Q3 2024 EchoStar Corp Earnings Call
Speaker Change: Welcome to the EchoStar third quarter 2024 earnings call. This time all participants are in listen-only mode. The question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
Dean Manson: I'll now turn the call over to Dean Manson, Chief Legal Officer. Please go ahead, sir.
Thank you.
Dean Manson: Welcome to Echostar's third quarter 2024 earnings call. We'll begin with opening remarks from Hamid Akhavan, President and CEO, followed by Paul Orban, EVP and Principal Financial Officer, Gary Schanman, EVP and Group President of Video Services,
Dean Manson: John Swieringa, President of Technology and COO, and Jeff Boggs, SVP of Finance for Hughes, who is joining us as Paul Gaske is currently traveling for enterprise business meetings.
Dean Manson: All statements we make during this call, other than statements of historical fact, constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995.
Dean Manson: All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make, wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements.
Speaker Change: We refer to OEBDA and free cash flow during this call. The comparable gap measure and a reconciliation for OEBDA is presented in our earnings release and in the case of free cash flow in our 10-Q. With that, I'll turn it over to Hamid.
Hamid Akhavan: Thank you, Dean. Welcome, everyone. Thank you for joining us today.
Hamid Akhavan: For the past few earnings calls, we have postponed discussing certain aspects of our financing as transactions were under negotiation. However, I'm pleased to address these with you today.
of the transactions which have already been completed.
Hamid Akhavan: First, TPG, Angela Gordon, and a number of co-investors, as well as DirecTV, provided $2.5 billion in financing to pay DISH DBS November debt maturity, interest, and other operating needs.
Hamid Akhavan: Furthermore, certain convertible note holders will provide approximately $5.2 billion in additional financing via secured notes, which are due in 2029.
Hamid Akhavan: We expect both the secured notes and the PIPE to be funded today.
Hamid Akhavan: The transaction would reduce Echostar's consolidated debt by approximately $11.7 billion. The resulting combined pay-TV company would benefit U.S. pay-TV consumers by providing more choices and better value in this highly competitive market.
Hamid Akhavan: A sale of our video services business, Interact TV, will take time, assuming successful completion of the related exchange offer, we expect it to close in late 2025.
Hamid Akhavan: While we are hopeful the DBS exchange will be successful, we now have a more robust foundation to operate and grow EchoStar's business independent of the exchange outcome.
Hamid Akhavan: Looking at the bigger picture of our business, the recent transactions highlight the valuation of our spectrum assets.
Hamid Akhavan: As for EchoStar's third quarter operating results, I am once again pleased with our team's execution.
Hamid Akhavan: The paid TV segment continued to create significant cash flow for the business during the quarter. We grew the Sling TV customer base and improved operational efficiencies on the dish TV side and cost effective initiatives.
Hamid Akhavan: On the Hughes front, we continue our march toward expansion of our enterprise business, such as our in-flight aviation products and services.
Hamid Akhavan: In parallel, we focus on acquiring and retaining high-value consumer subscribers at HughesNet.
Hamid Akhavan: For our Boost Mobile brand, we continue to make improvements and saw additional subscriber growth in the third quarter, excluding the impacts of the terminated HCP program.
Hamid Akhavan: We'll talk more about the strategy and performance of the Boost Mobile in a few minutes, but we have improved the digital experience through a unified brand identity and offerings and added important new distribution through Apple retail channels.
Hamid Akhavan: We continue to enhance and densify our Open RAN 5G wireless network.
Hamid Akhavan: The FCC took a significant step in promoting competition in the wireless market by approving our updated build-out framework for our 5G network.
Hamid Akhavan: This new framework will enable us to focus on driving competition faster in key markets, delivering lower-cost offerings to consumers, and accelerating and expanding our final build-out milestones for certain spectrum licenses.
Speaker Change: Before I turn the call over to Paul Orban for a commentary on the financials.
Speaker Change: And in light of the recent election, we look forward to working with the new administration on advancing U.S. leadership in 5G.
Speaker Change: promoting competition both domestically and internationally and driving innovation and growth with open RAN, cloud native and non-terrestrial network or NTN satellite solutions.
Now over to Paul Orban.
Paul Orban: Thank you, Hamid. As Hamid mentioned, in late September, we announced a series of transactions that substantially restructured our balance sheet. These actions highlight our commitment to strengthen our financial position and strategically refocus on the future, resulting in the removal of our Boeing Concern disclosure.
Paul Orban: Orbita was 317 million down 49 million year-over-year driven by higher network operating costs for more sites on air and lower gross margin related to fewer subscribers.
Paul Orban: As stated on previous calls, our teams are focused on maintaining positive operating-free cash flow.
Paul Orban: We are on track to meet this goal in 2024, in part due to our financial discipline and by continuing to execute on our operational plan.
Paul Orban: Pre-cash flow for Q3, which includes our debt service, was negative $219 million, largely driven by cash interest.
Paul Orban: You're over here, free cash flow improved by 295 million, primarily driven by a $451 million decrease in capital spent for the network.
which is in line with our prior guidance.
Speaker Change: With that, I'd like to turn it over to Gary to discuss video services.
in Q3 against priority initiatives supporting ARPU growth.
Speaker Change: And our cost optimization initiatives continue to yield significant year-over-year SG&A and variable cost savings. These efforts drove substantial increases in OEBDA per sub growth versus Q3 2023.
Speaker Change: Throughout our businesses, we drove solid results by focusing on product innovation, customer experience improvement, AI, ML, and data-driven marketing efforts, AI-enabled advertising creative development, and focused investment.
Speaker Change: On the Swing TV side, we grew in Q3 and now have over 2.1 million subscribers, 145,000 more than last quarter, and our highest mark since 2022.
Speaker Change: Our focus in Q4 will be to continue this positive momentum in our key operational metrics for a strong finish to the year. I'd like to turn it over to Jeff Boggs, who will cover broadband and satellite services now.
Thank you, Gary.
Jeff Boggs: Our broadband and satellite services segment operates in the consumer, enterprise, and government markets.
Jeff Boggs: Despite these headwinds, our focus remains, as in previous quarters, on acquiring and retaining high-value customers for HughesNet.
Jeff Boggs: For the second year in a row, Hughes was recognized as the leader in the Gartner Magic Quadrant for Managed Network Services, which is a testament to our ability to deliver cutting-edge secure network services.
Jeff Boggs: Additionally, Hughes was named the 2024 Managed Security Service Provider of the Year by the Cybersecurity Breakthrough.
Jeff Boggs: The award recognizes Hughes as a leader in providing businesses of all sizes with managed network and security solutions.
Jeff Boggs: Our in-flight entertainment and connectivity business continues to grow. We've also began working with GoGo Business Aviation for use in their Galileo service, where our HDX ESA antenna successfully completed test flights and passed the FAA qualifications.
Jeff Boggs: We continue to grow our presence in the DoD 5G networking market with a recent award from the U.S. Army for their 5G Open RAN initiative at Fort Bliss, Texas.
Jeff Boggs: which is aimed at exploring the advantages of near real-time control of the radio access network.
Jeff Boggs: This award comes on top of the previously announced successes with the U.S. Navy at Whidbey Island Naval Air Station and the Naval Base in Hawaii.
Jeff Boggs: The portfolio of products offered and our global SBAN assets puts us in a unique position to provide such solutions as direct-to-device.
Jeff Boggs: We look forward to keeping you updated on our progress in this space.
Speaker Change: With that, I will turn it back to Hamid for an update on our retail wireless business.
Hamid Akhavan: We also expanded our relationship with Apple during the quarter. Customers can now purchase and activate Boost Mobile service through Apple Retail Stores, Apple.com, and Apple Store app.
Hamid Akhavan: We finished the quarter with 6.98 million wireless subscribers. As mentioned, excluding the loss of net ACP subscribers, we added approximately 62,000 subscribers in the third quarter.
Hamid Akhavan: Partnerships with further operational improvements to drive efficiencies across Boost Mobile, growing the number of accounts participating in auto pay, streamlining our loyalty upgrade processes, increasing enrollment in add-on services like Boost Protect, and migrating even more customers onto the Boost Mobile network.
Hamid Akhavan: We have seen a 29% improvement in churn in the third quarter on a year-over-year basis. Our pool improved year-over-year as well as from Q2 as we continue to focus on higher quality customers and improved customer experience and network optimization.
Hamid Akhavan: We are encouraged by the current state of the business and are adjusting our plans to profitably increase our market share in 2025 as we benefit from owner's economics with our network.
Speaker Change: While there's plenty of work to do, we are pointed in the right direction and expect to continue to deliver improved results through the end of the year. Let me now hand the call to John to cover our network deployment progress.
Thanks, Hamid.
John Swieringa: The new framework provides a three-year extension for certain spectrum licenses, enabling us to focus resources on making our Boost Mobile business more competitive in markets where the Boost Mobile network is live and we have a retail presence.
John Swieringa: We're committed to offering low-cost wireless plans and 5G devices to consumers nationwide.
John Swieringa: Empowering American consumers with greater choice and flexibility when it comes to choosing a wireless provider.
John Swieringa: Plus, the updated framework enables us to more efficiently build our network and increase competition in highly populated areas.
Compared to $686 million in Q3 of 2023.
John Swieringa: We continue to be disciplined with our approach as we transition from building and deploying to running and optimizing our network.
John Swieringa: In regard to OnNet customers, they receive Pure 5G on the Boost Mobile Network and have extended coverage through our network partnerships, offering wireless customers coverage, totaling 99% of the U.S.
John Swieringa: We continue to onboard additional customers on our network, and with traffic increasing, we are observing competitive network performance metrics.
John Swieringa: In many markets, the Boost Mobile Network is already outperforming our competitors.
Now, I'll turn it back over to Hamid.
Hamid Akhavan: Thank you John. With our November debt payment now secured in additional financing, Echostar is well positioned to finish the year according to plan.
Hamid Akhavan: In addressing our capital structure needs, we can now realize the true potential value of a business.
Hamid Akhavan: The Operational Discipline we have exhibited all year will continue to serve us well into 25.
Speaker Change: With that, we'll open it for Q&A from the analyst community.
Operator, please give the instructions to the...
Thank you.
One moment please while we poll for questions. Thank you.
Speaker Change: Thank you. And our first question today is from the line of Rick Prentiss with Raymond James. Please proceed with your question.
Thanks. Good morning, everybody.
Speaker Change: Good morning, Rick. Thanks for the question. Paul, if you... Yeah, the vast majority of the terms related to HCP Hidden 2.3, there's very little of those subscribers left in our subscriber base as of 9.30.
Speaker Change: of the ACP-related churn happened in Q3, and so that additional churn did impact our churn and our net subscribers in Q3. We think we're through most of that, so we should see a better path forward.
We are Optimized for AI. We run on cloud.
Speaker Change: Christopher Quilty, Dean Manson, John Swieringa, Paul Gaske, Gary Schanman, Dean Manson, John
Speaker Change: You know good news recently, but we do have a significant amount of technical technological and other advantages that we have not yet You know demonstrated in the marketplace
Speaker Change: I assume the profitability is pretty focused on trying to get people on net, both on the device side, but also just trying to keep them on net to improve the profitability. Is that one of the focal points on growing subs?
Speaker Change: Okay, thanks. Good to have the DISH Network and the EchoStar side of those transactions done. Thanks guys. Thank you.
Speaker Change: Our next question is from the line of Walter Pajic with LightShed. Please proceed with your questions.
First of all, I want to say that...
Speaker Change: If the exchange does not close successfully, we'll continue to operate our business.
Speaker Change: as we have always had and I won't get into the specifics of cash flows related to that business. That's not something that I'm prepared to speak to, but I just want to say that for us, whether the transaction closes or not, we do have a path forward now.
Speaker Change: I'm not going to change the course of our business in terms of value creation and I won't comment on various specifics of it today.
Speaker Change: And then just on the wireless business, obviously it changed the administration. I think Malone was on the tape somewhere today saying he thinks Comcast can merge with Charter. So obviously you'd have a larger footprint of fixed assets out there. When you think about
Speaker Change: The capacity that your network provides to to a cable operator today, which doesn't have the network
Speaker Change: Unknown, so what they can do beyond bundling today, especially if they own charter. So I'm just curious, like, how do you think about your willingness?
Speaker Change: Great sort of questions. I'll start the answer and I'll pass on to John to give you a bit more color and a specific from his point of view. Look we we have this this is the largest economy in the world and the largest IT spending in the most technologically advanced
Speaker Change: And we have not even, you know, scratched the surface yet. So, in many ways, we are prepared.
Speaker Change: to take advantage of any opportunity that comes our way, whether it be opportunities on the retail side, wholesale side, we're looking forward to all of that, an underutilized network with tremendous technological advantages. John, if you want to comment on any more specifics from your perspective on IT or capacity of the network.
Hey Walt, it's John. Thanks for the question.
Speaker Change: Going back many years as we've talked about the potential for the network we've discussed that we've essentially built a wholesale network.
And that's because we've always seen.
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Speaker Change: to make sure that we're ready to bring on additional major customers onto the network. We've been busy making sure that we have the 5G voice capacity available in the major markets to support those types of initiatives. Obviously there's
Speaker Change: Assets out there that are highly complementary to ours and when you think about Our macro coverage combined with among other things indoor and Wi-Fi coverage. We think there's some pretty compelling
Speaker Change: That sounds to me like you're more interested in extracting strategic value through partnership as opposed to just basically, you know, making them buy the cow, so to speak.
But we.
Speaker Change: We have not charted a definitive course exactly how we are going forward, but all those options or any options on the table would be, you know, would be evaluated. You know, we certainly know that we are vastly undervalued.
Speaker Change: from perspective of, you know, how much assets we have. If you just take a look at tens of billions of dollars in inspection value that is not yet reflected in our share price.
Speaker Change: You know, we think we can develop it through a number of angles.
Speaker Change: Just retail business in addition to just you know playing in the consumer market we can play in the wholesale and other partnership markets
Speaker Change: What would it take for us to maximize the value in our equity share, equity price? Thank you. Thank you very much.
Speaker Change: Our next questions are from the line of Jonathan Chaplin with New Street Research. Pleased to see you with your questions.
Unknown Speaker, Unknown Speaker,
Speaker Change: At what point of trying to build a business, like how long will you give it a go before potentially shifting course?
Speaker Change: Right, three or four or five questions that will lead to a comprehensive and strategic path forward. But I think these are great questions. I'll take them in piece bars. I took several notes here, but if I missed any of them, please reiterate so I make sure I answer them.
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Broad term for everything other than consumer.
It's picking up. We just announced, you know, another
Speaker Change: We think there's a heck of a lot more to come from that. Just that one angle alone of using our technology, which is, by the way, beyond just a spectrum. Remember that we have capabilities for manufacturing,
Speaker Change: to providing managed services, which we were rated for Gartner as being a leader. And, you know, none of our competitors are even close to that.
Speaker Change: You should expect, how can you stick around? I just wouldn't put it in the very immediate future. Having said that, on a wholesale business, there's a number of fronts. You know just there are examples in others who wanna go to market.
Speaker Change: Gary Schanman, Dean Manson, John Swieringa, Christopher Quilty, Gary Schanman, Dean Manson,
Speaker Change: Unknown Attendee, Paul Gaske, Gary Schanman, Dean Manson, John Swieringa, Christopher Quilty,
Speaker Change: Unknown Chairman Now we have network assets, we have other assets. Unknown Agent
Speaker Change: for instance, you know, the network has taken billions of dollars value that is already there, taking years to build it.
Yeah, go ahead please, go ahead.
Speaker Change: I was just going to say, just to follow up, I recognize that these are big contracts with a long life cycle, take a long time to land.
I think.
Speaker Change: to a cloud core, which we are uniquely positioned to right now with, running on AWS.
Thanks Hamid, I really appreciate it.
Speaker Change: Our next question is from the line of Michael Rollins with Citibank. Please proceed with your question.
Michael Rollins: Thanks and good morning. So, you have a lot of retail wireless subs.
Michael Rollins: Can you unpack what's causing that retail business to lose EBITDA on a quarterly basis? And is there a path forward, just even on the current base?
where the profitability could be.
Speaker Change: Unknown Attendee, Paul Gaske, Gary Schanman, Dean Manson, John Swieringa, Christopher Quilty, John Swieringa, Dean Manson, John Swieringa, Christopher Quilty, Dean Manson, John Swieringa, Gary Schanman, Dean Manson, John Swieringa, Unknown
Speaker Change: Unknown Speaker, the 5g revenue that you're recognizing in that specific segment.
Can you unpack the amount of revenue?
that's coming from Spectrum Leases.
Speaker Change: versus what's being contributed from the retail wireless business since you have these separate, I guess the question is, is the retail business really paying for capacity into that 5G segment? And just how to think about that transfer pricing mechanism on a go-forward basis. Thanks.
Paul Orban: I will pass that to Paul. So first of all, on a sequential EBITDA or OEBDA that you were talking about and retail wireless, you got to take into consideration that subsidy and FAC and the costs that we incur on that and that drives majority of the variances that you see there.
Paul Orban: As it relates to your question on the 5G M&L revenue,
Paul Orban: You are correct that that does include intercompany charges for the subs that are on the M&O, but offsetting that was third-party lease revenue that we had in prior periods.
Paul Orban: that has been declining, driving that variance. From a standpoint of...
Paul Orban: of describing exactly what that number is. We don't talk about that, but you will see that revenue amount grow over time as we load more subscribers on the M&O, and that's a good thing for us because what we're essentially doing is, is stop paying M&O costs and then funding the operations for the M&O.
Speaker Change: And just maybe more broadly, so as you think about that 5G retail business,
Speaker Change: At the moment, we have had a tremendous amount of good news recently, as recently as just today, in terms of access to funding.
Thanks very much.
You know
Wait.
Speaker Change: Actually, candidly, we did not need to join that consortium, and the reason being that we have access to adequate spectrum resources of our own without having to
Speaker Change: partner with anybody. I think thatís more like a spectrum, availability partnership itís a bit of a convoluted, larger group.
I think here we do have the
Speaker Change: For us, there really isn't an incentive or need to participate in that alliance.
Transcription by CastingWordPress. Edited by eachman.
Speaker Change: So we think we are in a position to address both of those without having the need to participate in any other alliance.
Speaker Change: And hopefully time will show that we we can realize that value.
Speaker Change: So maybe I'm just to clarify on a point, I mean, traditionally the MSS spectrums were not, MSS spectrum bands were not designed into cellular chipsets and, you know, that's always been the challenge, is to get that sort of design in at the hardware level. So Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown Unknown
Speaker Change: Right. So, there's two aspects to, I'll give you my best understanding of it. There's two aspects to...
Speaker Change: Unknown Attendee, Gary Schanman, Dean Manson, John Swieringa, Christopher Quilty, Dean Manson,
that goes into developing the
Speaker Change: You know, the standardization, how does that work in terms of
Speaker Change: Operator, there's one additional question in the queue, so let's move to the final question.
Speaker Change: Thank you, that will be coming from the line of Sam McHugh with BNB Parma.
Speaker Change: Paul Gaske, Gary Schanman, Dean Manson, John Swieringa, Christopher Quilty, Gary Schanman,
Speaker Change: Unknown Speaker, Paul Gascke, Gary Schanman, Dean Manson, Christopher Quilty, Chaavika Ghandari, Bill Cobey, Ramind Akhavan
Speaker Change: So, it's really an asset, the way you phrased the question was more on the side of a liability, but we think it's a really competitive element that we have as it relates to our network or overall CapEx. It's not a race to spend more CapEx.
Thank you very much.
Speaker Change: Thank you everyone for participation and we can now close the call operator.