DISH Network (DISH) Misses Q2 Earnings and Revenue Estimates

DISH Network Corp. (DISH) declared second-quarter 2014 financial results, wherein both the bottom and the top line missed the Zacks Consensus Estimate.

At the end of the second quarter, DISH Network had approximately 14.053 million pay-TV subscribers, up 0.3% year over year. Meanwhile, the company lost 44,000 pay-TV subscribers but gained 36,000 broadband subscribers in the same quarter. At the end of the quarter under review, DISH Network had 525,000 broadband subscribers.

Quarterly net income came in at $213.3 million or 46 cents per share compared with a loss of $11.1 million or 1 cent per share in the year-ago quarter. Earnings also missed the Zacks Consensus Estimate of 52 cents. Quarterly total revenue stood at approximately $3,688.1 million, up 5.8% year over year but below the Zacks Consensus Estimate of $3,693 million.

Segment wise, quarterly subscriber related revenues were $3,645.1 million, up 5.6% year over year. Equipment and merchandise sales & other revenues totaled $26.3 million, up 9.6% from the year-ago quarter. Equipment sales, services and other revenues from EchoStar were $16.7 million, up 85.6% year over year.

Average monthly subscriber churn pay-TV rate in the second quarter of 2014 stood at 1.66% compared with 1.67% in the prior-year quarter. Average revenue per user was $84.15 against $80.81 in the year-ago quarter. Average subscriber acquisition cost in the second quarter was $846 compared with $883 in the year-ago quarter.

In the reported quarter, Subscriber-related expenses crept up 9.4% year over year to $2,104.2 million. Total Subscriber acquisition costs rose 5.1% year over year to $456.5 million. Depreciation and amortization expenses were $271.9 million, indicating a deterioration of 10.7% from the prior-year quarter. General and administrative expenses were down 6.2% year over year to $189.7 million. Second-quarter 2014 operating profit was $454.7 million compared with $25.2 million in the prior-year quarter. Accordingly, the quarterly adjusted EBITDA stood at $741.7 million versus $430.6 million in the year-ago quarter.

At the end of the second quarter, DISH Network generated $480.5 million of cash from operations compared with $561.4 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) totaled $167.5 million compared with $280.3 million in the year-ago quarter.

At the end of the second quarter, DISH Network had $8,903.2 million of cash and marketable securities and $11,795.6 million of outstanding debt on its balance sheet compared with $9,739.4 million and $12,596.8 million, respectively, at the end of 2013.

Our Take

DISH Network is steadily transforming itself from a low-priced leader in the U.S. pay-TV industry to a premium service provider in order to check subscriber churn. Moreover, the company’s plan to deploy triple-play services coupled with the increased rollout of its popular hopper devices will help it to drive subscriber growth and counter stiff competition from Netflix, Inc. (NFLX), AT&T Inc.’s (T) U-Verse and Verizon Communication Inc’.s (VZ) FiOS pay-TV services.

Currently, DISH Network carries a Zacks Rank #3 (Hold).