DISH Earnings: 300 Blockbuster Stores Closed; All Eyes on Clearwire

DISH Earnings: 300 Blockbuster Stores Closed; All Eyes on Clearwire
By Dish_Network.svg: DISH Network LLCderivative work: Fry1989 eh? 21:45, 2 February 2012 (UTC) (This file was derived from Dish Network.svg:) [Public domain], via Wikimedia Commons

DISH Network Corp. (NASDAQ:DISH) just reported Q4 earnings. Revenue was $37m above consensus at $3.59b.  DISH Network Corp. (NASDAQ:DISH) reported EPS of $0.46 vs consensus’ $0.50. The company started to break out broadband subs (which some like but makes it harder to reconcile versus expectations). This is a bit messier than usual aside from lack of press release.

DISH Earnings: 300 Blockbuster Stores Closed; All Eyes on Clearwire

BOTTOM LINE: ARPU was above consensus expectations, broadband sub additions were a nice positive surprise and signal higher profitability per household, and the OCF miss was primarily due to Blockbuster, which is slowly being shut down.

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Wells Fargo analysts think 2013 EBITDA estimates are ”safe.” Revenue beat due to Blockbuster, ARPU higher than Consensus. Rev. ex Blockbuster was $3.32B (+2%) in line with estitmates. Total revenue including Blockbuster (acquired 4/2011) and DBSD/ Terrestar (5/2012) was $3.56B (1.2%) vs. Consensus of $3.565B (1.9%).

Blockbuster was $270 MM vs. Wells Fargo estimates of $250MM. OCF was $694MM v. Wells Fargo estimates of $761MM: The miss came primarily from Blockbuster, whose revenue was ahead of their expectation, but expenses were $44MM higher. The good news is 300 more Blockbuster stores were closed in January, which should bring this asset back to break even. Other higher costs were subscriber acquisitions costs ($9MM) & Echostar G&A ($11MM).

Subscriber related expenses came in at 56.2% of revenue, or +7.2%/sub. Subs were not bad! This is the first quarter DISH is breaking out broadband subs with 44k net adds in Q4. Pay TV adds were 14k. Some think the broadband subs are also current video subs, which signals increased profitability per household.

Gross pay TV adds were +662K vs  +673K estimates; churn was a bit better at 1.54% Consolidated ARPU per Nomura calculations, was in line with us and above the Street’s 77.91 (+0.8%), at $78.26 (+1.2%). Pay TV SAC was $791 versus Nomura consolidated $806 (+3.4%) and the Street’s $802 (+2.9%).

Rising Cost of Growth Continues to Pressure Margins

While gross additions were flat year over year, below consensus estimates, SAC of $880 in the quarter was well above consensus estimates for $802. This 13% rise in subscriber acquisition costs was offset by the lower gross adds in the quarter, but adjusted EBITDA margins still fell 290bp year over year. The gross addition miss also led to lower-than-expected net additions. Reported EPS of $0.46 was below consensus, but included an estimated $0.06 of charges attributable to the Blockbuster UK liquidation.

Subscriber Gross Adds Miss, ARPU Slightly Better DISH Network reported 4Q subscriber ARPU of $78.26, just above consensus at $77.91. Subscriber net additions of 14k missed consensus at 44k. The driver was lower gross adds of 662k, unchanged year over year versus  consensus expectations of continued gross add growth. Churn of 1.54% met the consensus of 1.55%

Total revenue of $3.59bn was ahead of consensus of $3.57bn as better ARPU offset lower other revenue. Subscriber revenue of $3.30bn was just above  estimates of $3.29bn. Pre-SAC EBITDA margin of $1.15bn/ 31.9% was below Nomura estimates $1.18bn /32.9% estimate as higher subscriber-related expenses, potentially from the broadband initiative, weighed on profitability. Adjusted EBITDA of $715mn missed consensus expectations of  $731mn.

With FCC approval in hand for the S-Band spectrum, investors hope to hear more on the near term wireless plans for DISH Network Corp. (NASDAQ:DISH). DISH Network Corp. (NASDAQ:DISH) is closing an additional 300 Blockbuster stores in 2013, limiting a key potential retail channel; and a fifth 4G network would likely be a difficult business model. DISH Network Corp. (NASDAQ:DISH)’s 700MHz spectrum has an interim buildout requirement of June 2013, meaning decisions are likely in the short term.

Investors don’t expect much commentary on the preliminary bid for Clearwire Corporation (NASDAQ:CLWR), or the $951mn investment in what some presume is Clearwire debt securities. Operationally, investors expect to hear DISH Network Corp. (NASDAQ:DISH)’s outlook for net adds in 2013 and whether DISH Network Corp. (NASDAQ:DISH) will continue to spend heavily on subscriber acquisitions. The outlook for programming cost growth, while not specifically reported, is also something investors expect to hear about. The company is seemingly placing a renewed focus on the satellite broadband business, something investors hope to hear about on the call as well. Finally, investors hope for an update on the “Hopper” litigation with the broadcasters.

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