Dish Network Sees A Mixed Bag Q4 Earnings

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Feb 25, 2015

Dish Network Corp. (DISH, Financial) reported mixed financial results for Q4 2014, with higher revenue and earnings being offset by loss of subscribers and a higher pay-TV churn rate (rate at which services are terminated) owing to the loss of programming from Twenty-First Century Fox (FOX, Financial). While Dish Network’s logged a fourth quarter net income of $409.9 million or 88 cents a share compared to the prior-year quarter’s net income of $288 million or 64 cents, earnings also surpassed the expert consensus estimate of 43 cents. Although the company reported a 4% jump in Q4 revenue to around $3,681.7 million compared to the year-ago quarter, it fell shy of the consensus estimate figure of $3,704 million.

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Revenue, earnings post robust growth

Dish Network posted a Q4 2014 operating profit of $534.9 million compared to $388.5 million in the third quarter of fiscal 2014. While the company’s operating profit for the full-year 2014 stood at $1,824.5 million, up from $1,348.2 million for the full-year 2013, it reported an adjusted EBITDA of $2,848.8 million for FY2014 compared to the previous year’s $2,804.8 million. For the 52-week period ended Dec. 31, 2014; Dish Network’s continuing operations helped the company generate $2,408.1 million in cash compared to the 2013 figure of $2,309.2 million. However, the company’s outstanding debt at the end of 2014 stood at $13,782.3 million compared to $12,596.8 million at the end of 2013.

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For the full year 2014, Dish Network reported $14.6bn in revenues and diluted EPS of $2.04 a share, up from the previous fiscal’s revenue of $13.9bn or EPS of $1.76 a share. Consensus estimates had pegged the figures at $14.66 billion for revenue and $1.59 a share for EPS.

Subscriber churn rate a worry

While Dish Network increased revenue and earnings in the fourth quarter, the company also saw a reduction in activation and addition of new pay-TV subscribers, combined with a higher churn rate for pay-TV owing to the absence of news and entertainment channels from the Fox Network on its service. The company reported a net loss of 63,000 pay-TV subscribers in the last quarter as against an addition of 8,000 subscribers in the year-ago quarter, while the number of gross additions stood at 615,000 compared to 654,000 in the prior-year. Consequently, Dish Network logged in an average monthly pay-TV subscriber churn rate of 1.59% in the last quarter, up slightly from 1.53% in the prior-year quarter, with the average revenue per subscriber moving up to $83.77 from the prior-year quarter’s $80.37. The company attributed growth in subscription revenues mainly to subscription fee increases.

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Segmentwise, Dish Network saw its subscriber-related revenues raking in $14,495.1 million in 2014, up 5.3% compared to the 2013 figure, while the company’s equipment and merchandise sales and other revenues brought in $85.8 million, down 9.5% from the last fiscal. Concurrently, revenue from equipment sales, services and other avenues from EchoStar grew 38.1% from the 2013 figure to $62.5 million in fiscal 2014. However, the company saw sluggish growth in its satellite broadband subscriber base with just 24,000 net additions in the last quarter compared to 51,000 additions in the year-ago quarter. Dish Network added just 141,000 broadband customers in the full-year 2014 against 253,000 customers added in 2013.

The company attributed the struggle to improve its subscriber base to a negative pay-TV sector on the one hand, and to the company’s own issues regarding quality of service such as not meeting installation standards, a lax approach to returning customer calls and inconsistency in reliability of its equipment on the other.

Outlook for 2015

Early 2015 saw Dish Network rolling out Sling TV, an all-new online service for video-streaming, to counter its subscription-based losses. The service,which features a slimmer channel subset, offers inexpensive streaming TV service targetted at a younger generation of TV viewers. The company also reached a new distribution agreement with Twenty-First Century Fox, putting Fox News back on Dish Network’s satellite-TV service, a move that is likely to stiffle churn-rate and add new subscribers. However, with the company coming under scrutiny over its bidding in the record sale of wireless licenses in the U.S. in January 2015, securing $3.3bn in discounts that were intended for small businesses, Dish Network would have to watch its step and recover industry reputation.

Although Dish Network did not offer a guidance for fiscal 2015, consensus estimates call for Q1 EPS of $0.44 per share in 2015 on revenues of $3.75bn. For the full-year 2015, estimates call for EPS of $1.75 per share on revenues of $15.27bn.

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Final thoughts

With Dish Network posting a healthy growth in revenue and earnings in the fourth quarter and an overall robust results for full-year 2014, experts are upbeat regarding the company’s stock. The company, which is steadily transforming itself into a premium pay-TV service provider in the U.S., recently sealed an agreement with Twenty-First Century Fox to renew its programming on the Dish Network. This, along with the company’s other efforts such as the deployment of triple-play services and greater rollout of hopper devices are steps in the right direction to grow its subscription base and ward off competition from Netflix Inc. (NFLX, Financial), Verizon Communications Inc.’s (VZ, Financial) FiOS, AT&T Inc.’s (T, Financial) U-Verse pay-TV services. Consequently, experts peg the Dish Network stock at a "buy." Dish Network’s stock prices closed at $78.31 on following the results announcement, falling within a 12-month range of $55.45 to $78.54.