DISH Network Misses Earnings

DISH Network Corp. ( DISH - Analyst Report ) – the second-largest satellite operator in the U.S. after DIRECTV ( DTV - Analyst Report ) – declared first-quarter 2013 financial results where both its top and bottom line missed the Zacks Consensus Estimate.

Most importantly, the company continues to maintain net subscriber growth in the two successive quarters. In the first quarter of 2013, DISH Network gained 36,000 net subscribers. At the end of the first quarter of 2013, DISH Network had approximately 14.092 million subscribers, up 0.1% year over year.

Quarterly GAAP net loss was $215.6 million or 47 cents per share compared with a net income of $360.3 million or 80 cents per share in the year-ago quarter. First-quarter 2013 income per share of 47 cents was well below the Zacks Consensus Estimate of an income of 61 cents.

Quarterly total revenue was approximately $3,555.2 million, down 0.7% year over year and also below the Zacks Consensus Estimate of $3,603 million. This poor performance was mainly due to weak Equipment-related revenues.

Segment wise, quarterly Subscriber related revenues were $3,352.6 million, up 4% year over year. Equipment and merchandise sales & other revenues were $200.5 million, down 42.8% year over year. Equipment sales, services, and other revenues from EchoStar were $2.1 million, down 68.1% year over year.

Average monthly subscriber churn rate in the first quarter of 2012 was 1.47% compared with 1.35% in the prior-year quarter. Average revenue per user in the reported quarter was $78.54 compared with $76.24 in the year-ago quarter. Average subscriber acquisition cost in the first quarter of 2013 was $882 compared with $747 in the year-ago quarter.

In the reported quarter, Subscriber-related expenses crept up 8.5% year over year to $1,911.6 million, driven by higher programming content costs and expenses related to call center operations. Total Subscriber acquisition cost increased 16.1% year over year to $463.9 million. Depreciation and amortization expenses were $234.3 million, up 12.3% year over year.

General and administrative expenses were down by 30.9% year over year to $251.6 million. First-quarter 2013 operating profit was $452.3 million compared with $572.4 million in the prior-year quarter. Accordingly, quarterly EBITDA was just $686.6 million compared with $781.1 million in the year-ago quarter.

During the first quarter of 2013, DISH Network generated $686.5 million of cash from operations compared with $858.6 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) in the first quarter of 2013 was $375 million compared with $689.7 million in the year-ago period.

At the end of the first quarter of 2013, DISH Network had $7,095.1 million of cash and marketable securities and $11,343.2 million of outstanding debt on its balance sheet compared with $7,237.7 million of cash and marketable securities and $11,350.4 million of outstanding debt on its balance sheet at the end of 2012.

DISH Network currently has a Zacks Rank #3 (Hold).

Our Take

DISH Network is slowly transforming itself from a low-priced leader in the U.S. pay-TV industry to a premium service provider in order to reduce its subscribers’ churn rate. Moreover, the plan to deploy triple-play services coupled with increased rollout of its popular hopper devices will help the company to not only drive subscriber growth but at the same time counter stiff competition from Netflix, Inc. ( NFLX - Analyst Report ) and AT&T Inc.’s ( T - Analyst Report ) U-Verse pay-TV service.