filings.toolsEchoStar 10-Q 2024-03-31
Filed 2024-05-08. 8 sections, 328K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024**.**
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission File Number: 001-33807
EchoStar Corporation
(Exact name of registrant as specified in its charter)
| | |
|---|---|
| Nevada | 26-1232727 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| 9601 South Meridian Boulevard | |
| Englewood**,** Colorado | 80112 |
| (Address of principal executive offices) | (Zip code) |
(303) 723-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | |
|---|---|---|---|---|
| Title of each class | | Trading****Symbol(s) | | Name of each exchange on which registered |
| Class A common stock, $0.001 par value | | SATS | | The Nasdaq Stock Market L.L.C. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
|---|---|
| Large accelerated filer ☒ | Accelerated filer ☐ |
| | |
| Non-accelerated filer ☐ | Smaller reporting company ☐ |
| | |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29, 2024, the registrant’s outstanding common stock consisted of 140,173,977 shares of Class A common stock and 131,348,468 shares of Class B common stock.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Unless otherwise required by the context, in this report, the words “EchoStar,” the “Company,” “we,” “our” and “us” refer to EchoStar Corporation and its subsidiaries, “DISH Network” refers to DISH Network Corporation, our wholly owned subsidiary, and its subsidiaries, and “DISH DBS” refers to DISH DBS Corporation, a wholly - owned, indirect subsidiary of DISH Network, and its subsidiaries.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our plans, objectives and strategies, growth opportunities in our industries and businesses, our expectations regarding future results, financial condition, liquidity and capital requirements, our estimates regarding the impact of regulatory developments and legal proceedings, and other trends and projections. Forward-looking statements are not historical facts and may be identified by words such as “future,” “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “will,” “would,” “could,” “can,” “may,” and similar terms. These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and represent management’s current views and assumptions. Forward-looking statements are not guarantees of future performance, events or results and involve known and unknown risks, uncertainties and other factors, which may be beyond our control. Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors, including, but not limited to, those summarized below:
SUMMARY OF RISK FACTORS
Risks Related to the Integration
| ● | Although we expect that the Merger will result in synergies and other benefits, those synergies and benefits may not be realized in the amounts anticipated, or may not be realized within the expected timeframe, or at all, and risks associated with the foregoing may also result from any extended delay in the Integration. |
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| ● | The market price for shares of our common stock may be affected by factors different from, or in addition to, those that historically affected the market prices of shares of DISH Network Class A Common Stock and EchoStar Class A Common Stock. |
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Competition and Economic Risks
| ● | We face intense and increasing competition from providers of video, broadband and/or wireless services. Changing consumer behavior and new technologies in our Pay-TV and/or Wireless business may reduce our subscriber activations and may cause our subscribers to purchase fewer services from us or to cancel our services altogether, resulting in less revenue to us. |
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| ● | We face certain risks competing in the wireless services industry and operating a facilities-based wireless services business. |
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| ● | Our pay-TV competitors may be able to leverage their relationships with programmers to reduce their programming costs and/or offer exclusive content that will place them at a competitive advantage to us. |
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| ● | Through the MNSA and the NSA, we depend on T-Mobile and AT&T to provide network services to our Wireless subscribers. Our failure to effectively manage these relationships, including without limitation, our minimum commitments, any system failure in their wireless networks, interruption in the services provided to us, and/or the termination of the MNSA or the NSA could have a material adverse effect on our business, financial condition and results of operations. |
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| ● | We compete with the MNOs whose networks we rely on to provide wireless services to our customers, and they may seek to limit, reduce or terminate our network access to the extent that it becomes competitively advantageous to do so. |
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| ● | If we are unable to take advantage of technological developments on a timely basis, or at all, we may experience a decline in demand for our services or face challenges in implementing or evolving our business strategy. |
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Operational and Service Delivery Risks
| ● | Any deterioration in our operational performance, subscriber activations and churn rate and subscriber satisfaction could adversely affect our business, financial condition and results of operations. |
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| ● | We depend on others to provide the programming that we offer to our Pay-TV subscribers and, if we fail to obtain or lose access to certain programming, our Pay-TV subscriber activations and our subscriber churn rate may be negatively impacted. |
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| ● | We have limited satellite capacity and any failures or reduced capacity, caused by, among other things, operational and environmental risks, could adversely affect our business, financial condition and results of operations. |
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| ● | Extreme weather may result in risk of damage to our infrastructure and therefore our ability to provide services, and may lead to changes in federal, state and foreign government regulation, all of which could materially and adversely affect our business, results of operations and financial condition. |
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| ● | We rely on a single vendor or a limited number of vendors to provide certain key products or services to us, and the inability of these key vendors to meet our needs could have a material adverse effect on our business. |
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| ● | We depend on independent third parties to solicit orders for our services that represent a meaningful percentage of our total gross new subscriber activations. |
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Risks Related to our Human Capital
| ● | We rely on highly skilled personnel for our business, and any inability to hire and retain key personnel or to hire qualified personnel may negatively affect our business, financial condition and results of operations. |
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| ● | Our business growth and customer retention strategies rely in part on the work of technically skilled employees. |
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Risks Related to our Products and Technology
| ● | Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others. |
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ii
| ● | We are, and may become, party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property. |
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| ● | If our products contain defects, we could be subject to significant costs to correct such defects and our product and network service contracts could be delayed or cancelled, which could adversely affect our revenue. |
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Risks Related to Cybersecurity
| ● | We have experienced and may experience in the future consistent cyber-attacks and attempts to gain unauthorized access to our systems and any failure or inadequacy of our information technology infrastructure and communications systems or those of third parties that we use in our operations could disrupt or harm our business. |
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| ● | The confidentiality, integrity, and availability of our services and products depends on the continuing operation of our information technology and other enabling systems. |
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Acquisition and Capital Structure Risks
| ● | We have substantial debt outstanding and may incur additional debt and covenants in our Indentures could limit our ability to undertake certain types of activities and adversely affect our liquidity. |
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| ● | We may pursue acquisitions, dispositions, capital expenditures, the development, acquisition and launch of new satellites and other strategic initiatives to complement or expand our business, which may not be successful and we may lose a portion or all of our investment in these acquisitions and transactions. |
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| ● | We have made substantial investments to acquire certain wireless spectrum licenses and other related assets, and may be unable to realize a return on these assets. |
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| ● | We will need additional capital, which may not be available on favorable terms, to fund current obligations, to continue investing in our business and to finance acquisitions and other strategic transactions. |
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| ● | We are controlled by one principal stockholder who is our Chairman. |
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Risks Related to the Regulation of Our Business
| ● | Our services depend on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted. |
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Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K (the “10-K”) filed with the SEC, those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those discussed in other documents we file with the SEC. All cautionary statements made or referred to herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described or referred to herein and should not place undue reliance on any forward-looking statements. The forward-looking statements speak only as of the date made, and we expressly disclaim any obligation to update these forward-looking statements.
iii
Item 1. FINANCIAL STATEMENTS
ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
| | | | | | | |
|---|---|---|---|---|---|---|
| | | As of | ||||
| | | March 31, | | December 31, | ||
| | 2024 | 2023 | ||||
| Assets | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 613,702 | | $ | 1,821,376 |
| Marketable investment securities | | | 152,649 | | | 623,044 |
| Trade accounts receivable, net of allowance for credit losses of $84,906 and $74,390, respectively | | | 1,023,089 | | | 1,122,139 |
| Inventory | | | 632,952 | | | 665,169 |
| Prepaids and other assets | | | 677,982 | | | 644,005 |
| Other current assets | | | 16,165 | | | 16,081 |
| Total current assets | | | 3,116,539 | | | 4,891,814 |
| | | | | | | |
| Noncurrent Assets: | | | | | | |
| Restricted cash, cash equivalents and marketable investment securities | | | 120,979 | | | 118,065 |
| Property and equipment, net | | | 9,589,433 | | | 9,561,834 |
| Regulatory authorizations, net | | | 38,809,600 | | | 38,572,980 |
| Other investments, net | | | 309,189 | | | 314,370 |
| Operating lease assets | | | 3,092,070 | | | 3,065,448 |
| Intangible assets, net | | | 127,670 | | | 172,892 |
| Other noncurrent assets, net | | | 390,937 | | | 411,491 |
| Total noncurrent assets | | | 52,439,878 | | | 52,217,080 |
| Total assets | | $ | 55,556,417 | | $ | 57,108,894 |
| | | | | | | |
| Liabilities and Stockholders’ Equity (Deficit) | | | | | | |
| Current Liabilities: | | | | | | |
| Trade accounts payable | | $ | 573,299 | | $ | 774,011 |
| Deferred revenue and other | | | 712,783 | | | 754,658 |
| Accrued programming | | | 1,485,798 | | | 1,427,762 |
| Accrued interest | | | 408,134 | | | 297,678 |
| Other accrued expenses and liabilities | | | 1,734,288 | | | 1,717,826 |
| Current portion of long-term debt and finance lease obligations (Note 9) | | | 2,090,661 | | | 3,046,654 |
| Total current liabilities | | | 7,004,963 | | | 8,018,589 |
| | | | | | | |
| Long-Term Obligations, Net of Current Portion: | | | | | | |
| Long-term debt and finance lease obligations, net of current portion (Note 9) | | | 19,696,803 | | | 19,717,266 |
| Deferred tax liabilities, net | | | 4,998,855 | | | 5,014,309 |
| Operating lease liabilities | | | 3,157,720 | | | 3,121,307 |
| Long-term deferred revenue and other long-term liabilities | | | 856,926 | | | 849,131 |
| Total long-term obligations, net of current portion | | | 28,710,304 | | | 28,702,013 |
| Total liabilities | | | 35,715,267 | | | 36,720,602 |
| | | | | | | |
| Commitments and Contingencies (Note 10) | | | | | | |
| | | | | | | |
| Redeemable noncontrolling interests (Note 2) | | | — | | | 438,382 |
| | | | | | | |
| Stockholders’ Equity (Deficit): | | | | | | |
| Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 140,170,052 and 140,153,020 shares issued and outstanding, respectively | | | 140 | | | 140 |
| Class B common stock, $0.001 par value, 800,000,000 shares authorized, 131,348,468 shares issued and outstanding | | | 131 | | | 131 |
| Additional paid-in capital | | | 8,310,877 | | | 8,301,979 |
| Accumulated other comprehensive income (loss) | | | (164,604) | | | (160,056) |
| Accumulated earnings (deficit) | | | 11,630,607 | | | 11,737,983 |
| Total EchoStar stockholders’ equity (deficit) | | | 19,777,151 | | | 19,880,177 |
| Noncontrolling interests | | | 63,999 | | | 69,733 |
| Total stockholders’ equity (deficit) | | | 19,841,150 | | | 19,949,910 |
| Total liabilities and stockholders’ equity (deficit) | | $ | 55,556,417 | | $ | 57,108,894 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | For the Three Months Ended | | ||||
| | | March 31, | | ||||
| | 2024 | 2023 | |||||
| Revenue: | | | | | | | |
| Service revenue | | $ | 3,819,673 | | $ | 4,180,721 | |
| Equipment sales and other revenue | | | 195,170 | | | 206,945 | |
| Total revenue | | | 4,014,843 | | | 4,387,666 | |
| | | | | | | | |
| Costs and Expenses (exclusive of depreciation and amortization): | | | | | | | |
| Cost of services | | | 2,557,182 | | | 2,462,600 | |
| Cost of sales - equipment and other | | | 363,083 | | | 520,060 | |
| Selling, general and administrative expenses | | | 624,422 | | | 700,772 | |
| Depreciation and amortization | | | 485,400 | | | 347,754 | |
| Impairment of long-lived assets and goodwill | | | — | | | 3,142 | |
| Total costs and expenses | | | 4,030,087 | | | 4,034,328 | |
| | | | | | | | |
| Operating income (loss) | | | (15,244) | | | 353,338 | |
| | | | | | | | |
| Other Income (Expense): | | | | | | | |
| Interest income, net | | | 30,462 | | | 68,186 | |
| Interest expense, net of amounts capitalized (Note 2) | | | (99,408) | | | (20,033) | |
| Other, net (Note 5) | | | (26,110) | | | (34,761) | |
| Total other income (expense) | | | (95,056) | | | 13,392 | |
| | | | | | | | |
| Income (loss) before income taxes | | | (110,300) | | | 366,730 | |
| Income tax (provision) benefit, net | | | 1,925 | | | (93,885) | |
| Net income (loss) | | | (108,375) | | | 272,845 | |
| Less: Net income (loss) attributable to noncontrolling interests, net of tax | | | (999) | | | 19,311 | |
| Net income (loss) attributable to EchoStar | | $ | (107,376) | | $ | 253,534 | |
| | | | | | | | |
| Weighted-average common shares outstanding - Class A and B common stock: | | | | | | | |
| Basic | | | 271,519 | | | 269,833 | |
| Diluted | | | 271,519 | | | 307,410 | |
| | | | | | | | |
| Earnings per share - Class A and B common stock: | | | | | | | |
| Basic net income (loss) per share attributable to EchoStar | | $ | (0.40) | | $ | 0.94 | |
| Diluted net income (loss) per share attributable to EchoStar | | $ | (0.40) | | $ | 0.82 | |
| | | | | | | | |
| Comprehensive Income (Loss): | | | | | | | |
| Net income (loss) | | $ | (108,375) | | $ | 272,845 | |
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | | | (5,591) | | | 8,124 | |
| Unrealized holding gains (losses) on available-for-sale debt securities | | | 1,452 | | | (240) | |
| Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss) | | | (1,528) | | | (1) | |
| Deferred income tax (expense) benefit, net | | | — | | | (126) | |
| Total other comprehensive income (loss), net of tax | | | (5,667) | | | 7,757 | |
| Comprehensive income (loss) | | | (114,042) | | | 280,602 | |
| Less: Comprehensive income ( |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Free cash flow can be significantly impacted from period to period by changes in “Net income (loss)” adjusted to exclude certain non-cash charges, operating assets and liabilities, “Purchases of property and equipment,” net of “Refunds and other receipts of purchases of property and equipment,” and “Capitalized interest related to Regulatory authorizations.” These items are shown in the “Net cash flows from operating activities” and “Net cash flows from investing activities” sections on our Condensed Consolidated Statements of Cash Flows included herein. Operating asset and liability balances can fluctuate significantly from period to period and there can be no assurance that free cash flow will not be negatively impacted by material changes in operating assets and liabilities in future periods, since these changes depend upon, among other things, management’s timing of payments and control of inventory levels, and cash receipts. In addition to fluctuations resulting from changes in operating assets and liabilities, free cash flow can vary significantly from period to period depending upon, among other things, subscriber additions (losses), service revenue, subscriber churn, subscriber acquisition and retention costs including amounts capitalized under our equipment lease programs for DISH TV subscribers, operating efficiencies, increases or decreases in purchases of property and equipment, expenditures related to our 5G Network Deployment and other factors.
The following table reconciles free cash flow to “Net cash flows from operating activities.”
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | | |
| | | For the Three Months Ended | ||||
| | | March 31, | ||||
| | 2024 | 2023 | ||||
| | | (In thousands) | ||||
| Net cash flows from operating activities | | $ | 451,259 | | $ | 789,947 |
| Purchases of property and equipment, net of refunds (including capitalized interest related to Regulatory authorizations) | | | (677,696) | | | (950,676) |
| Free cash flow | | $ | (226,437) | | $ | (160,729) |
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, Retail Wireless and Broadband and Satellite Services 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 convert 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.
**Item 2.**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
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 March 31, 2024, as a result of, among other things, capital expenditures for our 5G Network Deployment, we experienced negative free 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.
Subscriber Base – Pay TV, Retail Wireless and Broadband and Satellite Services Segments
See “Results of Operations” above for further information.
Subscriber Acquisition and Retention Costs
We incur significant upfront costs to acquire Pay-TV, Wireless and Broadband subscribers, including, but not limited to, advertising, independent third-party retailer incentives, payments made to third parties, equipment and wireless device subsidies, installation services and/or new customer promotions. While we attempt to recoup these upfront costs over the lives of their subscription, there can be no assurance that we will be successful in achieving that objective. With respect to our DISH TV services and Boost Mobile postpaid, we employ business rules such as minimum credit requirements for prospective customers and contractual commitments. We strive to provide outstanding customer service to increase the likelihood of customers keeping their Pay-TV services and Boost Mobile postpaid over longer periods of time. Subscriber acquisition costs for SLING TV subscribers are significantly lower than those for DISH TV subscribers. Our subscriber acquisition costs may vary significantly from period to period.
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. As with our subscriber acquisition costs, our retention upgrade spending includes the cost of equipment and installation services. In certain circumstances, we also offer programming at no additional charge and/or promotional pricing for limited periods to existing customers in exchange for a contractual commitment to receive service for a minimum term. A component of our retention efforts includes the installation of equipment for customers who move. Retention costs for Wireless subscribers are primarily related to promotional pricing on upgraded wireless devices for qualified existing subscribers. Our DISH TV and Wireless subscriber retention costs may vary significantly from period to period.
Seasonality
Historically, the first half of the year generally produces fewer gross new DISH TV subscriber activations than the second half of the year, as is typical in the pay-TV industry. In addition, the first and fourth quarters generally produce a lower DISH TV churn rate than the second and third quarters. However, 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. As a result, historical trends in seasonality described above may not be indicative of future trends.
**Item 2.**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Our net SLING TV subscriber additions are impacted by, among other things, certain major sporting events and other major television events. The first and third quarters generally produce higher gross new Wireless subscriber activations. The historical trends discussed above, for net DISH TV subscriber additions, net SLING TV subscriber additions and gross new Wireless subscriber activations, may not be indicative of future trends. There can be no assurance that these trends will not continue and/or accelerate.
Satellites
Pay-TV Segment. Operation of our DISH TV services requires that we have adequate satellite transmission capacity for the programming that we offer. Moreover, competitive conditions may require that we expand our offering of new programming. While we generally have had in-orbit satellite capacity sufficient to transmit our existing channels and some backup capacity to recover the transmission of certain critical programming, our backup capacity is limited. In the event of a failure or loss of any of our owned or leased satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite. Such a failure could result in a prolonged loss of critical programming or a significant delay in our plans to expand programming as necessary to remain competitive and cause us to expend a significant portion of our cash to acquire or lease additional satellite capacity.
Broadband and Satellite Services Segment. Operation of our Broadband and Satellite Services also requires adequate satellite transmission capacity for the services that we offer. Prior to the launch of EchoStar XXIV, we were nearing or had reached capacity in most areas of the U.S., which constrained growth within our consumer subscriber base. These constraints have been addressed by the EchoStar XXIV satellite. In the event of a failure or loss of any of our owned or leased satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite. Such a failure could result in a prolonged loss of services.
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.
DISH Network and DISH DBS Corporation
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 DISH Network and DISH DBS 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, DISH Network and DISH DBS were in compliance with the covenants and restrictions related to our respective long-term debt.
**Item 2.**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Hughes Satellite Systems Corporation
The indentures related to our outstanding senior notes issued by Hughes Satellite Systems Corporation (“HSSC”) contain restrictive covenants that, among other things, impose limitations on the ability of HSSC and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make distributions on HSSC’s capital stock or repurchase HSSC’s capital stock; (iii) allow to exist certain restrictions on such subsidiaries’ ability to pay dividends, make distributions, make other payments, or transfer assets; (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. As of the date of filing of this Quarterly Report on Form 10-Q, we and HSSC were in compliance with the covenants and restrictions related to our respective long-term debt.
Other
We are also vulnerable to fraud, particularly in the acquisition of new subscribers. While we are addressing the impact of subscriber fraud through a number of actions, there can be no assurance that we will not continue to experience fraud, which could impact our subscriber growth and churn. Economic weakness may create greater incentive for signal theft, piracy and subscriber fraud, which could lead to higher subscriber churn and reduced revenue.
Obligations and Future Capital Requirements
Contractual Obligations
See Note 10 in the Notes to our Condensed Consolidated Financial Statements for further information.
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 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.
**Item 2.**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
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.
Wireless – 5G Network Deployment
See Note 10 in the Notes to our Condensed Consolidated Financial Statements for further information.
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.
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 matures 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.
New Accounting Pronouncements
See Note 2 in the Notes to our Condensed Consolidated Financial Statements for further information.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk during the three months ended March 31, 2024. For additional information, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023.
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 Principal 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 Principal 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 10 “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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Our stock repurchase program expired December 31, 2023.
Item 5. OTHER INFORMATION
10b5-1 Trading Arrangements
None of the Company’s directors or Section 16 officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S-K.
Item 6. EXHIBITS
| (a) | Exhibits. |
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| 31.1◻ | Section 302 Certification of Chief Executive Officer. | ||
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| 31.2◻ | Section 302 Certification of Chief Financial Officer. | ||
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| 32.1◻ | Section 906 Certification of Chief Executive Officer. | ||
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| 32.2◻ | Section 906 Certification of Chief Financial Officer. | ||
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| 101◻ | The following materials from the Quarterly Report on Form 10-Q of EchoStar Corporation for the quarter ended March 31, 2024 filed on May 8, 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 Stockholders’ Equity (Deficit), (iv) Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements. | ||
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| 104◻ | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
| ☐ | Filed herewith. |
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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.
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| | ECHOSTAR CORPORATION | ||||
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| | By: | /s/ Hamid Akhavan | |||
| | | Hamid Akhavan | |||
| | | President and Chief Executive Officer and Director (Principal Executive Officer) | |||
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| | By: | /s/ Paul W. Orban | |||
| | | Paul W. Orban | |||
| | | Executive Vice President and Chief Financial Officer, DISH (Principal Financial Officer and Principal Accounting Officer) | |||
| Date: May 8, 2024 | |