DISH Network Outperforms - Analyst Blog

DISH Network Inc. (DISH) declared excellent third quarter 2010 financial results. Third quarter earnings of $245 million or 55 cents per share were much higher than the mere $81 million, or 18 cents reported in the year-ago quarter. Earnings per share (EPS) of 55 cents were also significantly above the Zacks Consensus Estimate of 41 cents.

Revenue

Total revenue increased 10.9% year over year to $3.21 billion compared with $2.89 billion in the year-ago quarter. This was mainly due to a huge increase in subscriber-related revenues. Total revenue was also above the Zacks Consensus Estimate of $3.16 billion.

In the reported quarter, DISH Network lost approximately 29,000 net subscribers, ending the quarter with approximately 14.289 million subscribers. However, even after losing subscribers, the company generated more revenues from those it retained.

During the quarter, average monthly subscriber churn rate was 1.98%, compared with 1.57% in the year-ago quarter. Average monthly revenue per subscriber (ARPU) was $74.36, compared with $69.51 in third quarter 2009.

Segment Revenue

In third quarter 2010, segment wise, Subscriber-related revenues were $3.19 billion, up 11.3% year over year. Equipment sales & other revenues were $11.9 million, down 49.2% year over year. Equipment sale (EchoStar) revenues declined 37.2% to $802 million, Transitional services and other (EchoStar) revenues were $9.52 million, up 93.3% year over year.

Expenses

Subscriber-related expenses upped 3.8% year over year to $1.68 billion, attributable to higher programming costs. Subscriber acquisition costs rose by 1.6% year over year to $446.5 million. TiVo litigation expenses were $91.1 million. General and administrative expenses declined 2.5% to $143.0 million. Operating income leaped to $454.7 million in the quarter compared with just $194.7 million in the prior-year quarter.

Cash Flow

During the first nine months of 2010, DISH Network generated $1.53 billion of cash from operations compared with $1.89 billion in the prior-year rperiod. Free cash flow (cash flow from operations less capital expenditures) in the same period was $701.7 million compared with $1,167.4 million in the prior-year period.

Balance Sheet

As of September 2010, DISH Network had $2.83 billion of cash and marketable securities and $6.23 billion of outstanding debt on its balance sheet compared with $2.31 billion of cash and marketable securities and $6.19 billion of outstanding debt on its balance sheet at the end of fiscal 2009. Debt-to-capitalization ratio was 0.41 compared with 0.44 at the end of fiscal 2009.

Share Repurchase

During the first nine months of 2010, DISH Network repurchased 6.0 million shares of its common stock for $107 million.

We maintain our Neutral recommendation on DISH Network. Currently, it is a Zacks #3 Rank (Hold) stock.