This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk10: Greetings and welcome to the ECHO Star Corporation's Q2 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dean Manson, Chief Legal Officer. Thank you, Dean. You may begin.
spk09: Thank you, and welcome to Echostar's second quarter 2024 earnings call. We will begin with opening remarks from Hamid Akhavan, President and CEO, followed by Paul Orban, EVP and Principal Financial Officer, Gary Shandman, EVP and Group President of Video Services, Paul Gasky, COO of Hughes, and John Swearinger, President of Technology, and COO. We request that any participant producing a report not identify other participants or their firm with such reports. We also do not allow audio recording, which we ask that you respect. All statements we make during this call, others than statements of historical fact, constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors They could cause our actual results to be materially different from historical results and from any future results expressed or implied by the forward-looking statement. For a list of those factors and risks, please refer to our quarterly report on Form 10Q for the quarter end of June 30, 2024, filed today, and our subsequent filings made with the SEC. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make, wherever they appear. You should carefully consider the risks. in our reports and should not place any undue reliance on any forward-looking statement. We assume no responsibility for updating any forward-looking statements. We refer to OIBDA and free cash flow during this call. The comparable gap measure and a reconciliation for OIBDA is presented in our earnings release and, in the case of free cash flow, in our 10-Q. With that, I'll turn it over to Hamid.
spk06: Thank you, Dean. Welcome, everyone. Thank you for joining us today. Through the first six months of the year, Echostar has been performing as planned. We have focused on integrating operations, advancing our 2024 plans, driving better alignment within our business units, realizing synergies, and managing costs. Our prepared remarks for today's earnings call will focus on our operating business units in the pay TV, wireless, and broadband and satellite services segments. Many of you may also be interested in hearing about our efforts to refinance our maturing debt obligation due in November and to improve our liquidity, including addressing the going concern disclosure. On that front, we continue to make progress and are in constructive discussions with counterparties, which we feel best support our objectives. The nature of these discussions requires confidentiality. While I cannot provide more detail today, we will have more to share when it's appropriate. Our operating business continued to meet or exceed our budget targets in key metrics in the second quarter. We will elaborate upon this later on the call. As we stated on the last earnings call, our operating plan achieves positive operating free cash flow for the year as we continue to drive efficiencies, optimization, and synergies that increase our profitability. After the first six months, we remain on track for meeting this key objective for the year. In addition to our operational improvements, particularly in pay TV and broadband and satellite service business units, we continually refine and enhance our offerings for both consumer and enterprise customers. We remain committed to innovation with our state-of-the-art open RAN wireless network that now serves double the number of Boost Mobile customers since last quarter at over half a million. A network coupled with Boost Mobile's pivot to a unified digital experience gives us the runway to increase our share of the wireless market. In our broadband and satellite business, we continue to march forward with our enterprise offerings and expect enterprise revenues to surpass that of our consumer revenues this year. On another positive front, this morning we received approval on Liberty Puerto Rico transaction, so that transaction will close within the next 30 days or so. While there's still a lot of work ahead for the team, we are pleased with the performance from the first half of the year and will use this positive momentum throughout the second half of 2024. With that, I will turn it over to Paul Orban for additional commentary on our Q2 numbers.
spk05: Thank you, Hamid. I will briefly touch on the going concern disclosure as a reminder, but please read the financial statements contained under 10Q to see the precise disclosure. This evaluation is a technical accounting determination that requires us to consider our current cash position and project our cash position one year from today and does not allow us to consider any new funding sources unless that financing is committed as of today. At the end of the second quarter, our cash and cash equivalents in marketable investment securities total $521 million. Roughly $2 billion of debt will be maturing this November Currently, we do not have the necessary cash on hand and projected future cash flows to fund fourth quarter operations or the November 24 debt maturity. As Hamid mentioned, we are currently working to address this with our refinancing activities in discussions with funding sources at all levels in our capital structure. As previously highlighted, our teams are focused on maintaining positive operating free cash flow as we have defined on our prior calls. We're on track to meet this goal this year, in part, by continuing to execute on our plan to remove $1 billion of operating expenses from the business, which includes merger synergies. We continue to manage all of our brands with a focus on financial discipline and a goal to onboard the highest quality subscribers. We continue to see the results of these efforts in our DISH and Boost mobile churn rates this quarter. Now let's review our financial performance for the second quarter. Revenue was over $3.95 billion in the second quarter, down 9% year-over-year, primarily due to subscriber declines across all lines of business. Orbita was $442 million, down $181 million year-over-year, driven by the ramp in operating costs per network, as we have more sites on-air, as well as decreased margins from having fewer subscribers across all brands. Free cash flow was a negative $191 million, primarily driven by cash interest of $450 million. Year over year, free cash flow was better by $360 million, driven by a decrease in capital spent per network of $565 million, which was in line with our prior guidance. This decrease in capital spend was largely offset by the $181 million decrease in EBITDA. As a reminder, we continue to expect CapEx for the year to be roughly half of what it was in 2023. With that, I'd like to turn it to Gary to discuss video services.
spk02: Thanks, Paul. On the pay TV side, we finished Q2 with approximately 8.1 million customers. Across the business, we continue to see operational efficiency gains, and our focus on engagement, customer loyalty, and subscriber quality drove substantial quarter-over-quarter and year-over-year churn improvements across both DISH and Sling, while growing ARPU by over 4%. Improved churn combined with lower variable and fixed costs achieved by our savings for growth efforts resulted in higher per sub profitability. In particular, DISH TV SAC was significantly less versus Q2 2023, and this improvement was primarily attributable to an increase in marketing efficiency per subscriber. Similar to Q1, our media sales revenue per subscriber continues to grow year over year. Our DISH connected product, which delivers programmatic advertising to our connected linear set-top box subscribers continue to roll out and scale in Q2, underpinning ARPU gains. On both platforms, significant addressable and programmatic market demand also help fuel this growth. Dish Business, our bulk sales division, has continued to experience year-over-year growth through our concerted efforts in the hospitality and senior living spaces. In the hospitality space, in particular, we increased our units by 30% compared to the same period last year, and in the quarter with a total of 1.35 million hotel rooms. In addition to our wins in hospitality, DISH business ended Q2 with over 300,000 total active units in nursing care and assisted living facilities with over 21,000 units in Q2 alone. In regards to DISH TV specifically, we finished the quarter with approximately 6.1 million subscribers with Q2 churn 12 points lower than in Q2 2023. our Q2 subscriber numbers for DISH TV were positively impacted by consistency in programming and improved product quality. We also continue to offer high-value added services to our DISH subscribers, including cross-sell offers of HughesNet and Boost Mobile. Our objective moving forward into the second half of 2024 is to more closely integrate these products, improving the customer experience and lowering collective churn. Also noteworthy is the launch of a Netflix bundle for our existing DISH subscribers, which provides those subs the ability to add Netflix to their existing Dish subscription at no additional out-of-pocket cost with a Dish commitment and watch Netflix through our Hopper platform. Regarding our Sling business, one of the industry's only profitable streaming services, we finished the quarter with approximately 2 million subscribers, a gain of 78,000 in Q2. This increase is due to our purposeful focus on acquiring high-quality, profitable subscribers despite competitive headwinds and an improved customer experience. Improvements to product performance and the continued adoption of features and services on Sling, including rewards, arcade, free DVR, and sports replay, which launched in Q1, have led to an increase in viewership and engagement, and we expect that increase in adoption to continue into the second half of 2024. I'd like to turn it over to Paul Gaske now, who will cover broadband and satellite services.
spk07: Thank you, Gary. Our broadband and satellite services segment operates in both the consumer and enterprise markets. Our consumer business under the HughesNet brand expanded subscriber acquisition on Jupiter 3. With the support of this new satellite, we've been able to increase our gross additions by roughly 14% year over year. Jupiter 3's additional capacity allows us to offer new high-speed unlimited data service plans, and at the same time upgrade existing subscribers to similar plans on Jupyter 1 and 2, thus enabling them to benefit from faster speeds and increased data allowances. We also launched the HughesNet DISH TV bundle during the quarter, allowing customers opting for both services to benefit from a bundle discount and a two-year price lock. We continue to focus on acquiring high-value customers and driving customer loyalty, And our efforts so far have reduced subscriber losses by more than 50% from Q2 of 2023. We finished this past second quarter with approximately 955,000 broadband subscribers. As Hamid mentioned in the opening, our Hughes Net Enterprise business continues to grow as we drive to acquire the majority of our revenues from the enterprise market. In our Hughes Managed LEO business, We have shipped over 5,000 of our huge manufactured user terminals based on our unique flat panel electronically steered antenna, also known as ESA technology. Feedback has been very positive and demand increased in Q2. We anticipate launching new versions of this terminal starting as early as the third quarter, and that will boost our managed LEO services business. We received significant orders across the entirety of our enterprise business during the quarter, both domestically and internationally, and continue to make progress in the in-flight communications business. In Q2, we announced a deal in partnership with PCI and Turksat to supply AJET advanced in-flight connectivity for their passengers. In addition, we continue to execute on our previously announced programs with Delta Airlines and GoGo Business Aviation. With that, I will turn it back to Hamid for an update on our wireless business.
spk06: Thank you, Paul. We had a number of positive developments for Q2, but before I jump into those, I want to comment on a few significant changes we made to the business last month. Our mid-July announcement regarding the new Boost Mobile was a result of much of the hard work completed in Q2. More than just a brand refresh, we unveiled a unified and unique prepaid and postpaid experience across the Boost Mobile website and app, new and easy to understand rate plans, a new marketing campaign, and a 30-day money-back guarantee so customers can test our state-of-the-art network risk-free. As alluded to in previous calls and as part of this overall effort to put forth a new Boost Mobile, we sunset the Boost Infinite brand and brought postpaid and prepaid together. This continuum of experiences and offerings allows us to bridge the gap between pre- and postpaid service and remove the binary nature of the mobile industry, giving customers access to more choices. Through these changes, our single brand will be a driver of profitable growth and help maximize operational efficiencies across the retail wireless business. In regard to the second quarter, we finished with approximately 7.3 million subscribers. Excluding the loss of net ACP subscribers, we added approximately 32,000 net retail wireless subscribers in the second quarter. With the loss of the government-funded ACP program in the second quarter, many providers experienced ACP subscriber losses. While we believe that ensuring Americans have access to high-speed Internet and mobile services is essential in today's world, these subscribers were not very profitable under our brands, and we have worked to transition them to cost-effective solutions where available. ACP losses account for a total decrease in our wireless subscriber business base of only 16,000 compared to the decrease of 188,000 in the same period last year, a positive sign and momentum for us to build upon. Additionally, we have seen further reductions in our churn numbers, 2.93% in Q2, compared to 4.54% during the same period last year, a reduction of 35.5%. ARPU continues to increase as we focus on higher quality subscribers, improving the customer experience, and optimizing our network. Boost mobile's customer satisfaction and the overall brand sentiment is rapidly improving, and in some studies, already exceeding some incumbents. We are encouraged by the results this quarter and overall positive trends since the beginning of the year. We strive to profitably increase our share of the post-paid market with the power of having owner's economics. While there is still work to be done in this area, as previously mentioned, We made great strides under operational and marketing efficiencies with the efforts in Q2 and look forward to seeing those efficiencies continue as our new Boost Mobile brand ramps up through the end of the year. Let me now hand the call to John to cover our network deployment progress.
spk03: Thank you, Hamid. The team has been hard at work expanding and optimizing the Boost Mobile network, which is now capable of reaching over 200 million Americans with 5G voice. and over 250 million Americans with 5G mobile broadband. As Hamid referenced earlier, we continue to add on-net customers at a high success rate when activating network compatible devices in our 5G voice markets. Our on-net customers experience pure 5G on the Boost mobile network, as well as nationwide 5G and 4G coverage via our partner networks. Acceleration of on-net traffic allows us to further optimize and improve the world's first open RAN cloud native network, including speeds and coverage. In certain key markets, our third-party benchmarking shows that we have already moved ahead of some incumbents across key network stats and customer satisfaction, which allows us to confidently highlight our new network in the market. We are seeing a competitive network experience with room to run in the back half of the year. further accelerating our transition to owner's economics. Additionally, we were the first network operator to commercially launch simultaneous 2x hublink and 4x downlink carrier aggregation for compatible devices this past quarter. This accomplishment is a further testament of our efforts to provide our customers with the most advanced wireless experience and technology available. These are all positive developments, and we are pleased with the network's progress and performance as we further position ourselves to compete with the incumbents. We have met all of our FCC milestones to date. In the next year, we have some additional milestones, specifically June 14, 2025. Our fully constructed facilities, along with our construction in process, will be sufficient to meet many of our build-out requirements over the next year. including our June 14, 2025 milestones. These facilities are for licenses comprising approximately 90% of the aggregate carrying value, including capitalized interest, for our 600 MHz, 700 MHz, H-block, and AWS4 licenses. However, for the remaining licenses that we have not yet constructed facilities sufficient to meet our build-out requirements, we will need to raise additional capital to continue our 5G network deployment. In Q2, we invested $237 million in our network deployment, which is comparable to $802 million in Q2 of 2023. Our focus continues to be on capital investments and optimizations required to have a competitive network to boost mobile customers within our existing and future 5G voice footprints. As we discussed last quarter, this is a logical progression for us as we've transitioned from an accelerated build to running and optimizing our markets with a P&L mindset. Now I'll turn it back over to Amit.
spk06: Thank you, John. In summary, liquidity is a key factor for our long-term success. Significant attention is focused on this critical area, and as I already mentioned, we are in constructive discussions with counterparties at this time. In parallel, we are continuing to expertly and diligently operate our business, develop long-term opportunities, and create value. PayTB and Hughes to date are generating operating free cash flow ahead of our expectation, and Boost Mobile has made good strides to find its footing this year. We have improved ARPU and reduced churn across both the PayTB and wireless business units, and will keep our focus on attracting and retaining high-quality subscribers. The operational momentum we have established over the first half of the year is promising and we will work to maintain and accelerate it in back half of the 2024. With that, we will open it for Q&A from the analyst community.
spk10: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Rick Prentice with Raymond James. Please proceed with your question.
spk00: Thanks. Hi, everybody.
spk01: Hi, Rick.
spk00: A couple of quick questions for me. First area, Obviously, you're in constructive discussions, but I think actually you can help us. When do you need slash want to have the cash on hand? And related to that, can you remind us how much unencumbered spectrum you have, and is that securitization market open?
spk06: Rick, good to hear from you. I will pass on the question regarding... cash to Paul, and then you'll comment on the unencumbered spectrum.
spk05: Thanks, Rick, for the question. Yeah, we're going to have sufficient cash on hand to pay all of our bills as they become due through the day before we actually have the $2 billion due. So we'd love to raise the money as soon as possible, but we have latitude to wait to basically the day beforehand if we had to.
spk00: And the unencumbered spectrum and securitization markets?
spk06: Yeah, so there are, you know, in terms of spectrum, we certainly have an ample amount of a spectrum that we have not really valued in terms of incumbency. But go ahead, Paul.
spk05: Yeah, so right now the only spectrum that is encumbered is the 600 megahertz today. There is an internal note on 3.45, but there is no third-party debt on that. So everything else is unencumbered. And we can use that to secure ties to raise capital.
spk00: Okay. And then operationally on the wireless side, help us understand what's the path to positive net ads. Obviously, you had some XACP. But more importantly, what's the path and timing to getting the retail wireless business to producing positive EBITDA?
spk06: That's not something that, Rick, we have announced. And obviously, in due time, we will be more specific about guidance in the market. That's not something we have published today. But I want to say that what we have seen, what I have seen on the first half of the year, what we have managed to achieve, it's exceeded my own expectation, candidly. I don't mean to be too bullish here about just a couple of quarters in a row. But we have made some fundamental changes in the business. You know, this business was hugely declining in terms of number of subscribers. You know, the first thing for growth is to arrest the fall, and we have managed to do that, and it has not been an accident, and I don't see that as a one-time thing. Now, let us have to the end of the year. I mean, I wanted to get through this year just to see, first of all, how the progress, our progress is in terms of getting our team focused, getting our you know, strategy sharpened, getting our execution honed before I put projections in the market. I certainly do not want to put projections in the market that I cannot stand behind. In addition, you know, this is a very exceptional year for us. I mentioned it. Other than the fact that we have a merger and the fact that we have brands that we are bringing together, we also have these financing activities that are taking a significant amount of our energy and attention and also, you know, kind of, I would say to some degree, limit our ability to participate in the market in some regards. We're just targeting the most profitable customers and some of the other segments that at the time we can afford to be in the market for. So all of that makes this a very special year. It would not be prudent for me to put a hard projection out there, but certainly I am very encouraged by what we have done so far under the circumstances and Hopefully, starting next year, we could be more specific about how our business is going to develop.
spk00: Excellent. Last one for me is, any update on 5G private networks? That was obviously a big part of the best use of the spectrum and the network you're building. Any update on how that market is starting to gel?
spk06: Yeah, that's a nascent market. Again, we have enormous hope and expectation for that market. Nothing in the immediate future, though. I mean, as you know, in enterprise sales and particularly in a brand new category where, you know, the customers and, you know, there is no precedence, you know, strong precedence in the market. It was a bunch of a business and, you know, development activities that have to go on before, you know, significant sales can be made. We already have a You know, a couple of things, you know, we saw now we had to participate in a spiral for a DOD, and I think that came through Navy, you know, contract, and it's about a $2.7 billion over 10 years. Multiple operators are there. We are there. So we see that coming in. We do have a couple of deployments that we have talked about in the past. I don't want to repeat those. You know, Wheatby Island, Hawaii, a few other places. You know, those are early signs, and we have seen success on all of those, but I'm not at the point yet that I can put a, you know, big forecast out there for it. I just want to say that with all of this AI news that is in the market, much of it may be hype, but certainly there is some truth to it. And we believe we have the network that is absolutely optimized to take advantage of that. And we have plenty of great spectrum also for that. So we like it. We like that. And we are very excited about making a business that is very significant out of that. But I want to, you know, preach a bit of patience there, not because we are not moving fast enough or able to move fast enough. It's just that the market has to develop, and that takes a bit of time.
spk00: Makes sense. Thanks, guys.
spk10: Thank you. Our next question comes from the line of David Barden with Bank of America. Please proceed with your question.
spk11: Great. Thanks for taking the question. This is Shipra. Just calling in for David right now. Just two questions, if I could. Looking at the company holistically and collateral buckets that you have left and spectrum licenses that you just touched on, what is left within the company that can still be levered? What LTV can they be levered at? And how are the current fraudulent conveyance lawsuits and other legal liabilities impacting your collateral pool and ongoing refinancing talks that you're in right now? And my next question is, The company this year reshuffled some of its assets to create new pockets of collateral to borrow against to extend the life of the equity that wasn't welcomed by existing creditors. We asked this last quarter, but with the business cash performance where it is and the maturity wall where it is right now, what are the circumstances where management's obligation shifts from trying to extend the life of the equity market cap to maximizing the recovery for the $20 billion of debt outstanding?
spk06: Thank you. Thank you. Several questions. I don't know if I'm going to be able to answer all of them, but if I don't, please repeat some of it. So I want to make sure I hit all the points. First of all, I sensed that you believe our spectrum assets are not monetizable or not able to use as collateral, and then we need to refer to other. And I want to say vehemently and strongly that that is absolutely not the case. Zero. our spectrum assets unencumbered. We can and we will use those as collateral. And the fact that we haven't done it yet is because we have not arrived, as I mentioned, we had constructive discussions. We have not reached a point that we believe that the right deals can be made. And this is a matter of negotiations, and progress is being made. No guarantees until they're done. And we certainly will use the necessary time to make sure that we make opportunities and deals that are great for our long-term success and maximize our value. We certainly focused on that. So other collateral that we could use is not relevant relative to the size of the spectrum. We have significant ability to lever our spectrum and create liquidity for many, many years and to come in a long runway. I wanted to first position that because it would make no sense for me to talk about other collateral when we have so much dry powder, per se. And there was, I think it was a question about cash position and maturities. Look, we believe that obviously we want to meet and we continue to work on meeting all of our I will not be able to say much more about it until refinancing is there. I think that there may be a misunderstanding in the market that certain lawsuits filed may prevent us from making progress. We do not believe that is the case. We have not seen any evidence of that today. that, I mean, the runway for us to make a transaction, it's really dependent on us being able to arrive at a satisfactory landing point with the parties that we are counterparties we're negotiating with. I think I used probably more words than necessary to explain the situation, but I think I anticipated some other questions related to that, and I thought this would be a good opportunity to address all of it. Did I miss any portion of your question? Please repeat that if I have.
spk11: Nope, that's great. Thank you.
spk10: Thank you. Our next question comes from the line of Sebastino Petty with JP Morgan. Please proceed with your question.
spk08: Hi, thanks for taking the question. Hamid, you sounded very positive on the retail wireless efforts. Obviously, second quarter, XACP would have been positive, and it seems as though with the Boost Mobile rebrand, that should persist. But I think last quarter you did mentioned that you anticipated retail wireless net addition to be positive for the year. Obviously, you have a little bit of ACP noise in there in the second quarter and uncertainty on that in the back half. Should we still expect that to be the case if we maybe strip out any potential ACP losses that you still feel confident in hitting that goal? And then on the wireless network, I think you mentioned that the number of subscribers served on your network had doubled quarter-on-quarter. Is that the right way to perhaps think about maybe your on-net versus off-net traffic as we're trying to think about the ability and the cost-save opportunity on a go-forward basis? Any color on that to the extent you would like to share would be great. Thank you.
spk06: Yes, two questions. I'm happy to answer both. On the net positive ads for the year, yes, absolutely. That's our expectation. That's our plan, and we are – We very much see that we are able to execute on the plan, so I don't mean bullish and positive that we're going to meet that objection. As it comes to the number of subscribers that are on net, we are really limited. The only limitation that stands in our way is the availability of compatible devices. We are adding a significant majority of the devices that are capable, unmet as they come, new devices that have come. We have ported as many compatible devices as we can port over without disrupting the customers. There's some trade-offs. There's some customers, segments of customers that have compatible devices, but those devices require, just because they're legacy, they require us to, you know, have the customer take a step or two, you know, change a SIM card or do things because they're legacy. You know, sometimes we pass those and we just accept the fact that it's better not to disrupt the customer and not bring them on net. But really, the availability of devices is there. But the traffic is scaling very nicely on net. I think that we're very happy to see that. I mean, usage, customer stat. For now, I just wanted to give you a glimpse of you know, how rapidly we put in some customers there. But I don't necessarily think that just looking at on-net customers will give you the full picture. We'll continue to give you more information about that as we go on. But overall customer base is trending nicely. The business is growing in terms of number of subs and ARPU and customer satisfaction. It's both testament, more than anything else, that's a testament to a you know, good offer, good network that we have. We have not been marketing ourselves that much, and you may have noticed that. This is just purely, primarily, you know, word of mouth in some small marketing we have done, and just the fact that we have a very loyal base of remaining customers. I think as much as you might be surprised to some, Boost has a very loyal following. People see a lot of great value, and they stay with us.
spk08: If I could ask one quick follow-up, can you give us maybe a stat on, you know, when does that device compatibility issue maybe, you know, normalize? And then one other quick question, I think in the queue, related to just your overall network spend, I think, you know, obviously, I think Paul mentioned, right, CapEx would be down year on year, but in the queue, I think it does say that as you prepare for the next build-out requirements in 25, you do expect CapEx to increase as you kind of approach those deadlines? You know, just help on maybe thinking about the phasing of CapEx here on the wireless side would be helpful. Thank you, Ian.
spk06: Great. Both of those questions are great for John. John, if you have some comments.
spk03: Thanks for the questions. It's John Swerenga. We've talked about device compatibility on earlier calls, and we're really starting to get ahead of it. So I think I've mentioned on previous calls, our Android portfolio for new devices is now essentially all compatible with with our 5G network. On the flip side, when you look at the Apple portfolio, we're really iPhone 15 and forward. And so if you look at the market, obviously there's still older iPhones out there. We don't have an opportunity right now to put those on net in our open markets. And we still have a vibrant BYOD business. And we view those activations as future leads for our network. So we're definitely getting ahead of it. Remember, just two years ago, we had one device. Now we've got well over 20, and that's climbing. And we're really on the bus now. So you'd see most devices entering the market as compatible with our network. So I think that was the first part. And the second part was on network capital and what we're doing, obviously. In our prepared remarks, we mentioned that our CapEx is down significantly compared to the same quarter last year. When you think about what the back half of the year looks like, We do have some work to do, obviously, to prepare ourselves and get ready to meet our June 2025 commitments. We're doing all the work right now that's not capital intensive to buy down timelines on those sorts of things to get ready to go. We have good plans. It's not our first rodeo. We certainly have the ability to hit the gas where needed. And some of our capital, quite frankly, is pushed in the second half of the year. pending those outcomes. And on top of that, we're really focused on making sure that the 5G voice markets we have are open, right? And we'll look to 2025 to have a good capital plan that's really focused on competition and making sure that we can compete in our 5G voice markets with Boost. Thank you, Jim. Thanks, John.
spk10: Thank you. Our next question comes from the line of Walter Pike with Light Shed. Please proceed with your question.
spk04: Thanks. I'm going to go back to the prepared comments. I think you referred to the spectrum being 90% of the carrying value. I assume that's not necessarily 90% of the total spectrum owned, just based on how you're valuing maybe city POPs versus rural POPs. can you kind of give a little bit more color on what you are funded for in terms of those build-out requirements in terms of maybe percentage of megahertz popped? Are there certain bands that you'd be willing to kind of not meet in that scenario versus other bands that are more important? And then I guess the overriding on this is in the discussion with the bondholders, is it, given that this is an underlying asset overall that's extremely important to the company, is obtaining the funding to get to 100% a critical item to coming to some resolution, at least in terms of this first maturity that you're hitting?
spk06: Thank you for the question. First of all, it's not our intention to lose any of Spectrum. So I want to be clear, we're not planning, we're not in the process of or in any way looking to dispose of any of the spectrum or relinquish the ownership of any of the spectrum? Having said that, maybe I ask Paul to comment on the 90%.
spk05: Yeah, the 90% really relates to spectrum that has a June 25 deadline. So it includes the carrying values of the spectrum that has that deadline as well as the capitalized interest on that. And so as you can imagine, most of that probably skews towards Cities and larger populations, the 90% does, and obviously the 10% is probably rural America.
spk04: Sorry, I don't understand. You're saying, I think the comments were saying you're going to hit 90%, no problem, and then you're just going to need incremental financing to get the last 10%. Did I understand the prepared comments correctly?
spk05: No, you have that correct. So right now, we believe we're going to hit 90% with where we're at.
spk04: So I guess my question is, I get 90% is carrying value. I'm saying like in terms of, is it kind of comparable to POPs own? Because it could be 90% of the value, but 50% of the POPs coverage, right? To exaggerate, obviously.
spk05: We don't disclose that, but based on the comments that I said where we're going to complete most of our large cities and so forth, you can imagine the POPs would be large.
spk06: Yeah, I mean, we don't have a precise math to share with you, but when we talk about 90% of the value, you can imagine that larger markets, all the metro and all the places where population in any way significant would be already protected.
spk04: Understood. And then you can obviously rely on the wholesale agreements for the rest, which kind of goes into the second question, which is, Do you need, I know you're talking about securitization. There's another potential way to monetize rather than using the spectrum to borrow against. It's just selling it. I understand that maybe under existing regulations that's not possible, but we have a potential administration change coming up. Do you need all of the spectrum that you currently own in order to operate on your mobile business plan?
spk06: So several assumptions and questions. I hope I can parse them each. We have more spectrum that we need to execute our business plan. In our wildest success dreams, we probably won't need all of the spectrum that we've acquired. Do we want to sell that spectrum today even if we have the opportunity to do that? No, we're not. We are looking at refinancing options and liquidity options that are that are not requiring sale of a spectrum, even if that was available today, that would not be something we potentially be working on right now. We think that there are other avenues that we're making progress on that are constructive and be moving forward. Will, in the future, be opportunities for spectrum trades? That is always the nature of the industry. You know, we don't know how the world develops. We don't know what areas of wireless we are going to further develop, whether it be fixed wireless, whether it be additional coverage, additional services. You know, that's right now not the immediate focus. The immediate focus is using the spectrum we have potentially as collateral and in a prudent way to address some liquidity issues and then certainly at The spectrum ownership is very strong right now, and you should expect that we will continue to have a strong spectrum position going forward.
spk04: Okay. And then just one last one. The language in the 10Q basically says having enough cash for future cash flows or the maturity. It's not and. So when I look at your free cash flow, especially given the asset sale that's going to be completed in the third quarter, assuming you don't have a big working capital need coming up, you should be able to have cash going into next year. So are there working capital payments that are required between now and end of year that you can highlight for us, if any?
spk05: Well, so to clarify, we don't have cash on hand or future cash flows to fund the fourth quarter operations as well as the $2 billion maturity passed November 14th.
spk04: So if you read that in there, I think you – It says or, though, meaning like I get it like if you don't have $2 billion unless it's refined, but or implies both as opposed to combined. It would otherwise be and, though.
spk05: Maybe I'm overreading that, but – I think you're overreading that. That disclosure is the same way for a couple quarters on that. But again – We have ample cash on hand to get us through the debt maturity, fund operations, as well as run the business. However, we don't have cash subsequent to the November 15th debt maturity payment.
spk06: As it comes to cash, I want to make sure everyone on the call realizes that we are fully cognizant and aware of how important it is for us to address our liquidity. And it is not a second or third or fourth priority for us But having said that, I just want to reiterate that we are focused on it. We're making progress. We're having constructive discussions. And we're not allowing it, with good judgment, we're not allowing it to impact our operating business beyond a certain level that we can't control. What I mean by that is that our team is really heavy focused on success. We're running a business for success. Would I have done a better job? Would we have done a better job in terms of ad subscribers or develop additional growth if we had access to additional cash? Yes. But are we damaging the business? Is the business opportunity getting damaged? Are opportunities being fundamentally lost because we don't have additional cash at hand? I would say absolutely not. We're not there. We focus on success and You know, we hope that with the constructive discussions we are having, all of this will be behind us, we hope. And we certainly are pulling the foundation for a very successful operating business.
spk04: Okay. Can I just give one operational one? I mean, the gross ads for wireless, you know, that seems to be the thing that, you know, you're obviously turning the trajectory in the right direction. But, you know, I guess what are the major friction items that you're an early company. Obviously everyone's got their early learnings dealing with Amazon, whatever it is. What are the major friction items that are preventing your growth ads from ramping? And what are the plans specifically, I guess, to, to get rid of that friction in order for you to get to this positive growth by the end of the year?
spk06: Well, there are a number of things that have to be developed for us to go from what the company has been, which has been a MVNO and, um, to a company that is, you know, MNO, has his own network, has probably the best network, you know, if you look at it, you know, even on earlier stages of his life that he's not even been fully optimized on the load, he's already performing better than competition in many areas. So there are many, but I can highlight just a couple of them. And none of them are fundamentally unsolvable or in any way, you know, issues that... we cannot address in due time. But let me say that, you know, first of all, our distribution is less than the competition. They have, you know, I don't know, five times more stores than we have. We will focus heavily on digital experience. The digital experience, you know, we just launched our combined prepaid and postpaid app and website. And I'll ask you to, you know, so anyone who's interested, I'll challenge you, I'll ask you to please go ahead and download our app. use our app and see if you have seen any better, whether you have seen anything better in a marketplace, and please send me feedback, and I'll take it. The other issues we have is that, you know, the phones are locked today to the other carriers, and unlocking is a very big issue for us, and I think FCC is heading in the right direction by giving customers and consumers in a market a competitive choice by asking that the carriers unlock the phones after 60 days. And we'd be very supportive of that competition. We're willing to go head on and hand to hand competing in a fair and open market, as opposed to a market that is locked to three oligarchs essentially, oligopoly, that three carriers are keeping the customers in a locked position for a market this size. That just, in the number one market in the world, I think that's just, it's not appropriate. not appropriate level of competition. So that's, to me, that is an unfair placement for both the consumers and us. I think to develop our brand is yet another one. Our brand has not been a post-paid brand, but it's been a prepaid brand in a community of other prepaid brands. We need to elevate ourselves, and you will see some of that to the second half of the year where we show up and how do we position our brand. We're going to have to fix that. So, you know, the multitude of, you know, areas to develop, every one of those, by the way, have been experienced by other companies. If you go back, look at the incumbents, if you go back 20 years, even I would say one of the incumbents was in exactly the same position, and now, you know, they're in a much better position. So there's a recipe for doing that. We're looking forward to doing all of that. But, by the way, I want to say that, you know, we have a network that is excellent and is empty. And, you know, I continue to say there is nothing more dangerous than an empty network, and we certainly intend to take advantage of the available capacity we have with the quality and the offers we have in the market. I think we have a path that we have charted for capturing proper market share.
spk04: Thank you.
spk10: Thank you. Our next question comes from the line of Jonathan Chaplin with New Street. Please proceed with your question.
spk01: Thanks. Thanks, guys. First, just a quick process question on the lawsuit. So it looks like the trustees amended the complaint. Do you have to refile a motion to dismiss? And if so, can that be sort of filed and decided on before November? And I'm wondering how the potential to get that resolved quickly may be impacting your discussions on refinancing. And then I was really curious about your comment about there being nothing more dangerous than an empty network last quarter. It sort of suggested the potential for something really disruptive on the pricing front. And the new plans that you guys launched on July 17th the pricing looked pretty similar to the pricing you had in the market already, not that disruptive. I'm wondering if there could be something more disruptive on the way.
spk06: Let me take the second piece first and then I'll pass the lawsuit to Dean or General Counsel to comment on. Look, I mentioned that not as a prediction of things to come. I certainly would not want to do that, but I just wanted to say that this is a marketplace where we do expect you know, a fair playing field. And I hope that that fair playing field is established by FCC and by, you know, the environment that we are playing in. And there's, you know, many constituents in the environment. But certainly it is not beyond the options on the table, possibilities on the table for us to, you know, provide service to consumers with a much greater value We certainly have no intention of destroying marketplace. We're not trying to do that. But I think there's plenty of room for fair competition in the marketplace. We are very measured with our approach. But we do have a network that can support a great portion of the marketplace today. And we are hoping that under fair conditions and fair, you know, rules of engagement and play that FCC and others allow us to operate in, make it available for us, that we captured a fair market share. I can't be more specific today, but you should expect that we continue to remain one of the most competitive offers in the market. We continue to provide great service, and our recognition in the marketplace will certainly really rise in the next six months. by end of the year we'll be in a better position. Hopefully next year will be a much better year for us. I know that that's somewhat of a softer answer that you expect, but you would not expect me to give you all of our strategic planning and all of our pricing and any plans we have on this call that would be inappropriate. So I hope I gave you some feel for it, but I realize it's probably not as precise as you'd like. Dean, maybe you can answer, please, the loss of question.
spk09: Sure. Hi, Jonathan. Dean here. So yeah, on your question about procedure, yes, we'll have to either file a motion to dismiss or answer that amended complaint. We don't see it as significantly changing the scope of allegations that this group of lenders is asserting. But more to the point, or to the other part of your question, we don't see the need to have that resolved before November as critical, as Hamid alluded to earlier. It's not really getting in the way of the discussions that we're having on the refinancing front. So we'll deal with the lawsuit in due course, which we're in the process of doing.
spk06: Yeah, just adding to that, not from a legal language, but from my own personal view, certainly there are multiple parties in the market that are working constructively with us to make progress and be working with them. There are each parties that we have been working with, collaborating with, has taken a different approach. Some parties have taken the approach of trying to go through a legal process and be more using their perceived legal options, and this is the group that they'll be speaking about, but that doesn't prevent the other groups who are much more constructive and they're not concerned about this to the degree that you expect.
spk09: Alicia, we'll take one more question here.
spk10: Okay. Thank you. Our next question comes from the line of Marlene Perguero with Bank of America. Please proceed with your question.
spk12: Hi. Thank you for taking the question. Just a quick one on your working capital. It looks like your trade payables increased about $85 million. So I'm just curious how, you know, one, we should think about Echo Star's working capital, you know, give us a sense of the seasonality within that. And, you know, can you continue to extend payables? Just some color on how we think about that. And also if you can provide maybe perhaps some of your larger vendors.
spk05: Yeah, this is Paul. So we won't provide our largest vendors, but, I mean, it's pretty apparent to who our biggest customers are. We continue to pay in the same pattern of practice that we have historically. The changes that you are seeing are all timing related, seasonality, when things are due and so forth. But again, we have not changed anything in how we pay people historically. It's the same pattern of practice.
spk12: Got it. And I'm sorry, in terms of any seasonality?
spk05: Yeah, it obviously depends on, there's all kinds of purchases when we're buying devices. whether it be for the 5G bill, for instance, obviously our CapEx and operating costs, the CapEx is down, so obviously your payables are going to be down from that or could fluctuate if we're buying more CapEx. Also, it depends on retail wireless, on the devices that we purchase to put in the channel and things of that sort. So there is seasonality that goes into it as well as timing of when the payments are made and so forth.
spk12: Got it. And, I mean, can you just give us a sense of where you think, you know, working capital will kind of shake out, you know, for the full year?
spk05: You know, I believe where we're at today, you'll probably see working capital get a little bit better for us as we move throughout the year. I think our inventory balances will probably end up coming down slightly, both on a retail wireless and on a pay TV side. So it gets slightly better, but I think what you see today is probably what you're going to see come year end, pretty down close to it.
spk12: Got it. Thank you. That's all I have.
spk09: Great. Thanks, everyone, for participating. That'll bring our call to a close. Alicia, do you want to give any final thoughts?
spk10: Yep, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer