DISH Misses, Subscriber Loss Soars

| About: DISH Network (DISH)

DISH Network Corp. (NASDAQ:DISH) declared mixed financial results for the third quarter of 2011. Though revenue beat the Zacks Consensus Estimate driven by an additional contribution from the newly acquired Blockbuster Inc., EPS fell marginally short. However, the alarming sign is that net subscriber loss aggravated in the previous quarter to 111,000 as opposed to a net loss of a mere 29,000 in the prior-year quarter. As of September 30, 2011, DISH Network had approximately 13.945 million subscribers.

DISH Network blamed lack of gross subscriber addition (down 19.9% year over year) was the primary reason for this huge net subscriber loss. Management cited aggressive marketing promotion and increased level of discounts offered by the company’s competitors are the other main reason behind net subscriber loss. Moreover, telecom giants, such as, AT&T (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) are gradually expanding their respective pay-TV subscriber base buoyed by strong fiber-optic network.

Quarterly GAAP net income was $447.7 million or 71 cents per share compared with a net income of $446.3 million or 55 cents per share in the prior-year quarter. The third quarter of 2011 EPS of 71 cents missed the Zacks Consensus Estimate by a penny.

Quarterly total revenue increased 12.3% to $3,602.7 million from $3,207.7 million in the year-ago quarter. This was mainly due to an increase in subscriber related revenue and contribution from Blockbuster. The third-quarter 201 revenue also surpassed the Zacks Consensus Estimate of $3,582 million.

Segment wise, Subscriber related quarterly revenue was approximately $3,229.3 million, up 1.4% year over year. Equipment and merchandise sales & other revenue were $362.1 million, up 2,922% year over year. Equipment sales, services, and other revenues from EchoStar were $11.2 million, up 8.7% year over year.

Average monthly subscriber churn rate in the third quarter of 2011 was 1.83% compared with 1.98% in the year-ago quarter. Average revenue per user (ARPU) in the reported quarter was $76.99 compared with $74.36 in the prior-year quarter. Average subscriber acquisition cost in the last quarter was $789 compared with $795 in prior-year quarter.

In the third quarter of 2011, Subscriber-related expenses inched up 1.1% year over year to $1.7 billion, driven by higher programming content costs and expenses related to call center operations. Subscriber acquisition cost decreased by 11.6% year over year to $394.8 million. Depreciation and amortization expenses were $229.2 million, down 5.6% year over year.

General and administrative expenses grew 146.2% year over year to $382.6 million on higher personnel costs and professional fees to support the network. Quarterly operating income increased by 37.4% to $624.8 million, while operating margin rose to 17.3% from the year-ago level of 14.2%. Accordingly, the third quarter of 2011 EBITDA was $874.4 million compared with $719.8 million in the year-ago quarter.

During the first nine months of 2011, DISH Network generated $1,991.2 million of cash from operations compared with $1,534 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) in the reported period was $1,397.2 million compared with $701.7 million in the prior-year quarter.

At the end of the third quarter of 2011, DISH Network had $3,472.2 million of cash and marketable securities and $8,407.5 million of outstanding debt on its balance sheet compared with $3,062.3 million of cash and marketable securities and $6,486.1 million of outstanding debt on its balance sheet at the end of fiscal 2010.


We maintain our long-term Neutral recommendation on DISH Network. Currently, it has a short-term Zacks #3 Rank (Hold) on the stock.

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