, Google, HBO, NBCUniversal, Paramount and Verizon. On October 24, 2022, in response to the parties’ joint motion, the Court ordered the case against us transferred to the United States District Court for the District of Colorado. On December 1, 2022, SafeCast filed an amended complaint naming our wholly-owned subsidiaries DISH Network L.L.C. and DISH Technologies L.L.C. as defendants and withdrawing the allegations as to us. The plaintiff is an entity that seeks to license a patent portfolio without itself practicing any of the claims recited therein. On June 22, 2023, DISH Network L.L.C. and DISH Technologies L.L.C. filed a petition with the United States Patent and Trademark Office challenging the validity of the asserted claims of the 302 patent, and on June 26, 2024, the United States Patent and Trademark Office agreed to institute proceedings on that petition. On August 28, 2023, the Court stayed the case pending resolution of the petition.
We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
41
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
42
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
43
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patents, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
44
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
45
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
We intend to vigorously defend this case. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
Vermont National Telephone Company
On September 23, 2016, the United States District Court for the District of Columbia unsealed a qui tam complaint that, on May 13, 2015, Vermont National filed against us; our wholly-owned subsidiaries, American AWS-3 Wireless I L.L.C., American II, American III, and DISH Wireless Holding L.L.C.; Charles W. Ergen (our Chairman) and Cantey M. Ergen (a member of our Board of Directors, at that time); Northstar Wireless; Northstar Spectrum; Northstar Manager; SNR Wireless; SNR HoldCo; SNR Management; and certain other parties. The complaint alleges violations of the federal civil False Claims Act (the “FCA”) based on, among other things, allegations that Northstar Wireless and SNR Wireless falsely claimed bidding credits of % in the AWS-3 Auction when they were allegedly under the de facto control of DISH Network and, therefore, were not entitled to the bidding credits as designated entities under applicable FCC rules. Vermont National participated in the AWS-3 Auction through its wholly-owned subsidiary, VTel Wireless. The complaint was unsealed after the United States Department of Justice notified the District Court that it had declined to intervene in the action. Vermont National seeks to recover on behalf of the United States government approximately $ billion, which reflects the $ billion in bidding credits that Northstar Wireless and SNR Wireless claimed in the AWS-3 Auction, trebled under the FCA. Vermont National also seeks civil penalties of not less than $ and not more than $ for each violation of the FCA. On March 2, 2017, the United States District Court for the District of Columbia entered a stay of the litigation until such time as the United States Court of Appeals for the District of Columbia (the “D.C. Circuit”) issued its opinion in SNR Wireless LicenseCo, LLC, et al. v. F.C.C. The D.C. Circuit issued its opinion on August 29, 2017 and remanded the matter to the FCC for further proceedings.
Thereafter, the District Court maintained the stay until October 26, 2018. On February 11, 2019, the District Court granted Vermont National’s unopposed motion for leave to file an amended complaint. On March 28, 2019, the defendants filed a motion to dismiss Vermont National’s amended complaint, and on March 23, 2021, the District Court granted the motion to dismiss. On April 21, 2021, Vermont National filed a notice of appeal to the United States Court of Appeals for the DC Circuit and, on May 17, 2022, that court reversed the District Court’s dismissal of the complaint. On June 16, 2022, the Defendants-Appellees filed a petition for rehearing or rehearing en banc, but on August 17, 2022, that petition was denied. On August 25, 2023, the FCC provided a sworn declaration stating that “the FCC considers … SNR and Northstar to have fully and timely satisfied their obligations to pay money to the Government arising from the AWS-3 Auction.”
46
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
primary business segments: (1) Pay-TV; (2) Retail Wireless and (3) 5G Network Deployment. See Note 1 for further information.
All other and eliminations primarily include intersegment eliminations related to intercompany debt and the related interest income and interest expense, which are eliminated in consolidation.
The total assets, revenue and operating income, and purchases of property and equipment, net of refunds, (including capitalized interest related to Regulatory authorizations) by segment were as follows:
$
Retail Wireless
5G Network Deployment (1)
Eliminations
()
()
Total assets
$
$
| (1) | This change primarily resulted from the Sale and Transfer of Assets to EchoStar. See Note 1 for further information. |
47
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
$
$
Retail Wireless
5G Network Deployment
Eliminations
()
()
()
()
Total revenue
$
$
$
$
Operating income (loss):
Pay-TV
$
$
$
$
Retail Wireless
()
()
()
()
5G Network Deployment
()
()
()
()
Eliminations
—
—
—
Total operating income (loss)
$
()
$
$
()
$
Purchases of property and equipment, net of refunds, (including capitalized interest related to regulatory authorizations):
Pay-TV
$
$
$
$
Retail Wireless
—
—
—
—
5G Network Deployment
Total purchases of property and equipment, net of refunds, (including capitalized interest related to regulatory authorizations)
$
$
$
$
The revenue from external customers disaggregated by major revenue source was as follows:
$
$
$
Retail wireless services and related revenue
5G network deployment services and related revenue
—
—
—
—
Pay-TV equipment sales and other revenue
Retail wireless equipment sales and other revenue
5G network deployment equipment sales and other revenue
Eliminations
()
()
()
()
Total
$
$
$
$
48
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Current period provision for expected credit losses
Write-offs charged against allowance
()
Acquisitions
—
Balance at end of period
$
Contract liabilities arise when we bill our customers and receive consideration in advance of providing the service. Contract liabilities are recognized as revenue when the service has been provided to the customer. Contract liabilities are recorded in “Deferred revenue and other” and “Long-term deferred revenue and other long-term liabilities” on our Condensed Consolidated Balance Sheets.
The following table summarizes our contract liability balances:
$
Our beginning of period contract liability recorded as customer contract revenue during 2024 was $ million.
Performance Obligations
Pay-TV and Retail Wireless Segments
We apply a practical expedient and do not disclose the value of the remaining performance obligations for contracts that are less than one year in duration, which represent a substantial majority of our revenue. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of our future revenue.
49
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
$
$
$
Additions
Amortization expense
()
()
()
()
Balance at end of period
$
$
$
$
million and $ million, respectively. These amounts are recorded in “Trade accounts receivable” on our Condensed Consolidated Balance Sheets. See Note 1 for further information on the Sale and Transfer of Assets to EchoStar.
“Trade accounts payable”
As of June 30, 2024 and December 31, 2023, trade accounts payable to EchoStar was $ million and $ million, respectively. These amounts are recorded in “Trade accounts payable” on our Condensed Consolidated Balance Sheets.
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DISH NETWORK CORPORATION
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(Unaudited)
TT&C Agreement – Master Transaction Agreement. In September 2019, we entered into an agreement pursuant to which we provide TT&C services to EchoStar for a period ending in September 2021, with the option for EchoStar to renew for a period upon written notice at least prior to the initial expiration (the “MTA TT&C Agreement”). The fees for services provided under the MTA TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. Either party is able to terminate the MTA TT&C Agreement for any reason upon ’ notice. In June 2021, we amended the MTA TT&C Agreement to extend the term until September 2022 and added the option for EchoStar to renew for renewal terms. In August 2022, EchoStar exercised its first renewal option for a period ending in September 2023. In June 2023, EchoStar exercised its second renewal option for a period ending in September 2024.
“Equipment sales and other revenue”
During both the three months ended June 30, 2024 and 2023, we received less than $ million for services provided to EchoStar. During both the six months ended June 30, 2024 and 2023, we received $ million for services provided to EchoStar. These amounts are recorded in “Equipment sales and other revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The agreements pertaining to these revenues are discussed below.
Real Estate Lease Agreements. We have entered into lease agreements pursuant to which we lease certain real estate to EchoStar. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic areas, and EchoStar is responsible for its portion of the taxes, insurance, utilities and maintenance of the premises. The term of each lease is set forth below:
| ● | El Paso Lease Agreement. During 2012, we began leasing certain space at 1285 Joe Battle Blvd., El Paso, Texas to EchoStar for an initial period ending on August 1, 2015, which also provides EchoStar with renewal options for consecutive terms. EchoStar exercised its renewal option for a period ending in July 2027. |
| ● | 90 Inverness Lease Agreement. Effective March 1, 2017, EchoStar leases certain space from us at 90 Inverness Circle East, Englewood, Colorado with an initial term that ended in February 2023 and renewal options for consecutive terms ending in February 2027. EchoStar exercised its renewal option for a period ending in February 2025. |
51
DISH NETWORK CORPORATION
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(Unaudited)
Collocation and Antenna Space Agreements. Effective March 1, 2017, we entered into certain agreements pursuant to which we provide certain collocation and antenna space to HNS through February 2025 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; Monee, Illinois; Englewood, Colorado; and Spokane, Washington. During August 2017, we entered into certain other agreements pursuant to which we provide certain collocation and antenna space to HNS through August 2022 at the following locations: Monee, Illinois and Spokane, Washington. HNS has the option to renew each of these agreements for periods. In May 2022, HNS exercised its renewal option for a period ending in August 2025. HNS may terminate certain of these agreements with ’ prior written notice to us at the following locations: Englewood, Colorado; and Spokane, Washington. The fees for the services provided under these agreements depend, among other things, on the number of racks leased and/or antennas present at the location.
Also in September 2019, we entered into an agreement pursuant to which we provide HNS with antenna space and power in Cheyenne, Wyoming for a period of commencing no later than October 2020, with renewal terms, with prior written notice no more than but no less than prior to the end of the then-current term.
“Cost of services”
During the three months ended June 30, 2024 and 2023, we incurred $ million and $ million, respectively, of costs for services provided to us by EchoStar. During the six months ended June 30, 2024 and 2023, we incurred $ million and $ million, respectively, of costs for services provided to us by EchoStar. These amounts are recorded in “Cost of services” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The agreements pertaining to these expenses are discussed below.
Spectrum Manager Lease Agreement. Effective January 10, 2024, we and EchoStar, on behalf of certain wholly-owned subsidiaries, entered into the Spectrum Manager Lease Agreement pursuant to which we have the right to lease the wireless spectrum licenses AWS-4, H-Block, CBRS (3550-3650 MHz), C-Band– Cheyenne (3.7-3.98 GHz), 12GHz (MVDDS), LMDS, 24 GHz, 28 GHz, 37GHz, 39GHz and 47GHz, and 700 MHz for a nominal fee. Under the applicable accounting guidance in Accounting Standards Codification 842, Leases (“ASC 842”), these wireless spectrum licenses are intangible assets, and therefore excluded from the scope of ASC 842 and are not reflected on our Condensed Consolidated Balance Sheets as right-of-use assets and lease liabilities. We have the right to use the wireless spectrum licenses for as long as EchoStar holds the licenses, subject to certain termination provisions.
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
“Cost of sales – equipment and other”
During the three months ended June 30, 2024 and 2023, we incurred and $ million, respectively, for satellite hosting, operations and maintenance services as well as transmission of certain data to EchoStar. During the six months ended June 30, 2024 and 2023, we incurred and $ million, respectively, for satellite hosting, operations and maintenance services as well as transmission of certain data to EchoStar. These amounts are recorded in “Cost of sales – equipment and other” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The agreements pertaining to these expenses are discussed below.
DBSD North America Agreement. On March 9, 2012, we completed the DBSD Transaction. During the second quarter of 2011, EchoStar acquired Hughes. Prior to our acquisition of DBSD North America and EchoStar’s acquisition of Hughes, DBSD North America and HNS entered into an agreement pursuant to which HNS provides, among other things, hosting, operations and maintenance services for DBSD North America’s satellite gateway and associated ground infrastructure. This agreement generally may be terminated by us at any time for convenience. DBSD North America was included in the Sale and Transfer of Assets to EchoStar. See Note 1 for further information.
TerreStar Agreements. On March 9, 2012, we completed the TerreStar Transaction. Prior to our acquisition of substantially all the assets of TerreStar and EchoStar’s acquisition of Hughes, TerreStar and HNS entered into various agreements pursuant to which HNS provides, among other things, hosting, operations and maintenance services for TerreStar’s satellite gateway and associated ground infrastructure. These agreements generally may be terminated by us at any time for convenience. TerreStar was included in the Sale and Transfer of Assets to EchoStar. See Note 1 for further information.
Hughes Equipment and Services Agreement. In February 2019, we and HNS entered into an agreement pursuant to which HNS will provide us with HughesNet Service and HughesNet equipment for the transmission of certain data related to our 5G Network Deployment. This agreement has an initial term of with automatic renewal for successive terms unless terminated by DISH Network with at least ’ written notice to HNS or by HNS with at least ’ written notice to DISH Network.
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Real Estate Lease Agreements. We have entered into lease agreements pursuant to which we lease certain real estate from EchoStar. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area, and we are responsible for our portion of the taxes, insurance, utilities and maintenance of the premises. The term of each lease is set forth below:
| ● | Meridian Lease Agreement. We lease all of 9601 S. Meridian Blvd. in Englewood, Colorado for a period ending on December 31, 2024. |
| ● | 100 Inverness Lease Agreement. Effective March 1, 2017, we lease certain space from EchoStar at 100 Inverness Terrace East, Englewood, Colorado for a period ending in December 2024. This agreement may be terminated by either party upon ’ prior notice. |
Professional Services Agreement. Prior to 2010, we entered into various agreements with EchoStar including the Transition Services Agreement, Satellite Procurement Agreement and Services Agreement, which all expired on January 1, 2010 and were replaced by a Professional Services Agreement. During 2009, we and EchoStar agreed that EchoStar shall continue to have the right, but not the obligation, to receive the following services from us, among others, certain of which were previously provided under the Transition Services Agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, we and EchoStar agreed that we shall continue to have the right, but not the obligation, to engage EchoStar to manage the process of procuring new satellite capacity for us and receive logistics, procurement and quality assurance services from EchoStar and other support services. On February 28, 2017, DISH Network and EchoStar amended the Professional Services Agreement to, among other things, provide certain transition services to each other. In addition, we and EchoStar amended the Professional Services Agreement effective September 10, 2019 to, among other things, provide certain transition services to each other and to remove certain services no longer necessary.
During March 2020, we and EchoStar added a service under the Professional Services Agreement whereby we provide EchoStar with rights to use certain satellite capacity in exchange for certain credits to amounts owed by us to EchoStar under the TerreStar Agreement described above. The Professional Services Agreement renewed on January 1, 2024 for an additional period until January 1, 2025 and renews automatically for successive periods thereafter, unless terminated earlier by either party upon at least ’ notice. However, either party may terminate the Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least ’ notice.
Revenue for services provided by us to EchoStar under the Professional Services Agreement is recorded in “Service revenue” and “Equipment sales and other revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
In addition, during 2013, we and EchoStar agreed upon a tax sharing arrangement for filing certain combined state income tax returns and a method of allocating the respective tax liabilities between us and EchoStar for such combined returns, through the taxable period ending on December 31, 2017 (the “State Tax Arrangement”). During the third quarter of 2018, we and EchoStar amended the Tax Sharing Agreement and the 2013 agreements (the “Amendment”).
Under the Amendment, among other things, we are entitled to apply the benefit of EchoStar’s 2009 net operating losses to our federal tax return for the year ended December 31, 2008, in exchange for paying EchoStar over time the value of the net annual federal income taxes paid by EchoStar that would have been otherwise offset by their 2009 net operating loss.
The Amendment also contained provisions related to the term of the State Tax Arrangement. As discussed in prior filings, beginning in 2020, DISH Network and EchoStar no longer files a combined state tax return in any state. All requirements under the State Tax Arrangement were fulfilled in 2022.
As a result of the Merger discussed above, DISH Network and EchoStar are analyzing requirements to determine if combined returns are appropriate for tax years beginning in 2024.
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Rovi License Agreement. On August 19, 2016, we entered into a patent license agreement (the “Rovi License Agreement”) with Rovi Corporation (“Rovi”) and, for certain limited purposes, EchoStar. EchoStar is a party to the Rovi License Agreement solely with respect to certain provisions relating to the prior patent license agreement between EchoStar and Rovi. There are payments between us and EchoStar under the Rovi License Agreement.
Hughes Broadband Master Services Agreement. In March 2017, DISH Network L.L.C. (“DNLLC”) and HNS entered into the MSA pursuant to which DNLLC, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders for the Hughes broadband satellite service and related equipment; and (ii) installs Hughes service equipment with respect to activations generated by DNLLC. Under the MSA, HNS will make certain payments to DNLLC for each Hughes service activation generated, and installation performed, by DNLLC. Payments from HNS for services provided are recorded in “Service revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For both the three months ended June 30, 2024 and 2023, these payments were less than $ million. For both the six months ended June 30, 2024 and 2023, these payments were $ million. The MSA has an initial term of with automatic renewal for successive terms. After the first anniversary of the MSA, either party has the ability to terminate the MSA, in whole or in part, for any reason upon at least ’ notice to the other party. Upon expiration or termination of the MSA, HNS will continue to provide the Hughes service to subscribers and make certain payments to DNLLC pursuant to the terms and conditions of the MSA. For each of the three and six months ended June 30, 2024 and 2023, we purchased zero broadband equipment from HNS under the MSA.
Intellectual Property and Technology License Agreement – Share Exchange. Effective March 1, 2017, we and EchoStar entered into an Intellectual Property and Technology License Agreement (“IPTLA”), pursuant to which we and EchoStar license to each other certain intellectual property and technology. The IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, EchoStar granted to us a license to its intellectual property and technology for use by us, among other things, in connection with our continued operation of the Transferred Businesses acquired pursuant to the Share Exchange Agreement, including a limited license to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR” trademark. In addition, we granted a license back to EchoStar, among other things, for the continued use of all intellectual property and technology transferred to us pursuant to the Share Exchange Agreement that is used in EchoStar’s retained businesses.
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Related Party Transactions with NagraStar L.L.C.
We own a % interest in NagraStar, a joint venture that is our primary provider of encryption and related security systems intended to assure that only authorized customers have access to our programming. Certain payments related to NagraStar are recorded in “Cost of services” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, certain other payments are initially included in “Inventory” and are subsequently capitalized as “Property and equipment, net” on our Condensed Consolidated Balance Sheets or expensed as “Selling, general and administrative expenses” or “Cost of services” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when the equipment is deployed. We record all payables in “Trade accounts payable” or “Other accrued expenses and liabilities” on our Condensed Consolidated Balance Sheets. Our investment in NagraStar is accounted for using the equity method.
The table below summarizes our transactions with NagraStar:
$
$
$
As of
June 30,
December 31,
2024
2023
(In thousands)
Amounts Payable and Commitments:
Amounts payable to NagraStar
$
$
Commitments to NagraStar
$
$
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DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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Item 2.MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
You should read the following management’s narrative analysis of our results of operations together with the condensed consolidated financial statements and notes to our financial statements included elsewhere in this Quarterly Report on Form 10-Q. This management’s narrative analysis is intended to help provide an understanding of our financial condition, changes in financial condition and results of our operations and contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 under the caption “Item 1A. Risk Factors.” Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation to update any forward-looking statements.
Overview
Recent Developments
Sale and Transfer of Assets
Sale of Assets to EchoStar. On January 10, 2024, we sold certain assets and equity interests to EchoStar, which included the sale of a financial asset (the “Sale of Assets to EchoStar”), for fair value of approximately $246 million. The difference between our net carrying value of the assets sold to their fair value was $138 million, of which $6 million, net of deferred tax, was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024 and a $129 million gain related to the financial asset was recorded in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2024.
Asset Transfer to EchoStar. On January 10, 2024, we transferred our wholly-owned subsidiaries that hold certain assets, including the EchoStar XXV satellite currently under construction, and our wireless spectrum licenses, including AWS-4, H-Block, CBRS (3550-3650 MHz), C-Band – Cheyenne (3.7-3.98 GHz), 12GHz (MVDDS), LMDS, 24 GHz, 28 GHz, 37GHz, 39GHz and 47GHz to EchoStar Wireless Holding L.L.C., a direct wholly-owned subsidiary of our parent, EchoStar (together with the “Intercompany Loan 2026 Tranche” defined below, the “Asset Transfer to EchoStar”). In addition, DISH DBS, in its capacity as “Lender” under the terms of the Loan and Security Agreement related to the Intercompany Loan between DISH Network and DISH DBS, has consummated the assignment pursuant to such terms, without any modification or amendment thereto, of its receivable in respect to the 2026 Tranche of $4.7 billion (the “Intercompany Loan 2026 Tranche”) to DBS Intercompany Receivable L.L.C. DBS Intercompany Receivable L.L.C. has subsequently assigned its rights as lender thereunder to EchoStar Intercompany Receivable Company L.L.C., our parent, EchoStar’s direct wholly-owned subsidiary, such that amounts owed in respect of the 2026 Tranche will now be paid by us to EchoStar Intercompany Receivable L.L.C.
The transferred amount equals our historical net carrying value of these assets, which was $12.003 billion with the offset recorded as a dividend in “Accumulated earnings (deficit)” on our Condensed Consolidated Balance Sheets as of June 30, 2024.
Tax Associated with the Asset Transfer to EchoStar. During the six months ended June 30, 2024, we recorded $3.775 billion in “Deferred tax liabilities, net” on our Condensed Consolidated Balance Sheets resulting from the step up in basis due to the difference in the fair value compared to the book value of the Asset Transfer to EchoStar, with the offset recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets.
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700 MHz Spectrum Sale to EchoStar. On March 12, 2024, we sold our wholly-owned subsidiary which holds the 700 MHz spectrum to a wholly-owned subsidiary of our parent, EchoStar (the “700 MHz Spectrum Sale to EchoStar”), for fair value of approximately $1.037 billion, of which $1.025 billion was paid in cash as of June 30, 2024 and the remaining balance of $12 million is recorded in “Trade accounts receivable” on our Condensed Consolidated Balance Sheets. The difference between our net carrying value of the assets sold to their fair value of $115 million, net of deferred tax, was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024. The proceeds were used to pay the remaining balance of $951 million on our 2 3/8% Convertible Note which matured on March 15, 2024.
The Sale of Assets to EchoStar, Asset Transfer to EchoStar and 700 MHz Spectrum Sale to EchoStar together are referred to as (the “Sale and Transfer of Assets to EchoStar”).
Orbital II Transfer from EchoStar. On May 2, 2024, EchoStar transferred certain assets to us, including the EchoStar XXV satellite currently under construction. The transferred amount equals our historical net carrying value of these assets, which was $141 million with the offset recorded as a capital contribution in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets as of June 30, 2024.
Merger with EchoStar
On December 31, 2023, EchoStar completed the acquisition of DISH Network pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of October 2, 2023 (the “Amended Merger Agreement”), by and among EchoStar, EAV Corp., a Nevada corporation and its wholly owned subsidiary (“Merger Sub”), and DISH Network, pursuant to which EchoStar acquired DISH Network by means of the merger of Merger Sub with and into DISH Network (the “Merger”), with DISH Network surviving the Merger as EchoStar’s wholly owned subsidiary. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
With the Merger complete, we are currently focused on the process of integrating our and EchoStar’s business in a manner that facilitates synergies, cost savings, growth opportunities and achieves other anticipated benefits (the “Integration”).
Segments
We currently operate three primary business segments: (1) Pay-TV; (2) Retail Wireless; and (3) 5G Network Deployment.
Our Pay-TV segment business strategy is to be the best provider of video services in the United States by providing products with the best technology, outstanding customer service and great value. We offer pay-TV services under the DISH® brand and the SLING® brand (collectively “Pay-TV” services). We promote our Pay-TV services by providing our subscribers with a better “price-to-value” relationship and experience than those available from other subscription television service providers. The DISH branded pay-TV service consists of, among other things, FCC licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, broadcast operations, a leased fiber optic network, in-home service and call center operations and certain other assets utilized in our operations (“DISH TV”). We also design, develop and distribute receiver systems and provide digital broadcast operations, including satellite uplinking/downlinking, transmission and other services to third-party pay-TV providers.
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The SLING branded pay-TV services consist of, among other things, multichannel, live-linear and on-demand streaming over-the-top (“OTT”) Internet-based domestic, international, Latino and Freestream video programming services (“SLING TV”). We market our SLING TV services to consumers who do not subscribe to traditional satellite and cable pay-TV services, as well as to current and recent traditional pay-TV subscribers who desire a lower cost alternative.
We offer nationwide prepaid and postpaid retail wireless services to subscribers primarily under our Boost Mobile® and Gen Mobile® brands (“Retail Wireless” services), as well as a competitive portfolio of wireless devices. We offer customers value by providing choice and flexibility in our Retail Wireless services. We offer competitive consumer plans with no annual service contracts. Our Retail Wireless business strategy is to expand our current target segments and profitably grow our subscriber base by acquiring and retaining high quality subscribers while we continue our 5G Network Deployment. We intend to acquire high quality subscribers by providing competitive offers, choice and outstanding customer service that better meet those subscribers’ needs and budget.
We are currently operating our Retail Wireless segment primarily as a mobile virtual network operator (“MVNO”) as we continue our 5G Network Deployment and commercialize and grow customer traffic on our 5G Network, as defined below. We are transitioning our Retail Wireless segment to a mobile network operator (“MNO”) as our 5G Network has become commercially available and we grow customer traffic on our 5G Network. We are currently activating Boost Mobile subscribers with compatible devices onto our 5G Network in markets where we have reached voice over new radio (“VoNR”). We have deployed 5G VoNR covering over 200 million Americans. Within our MVNO operations, today we depend on T-Mobile and AT&T to provide us with network services under the amended Master Network Services Agreement (“MNSA”) and Network Services Agreement (the “NSA”), respectively. Under the NSA, we expect AT&T will become our primary network services provider.
Our 5G Network Deployment segment strategy is to commercialize our Wireless spectrum licenses through the completion of the nation’s first cloud-native, Open Radio Access Network (“O-RAN”) based 5G network (our “5G Network Deployment”). We have committed to deploy a facilities-based 5G broadband network (our “5G Network”) capable of serving increasingly larger portions of the U.S. population at different deadlines.
On September 29, 2023, the FCC confirmed we have met all of our June 14, 2023 band-specific 5G deployment commitments, and two of our three nationwide 5G commitments. The single remaining 5G commitment, that at least 70% of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. We now have the largest commercial deployment of 5G VoNR in the world covering over 200 million Americans and 5G broadband service covering over 250 million Americans. Our fully constructed facilities along with our construction in process will be sufficient to meet many of our build-out requirements over the next year, including our June 14, 2025 milestones. These facilities are for licenses comprising approximately 90% of the aggregate carrying value, including capitalized interest, for our 600 MHz and our parent, EchoStar’s 700 MHz, H Block and AWS-4 licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our June 14, 2025 final build-out requirements, we will need to raise additional capital to, among other things, continue our 5G Network Deployment. If we are unable to address our capital needs or encounter unanticipated construction delays, we may be unable to retain such spectrum licenses, which would result in an impairment of our owned licenses.
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Future Capital Requirements
We expect to fund our future working capital, capital expenditures, other investments, and debt service requirements from cash generated from operations, existing cash, restricted cash, cash equivalents and marketable investment securities balances, and cash generated through raising additional capital. We may need to make significant additional investments to, among other things, continue our 5G Network Deployment and further commercialize, build-out and integrate our Wireless spectrum licenses and related assets. The amount of capital required to fund our future working capital, capital expenditure and other investment needs varies, depending on, among other things, the rate at which we complete our 5G Network Deployment, the potential purchase of additional wireless spectrum licenses and the rate at which we acquire new subscribers, and the cost of subscriber acquisition and retention. Certain of our capital expenditures for 2024 are expected to be driven by the rate of our 5G Network Deployment as well as costs associated with subscriber premises equipment. These expenditures are necessary for our 5G Network Deployment as well as to operate and maintain our DISH TV services. Consequently, we consider them to be non-discretionary.
We do not currently have the necessary cash, cash equivalents and marketable investment securities and/or projected future cash flows to fund fourth quarter operations or the November 2024 debt maturity. To address our capital needs, we and our parent, EchoStar, are in active discussions with funding sources to raise additional capital.
Our capital expenditures vary depending on, among other things, the number of satellites leased or under construction at any point in time and could increase materially as a result of increased competition, significant satellite failures, or economic weakness and uncertainty. Our DISH TV subscriber base has been declining and there can be no assurance that our DISH TV subscriber base will not continue to decline and that the pace of such decline will not accelerate. In the event that our DISH TV subscriber base continues to decline, it will have a material adverse long-term effect on our cash flow.
We have and expect to continue to incur expenditures in 2024 related to our 5G Network Deployment, including, but not limited to, capital expenditures associated with our 5G Network Deployment and the potential purchase of additional wireless spectrum licenses. The amount of capital required will also depend on, among other things, our available liquidity, the growth of our Retail Wireless segment and the levels of investment necessary to support potential strategic initiatives that may arise from time to time. These factors, including, but not limited to, a reduction in our available future cash flows as a result of our 5G Network Deployment, will require us to raise additional capital in the future, which may not be available on favorable terms.
Volatility in the financial markets has made it more difficult at times for issuers of high-yield indebtedness, such as us, to access capital markets at favorable terms. These developments may have a significant effect on our cost of financing and our liquidity position.
Economic Environment
During 2023 and the first six months of 2024, we experienced inflationary pressures in our commodity and labor costs resulting from the macroeconomic environment in the United States, which has significantly impacted our overall operating results.
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Operational Liquidity
We make general investments in property such as, among others, satellites, wireless devices, set-top boxes, information technology and facilities that support our Pay-TV and Retail Wireless segments. We are also making significant additional investments and may partner with others to, among other things, continue our 5G Network Deployment and further commercialize, build-out and integrate our Wireless spectrum licenses and related assets. Moreover, since we are primarily a subscriber-based company, we also make subscriber-specific investments to acquire new subscribers and retain existing subscribers. While the general investments may be deferred without impacting the business in the short-term, the subscriber-specific investments are less discretionary. Our overall objective is to generate sufficient cash flow over the life of each subscriber to provide an adequate return against the upfront investment. Once the upfront investment has been made for each subscriber, the subsequent cash flow is generally positive, but there can be no assurance that over time we will recoup or earn a return on the upfront investment.
There are a number of factors that impact our future cash flow compared to the cash flow we generate at a given point in time. The first factor is our churn rate and how successful we are at retaining our current subscribers. To the extent we lose subscribers from our existing base, the positive cash flow from that base is correspondingly reduced. The second factor is how successful we are at maintaining our service margins. To the extent our “Cost of services” grow faster than our “Service revenue,” the amount of cash flow that is generated per existing subscriber is reduced. Our Pay-TV service margins have been reduced by, among other things, higher programming costs. Our Retail Wireless service margins are impacted by, among other things, our MNSA agreement with T-Mobile and our NSA agreement with AT&T and the speed with which we are able to migrate Wireless subscribers onto our 5G Network. The third factor is the rate at which we acquire new subscribers. The faster we acquire new subscribers, the more our positive ongoing cash flow from existing subscribers is offset by the negative upfront cash flow associated with acquiring new subscribers. Conversely, the slower we acquire subscribers, the more our operating cash flow is enhanced in that period.
Finally, our future cash flow is impacted by, among other things, the rate at which we complete our 5G Network Deployment, incur litigation expense, and any cash flow from financing activities. We anticipate operating expenditures for our 5G Network Deployment to increase for the remainder of 2024 as we continue to, among other things, deploy cell sites and communication towers to commercialize our 5G Network. Since we reached our 5G Network Deployment milestone of 70% of the U.S. population, we expect our capital expenditures will decline in the near term. However, as we prepare for our next build-out requirements in 2025, we expect our capital expenditures to increase as we approach this deadline. As a result, our historical cash flow is not necessarily indicative of our future cash flows. As of June 30, 2024, as a result of, among other things, capital expenditures for our 5G Network Deployment, we experienced negative cash flow. We expect that this trend will continue in 2024 and in future periods. In addition, declines in our Pay-TV and Wireless subscriber base and any decrease in subscriber-related margins negatively impact our cash flow, and there can be no assurance that our subscriber declines will not continue.
Availability of Credit and Effect on Liquidity
The ability to raise capital has generally existed for us despite economic weakness and uncertainty. While modest fluctuations in the cost of capital will not likely impact our current operational plans, significant fluctuations could have a material adverse effect on our business, results of operations and financial condition.
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Debt Issuances and Maturity
We repurchased or redeemed the principal balance of our 2 3/8% Convertible Notes due 2024 as of March 15, 2024, the instrument’s maturity date.
Our 5 7/8% Senior Notes due 2024 with remaining balance of approximately $1.983 billion mature on November 15, 2024. We do not currently have the necessary cash, cash equivalents and marketable investment securities and/or projected future cash flows to fund the November 2024 debt maturity. To address our capital needs, we are in active discussions with funding sources to raise additional capital.
Covenants and Restrictions Related to our Long-Term Debt
We are subject to the covenants and restrictions set forth in the indentures related to our long-term debt. In particular, the indentures related to our outstanding senior notes issued by DISH DBS Corporation (“DISH DBS”) contain restrictive covenants that, among other things, impose limitations on the ability of DISH DBS and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) enter into sale and leaseback transactions; (iii) pay dividends or make distributions on DISH DBS’ capital stock or repurchase DISH DBS’ capital stock; (iv) make certain investments; (v) create liens; (vi) enter into certain transactions with affiliates; (vii) merge or consolidate with another company; and (viii) transfer or sell assets. The indentures related to our outstanding senior secured notes contain restrictive covenants that, among other things, impose limitations on our ability and certain of our subsidiaries to: (i) incur additional indebtedness; (ii) enter into sale and leaseback transactions; (iii) pay dividends or make distributions on our capital stock or repurchase our capital stock; (iv) make certain investments of spectrum collateral; (v) create liens; (vi) enter into certain transactions with affiliates; (vii) merge or consolidate with another company; and (viii) transfer or sell assets. Should we fail to comply with these covenants, all or a portion of the debt under the senior notes, senior secured notes and our other long-term debt could become immediately payable. The senior notes and senior secured notes also provide that the debt may be required to be prepaid if certain change-in-control events occur. In addition, the Convertible Notes provide that, if a “fundamental change” (as defined in the related indenture) occurs, holders may require us to repurchase for cash all or part of their Convertible Notes.
As of the date of filing of this Quarterly Report on Form 10-Q, we and DISH DBS were in compliance with the covenants and restrictions related to our respective long-term debt.
New Accounting Pronouncements
See Note 2 in the Notes to our Condensed Consolidated Financial Statements for further information.
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Service revenue. “Service revenue” consists principally of Pay-TV and Wireless subscriber revenue. Certain of the amounts included in “Service revenue” are not recurring on a monthly basis.
Equipment sales and other revenue. “Equipment sales and other revenue” principally includes the sale of wireless devices, the non-subsidized sales of Pay-TV equipment and the licensing of certain intellectual property.
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Cost of services. “Cost of services” principally includes Pay-TV programming expenses and other operating costs related to our Pay-TV segment and costs of Wireless services (including costs incurred under the MNSA and NSA). Beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, cost of Wireless services includes certain direct costs related to our 5G Network Deployment, including lease expense on communication towers, transport, cloud services and other costs.
Cost of sales - equipment and other. “Cost of sales – equipment and other” principally includes the cost of wireless devices and other related items, as well as costs related to the non-subsidized sales of Pay-TV equipment. Costs are generally recognized as products are delivered to customers and the related revenue is recognized. In addition, prior to January 1, 2024, “Cost of sales – equipment and other” included certain direct costs related to our 5G Network Deployment, including lease expense on communication towers, transport, cloud services and other costs, which is now included in “Cost of services” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Selling, general and administrative expenses. “Selling, general and administrative expenses” consists primarily of direct sales costs, advertising and selling costs, third-party commissions related to the acquisition of subscribers and employee-related costs associated with administrative services such as legal, information systems, and accounting and finance. In addition, “Selling, general and administrative expenses” includes costs related to the installation of equipment for our new Pay-TV subscribers and the cost of subsidized sales of Pay-TV equipment for new subscribers.
Impairment of long-lived assets and goodwill. “Impairment of long-lived assets and goodwill” includes our impairment losses related to our property and equipment, regulatory authorizations, goodwill and other intangible assets.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” primarily includes interest expense associated with our long-term debt (net of capitalized interest), prepayment premiums, amortization of debt discounts and debt issuance costs associated with our long-term debt, and interest expense associated with our finance lease obligations.
Other, net. The main components of “Other, net” are gains and losses realized on the sale and/or conversion of marketable and non-marketable investment securities and derivative instruments, impairment of marketable and non-marketable investment securities, unrealized gains and losses from changes in fair value of certain marketable and non-marketable investment securities and derivative instruments, foreign currency transaction gains and losses, and equity in earnings and losses of our affiliates.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as “Net income (loss) attributable to DISH Network” plus “Interest expense, net of amounts capitalized” and net of “Interest income,” “Income tax (provision) benefit, net” and “Depreciation and amortization.” This “non-GAAP measure” is reconciled to “Net income (loss) attributable to DISH Network” in our discussion of “Results of Operations” below.
Operating income before depreciation and amortization (“OIBDA”). OIBDA is defined as “Operating income (loss)” plus “Depreciation and amortization.” This “non-GAAP measure” is reconciled to “Operating income (loss)” in our discussion of “Results of Operations” below.
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DISH TV subscribers. We include customers obtained through direct sales, independent third-party retailers and other independent third-party distribution relationships in our DISH TV subscriber count. We also provide DISH TV services to hotels, motels and other commercial accounts. For certain of these commercial accounts, we divide our total revenue for these commercial accounts by $34.99, and include the resulting number, which is substantially smaller than the actual number of commercial units served, in our DISH TV subscriber count.
SLING TV subscribers. We include customers obtained through direct sales and third-party marketing agreements in our SLING TV subscriber count. SLING TV subscriber additions are recorded net of disconnects. SLING TV customers receiving SLING TV Freestream service, or service for no charge, under certain new subscriber promotions, are excluded from our SLING TV subscriber count. For customers who subscribe to multiple SLING TV packages, each customer is only counted as one SLING TV subscriber.
Pay-TV subscribers. Our Pay-TV subscriber count includes all DISH TV and SLING TV subscribers discussed above. For customers who subscribe to both our DISH TV services and our SLING TV services, each subscription is counted as a separate Pay-TV subscriber.
Pay-TV average monthly revenue per subscriber (“Pay-TV ARPU”). We are not aware of any uniform standards for calculating ARPU and believe presentations of ARPU may not be calculated consistently by other companies in the same or similar businesses. We calculate Pay-TV average monthly revenue per Pay-TV subscriber, or Pay-TV ARPU, by dividing average monthly Pay-TV segment “Service revenue,” excluding revenue from broadband services, for the period by our average number of Pay-TV subscribers for the period. The average number of Pay-TV subscribers is calculated for the period by adding the average number of Pay-TV subscribers for each month and dividing by the number of months in the period. The average number of Pay-TV subscribers for each month is calculated by adding the beginning and ending Pay-TV subscribers for the month and dividing by two. SLING TV subscribers on average purchase lower priced programming services than DISH TV subscribers, and therefore, as SLING TV subscribers increase as a percentage of total Pay-TV subscribers, it has had a negative impact on Pay-TV ARPU.
DISH TV average monthly subscriber churn rate (“DISH TV churn rate”). We are not aware of any uniform standards for calculating subscriber churn rate and believe presentations of subscriber churn rates may not be calculated consistently by different companies in the same or similar businesses. We calculate our DISH TV churn rate for any period by dividing the number of DISH TV subscribers who terminated service during the period by the average number of DISH TV subscribers for the same period, and further dividing by the number of months in the period. The average number of DISH TV subscribers is calculated for the period by adding the average number of DISH TV subscribers for each month and dividing by the number of months in the period. The average number of DISH TV subscribers for each month is calculated by adding the beginning and ending DISH TV subscribers for the month and dividing by two.
DISH TV SAC. Subscriber acquisition cost measures are commonly used by those evaluating traditional companies in the pay-TV industry. We are not aware of any uniform standards for calculating the “average subscriber acquisition costs per new DISH TV subscriber activation,” or DISH TV SAC, and we believe presentations of pay-TV SAC may not be calculated consistently by different companies in the same or similar businesses. Our DISH TV SAC is calculated using all costs of acquiring DISH TV subscribers (e.g., subsidized equipment, advertising, installation, commissions and direct sales, etc.) which are included in “Selling, general and administrative expenses,” plus capitalized payments made under certain sales incentive programs and the value of equipment capitalized under our lease program for new DISH TV subscribers, divided by gross new DISH TV subscriber activations. We include all new DISH TV subscribers in our calculation, including DISH TV subscribers added with little or no subscriber acquisition costs.
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Wireless subscribers. We include prepaid and postpaid customers obtained through direct sales, independent third-party retailers and other independent third-party distribution relationships in our Wireless subscriber count. Our Wireless subscriber count includes all Government subsidized subscribers discussed below. Our gross new Wireless subscriber activations exclude all Government subsidized subscribers as we record these subscribers net of disconnects, as discussed below.
Government subsidized wireless subscribers and other wireless subscribers (“Government subsidized subscribers”). Our Government subsidized subscribers have different subscriber economics than our core Wireless subscribers, including a significantly higher churn rate and lower subscriber acquisition costs. Therefore, our Government subsidized subscriber additions are recorded net of disconnects. Our Government subsidized subscriber count includes Wireless subscribers that participate in government subsidized programs, including the ACP program and Lifeline program, defined below, and other subscribers acquired under the Gen Mobile brand. The Affordable Connectivity Program (“ACP”) is a federal program offering broadband services and devices discounts to help low-income individuals that meet certain eligibility criteria. The ACP program funding concluded on June 1, 2024. The Lifeline Program is a federal program offering broadband services discounts to help low-income individuals that meet certain eligibility criteria. Certain states also offer a separate Lifeline program.
Wireless average monthly revenue per subscriber (“Wireless ARPU”). We are not aware of any uniform standards for calculating ARPU and believe presentations of ARPU may not be calculated consistently by other companies in the same or similar businesses. We calculate average monthly revenue per Wireless subscriber, or Wireless ARPU, by dividing average monthly Retail Wireless segment “Service revenue” for the period by our average number of Wireless subscribers for the period. The average number of Wireless subscribers is calculated for the period by adding the average number of Wireless subscribers for each month and dividing by the number of months in the period. The average number of Wireless subscribers for each month is calculated by adding the beginning and ending Wireless subscribers for the month and dividing by two.
Wireless average monthly subscriber churn rate (“Wireless churn rate”). We are not aware of any uniform standards for calculating subscriber churn rate and believe presentations of subscriber churn rates may not be calculated consistently by different companies in the same or similar businesses. We calculate our “Wireless churn rate” for any period by dividing the number of Wireless subscribers who terminated service during the period by the average number of Wireless subscribers for the same period, and further dividing by the number of months in the period. The average number of Wireless subscribers is calculated for the period by adding the average number of Wireless subscribers for each month and dividing by the number of months in the period. The average number of Wireless subscribers for each month is calculated by adding the beginning and ending Wireless subscribers for the month and dividing by two. Government subsidized subscriber additions are recorded net of disconnects and therefore excluded from our calculation of our Wireless churn rate.
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RESULTS OF OPERATIONS – Segments
Business Segments
We currently operate three primary business segments: (1) Pay-TV; (2) Retail Wireless; and (3) 5G Network Deployment. Revenue and operating income (loss) by segment are shown in the table below:
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.
| | | | | | | | | | | |
| | For the Three Months Ended | | | | | | ||||
| | June 30, | | Variance | |||||||
| | 2024 |
| 2023 |
|
| Amount | | % | ||
| | (In thousands) | | | |||||||
Revenue: | | | | | | | | | | | |
Pay-TV | | $ | 2,676,284 | | $ | 2,975,140 | | $ | (298,856) | | (10.0) |
Retail Wireless | | | 891,531 | | | 928,241 | | | (36,710) | | (4.0) |
5G Network Deployment | | | 34,892 | | | 19,079 | | | 15,813 | | 82.9 |
Eliminations | | | (34,437) | | | (10,883) | | | (23,554) | | * |
Total revenue | | $ | 3,568,270 | | $ | 3,911,577 | | $ | (343,307) | | (8.8) |
| | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | |
Pay-TV | | $ | 667,797 | | $ | 720,792 | | $ | (52,995) | | (7.4) |
Retail Wireless | | | (121,362) | | | (112,499) | | | (8,863) | | (7.9) |
5G Network Deployment | | | (578,206) | | | (401,959) | | | (176,247) | | (43.8) |
Eliminations | | | — | | | — | | | — | | * |
Total operating income (loss) | | $ | (31,771) | | $ | 206,334 | | $ | (238,105) | | * |
| | | | | | | | | | | |
*Percentage is not meaningful
Total revenue. Our consolidated revenue totaled $3.568 billion for the three months ended June 30, 2024, a decrease of $343 million or 8.8% compared to the same period in 2023. The net decrease primarily resulted from the decrease in revenue from our Pay-TV and Retail Wireless segments.
Total operating income (loss). Our consolidated operating loss totaled $32 million for the three months ended June 30, 2024, compared to operating income of $206 million during the same period in 2023. This change primarily resulted from an increase in operating loss from our 5G Network Deployment and Retail Wireless segments and a decrease in operating income from our Pay-TV segment.
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Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.
| | | | | | | | | | | |
| | For the Six Months Ended | | | | | | ||||
| | June 30, | | Variance | |||||||
| | 2024 |
| 2023 | |
| Amount | | % | ||
| | (In thousands) | | | |||||||
Revenue: | | | | | | | | | | | |
Pay-TV | | $ | 5,402,862 | | $ | 5,947,271 | | $ | (544,409) | | (9.2) |
Retail wireless | | | 1,797,381 | | | 1,903,107 | | | (105,726) | | (5.6) |
5G network deployment | | | 63,820 | | | 37,986 | | | 25,834 | | 68.0 |
Eliminations | | | (55,904) | | | (19,805) | | | (36,099) | | * |
Total revenue | | $ | 7,208,159 | | $ | 7,868,559 | | $ | (660,400) | | (8.4) |
| | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | |
Pay-TV | | $ | 1,338,040 | | $ | 1,396,025 | | $ | (57,985) | | (4.2) |
Retail wireless | | | (195,779) | | | (130,706) | | | (65,073) | | (49.8) |
5G network deployment | | | (1,148,240) | | | (735,562) | | | (412,678) | | (56.1) |
Eliminations | | | 187 | | | — | | | 187 | | * |
Total operating income (loss) | | $ | (5,792) | | $ | 529,757 | | $ | (535,549) | | * |
| | | | | | | | | | | |
*Percentage not meaningful.
Total revenue. Our consolidated revenue totaled $7.208 billion for the six months ended June 30, 2024, a decrease of $660 million or 8.4% compared to the same period in 2023. The net decrease primarily resulted from the decrease in revenue from our Pay-TV and Retail Wireless segments.
Total operating income (loss). Our consolidated operating loss totaled $6 million for the six months ended June 30, 2024, compared to operating income of $530 million during the same period in 2023. This change primarily resulted from an increase in operating loss from our 5G Network Deployment and Retail Wireless segments and a decrease in operating income from our Pay-TV segment.
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Pay-TV Segment
We offer Pay-TV services under the DISH brand and the SLING brand. As of June 30, 2024, we had 8.074 million Pay-TV subscribers in the United States, including 6.076 million DISH TV subscribers and 1.998 million SLING TV subscribers.
We promote our Pay-TV services by providing our subscribers with better service, technology and value than those available from other subscription television service providers. We offer a wide selection of video services under the DISH TV brand, with access to hundreds of channels depending on the level of subscription. Our standard programming packages generally include programming provided by national cable networks. We also offer programming packages that include local broadcast networks, specialty sports channels, premium movie channels and Latino and international programming. We market our SLING TV services to consumers who do not subscribe to traditional satellite and cable pay-TV services, as well as to current and recent traditional pay-TV subscribers who desire a lower cost alternative. Our SLING TV services require an Internet connection and are available on multiple streaming-capable devices including, among others, streaming media devices, TVs, tablets, computers, game consoles and phones. We offer SLING domestic, SLING International, SLING Latino and SLING Freestream video programming services.
Trends in our Pay-TV Segment
Competition
Competition has intensified in recent years as the pay-TV industry has matured. We and our competitors increasingly must seek to attract a greater proportion of new subscribers from each other’s existing subscriber bases rather than from first-time purchasers of pay-TV services. We face substantial competition from established pay-TV providers and broadband service providers and increasing competition from companies providing/facilitating the delivery of video content via the Internet to computers, televisions, and other streaming and mobile devices, including wireless service providers. In recent years, industry consolidation and convergence has created competitors with greater scale and multiple product/service offerings. These developments, among others, have contributed to intense and increasing competition, and we expect such competition to continue.
We incur significant costs to retain our existing DISH TV subscribers, generally as a result of upgrading their equipment to next generation receivers, primarily including our Hopper® receivers, and by providing retention credits. Our DISH TV subscriber retention costs may vary significantly from period to period.
Many of our competitors have been especially aggressive by offering discounted programming and services for both new and existing subscribers, including, but not limited to, bundled offers combining broadband, video and/or wireless services and other promotional offers. Certain competitors have been able to subsidize the price of video services with the price of broadband and/or wireless services.
Our Pay-TV services also face increased competition from programmers and other companies who distribute video directly to consumers over the Internet, as well as traditional satellite television providers, cable companies and large telecommunications companies that are rapidly increasing their Internet-based video offerings and direct-to-consumer exclusive and non-exclusive content. We also face competition from providers of video content, many of which are providers of programming content to us, that distribute content over the Internet including services with live-linear television programming, as well as single programmer offerings and offerings of large libraries of on-demand content, including in certain cases original content. These product offerings include, but are not limited to, Netflix, Hulu, Apple+, Prime Video, YouTube TV, Disney+, ESPN+, Paramount+, Max, STARZ, Peacock, Fubo, Philo, Tubi and Venu Sports and certain bundles of these offerings.
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Significant changes in consumer behavior regarding the means by which consumers obtain video entertainment and information in response to digital media competition could have a material adverse effect on our business, results of operations and financial condition or otherwise disrupt our business.
In particular, consumers have shown increased interest in viewing certain video programming in any place, at any time and/or on any broadband or Internet-connected device they choose. Online content providers may cause our subscribers to disconnect our DISH TV services (“cord cutting”), downgrade to smaller, less expensive programming packages (“cord shaving”) or elect to purchase through these online content providers a certain portion of the services that they would have historically purchased from us.
Mergers and acquisitions, joint ventures and alliances among cable television providers, telecommunications companies, programming providers and others may result in, among other things, greater scale and financial leverage and increase the availability of offerings from providers capable of bundling video, broadband and/or wireless services in competition with our services and may exacerbate the risks described under the caption “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 and elsewhere in our public filings. These transactions may affect us adversely by, among other things, making it more difficult for us to obtain access to certain programming networks on nondiscriminatory and fair terms, or at all.
Our Pay-TV subscriber base has been declining due to, among other things, the factors described above. There can be no assurance that our Pay-TV subscriber base will not continue to decline and that the pace of such decline will not accelerate. As our Pay-TV subscriber base continues to decline, it could have a material adverse long-term effect on our business, results of operations, financial condition and cash flow.
Programming
Our ability to compete successfully will depend, among other things, on our ability to continue to obtain desirable programming and deliver it to our subscribers at competitive prices. Programming costs represent a large percentage of our “Cost of services” and the largest component of our total expense. We expect these costs to continue to increase due to contractual price increases and the renewal of long-term programming contracts on less favorable pricing terms and certain programming costs are rising at a much faster rate than wages or inflation. In particular, the rates we are charged for retransmitting local broadcast channels have been increasing substantially and may exceed our ability to increase our prices to our subscribers. Our ability to provide services under these agreements and negotiate acceptable terms depends on, among other things, the number of subscribers we have, our actual, perceived or anticipated financial condition and our negotiating power against each programmer, which can vary depending on the size and scale of such programmer. Going forward, our margins may face pressure if we are unable to renew our long-term programming contracts on acceptable pricing and other economic terms or if we are unable to pass these increased programming costs on to our subscribers.
Increases in programming costs have caused us to increase the rates that we charge to our subscribers, which could in turn cause our existing Pay-TV subscribers to disconnect our services or cause potential new Pay-TV subscribers to choose not to subscribe to our services. Additionally, even if our subscribers do not disconnect our services, they may purchase through new and existing online content providers a certain portion of the services that they would have historically purchased from us.
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Furthermore, our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV churn rate may be negatively impacted if we are unable to renew our long-term programming carriage contracts. In the past, our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming carriage contracts with content providers. There can be no assurance that the removal of any channels will not have a material adverse effect on our business, results of operations and financial condition or otherwise disrupt our business.
We cannot predict with any certainty the impact to our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV churn rate resulting from programming interruptions or threatened programming interruptions that may occur in the future. As a result, we may at times suffer from periods of lower net Pay-TV subscriber additions or higher net Pay-TV subscriber losses.
Other Developments
Adaptive Bitrate Streaming Patents
Through our subsidiaries, we hold dozens of issued United States and foreign patents that relate to Adaptive Bitrate Streaming. On September 9, 2022, the chief administrative law judge at the United States International Trade Commission (“ITC”) issued an Initial Determination holding that the video streaming in certain Peloton, NordicTrack and Mirror exercise equipment infringes four of those patents, and recommended that the ITC prevent the importation of the infringing products. On March 8, 2023, the ITC issued its Final Determination, which affirmed the Initial Determination for three of the four patents in all material aspects, and issued the recommended exclusion and cease and desist orders, which will become effective after a Presidential review period. On February 9, 2023, we entered into a confidential license agreement covering Mirror exercise equipment that resolves our litigation involving those products. On May 1, 2023, we entered into a $75 million license agreement covering Peloton exercise equipment that resolves our litigation involving those products. During the second quarter of 2023, we recorded the $75 million license agreement in “Equipment sales and other revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). On March 6, 2024, we entered into a license agreement covering NordicTrack exercise equipment that resolves our litigation involving those products and received the initial payment.
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RESULTS OF OPERATIONS – Pay-TV Segment
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % |
| |||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | 2,658,381 | | $ | 2,870,694 | | $ | (212,313) | | (7.4) | |
Equipment sales and other revenue | | | 17,903 | | | 104,446 | | | (86,543) | | (82.9) | |
Total revenue | | | 2,676,284 | | | 2,975,140 | | | (298,856) | | (10.0) | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 1,638,683 | | | 1,749,024 | | | (110,341) | | (6.3) | |
% of Service revenue | | | 61.6 | % | 60.9 | % | | | | | ||
Cost of sales - equipment and other | | | 17,837 | | | 24,708 | | | (6,871) | | (27.8) | |
Selling, general and administrative expenses | | | 266,718 | | 383,143 | | (116,425) | | (30.4) | | ||
% of Total revenue | | | 10.0 | % | 12.9 | % | | | | | ||
Depreciation and amortization | | | 85,249 | | | 97,473 | | | (12,224) | | (12.5) | |
Total costs and expenses | | | 2,008,487 | | | 2,254,348 | | | (245,861) | | (10.9) | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | 667,797 | | $ | 720,792 | | $ | (52,995) | | (7.4) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Pay-TV subscribers, as of period end (in millions) | | | 8.074 | | | 8.904 | | | (0.830) | | (9.3) | |
DISH TV subscribers, as of period end (in millions) | | | 6.076 | | | 6.901 | | | (0.825) | | (12.0) | |
SLING TV subscribers, as of period end (in millions) | | | 1.998 | | | 2.003 | | | (0.005) | | (0.2) | |
Pay-TV subscriber additions (losses), net (in millions) | | | (0.104) | | | (0.294) | | | 0.190 | | 64.6 | |
DISH TV subscriber additions (losses), net (in millions) | | | (0.182) | | | (0.197) | | | 0.015 | | 7.6 | |
SLING TV subscriber additions (losses), net (in millions) | | | 0.078 | | | (0.097) | | | 0.175 | | * | |
Pay-TV ARPU | | $ | 108.42 | | $ | 104.07 | | $ | 4.35 | | 4.2 | |
DISH TV subscriber additions, gross (in millions) | | | 0.076 | | | 0.120 | | | (0.044) | | (36.7) | |
DISH TV churn rate | | | 1.39 | % | 1.51 | % | (0.12) | % | (7.9) | | ||
DISH TV SAC | | $ | 938 | | $ | 1,169 | | $ | (231) | | (19.8) | |
Purchases of property and equipment, net of refunds | | $ | 37,877 | | $ | 67,630 | | $ | (29,753) | | (44.0) | |
OIBDA | | $ | 753,046 | | $ | 818,265 | | $ | (65,219) | | (8.0) | |
| | | | | | | | | | | | |
* Percentage is not meaningful.
Pay-TV Subscribers
DISH TV subscribers. We lost approximately 182,000 net DISH TV subscribers during the three months ended June 30, 2024 compared to the loss of approximately 197,000 net DISH TV subscribers during the same period in 2023. This decrease in net DISH TV subscriber losses primarily resulted from a lower DISH TV churn rate, partially offset by lower gross new DISH TV subscriber activations.
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SLING TV subscribers. We added approximately 78,000 net SLING TV subscribers during the three months ended June 30, 2024 compared to the loss of approximately 97,000 net SLING TV subscribers during the same period in 2023. The change in net SLING TV subscribers was primarily related to lower SLING TV subscriber disconnects in 2024 due to our emphasis on acquiring higher quality subscribers, partially offset by lower SLING TV subscriber activations. We continue to experience increased competition, including competition from other subscription video on-demand and live-linear OTT service providers, many of which are providers of our content and offer football and other seasonal sports programming direct to subscribers on an a la carte basis.
DISH TV subscribers, gross. During the three months ended June 30, 2024, we activated approximately 76,000 gross new DISH TV subscribers compared to approximately 120,000 gross new DISH TV subscribers during the same period in 2023, a decrease of 36.7%. This decrease in our gross new DISH TV subscriber activations was primarily related to the lack of demand, shifting consumer behavior and lower marketing expenditures, as well as increased competitive pressures, including, but not limited to, live-linear OTT service providers, aggressive short term introductory pricing and bundled offers combining broadband, video and/or wireless services and other discounted promotional offers, and direct-to-consumer offerings by certain of our programmers. Our gross new DISH TV subscriber activations continue to be negatively impacted by an emphasis on acquiring higher quality subscribers.
DISH TV churn rate. Our DISH TV churn rate for the three months ended June 30, 2024 was 1.39% compared to 1.51% for the same period in 2023. Our DISH TV churn rate for the three months ended June 30, 2024 was positively impacted by our emphasis on acquiring and retaining higher quality subscribers. Our DISH TV churn rate continues to be adversely impacted by external factors, such as, among other things, cord cutting, shifting consumer behavior and increased competitive pressures, including, but not limited to, live-linear OTT service providers, aggressive marketing, bundled discount offers combining broadband, video and/or wireless services and other discounted promotional offers. Our DISH TV churn rate is also impacted by internal factors, such as, among other things, our ability to consistently provide outstanding customer service, price increases, our ability to control piracy and other forms of fraud and the level of our retention efforts.
Our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming carriage contracts with content providers. We cannot predict with any certainty the impact to our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV subscriber churn rate resulting from programming interruptions or threatened programming interruptions that may occur in the future. As a result, we may at times suffer from periods of lower net Pay-TV subscriber additions or higher net Pay-TV subscriber losses.
We have not always met our own standards for performing high-quality installations, effectively resolving subscriber issues when they arise, answering subscriber calls in an acceptable timeframe, effectively communicating with our subscriber base, reducing calls driven by the complexity of our business, improving the reliability of certain systems and subscriber equipment and aligning the interests of certain independent third-party retailers and installers to provide high-quality service. Most of these factors have affected both gross new DISH TV subscriber activations as well as DISH TV subscriber churn rate. Our future gross new DISH TV subscriber activations and our DISH TV subscriber churn rate may be negatively impacted by these factors, which could in turn adversely affect our revenue.
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Service revenue. “Service revenue” totaled $2.658 billion for the three months ended June 30, 2024, a decrease of $212 million or 7.4% compared to the same period in 2023. The decrease in “Service revenue” compared to the same period in 2023 was primarily related to lower average Pay-TV subscriber base, partially offset by an increase in Pay-TV ARPU, discussed below.
Equipment sales and other revenue. “Equipment sales and other revenue” totaled $18 million for the three months ended June 30, 2024, a decrease of $87 million compared to the same period in 2023. The decrease in “Equipment sales and other revenue” compared to the same period in 2023 was primarily related to a non-recurring $75 million license of our Adaptive Bitrate Streaming patents to Peloton covering certain Peloton products that resolves our litigation involving those products during the three months ended June 30, 2023.
Pay-TV ARPU. Pay-TV ARPU was $108.42 during the three months ended June 30, 2024 versus $104.07 during the same period in 2023. The $4.35 or 4.2% increase in Pay-TV ARPU was primarily attributable to the DISH TV and SLING TV programming price increases and higher Pay-TV ad sales revenue. The DISH TV and SLING TV programming package price increases were effective in the fourth quarter of 2023.
Cost of services. “Cost of services” totaled $1.639 billion during the three months ended June 30, 2024, a decrease of $110 million or 6.3% compared to the same period in 2023. The decrease in “Cost of services” was primarily attributable to a lower average Pay-TV subscriber base, partially offset by higher programming costs per subscriber. Programming costs per subscriber increased during the three months ended June 30, 2024 due to rate increases in certain of our programming contracts, including the renewal of certain contracts at higher rates, particularly for local broadcast channels. “Cost of services” represented 61.6% and 60.9% of “Service revenue” during the three months ended June 30, 2024 and 2023, respectively.
In the normal course of business, we enter into contracts to purchase programming content in which our payment obligations are generally contingent on the number of Pay-TV subscribers to whom we provide the respective content. Our “Cost of services” have and will continue to face further upward pressure from price increases and the renewal of long-term programming contracts on less favorable pricing terms. In addition, our programming expenses will increase to the extent we are successful in growing our Pay-TV subscriber base.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $267 million during the three months ended June 30, 2024, a $116 million or 30.4% decrease compared to the same period in 2023. This change was primarily driven by a decrease in subscriber acquisition costs resulting from lower marketing expenditures and lower gross new DISH TV subscriber activations and a decrease in personnel costs.
Depreciation and amortization. “Depreciation and amortization” expense totaled $85 million during the three months ended June 30, 2024, a $12 million or 12.5% decrease compared to the same period in 2023. This change was primarily driven by a decrease in depreciation expense from equipment leased to new and existing DISH TV subscribers.
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DISH TV SAC. DISH TV SAC was $938 during the three months ended June 30, 2024 compared to $1,169 during the same period in 2023, a decrease of $231 or 19.8%. This change was primarily attributable to a decrease in advertising costs per subscriber, partially offset by higher commission costs due to our emphasis on acquiring higher quality subscribers.
During the three months ended June 30, 2024 and 2023, the amount of equipment capitalized under our lease program for new DISH TV subscribers totaled $6 million and $12 million, respectively. This decrease in capital expenditures primarily resulted from a decrease in gross new DISH TV subscriber activations.
To remain competitive, we upgrade or replace subscriber equipment periodically as technology changes, and the costs associated with these upgrades may be substantial. To the extent technological changes render a portion of our existing equipment obsolete, we would be unable to redeploy all returned equipment and consequently would realize less benefit from the DISH TV SAC reduction associated with redeployment of that returned lease equipment.
Our “DISH TV SAC” may materially increase in the future to the extent that we, among other things, transition to newer technologies, introduce more aggressive promotions, or provide greater equipment subsidies.
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Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Six Months Ended | | | | |||||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % |
| |||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | 5,359,560 | | $ | 5,815,176 | | $ | (455,616) | | (7.8) | |
Equipment sales and other revenue | | | 43,302 | | | 132,095 | | | (88,793) | | (67.2) | |
Total revenue | | | 5,402,862 | | | 5,947,271 | | | (544,409) | | (9.2) | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 3,303,128 | | | 3,582,323 | | | (279,195) | | (7.8) | |
% of Service revenue | | | 61.6 | % | 61.6 | % | | | | | ||
Cost of sales - equipment and other | | | 34,829 | | | 45,773 | | | (10,944) | | (23.9) | |
Selling, general and administrative expenses | | | 556,214 | | 723,102 | | (166,888) | | (23.1) | | ||
% of Total revenue | | | 10.3 | % | 12.2 | % | | | | | ||
Depreciation and amortization | | | 170,651 | | | 200,048 | | | (29,397) | | (14.7) | |
Total costs and expenses | | | 4,064,822 | | | 4,551,246 | | | (486,424) | | (10.7) | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | 1,338,040 | | $ | 1,396,025 | | $ | (57,985) | | (4.2) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Pay-TV subscribers, as of period end (in millions) | | | 8.074 | | | 8.904 | | | (0.830) | | (9.3) | |
DISH TV subscribers, as of period end (in millions) | | | 6.076 | | | 6.901 | | | (0.825) | | (12.0) | |
SLING TV subscribers, as of period end (in millions) | | | 1.998 | | | 2.003 | | | (0.005) | | (0.2) | |
Pay-TV subscriber additions (losses), net (in millions) | | | (0.452) | | | (0.846) | | | 0.394 | | 46.6 | |
DISH TV subscriber additions (losses), net (in millions) | | | (0.395) | | | (0.515) | | | 0.120 | | 23.3 | |
SLING TV subscriber additions (losses), net (in millions) | | | (0.057) | | | (0.331) | | | 0.274 | | 82.8 | |
Pay-TV ARPU | | $ | 107.89 | | $ | 103.38 | | $ | 4.51 | | 4.4 | |
DISH TV subscriber additions, gross (in millions) | | | 0.155 | | | 0.233 | | | (0.078) | | (33.5) | |
DISH TV churn rate | | | 1.46 | % | 1.74 | % | (0.28) | % | (16.1) | | ||
DISH TV SAC | | $ | 997 | | $ | 1,114 | | $ | (117) | | (10.5) | |
Purchases of property and equipment, net of refunds | | $ | 65,754 | | $ | 103,193 | | $ | (37,439) | | (36.3) | |
OIBDA | | $ | 1,508,691 | | $ | 1,596,073 | | $ | (87,382) | | (5.5) | |
| | | | | | | | | | | | |
*Percentage is not meaningful.
Pay-TV Subscribers
DISH TV subscribers. We lost approximately 395,000 net DISH TV subscribers during the six months ended June 30, 2024 compared to the loss of approximately 515,000 net DISH TV subscribers during the same period in 2023. This decrease in net DISH TV subscriber losses primarily resulted from a lower DISH TV churn rate, partially offset by lower gross new DISH TV subscriber activations.
SLING TV subscribers. We lost approximately 57,000 net SLING TV subscribers during the six months ended June 30, 2024 compared to the loss of approximately 331,000 net SLING TV subscribers during the same period in 2023. The decrease in net SLING TV subscriber losses was primarily related to lower SLING TV subscriber disconnects in 2024 due to our emphasis on acquiring higher quality subscribers, partially offset by lower SLING TV subscriber activations. We continue to experience increased competition, including competition from other subscription video on-demand and live-linear OTT service providers, many of which are providers of our content and offer football and other seasonal sports programming direct to subscribers on an a la carte basis.
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DISH TV subscribers, gross. During the six months ended June 30, 2024, we activated approximately 155,000 gross new DISH TV subscribers compared to approximately 233,000 gross new DISH TV subscribers during the same period in 2023, a decrease of 33.5%. This decrease in our gross new DISH TV subscriber activations was primarily related to the lack of demand, shifting consumer behavior and lower marketing expenditures, as well as increased competitive pressures, including, but not limited to, live-linear OTT service providers, aggressive short term introductory pricing and bundled offers combining broadband, video and/or wireless services and other discounted promotional offers, and direct-to-consumer offerings by certain of our programmers. Our gross new DISH TV subscriber activations continue to be negatively impacted by an emphasis on acquiring higher quality subscribers.
DISH TV churn rate. Our DISH TV churn rate for the six months ended June 30, 2024 was 1.46% compared to 1.74% for the same period in 2023. Our DISH TV churn rate for the six months ended June 30, 2024 was positively impacted by our emphasis on acquiring and retaining higher quality subscribers. Our DISH TV churn rate continues to be adversely impacted by external factors, such as, among other things, cord cutting, shifting consumer behavior and increased competitive pressures, including, but not limited to, live-linear OTT service providers, aggressive marketing, bundled discount offers combining broadband, video and/or wireless services and other discounted promotional offers. Our DISH TV churn rate is also impacted by internal factors, such as, among other things, our ability to consistently provide outstanding customer service, price increases, our ability to control piracy and other forms of fraud and the level of our retention efforts. In addition, our DISH TV churn rate for the six months ended June 30, 2023 was briefly elevated due to the cyber-security incident in the first quarter of 2023.
Our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming carriage contracts with content providers. We cannot predict with any certainty the impact to our net Pay-TV subscriber additions, gross new DISH TV subscriber activations, and DISH TV subscriber churn rate resulting from programming interruptions or threatened programming interruptions that may occur in the future. As a result, we may at times suffer from periods of lower net Pay-TV subscriber additions or higher net Pay-TV subscriber losses.
Service revenue. “Service revenue” totaled $5.360 billion for the six months ended June 30, 2024, a decrease of $456 million or 7.8% compared to the same period in 2023. The decrease in “Service revenue” compared to the same period in 2023 was primarily related to lower average Pay-TV subscriber base, partially offset by an increase in Pay-TV ARPU, discussed below.
Equipment sales and other revenue. “Equipment sales and other revenue” totaled $43 million for the six months ended June 30, 2024, a decrease of $89 million compared to the same period in 2023. The decrease in “Equipment sales and other revenue” compared to the same period in 2023 was primarily related to a non-recurring $75 million license of our Adaptive Bitrate Streaming patents to Peloton covering certain Peloton products that resolves our litigation involving those products during the three months ended June 30, 2023.
Pay-TV ARPU. Pay-TV ARPU was $107.89 during the six months ended June 30, 2024 versus $103.38 during the same period in 2023. The $4.51 or 4.4% increase in Pay-TV ARPU was primarily attributable to the DISH TV and SLING TV programming price increases and higher Pay-TV ad sales revenue. The DISH TV and SLING TV programming package price increases were effective in the fourth quarter of 2023.
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Cost of services. “Cost of services” totaled $3.303 billion during the six months ended June 30, 2024, a decrease of $279 million or 7.8% compared to the same period in 2023. The decrease in “Cost of services” was primarily attributable to a lower average Pay-TV subscriber base and lower variable and retention costs per subscriber, partially offset by higher programming costs per subscriber. Programming costs per subscriber increased during the six months ended June 30, 2024 due to rate increases in certain of our programming contracts, including the renewal of certain contracts at higher rates, particularly for local broadcast channels. Variable and retention costs per subscriber during the six months ended June 30, 2023 were negatively impacted by approximately $30 million in cyber-security-related expenses to remediate the incident and provide additional customer support. “Cost of services” represented 61.6% of “Service revenue” during both the six months ended June 30, 2024 and 2023, respectively.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $556 million during the six months ended June 30, 2024, a $167 million or 23.1% decrease compared to the same period in 2023. This change was primarily driven by a decrease in subscriber acquisition costs resulting from lower marketing expenditures and lower gross new DISH TV subscriber activations and a decrease in personnel costs.
Depreciation and amortization. “Depreciation and amortization” expense totaled $171 million during the six months ended June 30, 2024, a $29 million or 14.7% decrease compared to the same period in 2023. This change was primarily driven by a decrease in depreciation expense from equipment leased to new and existing DISH TV subscribers and the EchoStar XI satellite which became fully depreciated during the second quarter of 2023.
DISH TV SAC. DISH TV SAC was $997 during the six months ended June 30, 2024 compared to $1,114 during the same period in 2023, a decrease of $117 or 10.5%. This change was primarily attributable to a decrease in advertising costs per subscriber, partially offset by higher installation costs due to an increase in labor and other installation costs and higher commission costs due to our emphasis on acquiring higher quality subscribers.
During the six months ended June 30, 2024 and 2023, the amount of equipment capitalized under our lease program for new DISH TV subscribers totaled $13 million and $27 million, respectively. This decrease in capital expenditures primarily resulted from a decrease in gross new DISH TV subscriber activations.
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Retail Wireless Segment
We offer nationwide prepaid and postpaid Retail Wireless services to subscribers primarily under our Boost Mobile and Gen Mobile brands, as well as a competitive portfolio of wireless devices. Prepaid wireless subscribers generally pay in advance for monthly access to wireless talk, text and data services. Postpaid wireless subscribers are qualified to pay after receiving wireless talk, text and data services, and may also qualify for device financing arrangements.
Boost Mobile postpaid. During 2023, we launched our nationwide expansion of our Boost Mobile postpaid wireless service. At the end of the third quarter of 2023, we began offering the iPhone 15 on our 5G Network and expanded our Boost Mobile postpaid offering through a distribution partnership with Amazon. We currently offer a broad range of premium wireless devices on our 5G Network.
We are currently operating our Retail Wireless segment primarily as an MVNO as we continue our 5G Network Deployment and commercialize and grow customer traffic on our 5G Network. We are transitioning our Retail Wireless segment to an MNO as our 5G Network has become commercially available and we grow customer traffic on our 5G Network. We are currently activating Boost Mobile subscribers with compatible devices onto our 5G Network in markets where we have reached VoNR. We have deployed 5G VoNR covering over 200 million Americans. Within our MVNO operations, today we depend on T-Mobile and AT&T to provide us with network services under MNSA and NSA, respectively. Under the NSA, we expect AT&T will become our primary network services provider.
As of June 30, 2024 we had 7.281 million Wireless subscribers. Currently, we offer Wireless subscribers competitive consumer plans with no annual service contracts and monthly service plans including high-speed data and unlimited talk and text, and device financing arrangements for certain qualified subscribers.
During the second half of 2022, we began the process of migrating subscribers off the Transition Services Agreement (“TSA”) with T-Mobile, including the billing systems, and onto our own billing and operational support systems. The migration of subscribers to our new billing and operational support systems accelerated during the fourth quarter of 2022 and continued in the first and second quarters of 2023. The migration of subscribers during the first and second quarters of 2023 negatively impacted our Wireless churn rate and our results of operations. During the second quarter of 2023, we completed the migration of subscribers off the TSA with T-Mobile and onto our own billing and operational support systems.
ACP Subscribers. A portion of our subscriber base and revenue is comprised of subscribers who received benefits under ACP through May 2024. Households enrolled in the ACP program continued to receive the benefit on their service through April 2024. In May 2024, households received a partial benefit and on June 1, 2024 the ACP program funding concluded and households no longer received their benefit. We have implemented plans to retain and/or migrate these subscribers to lower priced service plans. As of June 30, 2024, we had approximately 387,000 ACP subscribers, representing 5.3% of our Wireless subscriber base. Although we only received partial payment for May and no payment for June services, these ACP subscribers were included in our Wireless subscriber count as of June 30, 2024. We are actively migrating these subscribers to lower priced service plans and, if we are unsuccessful in retaining and/or migrating these subscribers, they will deactivate in the second half of 2024, which could have an adverse impact to our Wireless subscriber base.
Generally, ACP subscribers have lower Wireless ARPU than other Wireless subscribers and as a result, any loss of ACP subscribers will have a nominal impact on pre-tax net income. We cannot predict with any certainty the impact of the loss of the ACP benefit to our Wireless subscriber base, net Wireless subscriber activations and results of operations.
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If ACP funding is ultimately restored or replaced, there can be no assurance that the timing of the restoration or replacement will not lead to service interruptions and negatively impact, among other things, our net Wireless subscriber activations and results of operations. In addition, the restoration or replacement of ACP with one having different eligibility requirements and/or funding levels could negatively impact, among other things, our net Wireless subscriber activations and results of operations or impose additional costs on our business.
Competition
Retail wireless is a mature market with moderate year over year organic growth. Competitors include, among others, providers who offer similar wireless communication services, such as talk, text and data. Competitive factors within the wireless communication services industry include, but are not limited to, pricing, market saturation, service and product offerings, customer experience and service quality. We compete with a number of national wireless carriers, including Verizon, AT&T and T-Mobile, all of which are significantly larger than us, serve a significant percentage of all wireless subscribers and enjoy scale advantages compared to us. Verizon, AT&T, and T-Mobile are currently the only nationwide MNOs in the United States.
Additional primary competitors to our Retail Wireless segment include, but are not limited to, Metro PCS (owned by T-Mobile), Cricket Wireless (owned by AT&T), Visible (owned by Verizon), Tracfone Wireless (owned by Verizon), Total Wireless (owned by Verizon), and other MVNOs such as Consumer Cellular, Mint Mobile (owned by T-Mobile), Spectrum Mobile and Xfinity Mobile.
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RESULTS OF OPERATIONS –Retail Wireless Segment
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 | 2023 |
| Amount |
| % |
| ||||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | 785,136 | | $ | 853,918 | | $ | (68,782) | | (8.1) | |
Equipment sales and other revenue | | | 106,395 | | | 74,323 | | | 32,072 | | 43.2 | |
Total revenue | | | 891,531 | | | 928,241 | | | (36,710) | | (4.0) | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 460,912 | | | 514,236 | | | (53,324) | | (10.4) | |
% of Service revenue | | | 58.7 | % | 60.2 | % | | | | | ||
Cost of sales - equipment and other | | | 312,982 | | | 278,371 | | | 34,611 | | 12.4 | |
Selling, general and administrative expenses | | | 183,632 | | | 194,930 | | (11,298) | | (5.8) | | |
% of Total revenue | | | 20.6 | % | 21.0 | % | | | | | ||
Depreciation and amortization | | | 55,367 | | | 53,203 | | | 2,164 | | 4.1 | |
Total costs and expenses | | | 1,012,893 | | | 1,040,740 | | | (27,847) | | (2.7) | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | (121,362) | | $ | (112,499) | | $ | (8,863) | | (7.9) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Wireless subscribers, as of period end (in millions) | | | 7.281 | | | 7.725 | | | (0.444) | | (5.7) | |
Wireless subscriber additions, gross (in millions) | | | 0.606 | | | 0.711 | | | (0.105) | | (14.8) | |
Wireless subscriber additions (losses), net (in millions) ** | | | (0.016) | | | (0.188) | | | 0.172 | | 91.5 | |
Wireless ARPU | | $ | 35.91 | | $ | 36.37 | | $ | (0.46) | | (1.3) | |
Wireless churn rate | | | 2.93 | % | 4.54 | % | (1.61) | % | (35.5) | | ||
OIBDA | | $ | (65,995) | | $ | (59,296) | | $ | (6,699) | | (11.3) | |
| | | | | | | | | | | | |
* Percentage is not meaningful.
** Includes Government subsidized subscribers.
Wireless subscribers. We lost approximately 16,000 net Wireless subscribers during the three months ended June 30, 2024 compared to the loss of approximately 188,000 net Wireless subscribers during the same period in 2023. This decrease in net Wireless subscriber losses primarily resulted from a lower Wireless churn rate, partially offset by lower gross new Wireless subscriber activations. In addition, the three months ended June 30, 2024 was negatively impacted by net losses of Government subsidized subscribers compared to net additions of Government subsidized subscribers during the same period in 2023, primarily due to the ACP program funding concluding on June 1, 2024. See “Retail Wireless Segment – ACP Subscribers” for further information. Excluding the impact of net losses of Government subsidized subscribers, we added approximately 32,000 net Wireless subscribers during the three months ended June 30, 2024.
Wireless subscribers, gross. During the three months ended June 30, 2024, we activated approximately 606,000 gross new Wireless subscribers compared to approximately 711,000 gross new Wireless subscribers during the same period in 2023, a decrease of 14.8%. Our gross new Wireless subscribers for the three months ended June 30, 2024 was negatively impacted by our emphasis on acquiring and retaining higher quality subscribers. In addition, this decrease in our gross new Wireless subscriber activations was primarily related to increased competitive pressures, including aggressive competitor marketing, discounted service plans and deeper wireless device subsidies.
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Wireless churn rate. Our Wireless churn rate for the three months ended June 30, 2024 was 2.93% compared to 4.54% for the same period in 2023. Our Wireless churn rate for the three months ended June 30, 2024 was positively impacted by our emphasis on acquiring and retaining higher quality subscribers, partially offset by competitive pressures, including deeper wireless device subsidies. In addition, our Wireless churn rate for the three months ended June 30, 2023 was negatively impacted by migrating subscribers off the TSA with T-Mobile and onto our new billing and operational support systems.
Service revenue. “Service revenue” totaled $785 million for the three months ended June 30, 2024, a decrease of $69 million or 8.1% compared to the same period in 2023. The decrease in “Service revenue” compared to the same period in 2023 was primarily related to a lower average Wireless subscriber base and a decrease in Wireless ARPU, discussed below.
Wireless ARPU. Wireless ARPU was $35.91 during the three months ended June 30, 2024 versus $36.37 during the same period in 2023. The $0.46 or 1.3% decrease in Wireless ARPU was primarily attributable to, among other things, providing ACP subscribers continued services for approximately half the charge in May 2024 and free of charge in June 2024 when the ACP program funding concluded, partially offset by a shift in subscriber plan mix to higher priced service plans and increased sales of value added services. Absent the adverse impact of ACP subscribers, Wireless ARPU would have increased during the three months ended June 30, 2024 compared to the same period in 2023.
Equipment sales and other revenue. “Equipment sales and other revenue” totaled $106 million for the three months ended June 30, 2024, an increase of $32 million or 43.2% compared to the same period in 2023. The increase in “Equipment sales and other revenue” compared to the same period in 2023 was primarily related to higher revenue per unit shipped due to unit mix, partially offset by a decrease in units shipped and higher promotional subsidies. During the three months ended June 30, 2024, we shipped a higher percentage of devices that are compatible with our 5G Network and other devices that have a higher revenue per unit.
Cost of services. “Cost of services” totaled $461 million for the three months ended June 30, 2024, a decrease of $53 million or 10.4% compared to the same period in 2023. The decrease in “Cost of services” compared to the same period in 2023 was primarily attributable to a lower average Wireless subscriber base, lower network services costs per subscriber and operational efficiencies, partially offset by higher monthly dealer incentive costs. In the third quarter of 2023, we realigned our commission structure with current business objectives to acquire higher quality, long-term subscribers, which resulted in higher monthly dealer incentive costs.
Cost of sales – equipment and other. “Cost of sales – equipment and other” totaled $313 million for the three months ended June 30, 2024, an increase of $35 million or 12.4% compared to the same period in 2023. The increase in “Cost of sales – equipment and other” compared to the same period in 2023 was primarily related to higher costs per unit shipped due to unit mix, partially offset by a decrease in units shipped and higher vendor rebates. During the three months ended June 30, 2024, we shipped a higher percentage of devices that are compatible with our 5G Network and other devices that have a higher cost per unit.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $184 million during the three months ended June 30, 2024, an $11 million or 5.8% decrease compared to the same period in 2023. This change was primarily driven by a decrease in costs to support the Retail Wireless segment and lower sales commissions, partially offset by higher marketing expenditures. The three months ended June 30, 2023 was negatively impacted by costs of migrating subscribers off the TSA with T-Mobile and onto our new billing and operational support systems.
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Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Six Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % | | |||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | 1,589,401 | | $ | 1,721,029 | | $ | (131,628) | | (7.6) | |
Equipment sales and other revenue | | | 207,980 | | | 182,078 | | | 25,902 | | 14.2 | |
Total revenue | | | 1,797,381 | | | 1,903,107 | | | (105,726) | | (5.6) | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 921,726 | | | 1,012,208 | | | (90,482) | | (8.9) | |
% of Service revenue | | | 58.0 | % | 58.8 | % | | | | | ||
Cost of sales - equipment and other | | | 602,524 | | | 542,204 | | | 60,320 | | 11.1 | |
Selling, general and administrative expenses | | | 356,644 | | | 373,353 | | (16,709) | | (4.5) | | |
% of Total revenue | | | 19.8 | % | 19.6 | % | | | | | ||
Depreciation and amortization | | | 112,266 | | | 106,048 | | | 6,218 | | 5.9 | |
Total costs and expenses | | | 1,993,160 | | | 2,033,813 | | | (40,653) | | (2.0) | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | (195,779) | | $ | (130,706) | | $ | (65,073) | | (49.8) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Wireless subscribers, as of period end (in millions) | | | 7.281 | | | 7.725 | | | (0.444) | | (5.7) | |
Wireless subscriber additions, gross (in millions) | | | 1.186 | | | 1.496 | | | (0.310) | | (20.7) | |
Wireless subscriber additions (losses), net (in millions) ** | | | (0.097) | | | (0.269) | | | 0.172 | | 63.9 | |
Wireless ARPU | | $ | 36.30 | | $ | 36.40 | | $ | (0.10) | | (0.3) | |
Wireless churn rate | | | 2.99 | % | 4.39 | % | (1.40) | % | (31.9) | | ||
OIBDA | | $ | (83,513) | | $ | (24,658) | | $ | (58,855) | | * | |
| | | | | | | | | | | | |
* Percentage is not meaningful.
** Includes Government subsidized subscribers.
Wireless subscribers. We lost approximately 97,000 net Wireless subscribers during the six months ended June 30, 2024 compared to the loss of approximately 269,000 net Wireless subscribers during the same period in 2023. This decrease in net Wireless subscriber losses primarily resulted from a lower Wireless churn rate, partially offset by lower gross new Wireless subscriber activations and lower net Government subsidized subscriber additions compared to the same period in 2023, primarily due to the ACP program funding concluding on June 1, 2024. The ACP program funding concluded on June 1, 2024. See “Retail Wireless Segment – ACP Subscribers” for further information.
Wireless subscribers, gross. During the six months ended June 30, 2024, we activated approximately 1.186 million gross new Wireless subscribers compared to approximately 1.496 million gross new Wireless subscribers during the same period in 2023, a decrease of 20.7%. Our gross new Wireless subscribers for the six months ended June 30, 2024 was negatively impacted by our emphasis on acquiring and retaining higher quality subscribers. In addition, this decrease in our gross new Wireless subscriber activations was primarily related to increased competitive pressures, including aggressive competitor marketing, discounted service plans and deeper wireless device subsidies.
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Wireless churn rate. Our Wireless churn rate for the six months ended June 30, 2024 was 2.99% compared to 4.39% for the same period in 2023. Our Wireless churn rate for the six months ended June 30, 2024 was positively impacted by our emphasis on acquiring and retaining higher quality subscribers, partially offset by competitive pressures, including deeper wireless device subsidies. In addition, our Wireless churn rate for the six months ended June 30, 2023 was negatively impacted by migrating subscribers off the TSA with T-Mobile and onto our new billing and operational support systems.
Service revenue. “Service revenue” totaled $1.589 billion for the six months ended June 30, 2024, a decrease of $132 million or 7.6% compared to the same period in 2023. The decrease in “Service revenue” compared to the same period in 2023 was primarily related to a lower average Wireless subscriber base and a decrease in Wireless ARPU, discussed below.
Wireless ARPU. Wireless ARPU was $36.30 during the six months ended June 30, 2024 versus $36.40 during the same period in 2023. The $0.10 or 0.3% decrease in Wireless ARPU was primarily attributable to, among other things, providing ACP subscribers continued services for approximately half the charge in May 2024 and free of charge in June 2024 when the ACP program funding concluded, partially offset by a shift in subscriber plan mix to higher priced service plans.
Equipment sales and other revenue. “Equipment sales and other revenue” totaled $208 million for the six months ended June 30, 2024, an increase of $26 million or 14.2% compared to the same period in 2023. The increase in “Equipment sales and other revenue” compared to the same period in 2023 was primarily related to higher revenue per unit shipped due to unit mix, partially offset by a decrease in units shipped and higher promotional subsidies. During the six months ended June 30, 2024, we shipped a higher percentage of devices that are compatible with our 5G Network and other devices that have a higher revenue per unit.
Cost of services. “Cost of services” totaled $922 million for the six months ended June 30, 2024, a decrease of $90 million or 8.9% compared to the same period in 2023. The decrease in “Cost of services” compared to the same period in 2023 was primarily attributable to a lower average Wireless subscriber base, lower network services costs per subscriber and operational efficiencies, partially offset by higher monthly dealer incentive costs. In the third quarter of 2023, we realigned our commission structure with current business objectives to acquire higher quality, long-term subscribers, which resulted in higher monthly dealer incentive costs. The six months ended June 30, 2023 was negatively impacted by the migration of subscribers off the TSA with T-Mobile and onto our new billing and operational support systems. We incurred duplicative costs related to our TSA with T-Mobile and our own billing and operational support systems as we migrated subscribers off the TSA with T-Mobile.
Cost of sales – equipment and other. “Cost of sales – equipment and other” totaled $603 million for the six months ended June 30, 2024, an increase of $60 million or 11.1% compared to the same period in 2023. The increase in “Cost of sales – equipment and other” compared to the same period in 2023 was primarily related to higher costs per unit shipped due to unit mix, partially offset by a decrease in units shipped and higher vendor rebates. During the six months ended June 30, 2024, we shipped a higher percentage of devices that are compatible with our 5G Network and other devices that have a higher cost per unit.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $357 million during the six months ended June 30, 2024, a $17 million or 4.5% decrease compared to the same period in 2023. This change was primarily driven by a decrease in costs to support the Retail Wireless segment and lower sales commissions, partially offset by higher marketing expenditures. The six months ended June 30, 2023 was negatively impacted by costs of migrating subscribers off the TSA with T-Mobile and onto our new billing and operational support systems.
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5G Network Deployment Segment
We initially invested a total of over $30 billion in Wireless spectrum licenses, and a portion of these licenses were included in the Sale and Transfer of Assets to EchoStar. We currently have $24 billion of investments related to Wireless spectrum licenses, which does not include $6 billion of capitalized interest related to the carrying value of such licenses. See Note 1, Note 2 and Note 9 in the Notes to our Condensed Consolidated Financial Statements for further information. We plan to commercialize our Wireless spectrum licenses through our 5G Network Deployment. We have committed to deploy our 5G Network capable of serving increasingly larger portions of the U.S. population at different deadlines.
We will need to raise additional capital in the future, which may not be available on favorable terms, to fund the efforts described below, as well as, among other things, make any potential Northstar Re-Auction Payment and SNR Re-Auction Payment for the AWS-3 licenses retained by the FCC. There can be no assurance that we will be able to complete all build-out requirements or profitably deploy our Wireless spectrum licenses, which may affect the carrying amount of these assets and our future financial condition or results of operations. See Note 9 in the Notes to our Condensed Consolidated Financial Statements for further information.
Our Wireless spectrum licenses are subject to certain interim and final build-out requirements, as well as certain renewal requirements. On September 29, 2023, the FCC confirmed we have met all of our June 14, 2023 band-specific 5G deployment commitments, and two of our three nationwide 5G commitments. The single remaining 5G commitment, that at least 70% of the U.S. population has access to average download speeds equal to 35 Mbps, was achieved in March 2024 using the drive test methodology previously agreed upon by us and the FCC and overseen by an independent monitor. We now have the largest commercial deployment of 5G VoNR in the world covering over 200 million Americans and 5G broadband service covering over 250 million Americans. Our fully constructed facilities along with our construction in process will be sufficient to meet many of our build-out requirements over the next year, including our June 14, 2025 milestones. These facilities are for licenses comprising approximately 90% of the aggregate carrying value, including capitalized interest, for our 600 MHz and our parent, EchoStar’s 700 MHz, H Block and AWS-4 licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our June 14, 2025 final build-out requirements, we will need to raise additional capital to, among other things, continue our 5G Network Deployment. If we are unable to address our capital needs or encounter unanticipated construction delays, we may be unable to retain such spectrum licenses, which would result in an impairment of our owned licenses.
We may need to make significant additional investments or partner with others to, among other things, continue our 5G Network Deployment and further commercialize, build-out and integrate these licenses and related assets and any additional acquired licenses and related assets, as well as to comply with regulations applicable to such licenses. Depending on the nature and scope of such activities, any such investments or partnerships could vary significantly. In addition, as we continue our 5G Network Deployment, we have and may continue to incur significant additional expenses related to, among other things, research and development, wireless testing and ongoing upgrades to the wireless network infrastructure, software and third-party integration. As a result of these investments, among other factors, we plan to raise additional capital, which may not be available on favorable terms. We may also determine that additional wireless spectrum licenses may be required for our 5G Network Deployment and to compete effectively with other wireless service providers. See Note 9 in the Notes to our Condensed Consolidated Financial Statements for further information.
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RESULTS OF OPERATIONS –5G Network Deployment Segment
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 | 2023 |
| Amount |
| % |
| ||||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | — | | $ | — | | $ | — | | * | |
Equipment sales and other revenue | | | 34,892 | | | 19,079 | | | 15,813 | | 82.9 | |
Total revenue | | | 34,892 | | | 19,079 | | | 15,813 | | 82.9 | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 302,406 | | | — | | | 302,406 | | * | |
Cost of sales - equipment and other | | | — | | | 225,497 | | | (225,497) | | * | |
Selling, general and administrative expenses | | | 44,772 | | | 72,057 | | | (27,285) | | (37.9) | |
Depreciation and amortization | | | 265,920 | | | 123,484 | | | 142,436 | | * | |
Total costs and expenses | | | 613,098 | | | 421,038 | | | 192,060 | | 45.6 | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | (578,206) | | $ | (401,959) | | $ | (176,247) | | (43.8) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Purchases of property and equipment, net of refunds | | $ | 238,896 | | $ | 801,520 | | $ | (562,624) | | (70.2) | |
OIBDA | | $ | (312,286) | | $ | (278,475) | | $ | (33,811) | | (12.1) | |
* Percentage is not meaningful.
Cost of services and Cost of sales – equipment and other. “Cost of services” and “Cost of sales – equipment and other” totaled $302 million during the three months ended June 30, 2024, an increase of $77 million compared to the same period in 2023. Beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain direct costs related to our 5G Network Deployment, including lease expense on communication towers, transport, cloud services and other costs which were previously reported in “Cost of sales – equipment and other.” The increase primarily resulted from an increase in lease expense on communication towers and other costs related to our 5G Network. In addition, beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain personal costs which were previously reported in “Selling, general and administrative expenses.” See Note 2 in the Notes to our Condensed Consolidated Financial Statements for further information.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $45 million during the three months ended June 30, 2024, a $27 million or 37.9% decrease compared to the same period in 2023. Beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain personal costs which were previously reported in “Selling, general and administrative expenses” primarily driving this decrease.
Depreciation and amortization. “Depreciation and amortization” expense totaled $266 million during the three months ended June 30, 2024, a $142 million increase compared to the same period in 2023. This change was primarily driven by an increase in depreciation and amortization expense related to 5G Network Deployment assets being placed in service. We expect our depreciation and amortization expense to increase as we continue to place 5G Network Deployment assets into service.
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Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Six Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % | | |||
| | (In thousands) | | | | |||||||
Revenue: | | | | | | | | | | | | |
Service revenue | | $ | — | | $ | — | | $ | — | | * | |
Equipment sales and other revenue | | | 63,820 | | | 37,986 | | | 25,834 | | 68.0 | |
Total revenue | | | 63,820 | | | 37,986 | | | 25,834 | | 68.0 | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of services | | | 613,560 | | | — | | | 613,560 | | * | |
Cost of sales - equipment and other | | | — | | | 410,494 | | | (410,494) | | * | |
Selling, general and administrative expenses | | | 95,394 | | | 141,943 | | | (46,549) | | (32.8) | |
Depreciation and amortization | | | 503,106 | | | 221,111 | | | 281,995 | | * | |
Total costs and expenses | | | 1,212,060 | | | 773,548 | | | 438,512 | | 56.7 | |
| | | | | | | | | | | | |
Operating income (loss) | | $ | (1,148,240) | | $ | (735,562) | | $ | (412,678) | | (56.1) | |
| | | | | | | | | | | | |
Other data: | | | | | | | | | | | | |
Purchases of property and equipment, net of refunds | | $ | 626,598 | | $ | 1,473,167 | | $ | (846,569) | | (57.5) | |
OIBDA | | $ | (645,134) | | $ | (514,451) | | $ | (130,683) | | (25.4) | |
| | | | | | | | | | | | |
*Percentage is not meaningful.
Cost of services and Cost of sales – equipment and other. “Cost of services” and “Cost of sales – equipment and other” totaled $614 million during the six months ended June 30, 2024, an increase of $203 million compared to the same period in 2023. Beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain direct costs related to our 5G Network Deployment, including lease expense on communication towers, transport, cloud services and other costs which were previously reported in “Cost of sales – equipment and other.” The increase primarily resulted from an increase in lease expense on communication towers, transport, cloud services and other costs related to our 5G Network. In addition, beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain personal costs which were previously reported in “Selling, general and administrative expenses.” See Note 2 in the Notes to our Condensed Consolidated Financial Statements for further information.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $95 million during the six months ended June 30, 2024, a $47 million or 32.8% decrease compared to the same period in 2023. Beginning on January 1, 2024, as we have commenced utilizing our 5G Network for commercial traffic, “Cost of services” includes certain personal costs which were previously reported in “Selling, general and administrative expenses” primarily driving this decrease.
Depreciation and amortization. “Depreciation and amortization” expense totaled $503 million during the six months ended June 30, 2024, a $282 million increase compared to the same period in 2023. This change was primarily driven by an increase in depreciation and amortization expense related to 5G Network Deployment assets being placed in service. We expect our depreciation and amortization expense to increase as we continue to place 5G Network Deployment assets into service.
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OTHER CONSOLIDATED RESULTS
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Three Months Ended | | | | | | | ||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % |
| |||
| | (In thousands) | | | ||||||||
Operating income (loss) | | $ | (31,771) | | $ | 206,334 | | $ | (238,105) | | * | |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income | | | 10,514 | | | 31,725 | | | (21,211) | | (66.9) | |
Interest expense, net of amounts capitalized | | | (164,561) | | | (9,434) | | | (155,127) | | * | |
Other, net | | | (64,477) | | | 61,292 | | | (125,769) | | * | |
Total other income (expense) | | | (218,524) | | | 83,583 | | | (302,107) | | * | |
| | | | | | | | | | | | |
Income (loss) before income taxes | | | (250,295) | | | 289,917 | | | (540,212) | | * | |
Income tax (provision) benefit, net | | | 38,471 | | | (67,493) | | | 105,964 | | * | |
Effective tax rate | | | 15.4 | % | 23.3 | % | | | | | ||
Net income (loss) | | | (211,824) | | | 222,424 | | | (434,248) | | * | |
Less: Net income (loss) attributable to noncontrolling interests, net of tax | | | 25 | | | 22,101 | | | (22,076) | | (99.9) | |
Net income (loss) attributable to DISH Network | | $ | (211,849) | | $ | 200,323 | | $ | (412,172) | | * | |
| | | | | | | | | | | | |
* Percentage is not meaningful.
Interest income. “Interest income” totaled $11 million during the three months ended June 30, 2024, a decrease of $21 million compared to the same period in 2023. This decrease primarily resulted from lower average cash and marketable investment securities balances during the three months ended June 30, 2024.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled $165 million during the three months ended June 30, 2024, an increase of $155 million compared to the same period in 2023. This increase primarily resulted from the reduction of capitalized interest related to the qualifying assets being placed into service and the Sale and Transfer of Assets to EchoStar, which included the Intercompany Loan 2026 Tranche, which was previously eliminated in consolidation and held by DISH DBS. During the three months ended June 30, 2024, as a result of the change in the basis of our qualifying assets due to the Sale and Transfer of Assets to EchoStar and certain bands of wireless spectrum licenses that have been placed into service with the deployment of our 5G Network, we no longer capitalize interest on those assets and as a result, capitalized interest was reduced. See Note 1, Note 2 and Note 8 in the Notes to our Condensed Consolidated Financial Statements for further information.
Other, net. “Other, net” expense totaled $64 million during the three months ended June 30, 2024, compared to income of $61 million during the same period in 2023. This change primarily resulted from a $64 million loss in equity in earnings from our Invidi investment during the three months ended June 30, 2024 compared to $68 million of early debt extinguishment gains from the repurchases of our convertible notes during the three months ended June 30, 2023, See Note 4 in the Notes to our Condensed Consolidated Financial Statements for further information.
Income tax (provision) benefit, net. Our income tax benefit was $38 million during the three months ended June 30, 2024, compared to a provision of $67 million during the same period in 2023. This change was primarily related to a decrease in “Income (loss) before income taxes” and the change in our effective tax rate. Our effective tax rate during the three months ended June 30, 2024 was impacted by federal and state valuation allowances.
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Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.
| | | | | | | | | | | | |
| | For the Six Months Ended | | | | |||||||
| | June 30, | | Variance | | |||||||
Statements of Operations Data |
| 2024 |
| 2023 |
| Amount |
| % |
| |||
| | (In thousands) | | | | |||||||
Operating income (loss) | | $ | (5,792) | | $ | 529,757 | | $ | (535,549) | | * | |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Interest income | | | 23,167 | | | 72,258 | | | (49,091) | | (67.9) | |
Interest expense, net of amounts capitalized | | | (335,196) | | | (17,206) | | | (317,990) | | * | |
Other, net | | | 62,865 | | | 30,771 | | | 32,094 | | * | |
Total other income (expense) | | | (249,164) | | | 85,823 | | | (334,987) | | * | |
| | | | | | | | | | | | |
Income (loss) before income taxes | | | (254,956) | | | 615,580 | | | (870,536) | | * | |
Income tax (provision) benefit, net | | | 32,901 | | | (149,918) | | | 182,819 | | * | |
Effective tax rate | | | 12.9 | % | 24.4 | % | | | | | ||
Net income (loss) | | | (222,055) | | | 465,662 | | | (687,717) | | * | |
Less: Net income (loss) attributable to noncontrolling interests, net of tax | | | 3,673 | | | 42,634 | | | (38,961) | | (91.4) | |
Net income (loss) attributable to DISH Network | | $ | (225,728) | | $ | 423,028 | | $ | (648,756) | | * | |
| | | | | | | | | | | | |
* Percentage is not meaningful.
Interest income. “Interest income” totaled $23 million during the six months ended June 30, 2024, a decrease of $49 million compared to the same period in 2023. This decrease primarily resulted from lower average cash and marketable investment securities balances and lower percentage returns earned on our cash and marketable investment securities during the six months ended June 30, 2024.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled $335 million during the six months ended June 30, 2024, an increase of $318 million compared to the same period in 2023. This increase primarily resulted from the reduction of capitalized interest related to the qualifying assets being placed into service and the Sale and Transfer of Assets to EchoStar, which included the Intercompany Loan 2026 Tranche, which was previously eliminated in consolidation and held by DISH DBS. During the six months ended June 30, 2024, as a result of the change in the basis of our qualifying assets due to the Sale and Transfer of Assets to EchoStar and certain bands of wireless spectrum licenses that have been placed into service with the deployment of our 5G Network, we no longer capitalize interest on those assets and as a result, capitalized interest was reduced. See Note 1, Note 2 and Note 8 in the Notes to our Condensed Consolidated Financial Statements for further information.
Other, net. “Other, net” income totaled $63 million during the six months ended June 30, 2024, an increase of $32 million compared to the same period in 2023. This change primarily resulted from the $128 million gain on a sale of a financial asset to EchoStar, partially offset by a $63 million loss in equity in earnings from our Invidi investment during the six months ended June 30, 2024 compared to $68 million of early debt extinguishment gains from the repurchases of our convertible notes during the six months ended June 30, 2023. In addition, this change resulted from a $37 million decrease in the fair value of our option to purchase certain of T-Mobile’s 800 MHz spectrum licenses during the six months ended June 30, 2023 compared to no change during the six months ended June 30, 2024. See Note 1 in the Notes to our Condensed Consolidated Financial Statements for further information.
90
Income tax (provision) benefit, net. Our income tax benefit was $33 million during the six months ended June 30, 2024, compared to a provision of $150 million during the same period in 2023. This change was primarily related to a decrease in “Income (loss) before income taxes” and the change in our effective tax rate. Our effective tax rate during the six months ended June 30, 2024 was impacted by federal and state valuation allowances.
Non-GAAP Performance Measures and Reconciliation
It is management’s intent to provide non-GAAP financial information to enhance the understanding of our GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. We believe that providing these non-GAAP measures in addition to the GAAP measures allows management, investors and other users of our financial information to more fully and accurately assess both consolidated and segment performance. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be directly comparable to that of other companies.
Consolidated EBITDA
Consolidated EBITDA is not a measure determined in accordance with GAAP and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Consolidated EBITDA is used as a measurement of operating efficiency and overall financial performance and we believe it is a helpful measure for those evaluating operating performance in relation to our competitors. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
| | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||
| | (In thousands) | | ||||||||||
Net income (loss) attributable to DISH Network | | $ | (211,849) | | $ | 200,323 | | $ | (225,728) | | $ | 423,028 | |
Interest, net | | | 154,047 | | | (22,291) | | | 312,029 | | | (55,052) | |
Income tax provision (benefit), net | | | (38,471) | | | 67,493 | | | (32,901) | | | 149,918 | |
Depreciation and amortization | | | 391,110 | | | 266,010 | | | 758,184 | | | 511,707 | |
Consolidated EBITDA | | $ | 294,837 | | $ | 511,535 | | $ | 811,584 | | $ | 1,029,601 | |
| | | | | | | | | | | | | |
The changes in Consolidated EBITDA during the three and six months ended June 30, 2024, compared to the same periods in 2023, were primarily a result of the factors described in connection with operating revenues and operating expenses, as well as the impact from changes in “Other, net” during the three and six months ended June 30, 2023.
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Segment OIBDA
Segment OIBDA, which is presented below, is a non-GAAP measure and does not purport to be an alternative to operating income (loss) as a measure of operating performance. We believe this measure is useful to management, investors and other users of our financial information in evaluating operating profitability of our business segments on a more variable cost basis as it excludes the depreciation and amortization expenses related primarily to capital expenditures and acquisitions for those business segments, as well as in evaluating operating performance in relation to our competitors. Segment OIBDA is calculated by adding back depreciation and amortization expense to business segments operating income (loss). See Note 10 to the Notes to our Condensed Consolidated Financial Statements for further information.
| | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2024 | | | Pay-TV | | | Retail Wireless | | | 5G Network Deployment | | | Eliminations | | Consolidated | | |
| | | (In thousands) | | ||||||||||||
Segment operating income (loss) | | $ | 667,797 | | $ | (121,362) | | $ | (578,206) | | $ | — | | $ | (31,771) | |
Depreciation and amortization | | | 85,249 | | | 55,367 | | | 265,920 | | | (15,426) | | | 391,110 | |
OIBDA | | $ | 753,046 | | $ | (65,995) | | $ | (312,286) | | $ | (15,426) | | $ | 359,339 | |
| | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2023 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Segment operating income (loss) | | $ | 720,792 | | $ | (112,499) | | $ | (401,959) | | $ | — | | $ | 206,334 | |
Depreciation and amortization | | | 97,473 | | | 53,203 | | | 123,484 | | | (8,150) | | | 266,010 | |
OIBDA | | $ | 818,265 | | $ | (59,296) | | $ | (278,475) | | $ | (8,150) | | $ | 472,344 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2024 | | | Pay-TV | | | Retail Wireless | | | 5G Network Deployment | | | Eliminations | | Consolidated | | |
| | (In thousands) | | |||||||||||||
Segment operating income (loss) | | $ | 1,338,040 | | $ | (195,779) | | $ | (1,148,240) | | $ | 187 | | $ | (5,792) | |
Depreciation and amortization | | | 170,651 | | | 112,266 | | | 503,106 | | | (27,839) | | | 758,184 | |
OIBDA | | $ | 1,508,691 | | $ | (83,513) | | $ | (645,134) | | $ | (27,652) | | $ | 752,392 | |
| | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2023 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Segment operating income (loss) | | $ | 1,396,025 | | $ | (130,706) | | $ | (735,562) | | $ | — | | $ | 529,757 | |
Depreciation and amortization | | | 200,048 | | | 106,048 | | | 221,111 | | | (15,500) | | | 511,707 | |
OIBDA | | $ | 1,596,073 | | $ | (24,658) | | $ | (514,451) | | $ | (15,500) | | $ | 1,041,464 | |
| | | | | | | | | | | | | | | | |
The changes in OIBDA during the three and six months ended June 30, 2024, compared to the same periods in 2023, were primarily a result of the factors described in connection with operating revenues and operating expenses.
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Item 4.CONTROLS AND PROCEDURES
Conclusion regarding disclosure controls and procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in internal control over financial reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
See Note 9 “Commitments and Contingencies – Contingencies – Litigation” in the Notes to our Condensed Consolidated Financial Statements for information regarding certain legal proceedings in which we are involved.
Item 1A. RISK FACTORS
Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2023 includes a detailed discussion of our risk factors.
Item 6.EXHIBITS
Exhibits.
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32.2◻ | | |
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101◻ | | The following materials from the Quarterly Report on Form 10-Q of DISH Network for the quarter ended June 30, 2024 filed on August 13, 2024, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Changes in Stockholder’s Equity (Deficit), (iv) Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements. |
104◻ | | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
◻ | Filed herewith. | ||||
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* | Incorporated by reference. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Im | | |
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| DISH NETWORK CORPORATION | |
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| By: | /s/ Hamid Akhavan |
| Hamid Akhavan | |
| President and Chief Executive Officer | |
| (Duly Authorized Officer) | |
| | |
| | |
| By: | /s/ Paul W. Orban |
| Paul W. Orban | |
| Executive Vice President and Chief Financial Officer, DISH (Principal Financial Officer) | |
| | |
| | |
| By: | /s/ James S. Allen |
| James S. Allen | |
| Senior Vice President and Chief Accounting Officer | |
| (Principal Accounting Officer) | |
Date: August 13, 2024
94