DTV DTE Energy Company

DISH Network Corp. (DISH) declared mixed financial results for the first quarter of 2012. Nevertheless, the company generated huge net subscriber addition in the previous quarter buoyed by lower churn rate.

Despite facing stiff competition from DIRECTV (DTV) and other cable TV and telecom operators, in the first quarter of 2012, DISH Network gained 104,000 net subscribers compared with 58,000 subscribers in the year-ago quarter. At the end of the reported quarter, DISH Network had approximately 14.071 million subscribers.

Quarterly GAAP net income was $360.31 million or 80 cents per share compared with $549.4 million or $1.22 per share in the year-ago quarter. First-quarter 2012 EPS of 80 cents was miles ahead of the Zacks Consensus Estimate of 70 cents.

Quarterly total revenue increased 11.1% to $3,581.9 million from $3,224.1 million in the year-ago quarter. This was mainly due to an increase in subscriber related revenue and contribution from Blockbuster. However, the first quarter revenue fell below the Zacks Consensus Estimate of $3,634 million.

Segment wise, quarterly Subscriber related revenue was $3,224.5 million, up 0.8% year over year. Equipment and merchandise sales & other revenue were $350.7 million, up 2.092% year over year. Equipment sales, services, and other revenues from EchoStar were $6.7 million, down 26.2% year over year.

Average monthly subscriber churn rate in the first quarter of 2012 was 1.35% compared with 1.47% in the prior-year quarter. Average revenue per user in the reported quarter was $76.71 compared with $75.39 in the year-ago quarter. Average subscriber acquisition cost in the last quarter was $751 compared with $725 in the year-ago quarter.

In the reported quarter, Subscriber-related expenses inched up 4.1% year over year to $1,762.8 million, driven by higher programming content costs and expenses related to call center operations. Subscriber acquisition cost increased by 12.2% year over year to $3982 million. Depreciation and amortization expenses were $208.7 million, down 9.1% year over year.

General and administrative expenses grew 132.5% year over year to $376.2 million on higher personnel costs and professional fees to support the network. First-quarter 2012 operating income decreased by 41.8% to $572.4 million, while operating margin reduced to 16% from the year-ago level of 30.5%. Accordingly, quarterly EBITDA was around $891.6 million compared with $1,224.8 million in the year-ago quarter.

During the first quarter of 2012, DISH Network generated $858.6 million of cash from operations compared with $844.3 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $689.6 million compared with $611.3 million in the year-ago quarter.

 At the end of the first quarter of 2012, DISH Network had $2,814.6 million of cash and marketable securities and $7,510.4 million of outstanding debt on its balance sheet compared with $2,040.9 million of cash and marketable securities and $7,493.8 million of outstanding debt on its balance sheet at the end of 2011.

Recommendation

We maintain our long-term Neutral recommendation on DISH Network. Currently, it has a short-term Zacks #4 Rank (Sell) on the stock.

 
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